OMNIQ Corp. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________ to__________

Commission File Number: 001-40768

OMNIQ Corp.

(Exact name of registrant as specified in its charter)

1865 West 2100 South

Salt Lake City, UT 84119

(Address of principal executive offices) (Zip Code)

(801) 244-9577

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 10,669,489 shares of common stock, $0.001 par value, as of October 24, 2023.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMNIQ CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying unaudited notes should be read on conjunction with these unaudited condensed consolidated financial statements.

OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements.

OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

The accompanying unaudited notes should be read in conjunction with these condensed unaudited consolidated financial statements.

OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

For the nine months ended September 30,

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.

OMNIQ CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of OMNIQ Corp, and its wholly owned subsidiaries, referred to herein as “we,” “us,” “OMNIQ,” or the “Company”. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. During nine-month period ended September 30, 2023, there were no significant changes to those accounting policies.

Net Loss Per Common Share

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the nine-months ended September 30, 2023, and 2022 were 7,788,262 and 7,545,190, respectively. Diluted net loss per share of common stock is the same as basic net loss per share of common stock because the effects of potentially dilutive securities are antidilutive.

The following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share because such securities have an anti-dilutive impact due to losses reported as of:

 SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNING PER SHARE

Contract Balances

We recognize revenue once the product has been shipped. For some transactions we collect a deposit on the transaction. These deposits represent cash received under noncancelable contracts before the related product or service is transferred to the customer. We record this as a customer deposit, which is included in accounts payable and other accrued expenses on our consolidated balance sheet. Such amounts are recognized as revenue by the Company upon shipment of the product or performance of the services when the revenue recognition criteria is met and generally within one year.

The balances of customer deposits included in accounts payable and other accrued expenses as of September 30, 2023, and December 31, 2022 were approximately $573 thousand and $1 million, respectively. The amount of revenue recognized in the nine-months ended September 30, 2023, that related to the customer deposits as of December 31, 2022 was $1.2 million.

NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The following are the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue as a going concern:

These facts and others have raised concerns about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, which we have successfully accomplished to date.

The following conditions, plans and actions are currently being implemented to address the Company’s conditions:

NOTE 3 – CONCENTRATIONS

For the nine-months ended September 30, 2023 and the year ended December 31, 2022, no customers accounted for more than 10% and two customers accounted for 30%, respectively, of the Company’s consolidated revenues.

Accounts receivable at September 30, 2023 and December 31, 2022 are made up of trade receivables due from customers in the ordinary course of business. No customer accounted for more than 10% of the outstanding receivables as of September 30, 2023, or December 31, 2022.

For the nine months ended September 30, 2023 and the year ended December 31, 2022 one vendor made up 29% and 65%, respectively, of our purchases.

NOTE 4 – BUSINESS ACQUISITION

Dangot Computers Ltd

On April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase 23.0% of the capital stock, thereby making Dangot a fully owned subsidiary of the Company. The Company paid $3,518,000 to purchase the additional shares. The Company utilized its working capital and a combination of short- and long-term loans.

NOTE 5 – INVENTORY

Inventory consisted of the following as of:

SCHEDULE OF INVENTORY 

NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT

We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us with working capital.

On March 25, 2022, we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance Bank (“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal amount of advances made by BridgeBank at any time shall not exceed $8.5 million. BridgeBank reserves and withholds to 15% of the face amount of each account purchased in a reserve account.

The annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis) is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 1.5%, plus a monthly fee equal to 0.15% of the average outstanding balance. The BFA credit facility is collateralized with a senior security interest in certain assets of the Company. The BFA includes customary representations and warranties and default provisions for transactions of this type.

NOTE 7 – RELATED PARTY NOTES PAYABLE

Related party notes payable, consisted of the following as of:

 SCHEDULE OF NOTES PAYABLE, RELATED PARTIES

Note Payable -Marin

In December 2017, we entered into a $660 thousand, 1.89% annual interest rate note payable (the “Marin Note”) with two individuals from whom we previously acquired their company (in 2014). The Marin Note is payable in 60 monthly principal payments of $20 thousand beginning in October 2018. Accrued interest payable as of September 30, 2023, was $73 thousand. Accrued interest is payable at maturity.

Note Payable – Thomet

In December 2017, we entered into a $750 thousand, zero percent annual interest rate note payable (the “Thomet Note”) with an individual from whom we previously acquired his company (in 2014). The Thomet Note is payable in 60 monthly principal payments of $13 thousand beginning in October 2018.

NOTE 8 – NOTES PAYABLE

SCHEDULE OF NOTES PAYABLE 

Notes Payable Other

On July 29, 2021, the Company entered into a long-term loan from Leumi Bank totalling NIS 7 million, which at the time was approximately $2.16 million. The note accrues interest at the Israeli Prime Rate plus 4.5% which currently equals 8.25% per annum and is payable in 8 instalments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

On November 28, 2021, the Company entered into another long-term loan from Leumi Bank totalling NIS 3.5 million, which at the time was approximately $1.1 million. The note accrues interest at the Israeli Prime Rate plus 4.5% which currently equals 8.25% per annum and is payable in 8 instalments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

On August 11, 2021, the Company purchased vehicles using cash and financing of NIS 500 thousand, approximately $155 thousand, to be paid off in monthly interest and principal payments over 5 years. The loan accrues interest at 7.5% per annum and is secured by the vehicles.

On March 27, 2022, the Company entered into another long-term loan from Leumi Bank totalling NIS 3.5 million, which at the time was approximately $1.1 million. The note accrues interest at the Israeli Prime Rate plus 4.5% which currently equals 8.25% per annum and is payable in 8 instalments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

On September 13, 2022, the Company entered into a long-term loan from Hapoalim Bank totalling NIS 3 million, which at the time was approximately $0.9 million. The note accrues interest at 6.03% per annum and is payable in 36 instalments of principal and interest over 3 years.

During the year ended December 31, 2022, the Company entered into five short term loans totalling NIS 26.8 million, approximately $7.6 million. The note accrues average interest at 6.3% per annum.

On September 21, 2023, the Company entered into a long-term loan from Tzameret Mimunim totaling 1.5M NIS. The note accrues interest at the Israeli Prime Rate plus 3.5% which currently equals 9.75% per annum and is payable in 36 monthly installments.

As of September 30, 2023, the Company was not in compliance with certain financial covenants related to the Bank Leumi and Bank Hapoalim debt. The Company’s failure to comply with these financial covenants could result in an event of default under its debt agreements. Therefore, we reclassified the total balance as current debt on the balance sheet. The Company is actively pursuing options to address its noncompliance. The lenders have not requested early repayment of the loan as of the date when these financial statements were available to be issued.

NOTE 9 – OTHER LIABILITIES

SCHEDULE OF OTHER LIABILITIES 

NOTE 10 – STOCKHOLDERS’ EQUITY

PREFERRED STOCK

Series A

As of September 30, 2023, there were 2,000,000 Series A preferred shares designated and no Series A preferred shares outstanding. The board of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share of preferred to 250 common shares.

Series B

As of September 30, 2023, there was 1 preferred share designated and no preferred shares outstanding.

Series C

As of September 30, 2023, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 502,000 issued and outstanding. The Series C shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $0.06 per share per annum and have a liquidation preference of $1 per share. Series C shares outstanding are convertible into common stock at the rate of 20 preferred shares to one share of common stock. As of September 30, 2023, the accrued dividends on the Series C Preferred Stock were $174 thousand.

The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price of $30 per share for 20 consecutive trading days.

COMMON STOCK

In October 2021, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain in the employ of and attract new employees, directors, officers, consultants, advisors, and employees to the Company. Pursuant to the Plan, 1,118,856 shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for issuance. The Plan was approved by our stockholders at the December 2021, shareholders’ meeting. On February 25, 2022, the Company granted 792,500 stock options. These options were granted to employees as part of the Company’s Equity Incentive Plan. No options were issued in the nine months ended September 30, 2023.

For the nine months ending September 30, 2023, 235,426 in stock options were exercised in exchange for 158,934 shares of OMNIQ common stock. No warrants were exercised.

In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the nine months ending September 30, 2023, employees purchased 7,103 shares or $25 thousand of common stock.

On August 10, 2022, our Board of Directors approved issuing 10,000 shares as part of an employment agreement. Shares were issued January 3, 2023, and valued at $45 thousand.

NOTE 11 – LITIGATION

The Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. The Company’s intends to defend the case. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020.

The company is not a party to any other pending material legal proceeding in which it is defending against any claims of material significance. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

NOTE 12 – SUBSEQUENT EVENTS

On July 6, 2023, OmniQ Corp. (the “Company”) entered into a Share and Rights Purchase Agreement (the Agreement”) with Afcon Holdings Ltd., (“Afcon”), a company organized under the laws of the State of Israel, and Ateka Ltd. (“Ateka”), a company organized under the laws of the State of Israel (Afcon and Ateka, jointly and severally, shall be referred to together as the “Sellers”) (OminQ and its newly formed wholly owned subsidiary which shall be alternatively referred to together as the “Company” or the “Purchaser”), and Tadiran Telecom Communication Services in Israel Ltd. (“TBSI”), a company organized under the laws of the State of Israel, Tadiran Telecom Communication Services in Israel L.P. (“TBSI LP”), a limited partnership organized under the laws of the State of Israel, Tadiran Telecom Technologies (2011) Ltd. (“TTT”), a company organized under the laws of the State of Israel, Tadiran Telecom (TTL) L.P. (“TTL LP”) a limited partnership organized under the laws of the State of Israel (TBSI, TBSI LP, TTT and TTL LP shall be referred together as “TT”).

The Agreement provided for termination after 60 days if not renewed. On October 4, 2023, as a result of the non-fulfilment of certain conditions, the Company and the Sellers mutually terminated the Agreement, as a result of the termination, the Company will not make the $12,500,000 cash payment and the issuance of shares of common stock having a value of $2,750,000. Additionally, the Agreement provides for a mutual release of claims among the parties and their affiliates, in the event of an effective termination.

On October 5, 2023, OmniQ Corp. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity LLC, as representatives (the “Representatives”) of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 2,775,000 shares of the Company’s common stock, par value $0.001 per share, at a price to the public of $1.00 per share (the “Underwritten Shares”) and pre-funded warrants (the “Pre-Funded Warrants”) to purchase 225,000 shares of the Company’s common stock at a price to the public of $0.999 per Pre-Funded Warrant. Under the terms of the Underwriting Agreement, the Underwriters have agreed to purchase the Underwritten Shares from the Company at a price of $1.00 per share and the Pre-Funded Warrants at a price of $0.999 per Pre-Funded Warrant. The Company also granted the Underwriters an option exercisable for 45 days from the date of the Underwriting Agreement to purchase up to an additional 450,000 shares of common stock solely for the purpose of covering over-allotments (together with the Underwritten Shares, the “Shares”). All of the Shares and Pre-Funded Warrants in the Offering are being sold by the Company. The Company also issued warrants to the Representative (the “Representative’s Warrants”), exercisable to purchase 140,000 shares of common stock, at an exercise price of $1.25 per share.

The gross proceeds from the Offering are expected to be approximately $3.0 million before deducting underwriting discounts and commissions and other offering expenses payable by the Company and assuming no exercise of the Underwriters’ option to purchase additional shares. The Offering closed on October 11, 2023.

We are closely monitoring developments in the war between Israel and Hamas that began on October 7, 2023 including potential impacts to The Companies business, customers, suppliers, employees, and operations in Israel, the Middle East and elsewhere. At this time, impacts to The Company are uncertain and subject to change given the volatile nature of the situation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com.

Introduction

We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management and access control applications. The technology and services we provide helps our clients move people, assets and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments.

We offer end-to-end solutions that include hardware, software, communications, and full lifecycle management services. We are an established manufacturer and distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions backed by numerous customer references. We offer comprehensive packaged and configurable software, and we are a leading provider of best-in-class mobile and wireless equipment.

Our customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage, manufacturing, retail, distribution, transportation and logistics, and oil, gas, and chemicals.

The following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements contained in this Form 10-Q.

OVERVIEW

The Company’s sales from operations for the nine months ended September 30, 2023, were $66 million, a decrease of approximately $12 million, or 15%, over the nine months ended September 30, 2022.

The loss from operations for the nine months ended September 30, 2023, was $7 million, an increase of $1 million compared with the loss in the nine months ended September 30, 2022, of $6 million. Basic loss per share from continuing operations for the nine months ended September 30, 2023, was ($1.50) versus ($1.29) per share for the same period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2023, the Company had cash in the amount of $408 thousand and a working capital deficit of $43 million, compared to cash in the amount of $1.3 million, and a working capital deficit of $38 million as of December 31, 2022. The Company had stockholders’ deficit attributable to OmniQ stockholders of $19.2 million and $10.5 million as of September 30, 2023, and December 31, 2022, respectively. This increase in our stockholders’ deficit was primarily attributable to net losses.

The Company’s accumulated deficit was $96.2 million and $84.4 million as of September 30, 2023, and December 31, 2022.

The Company’s operations used net cash of $2.7 and $2 million in the nine months ended September 30, 2023, and 2022, respectively. The increase in cash used by operations of $650 thousand is due to the decrease in revenue and paying down accounts payable.

The Company’s cash provided from investing activities was $598 thousand for the nine months ended September 30, 2023, compared to cash used in investing activities of $3.9 million for the nine months ended September 30, 2022.

The Company’s financing activities provided $323 thousand of cash during the nine months ended September 30, 2023, and used $2.3 million during the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company made payments of $1 million on its notes payable, including its related party notes payable, compared to the payments of $3 million for the nine months ended September 30, 2022. Additionally, the Company borrowed $796 thousand on the Company’s line of credit during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, when $1.8 million was borrowed on the Company’s line of credit. Management is in the process of finalizing a new line of credit with an additional financial institution.

In October 2023 management finalized an equity raise which resulted in $2.5 million in net cash received from investors. See note 12 of the financial statements.

Results of Operations

The following tables set forth certain selected unaudited condensed consolidated statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.

Revenues

For the three months ended September 30, 2023 and 2022, the Company generated net revenues in the amount of $17 million and $27 million, respectively. The decrease between the three-month periods was attributable to the decrease in demand and limitations in the supply chain.

Cost of Goods Sold

For the three months ended September 30, 2023 and 2022, the Company recognized a total of $13.4 million and $21 million, respectively, of cost of goods sold. For the three months ended September 30, 2023 and 2022, cost of goods sold were 77% and 78% of net revenues, respectively.

Operating expenses

Total operating expense for the three months ended September 30, 2023 and 2022 recognized was $6.6 million and $8.6 million, respectively, representing a 23% decrease. The decreases are related to the decrease in revenue.

Research and Development – Research and development expenses for the three months ended September 30, 2023 and 2022 totaled $482 thousand and $445 thousand, respectively.

Selling, general and Administrative – Selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 totaled $5.6 million and $7.6 million, respectively, representing a 27% decrease. The decreases are related to decrease in revenue and the cost reduction plan put in place by management.

Depreciation – Depreciation expenses for the three months ended September 30, 2023 and 2022 totaled $146 thousand and $91 thousand, respectively, representing a 60% increase. The increase is attributable to the addition of fixed assets.

Intangible amortization – Intangible amortization expenses for the three months ended September 30, 2023 and 2022 totaled $418 thousand and $474 thousand, respectively.

Other income and expenses

Interest Expense – Interest expense for the three months ended September 30, 2023 totaled $898 thousand, as compared to $880 thousand for the three months ended September 30, 2022. The increase is primarily attributable to a additional in debt.

Revenues

For the nine months ended September 30, 2023 and 2022, the Company generated net revenues in the amount of $66 million and $78 million, respectively. The decrease between the nine-month periods was attributable to the decrease in demand and limitations in the supply chain

Cost of Goods Sold

For the nine months ended September 30, 2023 and 2022, the Company recognized a total of $52 million and $59 million, respectively, of cost of goods sold. For the nine months ended September 30, 2023 and 2022, cost of goods sold were 79% and 77% of net revenues, respectively.

Operating expenses

Total operating expense for the nine months ended September 30, 2023 and 2022 recognized was $21 million and $24 million, respectively, representing a 14% decrease. The decreases are related to the cost reduction plan put in place by management.

Research and Development – Research and development expenses for the nine months ended September 30, 2023 and 2022 totaled $1.5 million and $1.4 million, respectively.

Selling, general and Administrative – Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 totaled $18 million and $21 million, respectively, representing a 17% decrease. The decreases are related to the cost reduction plan put in place by management.

Depreciation – Depreciation expenses for the nine months ended September 30, 2023, and 2022 totaled $349 thousand and $241 thousand, respectively, representing a 45% increase. The increase is directly increased by the acquisition of additional fixed assets.

Intangible amortization – Intangible amortization expenses for the nine months ended September 30, 2023, and 2022 totaled $1.3 million and $1.3 million, respectively.

Other income and expenses

Interest Expense – Interest expense for the nine months ended September 30, 2023 totaled $2.6 million, as compared to $2.6 million for the nine months ended September 30, 2022.

Inflation

The Company’s results of operations have not been affected by inflation and management does not expect inflation to have a material impact on its operations in the future.

Off- Balance Sheet Arrangements

The Company currently does not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of September 30, 2023, our disclosure controls and procedures were ineffective as of the end of the period covered to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weaknesses which are indicative of many small companies with limited staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure.

During 2022, we identified material weaknesses in our internal control over financial reporting, which were disclosed in our annual report on Form 10-K filed with the SEC on March 31, 2023.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We have been implementing additional internal control procedures in order to address the material weaknesses identified in our annual report on Form 10-K filed with the SEC on March 31, 2023.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. The Company’s intends to defend the case. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

On August 8, 2023, Andrew MacMillan, a director of the Company passed away unexpectedly. The Company has named Independent Director, Guy Elhanani to replace Mr. MacMillan as a member of the Audit Committee and Compensation Committee.

On August 9, 2023, the Company received a deficiency letter from the Nasdaq Stock Market advising them that based on the Company’s Market Value of Listed Securities (“MLVS”) for the last 32 consecutive business days, the Company no longer meets the $35 million standard. The Company has 180 calendar days to regain compliance. If at anytime during this 180 day compliance period, the Company’s MLVS closes at $35 million or more for a minimum of ten consecutive business days, Nasdaq will provide you written notice of compliance and the matter will be closed. In the event that the Company does not regain compliance with the Rule prior to the expiration of the compliance period, it will receive written notification that its securities are subject to delisting. At such time, the Company may appeal the delisting determination to a Nasdaq Hearings Panel. The Company intends to put together a plan to achieve compliance.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at SEC’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.

You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov.

We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements.

Our website is located at http://www.omniq.com. The Company’s website and the information to be contained on that site, or connected to that site, is not part of or incorporated by reference into this filing.

ITEM 6. EXHIBITS

EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 13, 2023