OMNIQ Corp 10-K for FY2021
OMNIQ Corp. (OMQS)
About this 10-K
OMNIQ Corp filed this 10-K on March 31, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $78.25M
- up 41.7% from $55.21M a year earlier
- Net loss
- $13.36M
- compared with a net loss of $11.5M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
SECURITIES EXCHANGE ACT OF 1934
Commission
File Number:
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (zip code)
(Issuer’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Title of class |
Trading symbol | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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 and post such files).
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
The
aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which
the common equity was last sold or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter, June 30, 2021, was $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: shares of common stock were outstanding as of March 25, 2022.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this Annual Report on Form 10-K. These factors should not be construed as exhaustive and should be read with the other cautionary statements in this Annual Report on Form 10-K.
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 Annual Report on Form 10-K, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
| ● | risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of projects, supply chain disruptions and other impacts to the business; | |
| ● | Our ability to raise capital when needed and on acceptable terms and conditions; |
| ● | Our ability to manage credit and debt structures from vendors, debt holders and secured lenders. | |
| ● | Our ability to manage the growth of our business through internal growth and acquisitions; | |
| ● | Competitive pressures; | |
| ● | General economic conditions, including the overall effect of the current COVID19 Crisis; and | |
| ● | Our ability to attract and retain management, and to integrate and maintain technical information and management information systems. | |
| ● | compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and | |
| ● | other factors discussed under Item 1A – Risk Factors or elsewhere in this Annual Report on Form 10-K. |
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 Annual Report on Form 10-K, 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.
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PART I
ITEM 1. BUSINESS
General
OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its wholly owned and majority owned subsidiaries, referred to herein as “we,” “us,”, “our”, “OMNIQ”, or the “Company”, was incorporated in 1973. Since its incorporation, the Company has been involved in various lines of business.
Our Company
From 2008 to 2013, we were in the business of developing oil and gas reserves. In January 2014, we determined it was in the best interest of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue bases. Our strategy developed into leveraging management’s relationships in the business world for investments for us.
Since 2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing solutions:
| ● | Quest Solutions, Inc. (January 2014) | |
| ● | Bar Code Specialties, Inc. (November 2014) | |
| ● | ViascanQdata, Inc (October 2015 – later sold in September 2016) | |
| ● | HTS Image Processing, Inc. (October 2018) | |
| ● | EyepaxIT Consulting LLC. (February 2020) | |
| ● | Dangot Computers Ltd. (July 2021) |
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. We provide printing solutions, credit card terminals, automatic kiosks and point of care units. We also offer customers technical service and support. 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. Since 2014, our annual consolidated revenues have grown to more than $75 million with clients in more than 40 countries. We currently address several billion-dollar markets with double-digit growth, including the Global Safe City market, forecasted to grow to $29.6 billion by 2022, and the Ticketless Safe Parking market, forecasted to grow to $5.2 billion by 2023.
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Our Strategy
Our strategy is to focus on operational excellence and cost reduction, addressing the balance sheet debt and putting together a business plan that is based on revenue growth and technological leadership. We intend to continue to identify synergies within the Company to offer a more complete line of products, services and technological solutions to customers throughout the United States and Israel. Furthermore, the market in which OMNIQ operates is undergoing consolidation and OMNIQ has started identifying strategic companies in the data collection, big data analytics and mobile systems integration market, as well as other complementary technologies for potential future acquisition in order to become the leading specialty integrator within our served markets.
We are a provider of products and solutions to two main markets: supply chain management and smart/safe city. We have expanded our product solutions, which are based on artificial intelligence and machine learning algorithms, offering computer vision applications. Our product offerings have established us as an innovative and technological company, and we are able to offer our Fortune 1000 customers an end-to-end solution. We are a pioneer in providing cutting-edge technology solutions to the markets we serve.
As a world-wide systems integrator, we focus on design, delivery, deployment and support of fully integrated mobile and automatic identification data collection solutions. We use unique computer vision technology and additional identification technologies in its solutions. We also manufacture and distribute labels, tags, ribbons and RFID identification tags. We provide printing solutions, credit card terminals, automatic kiosks and point of care units. We also offer customers technical service and support. We take a consultative approach by offering end-to-end solutions that include software, algorithm, hardware, service contracts, communications and full lifecycle management services.
We simplify the integration process because of our experienced team of professionals. We deliver problem-solving solutions backed by numerous customer references. We offer comprehensive packaged and configurable software, some of which we developed and some is sourced from third parties. We are a leading providing of bar-code labels and ribbons (media). We provide consultative services to companies to select, design and manufacture the right label for their product offering. Once a company purchases our product, sales generally recur on a regular basis.
Our ground-breaking AI-based vision solutions are currently in use for sensitive Homeland Security anti-terror projects and automated parking solutions. Inspired by time-critical “friend or foe” decision-making processes, our patented algorithms are based on a combination of cognitive science and machine-learning-based pattern-recognition technology which is arbitrated through a multi-layered decision-making process that offers both speed and accuracy.
Our experienced team of consulting and integration professionals guide companies through the entire development and deployment process, from selecting technology, to the successful company-wide rollout of a customized solution that fits a company’s unique requirements. After performing a thorough technical evaluation of the client’s current operations and specific operational problems, our team determines the optimal hardware and software solutions to optimize the client’s operational workflow. We deliver ongoing services provided throughout the deployment process and throughout the entire product life cycle. We also deliver full installation services for all mobile data-collection computers, automatic kiosks, points of care and printing equipment including full staging and kitting of the equipment.
We have been successful in delivering mission-critical mobile-computing and data-collection solutions to Fortune 1000 companies for over two decades. The requirements and needs of our customers continue to evolve as they require new mobile and wireless technologies and services to make their business more competitive and profitable. The result is a continuous flow of opportunities for us to assist customers to evaluate, choose, implement, and support the right mobile and data collection solutions. As we focus on what we do best, we believe that there is more than adequate market size, growth, and opportunity available to the Company to succeed.
Core to the solutions offered by the Company is a full suite of configurable packaged software solutions that were internally developed and provide customers with unique solutions with significant business Return on Investment (“ROI”), including:
Order Entry: Software designed to increase productivity in the field. Remote workers increasingly demand rapid access to real-time information and up-to-date data to facilitate and streamline their job functions in the field—our Order Entry Software is the answer.
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Intelligent Order Entry: Adds intelligence to aging order entry system to maximize profits. The hand-held industry is a vital link in getting remote orders from the field to corporate. Our Intelligent Order Entry Software adds this capability to aging order entry systems.
iTrack: Track Device Deployment. iTrack, an Internet Tracking System, is a management tool that tracks the deployment of hardware devices in the field and their repair history.
Warehouse: Enhances efficiency in distribution and manufacturing environments. The warehouse is a collection of applications for portable devices that extend the power of your existing system out to the warehouse floor and dock doors.
Proof of Delivery: Enhances document delivery performance. We offer proof-of-delivery capabilities as part of its Mobility Suite that gives companies an edge over competitors by improving customer service.
WTMiP: Extends business beyond four walls. WTMiP provides the link between corporate and the mobile worker. WTMiP servers allow files and data to seamlessly synchronize between the corporate host and laptops, handheld devices, and Windows CE or Windows Mobile devices.
Easy Order: Easy order on-line purchasing portal. Our Easy Order Solution offers companies a customized portal that streamlines and simplifies ordering by providing clients with their own unique private on-line store.
QTSaaS (Quest Total Solutions as a Service): QTSaaS is a complete mobile services offering that includes hardware, software, services, and wireless data in a bundled subscription payment offering over a period of time. Our partnership with Hyperion Partners LLC and wireless carriers allows us to offer mobility solutions to our customers on platforms that extend the market into new mobile applications that previously were not being automated.
Media and Label Business: Repeatable easy order online purchasing portal. The largest segment of data collection opportunity for us is the barcode label market providing ongoing and repeatable purchasing business. We intend to continue in the label business in the United States of America to drive business growth and increased margins.
Our Target Markets
Two markets we serve are Smart/Safe City and Supply Chain Management. Our ground breaking AI-based vision solutions are currently in use for sensitive Homeland Security anti-terror projects and discerning customers within the access control, airport, border crossing, municipality safety, and parking industries. We seek to utilize our expertise and end-to-end software solutions in markets which provide the greatest opportunity to increase margins.
Within the Supply Chain Management market, we believe we can further develop our existing customer base needing to replace their legacy systems with a new go-to-market strategy leveraging our field sales and system resources, telemarketing, customer portals, and vertical market and barcode label specialists. We believe the ideal candidates for our machine learning technology are our base of industry-leading customers for the barcode label and ribbon (media) products in the manufacturing, distribution, transportation and logistics, retail and healthcare sectors—which sectors are at the core of our business.
For over two decades, we have been successful in integrating mission critical mobile computing and data collection solutions for Fortune 1000 companies. The requirements and needs of our customers continue to evolve as they require new mobile and wireless technologies and services to make their business more competitive and profitable. The result is a continuous flow of opportunities to assist customers to evaluate, choose, implement, and support the right mobile and data collection solutions. As we focus on what we do best, we believe there is more than adequate market size, growth, and opportunity available for us to succeed.
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We believe integrating our patented and proprietary AI technology into its existing Supply Chain offerings will allow for automated logistics monitoring and optimization, creating operational efficiencies at higher margins for both us, and our Fortune 1000 clients.
Our Sales Strategy
Our direct sales teams are supported by systems engineers averaging over twenty (20) years of experience in the mobile industry. The sales organization’s growth in-reach mirrors the addition of new products and services. Sales team members are organized by industry areas of opportunity, areas of expertise, and territory. Our sales teams are organized to address national accounts offering a broad array of unique solutions for key lines of business applications, which provides opportunities for upsell and cross sell to our clients. For the barcode label (media) business, we utilize a specialty sales force, resellers, and distributors of our manufactured private label products. For the Israeli market we have direct sales teams that are organized by industry and product line. In Israel we also offer comprehensive technical service and support which increases customer confidence and supports the sales process.
Salespeople are supported internally by sales support personnel, who coordinate quotes and logistics, and by members of the systems engineering group and software teams.
The normal sales cycle is one (1) to six (6) months, and typically involves the development of a scope of work and preparation of a ROI analysis. We use Company developed analysis templates in order to reduce the sales cycle. The analyses and proposals include information on leasing and other financing options, which helps differentiate us from our competitors. The label business sales cycles are shorter, with purchases made more frequently on a transactional basis.
Competition
The mobile system integration market is characterized by a limited number of large competitors and numerous smaller niche players. We typically pursue larger accounts and national customers, competing most often with larger channel partners. For specific solutions, we also compete with niche players who are often focused on a single industry. Hardware sales are competitive because of online retailers. We believe our consultative, integrated solutions approach is a clear differentiator for most prospective customers.
Human Capital
OMNIQ’s operating philosophy is our growth and continued success are the result of management and employees working together in a spirit of cooperation and teamwork. Our core values emphasize an environment where safety, diversity, inclusion, talent development, training, and retention are top priorities. This has enabled us to meet various challenges over the years. The progress that has been achieved by us reflects this strong mutual commitment between the Company and its employees. We believe our employees are our greatest asset. We remain focused on furnishing friendly and safe working conditions, providing competitive pay, offering quality benefits, and producing revenue for the continued growth of the Company and the communities in which we operate. All of this with an emphasis on the welfare of our employees and their families. We realize our success is a direct result of the hard work and dedication of our employees. Each employee at OMNIQ is a contributing partner in our future growth and we strive to maintain a mutually beneficial workplace culture that also fosters the professional development of each employee.
As of December 31, 2021, we had approximately 193 employees. Of these employees, 174 are salaried (including commissioned employees) personnel and 19 are hourly personnel. Our employees perform the following functions: sales operations, parts operations, technical services, and office and administrative support. We believe we have good relations with our employees, and we have never experienced a work stoppage. Generally, the total number of employees does not significantly fluctuate throughout the year.
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Concentrations
For the years ended December 31, 2021 and 2020, two customers accounted for 23% and one customer accounted for 37.2%, respectively, of the Company’s consolidated revenues.
Accounts receivables are made up of trade receivables due from customers in the ordinary course of business. One customer made up 17% of the accounts receivable balance as of December 31, 2021, and 46% of the balance of accounts receivable as of December 31, 2020.
As of December 31, 2021 and 2020 one vendor made up 65% and 70%, respectively, of our purchases.
Available Information
OMNIQ’s website, www.omniq.com, and the information contained on that site, or connected to that site, are not part of or incorporated by reference into this filing.
We file electronically with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of these reports, proxy and information statements and other information may be obtained by electronic request at the following e-mail address: publicinfo@sec.gov. We use the Investor section of our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor section of our website, in addition to following press releases, SEC filings, and public conference calls and webcasts.
ITEM 1A. RISK FACTORS
This section is not required for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
This section is not required for smaller reporting companies.
ITEM 2. PROPERTIES
OMNIQ’s corporate offices are currently located at 1865 West 2100 South, Salt Lake City, UT 84119. Our executive management, sales, operations, accounting, and administrative functions are located at the corporate offices. The corporate office annual lease expense is $267,576. The space is under a five-year lease and expires June 2026.
We lease office space for our software developers in Akron, Ohio. The lease provides for monthly payments of $3,000. The space is under a five-year lease and expires May 2023.
We lease office and warehouse space for our satellite sales and technical support staff in Anaheim, California. The lease is month to month and annual lease expense is $36,000.
We also lease office space for research and development employees located in Israel. The lease expense for the year ending December 31, 2021 was NIS 21,000 per month.
Dangot’s corporate offices are currently located at Yad Harutzim 14 Tel-Aviv, Israel. The main corporate office, Yad Harutzim 14, serves as the company’s main building on the 2nd and 3rd floors, used by the management and most of the sales staff, technicians, etc. The corporate office annual lease expense is NIS 765,953. The space is under a five years and eleven months lease and expires November 2024.
We lease office space (Gamdan- 1st floor) for our finance and service department at Yad harutzim 14 Tel-Aviv, Israel. The lease provides for monthly payments of NIS 22,134. The space is under a five-year lease and expires December 2023.
We lease office and warehouse space for our products and technical support staff in Hofman and Rival Street, Tel-Aviv, Israel. The lease provides for monthly payments of NIS 43,500. The space is under a six and half year lease and expires June 2025.
ITEM 3. 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 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 4. MINE SAFETY DISCLOSURES
NONE.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
In November 2019, the Company filed an amendment to its Certificate of Incorporation, as amended, with the Secretary of State of Delaware, pursuant to which we i) changed our name from Quest Solution, Inc. to OMNIQ Corp. and ii) effected a reverse split of its common stock at a ratio of one (1) for twenty (20), effective November 20, 2019 (the “Reverse Split”). All discussions of the Company’s securities, in this Annual Report Form 10k, reflect the consolidation of shares as a result of the Reverse Split.
On October 8, 2021 the Company’s common stock became available on The Nasdaq Stock Market LLC under the symbol “OMQS”. Before then, shares of OMNIQ’s common stock were not traded on an established market. OMNIQ’s common stock was traded through broker/dealers and in private transactions, and quotations reported on the OTCQB under the symbol “OMQS”. OTCQB quotations reflected interdealer prices, without mark-up, mark-down or commission and may not represent actual transactions. No dividends have been declared or paid on OMNIQ’s common stock and none are likely to be declared or paid in the near future.
| Common Stock | ||||||||
| High | Low | |||||||
| Fiscal Year Ended December 31, 2020: | ||||||||
| Fiscal Quarter Ended March 31, 2020 | $ | 5.76 | $ | 2.50 | ||||
| Fiscal Quarter Ended June 30, 2020 | $ | 7.39 | $ | 3.77 | ||||
| Fiscal Quarter Ended September 30, 2020 | $ | 7.25 | $ | 4.25 | ||||
| Fiscal Quarter Ended December 31, 2020 | $ | 6.86 | $ | 4.03 | ||||
| Fiscal Year Ended December 31, 2021: | ||||||||
| Fiscal Quarter Ended March 31, 2021 | $ | 10.25 | $ | 4.16 | ||||
| Fiscal Quarter Ended June 30, 2021 | $ | 12.00 | $ | 7.01 | ||||
| Fiscal Quarter Ended September 30, 2021 | $ | 16.00 | $ | 7.10 | ||||
| Fiscal Quarter Ended December 31, 2021 | $ | 10.88 | $ | 6.01 | ||||
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,938,229 | $ | 5.91 | 1,483,856 | ||||||||
| Total | 2,963,229 | $ | 5.91 | 1,483,856 | ||||||||
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In October 2021, OMNIQ’s Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to provide long-term incentives and rewards to directors, officers, consultants, advisors and employees of the Company and its subsidiaries in order to assist the Company to attract and retain individuals with experience and/or ability on a basis competitive with industry practices and to associate the interest of these individuals with those of the Company’s shareholders by providing for the issuance of stock-based awards. The total number of shares of Common Stock authorized for issuance under the Plan is 1,118,856 shares.
In August 2020, OMNIQ’s 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, one million (1,000,000) shares of OMNIQ’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 September 2020, shareholders’ meeting. For the year ending December 31, 2020, we issued 336,146 shares ($1.6 million) to consultants and advisors for services rendered. No shares were issued in 2021
In September 2020 and pursuant to the 2020 Equity Incentive Plan, we granted options to purchase an aggregate of 745,000 shares of the Company’s common stock to certain of our employees, officers and directors. Included in the total shares granted are options to purchase 230,000 shares of its common stock to Mr. Shai Lustgarten, our Chief Executive Officer, options to purchase 40,000 shares of its common stock to Mr. Neev Nissenson, our Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to our Directors Andy MacMillan and Yaron Shalem, respectively. The remaining 305,000 granted options are for other employees and consultants. The exercise price of the options granted was $4.40 per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $4.84 per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five (5) years and the balance of the options have a term of ten (10) years.
On January 23, 2019, the Company received shareholder approval to adopt its 2018 Equity Incentive Plan.
Dividends and other Distributions
OMNIQ has never declared or paid any cash dividends on its common stock. The Company currently plans to retain future earnings to finance growth and development of its business and does not anticipate paying any cash dividends in the foreseeable future. OMNIQ may incur indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although the Company has no current plans to do so. Any future determination to pay cash dividends will be at the discretion of OMNIQ’s Board of Directors. The Company’s Series C Preferred Stock pays a 6% dividend, but the Company has been unable to make such dividend payments and so those dividends are accrued quarterly. Accrued but unpaid dividends do not bear interest. Pursuant to the settlement agreements made certain shareholders in February 2018, in which over $15 million in debt was extinguished, the shares of Series C Preferred Stock issued in exchange, totaling 1,685,000 shares, will not pay and will not accrue dividends for a 24-month period, or any time prior to March 1, 2020.
At the time of acquisition of Dangot Computers Ltd certain dividend payables were owed to non-controlling interests. These liabilities were assumed by OMNIQ and during the year ended December 31, 2021 Dangot Computers Ltd paid $306 thousand to those non-controlling interests.
Recent Sales of Unregistered Securities
During 2021, the Company issued an aggregate of 2,186 shares of common stock to certain individuals as part of the Company’s Employee Stock Purchase Program valued at approximately $16 thousand.
On February 15, 2021, the Company issued 25,000 shares to Orion 4, LLC as part of a consulting agreement. The shares were valued at $188 thousand.
On May 4, 2021, the Company issued 95,424 shares as part of a series of conversion agreements with a former noteholder and preferred shareholder. The shares were valued at $859 thousand including conversion penalties.
On July 8, 2021, the Company issued 220,103 shares in connection with the acquisition of Dangot Computers. The shares were valued at approximately $2 million. See note 4.
On July 8, 2021, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors. Pursuant to the Securities Purchase Agreement, on July 8, 2021 (the Closing Date”), the Company sold an aggregate gross proceeds of $15 million of units (the “Units”) before deducting placement agent fees, consultant and legal fees and other offering expenses (the “Offering”). The per Unit purchase price was $7.00.
Each Unit is comprised of one share of the Company’s common stock, $0.001 par value per share. As a result of the Offering, the Company issued 2,142,857 shares of common Stock (the “Shares”) and warrants (the “Warrants”) to purchase 171,429 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $7.70 per Warrant Share, which Warrants are exercisable for a period of five years from the issuance date.
On October 13, 2021, the Company issued 10,127 shares as part of a series of conversion agreements with a former noteholder and preferred shareholder. The shares were valued at less than $100 thousand including conversion penalties.
During 2021, various holders exercised options and warrants resulting in the issuance of 77,677 shares valued at $436 thousand
During 2021, various holders exercised in cashless transactions options and warrants resulting in the issuance of 201,429 shares valued at $1,269 thousand
ITEM 6. SELECTED FINANCIAL DATA
Reserved.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the financial position of OMNIQ, Corp. and its consolidated subsidiaries as of December 31, 2021, and its consolidated results of operations for the year ended December 31, 2021, and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form 10-K.
The outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions we operate. Many State Governors issued temporary Executive Orders in 2020, which continue to remain effective in many states that, among other stipulations, effectively limit in-person work activities for most industries and businesses having the effect of suspending or severely curtailing operations. Many of these orders are in the process of being lifted. To date, we have not incurred any significant interruptions to our day-to-day operations or supply chain, except some of our employees have or are working remotely. In response to the COVID-19 pandemic, we proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety. These measures included the reduction of payroll costs, a reduction in capital expenditures and other discretionary spending, the elimination of most business travel and restriction of visitors to our corporate office, enhanced cleaning and disinfection procedures at our corporate office and branch locations, promotion of social distancing and the wearing of face coverings (masks) at our corporate office and branch locations, and requirements for employees to work from home where possible.
As the impact of COVID-19 became more widespread in March 2020, our sales volumes began to decline from previous years. Our total revenues for the year ended December 31, 2020, were 3.48% lower than those of the year ended December 31, 2019. COVID-19 had a more significant impact on our gross margin. Total gross margin percentage dropped 5% for the year ended December 31, 2020 compared to 2019. The timing and the extent of any continued recovery, or subsequent contraction, in our sales volumes cannot be reasonably estimated at this time. As such, the extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments, including the duration and spread of the outbreak, the impact on capital and financial markets, governmental limitations on business operations generally, and its and their impact on potential customers, employees, vendors and distribution partners, all of which cannot be reasonably predicted at this time.
The Company’s consolidated revenue for the year ended December 31, 2021 were $78.3 million, representing an increase of $23.1 million from the year ended December 31, 2020 of $55.2 million. Revenues in 2021 and 2020 are presented in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606).
Net loss attributable to common stockholders’ of OmniQ Corp was $13.4 million in 2021, an increase of $1.9 million from the 2020 loss of $11.5 million. Basic loss per share attributable to common stockholders was $2.20 for the year 2021 compared to $2.49 per share for the year 2020.
On May 3, 2021, the Company and OmniQ Technologies Ltd., a wholly owned subsidiary of the Company (“OmniQ Technologies”) entered into a share purchase agreement (the “Dangot Share Purchase Agreement”) with Mr. Haim Dangot. Pursuant to the Dangot Share Purchase Agreement, OmniQ Technologies agreed to purchase 51%, or 5,100 shares, of the capital stock of Dangot Computers Ltd., an Israel company (“Dangot”), from Dangot’s sole shareholder, Haim Dangot, for consideration equivalent to 23,740,500 NIS (New Israeli Shekel), which is equal to US $7.7 million (the “Closing Consideration”), based on the exchange rate at the date of acquisition of NIS to dollars.
The Closing Consideration was paid on July 8, 2021 in the following manner: (a) the Company issued 220,103 shares of its common stock having a share value of $2,084 thousand and (b) cash in the amount of $5,058 thousand and $600 thousand payable to owner.
Haim Dangot also granted OmniQ Technologies an irrevocable option to purchase the remaining 4,900 shares, or 49%, of Dangot’s capital stock (the “Dangot Option”) in the 12-month period following the closing date (the “Dangot Option Period”) at a share purchase price of 489,500 NIS (US $150,522 per each 1% of Dangot’s remaining shares on a fully diluted basis) which is the same valuation per share as the purchase price for the 51%. Effective October 1, 2021 the Company exercised a portion of its option and purchased an additional 26% of Dangot bringing its ownership to 77%. The Company paid $4,012,000 to purchase the additional shares. OmniQ Technologies has the right to complete the purchase of the remaining 23% of the Dangot shares on a fully diluted basis in a single exercise until the lapse of the Dangot Option Period. No other partial exercise shall be allowed.
In February 2020, OMNIQ entered in an asset purchase agreement with EyepaxIT Consulting LLC, a California limited liability company, (“Eyepax”) and its principal owners (collectively the “Sellers”), effective September 30, 2019, pursuant to which the Company purchased certain assets from the Sellers at a cash purchase price of $245,000. As additional consideration, the Company issued to the Sellers 80,000 shares of the Company’s common stock and an option to purchase 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share, subject to adjustment, which shall vest quarterly in four (4) equal installments and expire on February 28, 2023. The Company entered into an employment agreement with Mr. Lalith Caldera, a principal owner of Eyepax, agreeing to pay Mr. Caldera an annual salary of $100,000.
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In August 2020, OMNIQ adopted an Equity Incentive Plan (the “2020 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 2020 Plan, one million (1,000,000) shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for issuance. The 2020 Plan was approved by the Company’s stockholders in September 2020.
In September 2020 and pursuant to the 2020 Equity Incentive Plan, the Company granted options to purchase an aggregate of 745,000 shares of the Company’s common stock to certain of its employees, officers and directors, including options to purchase 230,000 shares of its common stock to Mr. Shai Lustgarten, the Company’s Chief Executive Officer, options to purchase 40,000 shares of its common stock to Mr. Neev Nissenson, its Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to Company Directors Andy MacMillan and Yaron Shalem, respectively. The exercise price of all of the options granted was $4.40 per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $4.84 per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five (5) years and the balance of the options have a term of ten (10) years.
In September 2020, the Company filed an amendment to its Certificate of Incorporation, as amended (the “Amendment”), with the Secretary of State of Delaware, pursuant to which the Company reduced the amount of its authorized common stock to 15,000,000 and reduced the amount of its authorized preferred stock to 5,000,000, of which 3,000,000 shares shall be designated as Series C Preferred Stock.
In October 2021, OMNIQ adopted an Equity Incentive Plan (the “2021 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 2021 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 2021 Plan was approved by the Company’s stockholders in December 2021.
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GOING CONCERN
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:
| ● | Balancing the need for operational cash with the need to add additional products | |
| ● | Timely and cost-effective development of products | |
| ● | Working capital deficit of $23 million as of December 31, 2021 | |
| ● | Accumulated deficit of $71 million as of December 31, 2021 | |
| ● | Multiple years of losses from operations | |
| ● | Multiple years of negative cash flows from operations |
These facts and others have in the past 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 by management to address the Company’s conditions:
| ● | The Company has common stock which is now traded publicly on the NASDAQ stock exchange. Accordingly, it is better able to successfully raise capital when needed. In addition, there are outstanding warrants from prior offerings that could be exercised depending upon the performance of our stock. | |
| ● | The Company raised gross proceeds of $15 million from a private placement of its common stock in July 2021. | |
| ● | The Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability, and cash flow, including positive cash flows from operations of $570 thousand since the acquisition, and is expected to help the Company as a whole to generate positive cash flows from operations for the foreseeable future. | |
| ● | The Company expects to receive financing for the acquisition of the last 23% of shares of Dangot at a loan to value rate of 85%. The company also expects that Dangot’s cashflow will be able to service the debts associated with its acquisition without the need for cash from the rest of the group. | |
| ● | The acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders (so far approx. $1.3M) in the Parking segment. Management expects the collaboration and cross sales to contribute to improved revenues and margins. | |
| ● | Management is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations. | |
| ● | Management is in the final steps of receiving a $8.5M line of credit from Western Alliance Bank. This line of credit will replace the high interest Action Capital line of Credit ($6M) and settle the ScanSource debt $2.5M. Overall the effective interest rate of the new line of credit is approx. 7% compared to 12% with Action and 10% with ScanSource. | |
| ● | As of December 31, 2021, the Company had approximately $7 million, in cash, which is sufficient cash to last 15 months at the current burn rate. According to our sensitivity analysis the Company would have to miss it’s projection by over 17% to be at risk at the end of March 2023. | |
| ● | Historical results - For over ten years, the Company’s audit opinion has contained an explanatory paragraph describing an uncertainty about the Company’s ability to continue as a going concern. The fact that the Company has a ten plus year plus history of continuing operations, in and of itself, demonstrates an ability to continue for a period of 12 months, post-issuance of each report. | |
| ● | Blue Star - The Company’s total accounts payable due to Blue Star as of December 31, 2021 was approximately $29M. Blue Star is an unsecured creditor, financing a substantial amount the Company’s supply chain demand. Blue Star continues selling to the Company with preferable credit terms. Blue Star has agreed to reduce the annual interest rate on invoices that are past due to just 5%. We anticipate, consistent with prior periods, Blue Star will continue to extend us such preferable payments terms in the foreseeable future. As an unsecured creditor of the Company, Blue Star has no incentive to force a liquidation. The Company has enjoyed a good mutual relationship for the past four years. | |
| ● | Beginning in 2022 the Company expects positive cash flow from operations. |
Management believes that the aggregate impact of these plans is to mitigate the conditions raising substantial doubt about the Company’s ability to continue as a going concern within one year after the date financial statement issuance.
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Overview – Results of Operations
The following table sets forth certain selected condensed 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.
| Years Ended December 31 | Variation | |||||||||||||||
| In thousands | 2021 | 2020 | $ | % | ||||||||||||
| Revenue | $ | 78,251 | $ | 55,209 | $ | 23,042 | 41.74 | % | ||||||||
| Cost of Goods sold | 61,582 | 44,293 | 17,289 | 39.03 | % | |||||||||||
| Gross Profit | 16,669 | 10,916 | 5,753 | 52.70 | % | |||||||||||
| Operating Expenses | 27,149 | 19,899 | 7,250 | 36.43 | % | |||||||||||
| Loss from operations | (10,480 | ) | (8,983 | ) | (1,497 | ) | 16.66 | % | ||||||||
| Net loss | (13,144 | ) | (11,504 | ) | (1,640 | ) | 14.25 | % | ||||||||
| Net (loss) per share - basic and diluted attributable to common stockholders’ of OmniQ Corp | $ | (2.20 | ) | $ | (2.49 | ) | $ | 0.29 | (11.65 | )% | ||||||
Revenues
Revenue for the years ended December 31, 2021 and 2020 were generated from the sales of hardware, service contracts, software, labels and ribbons and related services provided by the Company to its customers. For the years ended December 31, 2021 and 2020, the Company recognized $78.3 million and $55.2 million in net revenues, respectively. This represents an increase of 41.7%. The increase was due to growth in the marketplace and the acquisition of Dangot.
Cost of Goods Sold
For the years ended December 31, 2021 and 2020, the Company recognized a total of $61.5 million and $44.3 million respectively, of cost of goods sold. Cost of goods sold was 79% of net revenues for 2021 and 80% for 2020. Our gross margin percentage has remained relatively stable in an industry that is experiencing gross margin pressure.
Operating expenses
For the years ended December 31, 2021 and 2020, operating expenses were $27.1 million and $19.9 million, respectively. This represents an increase of $7.2 million, or 36.4%, which is due to a general increase in business operations, including the addition of Dangot in July 2021. The following explains in detail the change in operating expenses.
Research & Development – Research and development for the year ended December 31, 2021 totalled $1.8 million, compared to $1.8 million for the year ended December 31, 2020.
Selling, General and Administrative – Selling, General and Administrative expenses were $21.9 million for the year ended December 31, 2021, compared to $15.8 million for the year ended December 31, 2020, representing an increase of $6.1 million, or 38%. The increase was due to a general increase in business operations, including the addition of Dangot in July 2021.
Depreciation – Depreciation for the year ended December 31, 2021 were $251 thousand compared to $178 thousand for the year ended December 31, 2020. This represents an increase of $73 thousand, or 41%, attributable to growth in fixed assets.
Intangible Amortization – Intangible amortization expenses for the year ended December 31, 2021 were $3.2 million, compared to $2.1 million for the year ended December 31, 2020. This represents an increase of $1.1 million, or 52%, attributable to the acquisition of additional intangibles.
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Other income and expenses
The Company incurred $2.5 million in interest expense for the year ended December 31, 2021, compared to $2.6 million for the year ended December 31, 2020. The interest expense is comprised of interest incurred on promissory notes payable, the company’s line of credit, and vendor payables.
Foreign currency transactions
The Company has multiple subsidiaries conducting operations in Israel, therefore there were transactions denominated in currency other than US dollars for both 2021 and 2020. Foreign transaction gains and losses are reported on the consolidated statement of operations and comprehensive loss and were included in the amount of loss from comprehensive income.
Provision for income taxes
For the year ended December 31, 2021, the Company has $321 thousand of current income tax provision (US State & Local and Foreign) and $165 thousand deferred income tax benefit.
During the year ended December 31, 2020, the Company had $5 thousand in state income tax expenses for states in which the Company recently began operations and for which past net operating losses may not apply.
Net loss
The Company realized a net loss of $13.1 million for the year ended December 31, 2021, compared to a net loss from continuing operations of $11.5 million for the year ended December 31, 2020. The increased loss in 2021 is due primarily to an increase in Selling, General and Administrative expenses.
Liquidity and capital resources
As of December 31, 2021, the Company had cash in the amount of $7 million and a working capital deficit of $23 million, compared to cash in the amount of $5.1 million, and a working capital deficit of $24.8 million as of December 31, 2020. The Company had stockholders’ deficit attributable to OmniQ stockholders of $98 thousand and $5 million as of December 31, 2021 and 2020, respectively. This decrease in our stockholders’ deficit was primarily attributable to the acquisition of Dangot and the July 2021 equity raise.
The Company’s accumulated deficit was $71 million and $56.7 million as of December 31, 2021 and 2020, respectively.
The Company’s operations used net cash of $3,175 thousand and used $420 thousand the years ended December 31, 2021 and 2020, respectively. The decrease of cash from operations of $2,755 thousand is primarily a result of an increase in loss from operations.
The Company’s cash used in investing activities was $9,235 thousand for the year ended December 31, 2020 compared to cash provided by investing activities of $94 thousand for the year ended December 31, 2020.
The Company’s financing activities provided $14.5 million of cash during the year ended December 31, 2021, and used $3.4 million during the year ended December 31, 2020. During the year ended December 31, 2021, the Company made payments of $4.6 million on its notes payable, including its Supplier Secured Promissory note and related party notes payable, compared to the year ended December 31, 2020, when the Company made payments of $1 million on its notes payable, including its Supplier Secured Promissory note and related party notes payable. Additionally, the Company borrowed $1 million on the Company’s line of credit during the year ended December 31, 2021, compared to the year ended December 31, 2020, when $3.5 million was borrowed from the Company’s line of credit. In addition the company raised $13.3 million, net of fees, during the year ended December 31, 2021 compared to zero for the year ended December 31, 2020.
Off-Balance Sheet Arrangements
The Company currently does not have any off-balance sheet arrangements.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The application of many accounting principles requires us to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and they and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts first become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. See also note 2 to our consolidated financial statements for a summary of our significant accounting policies.
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Revenue Recognition.
When entering into contracts with our customers, we review the five steps outlined in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606):
| i. | Identify the contract with our customer. |
| ii. | Identify the performance obligations in the contract. |
| iii. | Determine the transaction price. |
| iv. | Allocate the transaction price to the performance obligations. And |
| v. | Evaluate the satisfaction of the performance obligations, |
We account for contracts with our customers when we have approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance, and collectability of consideration is probable.
We evaluate, in accordance with Topic 606, whether or not we meet the criteria to be a principal or an agent and record the revenue on a gross or net basis. We are considered a principal if we obtain control of any one of the following:
| i. | A good or another asset from another party that we then transfer to our customer. |
| ii. | A right to a service to be performed by another party, which gives the us the ability to direct that party to provide the service to the customer on our behalf, and |
| iii. | A good or service from another party that we then combine with other goods or services in providing the specified good or service to our customer. |
We have certain relationships with manufacturers and suppliers to sell us products or provide services. Our contracts may transfer to our customer a right to a future service or product to be provided by our manufacturer or supplier. When a specified good or service is a right to a good or service is provided by a manufacturer or supplier, we evaluate whether we control the right to the goods or services before that right is transferred to the customer rather than whether we control the underlying goods or services.
Indicators that we control the specified good or service before it is transferred to the customer (and we are therefore a principal) include, but are not limited to, the following:
| i. | We are responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service. If we are primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on our behalf. Often, we provide value added services (combining hardware, integrating hardware to software, etc.) to the products and services purchased from our manufacturers and suppliers. | |
| ii. | We have inventory risk before the specified good or service has been transferred to a customer. Our purchases of products or services from our manufactures and suppliers is evidenced by our issuing a binding purchase order contract with the negotiated terms including specifications, pricing, and delivery among other things. Our obligation for purchased products and services is mutually exclusive of our customers’ performance (failure to take acceptance, make payment, etc.) | |
| iii. | We have sole discretion in establishing our price for the specified good or service. Establishing the price our customer pays for a specified good or service may indicate we have the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. We control and set the pricing for the product or services to be provided to our customers. |
If the terms of a transaction do not indicate we are acting as a principal in the transaction, we are then considered acting as an agent and the associated revenues would be recognized on a net basis.
As principal, when (or as) we satisfy a performance obligation, we recognize revenue in the gross amount of consideration which we expect to be entitled in exchange for the specified good or service transferred. We are an agent if our performance obligation is to arrange for the provision of the specified good or service by another party. As an agent, we do not control the specified good or service provided by another party before that good or service is transferred to our customer. As an agent, when (or as) we satisfy a performance obligation, we recognize revenue in the amount of any fee or commission which we expect to be entitled in exchange for arranging for the specified goods or services to be provided by another party to our customer.
Under Topic 606, we recognize revenue (on either a gross or net basis previously discussed) only when we satisfy a performance obligation by transferring a promised good or service to our customer. A good or service is considered transferred when the customer obtains control. The standard defines control as an entity’s ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. We recognize revenue (either gross or net) once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer:
| i. | We have a right to payment for the product or service, | |
| ii. | The customer has legal title to the product, | |
| iii. | We have transferred physical possession of the product to the customer, | |
| iv. | The customer has the risk and rewards of ownership of the product, and | |
| v. | The customer has accepted the product. |
Revenue Recognition for Hardware. Revenues from sales of hardware products are recognized on a gross basis as we are acting as a principal in these transactions, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. We recognize revenue from these transactions when control has passed to the customer.
Manufacturers and suppliers, from whom we purchase hardware, often provide their warranties that only provide assurance the products and services will conform to their specifications. These assurance-type warranties are not sold separately and are not considered separate performance obligations. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and record revenue on a net basis at the point of sale.
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Revenue Recognition for Software. Sales of software licenses are generally considered a single performance obligation. When we are considered the principal, we recognize revenues on a gross basis at the point the software is delivered to and accepted by our customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect.
As explained above, we evaluate whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering:
| i. | If the software provides its original intended functionality to the customer without the updates, | |
| ii. | If the customer would ascribe a higher value to the upgrades versus the up-front deliverable, | |
| iii. | If the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and | |
| iv. | If the customer chooses to not delay or always install upgrades. |
If we determine the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation.
In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and record revenue on a net basis at the point of sale.
Revenue Recognition for Services. We provide professional services, which include project managers and consultants recommending, designing, and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or proportionally, as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and we transfer those services.
Revenues from the sale of professional and support services, provided by us, are recognized over the period the service is provided. As the customer receives the benefit of the service each month, we recognize the respective revenue on a gross basis as we are acting as a principal in the transaction. Additionally, we manage a services team that provides project support to customers that are billed on a fixed fee basis. We are acting as the principal in the transaction and recognize revenue on a gross basis based on the total number of hours incurred for the period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and best represents the transfer of control of the service to the customer.
Freight Costs. We record both the freight billed to its customers and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, we record the freight costs as cost of sales. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.
Definite-lived Intangible Assets Impairment Evaluation
The Company periodically evaluates the carrying value of definite-lived intangibles when events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded no impairment loss for definite-lived intangible assets during the years ended December 31, 2021 and 2020.
When the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate and recognizes an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset.
If the Company’s revenues or other estimated operating results are not achieved at or above our forecasted level, and the Company is unable to recover such costs through price increases, the carrying value of certain of the Company’s intangible assets may prove to be unrecoverable and we may incur impairment charges of definitive-live intangible assets.
Indefinite-lived Intangible Assets, Including Goodwill
Indefinite-lived intangible assets, including goodwill, are not amortized but are required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value. The Company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of the Company’s reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its corresponding carrying value then the Company is not required to take further action. However, if the Company concludes otherwise, then the Company must calculate the fair value of the reporting unit and compare it with its carrying amount, including Indefinite-lived intangible assets and recognize impairment equal to the difference between the carrying amount of the reporting unit and its fair value, considering the related income tax effect from any tax-deductible goodwill. The estimated fair value of the reporting unit exceeded the carrying value as of December 31, 2021 and 2020, and, therefore, no impairment has been recognized.
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Stock Based Compensation
We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period.
We record stock-based compensation expense according to the provisions of ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under the provisions of ASC Topic 718, the Company determines the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation – Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight-line basis primarily over the vesting period of the options.
Additional accounting policies can be found in Note 2 to our Audited Consolidated Financial Statements.
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Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. Our exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on balances outstanding under our Credit Facility. The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU 2020-04, is not currently estimable.
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements and footnotes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section is not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included as a separate section of this report commencing on page F-1.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure and Control Procedures
We maintain “disclosure controls and procedures”, as such terms are defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. The Company acknowledges that any controls and procedures can provide only reasonable assurances of achieving the desired control objectives.
We have carried out an evaluation as required by Rule 13a-15(d) under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedure as of December 31, 2021. Based upon their evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were not effective. Although we have determined that the existing controls and procedures are not effective, the deficiencies identified have not been deemed material to our reporting disclosures.
(b) Management’s Report on Internal Controls over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting cannot provide absolute assurance of achieving their objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on such evaluation, our CEO concluded that, as of December 31, 2021, our internal controls over financial reporting were not effective.
As a result of our evaluation, we identified a material weakness in our controls related to segregation of duties and other immaterial weaknesses in several areas of data management and documentation.
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Our management is composed of a small number of professionals resulting in a situation where limitations on segregation of duties exist. Accordingly, and as a result of the material weakness identified above, we have concluded that the control deficiencies result in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented on a timely basis by the Company’s internal controls. We continue to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by executives. In addition, we evaluate and assess our internal controls and procedures regarding our financial reporting, utilizing standards incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies in Auditing Internal Controls Over Financial Reporting as necessary on an on-going basis.
Commencing at the end of 2021, the Company engaged a professional consulting firm to help with implementing an internal process in accordance with section 404a of the Sarbanes-Oxley Act 2000 (SOX). The Company is in the process of implementing the SOX process, and is currently performing the documentation phase. The controls in the main business processes that refer to the preparation of financial statement reporting of the main Company were documented, gaps were noted, and a remediation plan was prepared. The Company is in the process of implementing the remediation plan in order for these controls to be found effective in the test phase. The Company plans on completing the documentation phase in it’s other subsidiaries that are switching to our ERP system.
While the material weakness set forth above were the result of the scale of the Company’s operations and is intrinsic to its small size, the Company believes the risk of material misstatements relative to financial reporting are minimal.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by its registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits the Company to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
NONE.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table presents information with respect to our officers and directors as of the date of this Report:
| Name and Address | Age[update] | Position(s) | ||
| Shai Lustgarten | 51 | CEO and Chairman | ||
| Neev Nissenson | 43 | Chief Financial Officer and Director | ||
| Andrew J. MacMillan | 74 | Director | ||
| Yaron Shalem | 49 | Director | ||
| Itzhak Almog | 83 | Director | ||
| Guy Elhanani | 48 | Director |
Background of our officers and directors
The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Shai S. Lustgarten, was appointed the Company’s CEO in April 2017 and served as the Company’s interim CFO from December 2018 through September 4, 2019. Mr. Lustgarten had been the Chief Executive Officer of Teamtronics, Inc. beginning June 2016. Teamtronics manufactures rugged computers and electronic equipment mainly used in the Gas and oil industry. From 2014 to 2017, Mr. Lustgarten was the Chief Executive Officer at Micronet Limited Inc., a developer and manufacturer of mobile computing platforms for integration into fleet management and mobile workforce solutions listed on the Tel Aviv Stock Exchange. From 2013 to 2014, Mr. Lustgarten served as EVP Business Development and Head of the Aerospace and defense Division of Micronet EnertecTechnologies, a technology company listed on the NASDAQ Capital Market. From 2009 to 2013 Mr. Lustgarten was VP of Sales, Marketing and CMO of TAT Technologies, a world leading supplier of electronic systems to the commercial and defense markets, from. His prior experience also includes serving as CEO of T.C.E. Aviation Ltd. in Belgium and serving from 1993 to 1997 as the assistant to the Military Attaché at the Embassy of Israel in Washington, DC. He received his Bachelor of Science degree in Business Management & Computer Science from the University of Maryland.
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Neev Nissenson became a director of the Company in April 2017 and was appointed as our CFO on September 5, 2019, effective October 10, 2019. He is an experienced entrepreneur and financial officer. In 2015, Mr. Nissenson founded Hotwine, Inc., a California based wine startup company. Since August 2016 and until October 10, 2019, Mr. Nissenson served as the Chief Financial Officer of Hypnocore, Ltd., an Israeli based startup company that develops mobile applications for sleep monitoring and therapy. From 2011 to 2015, Mr. Nissenson was the Chief Financial Officer of GMW, Inc., a high-end wine retailer from Napa, California. Before that, Mr. Nissenson served as the Vice President from 2006 to 2011 and the Chief Financial Officer from 2009 to 2011 at Phoenix International Ventures, Inc., an aerospace defense company. Mr. Nissenson was also a member of the Municipal Committee for Business from 2004 to 2007 and a member of Municipal Committee for Street Naming from 2005 to 2007 in the City of Herzliya, Israel. He is also an armored platoon commander in the Israeli Defense Forces (Reserve) Armored Corps with a rank of Captain. Mr. Nissenson graduated from Tel Aviv University in 2005 with a B.A. majoring in General History and Political Science. In 2007, he graduated from the Hebrew University with an Executive Master’s degree in Business Administration specializing in Integrative Management.
Andrew J. MacMillan became a director of the Company in April 2017. He is a corporate communications professional with 20 years of corporate communications experience in the global securities industry, plus 18 years of direct investment banking and related experience. He was a director of NTS, Inc. since December 20, 2012 and since December 27, 2012 served as the Chairman of its Nominating and Corporate Governance Committee until NTS’ sale to a private equity firm in June 2014. Since 2010, Mr. MacMillan has served as an independent management consultant providing marketing and communications advisory to clients. Prior to that from 2007 until 2010, Mr. MacMillan served as Director, Global Communications & Marketing of AXA Rosenberg, a leading equity asset management firm. Prior to that, Mr. MacMillan served in a variety of corporate communication roles including Senior Vice President of Corporate Communications & Government Affairs at Ameriprise Financial, Head of Corporate Communications (Americas) at Barclays Capital, Senior Vice President of Corporate Communications of The NASDAQ Stock Market and Director of Corporate Communications at Credit Suisse First Boston. Mr. MacMillan previously served as an investment banker, acquisition officer, and consultant directly involved with capital raising, acquisitions, and financial feasibility studies. Mr. MacMillan holds a BS in Industrial Engineering from the University of Iowa and a Masters in Business Administration from Harvard.
Yaron Shalem became a director of the Company in April 2017. He has extensive experience in financial and business management. Mr. Shalem has served as the Chief Financial Officer at Saga Monetary Technologies Limited (UK) since January 2018. Prior to that Mr. Shalem served as the Chief Financial Officer at Singulariteam VC from January 2014 till January 2018. He also worked as the Chief Financial Officer at Mobli Media Inc. from January 2014 to December 2016. Mr. Shalem’s experience also includes serving as the Chief Financial Officer of TAT Technologies Ltd., a NASDAQ listing company, from April 2008 to December 2013. Mr. Shalem is a CPA in Israel. He received his B.A. in Economy & Accounting from Tel Aviv University in 1999 and an MBA degree from Bar-Ilan University in 2004.
Mr. Elhanani, age 47, is a qualified CFO with experience leading financial strategies to facilitate a company’s growth plans. Mr. Elhanani has been the CFO and a partner of Singulariteam VC, a venture capital firm, since 2017. Mr. Elhananai has been the CFO of Sirin Labs since 2017. Sirin Labs is a multinational, high-tech company specializing in secured mobile phones. From 2015 to 2017, Mr. Elhanani was the CFO of SalesTech, an online internet technology servicing company. Mr. Elhanani has also served as the CFO of other companies, including: Micronet Ltd. (2012-2015); InterLogic Ltd. (2007-2012); and Finotec Group Inc. (2006-2007). From 2003 to 2006, Mr. Elhanani was the corporate controller of On Track Innovations Ltd. From 1999 to 2003, Mr. Elhanani was a senior auditor at Kesselman and Kesselman (PWC Israel). Mr. Elhanani was a lecturer at IVC College in Israel from 2014 to 2018 and at Hebrew University in Jerusalem from 2001 to 2003. Mr. Elhanani has also served as a board member for various companies, including: General Robotics (2017-Present); Effective Space Solutions (2017-Present); Octopus Systems (2017-Present); and Infinity AR (2017-2019). Mr. Elhanani received a B.A. in Accounting and Economics, and a Master of Business Administration, specializing in finance, from Hebrew University.
Mr Almog, age 83, has served in various management positions and board roles over the years. From May 2006 to March 2014, Mr. Almog served as an independent director and the chairman of the audit committee of NTS, Inc., an advanced communication company based in the United States. From 2002 to 2006, Mr. Almog was the executive vice president of engineering of Comverge Inc., a company based in Atlanta, Georgia, which offers solutions to electric utilities. From 1993 to 2002, Mr. Almog served as the president and CEO of Comverge Control Systems Ltd., an Israel based startup company which develops innovative solutions for electric utilities. From 1995 to 1998, Mr. Almog was an independent director of Rada Company, a high tech Israeli based company specializing in advanced systems for commercial and military aviation. From 1990 to 1993, Mr. Almog was the president and CEO of Tasco Electronic Services, Inc., a U.S. based company specializing in automatic test machines for commercial and military aviation. Prior to that, Mr. Almog served in the Israeli Navy for 32 years reaching the position of Rear Admiral. Mr. Almog received a B.A. in Modern Middle East History, and a Master of Business Administration from the Tel Aviv University.
ITEM 11. EXECUTIVE COMPENSATION
The table below shows the compensation for services in all capacities we paid during the year ended December 31, 2021 to the individuals serving as our principal executive officers during the last completed fiscal year and our other two most highly paid executive officers at the end of the last completed fiscal year (whom we refer to collectively as our “named executive officers”);
| Name and Principal Position | Year | Salary ($) |
Bonus ($) |
Stock Awards |
Option Awards |
All Other Compensation |
Total | |||||||||||||||||||||
| In thousands | ||||||||||||||||||||||||||||
| Shai Lustgarten | 2021 | 583 | - | - | - | 432 | $ | 1,015 | ||||||||||||||||||||
| Chief Executive Officer | 2020 | 523 | - | - | 1,136 | 9 | $ | 1,668 | ||||||||||||||||||||
| Neev Nissenson | 2021 | 170 | 167 | - | - | 18 | $ | 355 | ||||||||||||||||||||
| Chief Financial Officer | 2020 | 180 | - | - | 198 | - | $ | 378 | ||||||||||||||||||||
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Bonuses
Any bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s responsibilities with the Company. As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels.
Employment Contracts
In February 2020, we entered into an employment agreement with Mr. Lustgarten, the Company’s Chief Executive Officer, (the “Lustgarten Agreement”) pursuant to which Mr. Lustgarten shall continue to serve as the Company’s Chief Executive Officer. The Lustgarten Agreement has a four (4) year term and automatically renews for additional one (1) year periods unless either party elects to terminate the Lustgarten Agreement. Pursuant to the Lustgarten Agreement, the Company shall pay Mr. Lustgarten an annual base salary of $560,000. Mr. Lustgarten shall also be eligible to receive i) equity awards pursuant to the Company’s 2018 Equity Incentive Plan and the 2020 Equity Incentive Plan and ii) certain milestone bonuses as set forth in the Lustgarten Agreement. In the event Mr. Lustgarten’s employment is terminated by Mr. Lustgarten for good reason, or terminated by the Company without cause, Mr. Lustgarten shall be entitled to the greater of (i) the unpaid base salary or (ii) one (1) year’s base salary.
At the sole discretion of our Board, all officers are entitled to merit-based cash and equity bonuses.
Director Compensation
| Name | Year | Fees Earned or Paid in Cash ($) | Stock Awards | Option(1) Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation | All Other Compensation | Total | ||||||||||||||||||||||||
| In thousands | ||||||||||||||||||||||||||||||||
| Andrew MacMillan (1) | 2021 | 24 | - | - | - | - | - | 24 | ||||||||||||||||||||||||
| 2020 | - | - | 10 | - | - | - | 10 | |||||||||||||||||||||||||
| Yaron Shalem (1) | 2021 | 24 | - | - | - | - | - | 24 | ||||||||||||||||||||||||
| 2020 | 24 | - | 10 | - | - | - | 34 | |||||||||||||||||||||||||
| Guy Elhanani | 2021 | 8 | - | - | - | - | - | 8 | ||||||||||||||||||||||||
| Itzhak Almog | 2021 | 8 | - | - | - | - | - | 8 | ||||||||||||||||||||||||
| 1. | The fair value of the options awarded to Mr. MacMillan and Mr. Shalem in 2020 was determined to be $100 thousand, respectively using the Black-Scholes Option Pricing Model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends |
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The employment agreements for our named executive officers generally provide that in the event of termination of such executive’s employment for any reason, or if the executive resigns, the Company is required pay certain separation benefits, including (i) unpaid annual salary earned through the termination date; (ii) unused vacation; (iii) accrued and unpaid expenses; and (iv) other vested and accrued benefits to which he is entitled under the Company’s employee benefit plan. In the event the executive voluntarily resigns for “good reason” (as defined in each executive’s respective Employment Agreement) or the Company terminates their employment for any reason other than for cause (as defined in each executive’s respective Employment Agreement), the Company will be required to pay certain termination benefits, including (i) a lump sum payment equal to the greater of (A) unpaid annual salary through the end of the Initial Term or Renewal Term (as those terms are defined in each executive’s respective Employment Agreement) or (B) two years of annual salary and (ii) COBRA reimbursement.
CORPORATE GOVERNANCE
Board Leadership Structure and Risk Oversight
Our Board currently consists of six members,Mr. Shai Lustgarten, Mr. Neev Nissenson, Mr. Andrew J. MacMillan and Mr. Yaron Shalem, Mr. Guy Elhanani and Mr. Itzhak Almog.
One of the key functions of our Board is to provide oversight of our risk management process. Our Board administers this oversight function directly, with support from its three standing committees—the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee.
Director Independence
Pursuant to Item 407(a)(1)(ii) of Regulation S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as set forth in Rules 5000(a)(19) and 5605(a)(2) of the rules of the Nasdaq Stock Market. The Board determined that Mr. Andrew J. MacMillan, Mr. Yaron Shalem, Mr. Guy Elhanani and Mr. Itzhak Almog qualify as “independent directors” pursuant to such rules.
Meetings
Our Board of Directors met 4 times during 2021. Each member of our Board of Directors attended 100% of the total number of meetings of our Board and its committees on which he served during 2021 .
Board Committees
We have three standing committees: the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee. We believe that the members of the Audit Committee, Compensation Committee and Corporate Governance/Nominating Committee are deemed to be “independent” pursuant to the NASDAQ listing standards and applicable SEC rules. We believe that all members of our Board have been and remain qualified to serve on the committees of our Board and have the experience and knowledge to perform the duties required of the committees.
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Audit Committee
The Audit Committee consists of Mr. Yaron Shalem and Mr. Andy MacMillan, whereby Mr. Shalem is the Chairperson. Our Board has determined that Mr. Shalem qualifies as an “audit committee financial expert,” as defined under the rules of the SEC.
The primary responsibility of the Audit Committee is to oversee our financial reporting process on behalf of the Board and report the results of their activities to the Board. The Audit Committee’s responsibilities include providing assistance to the Board in fulfilling the Board’s oversight responsibility relating to:
| ● | the integrity of the Company’s financial statements and the related public reports, | |
| ● | disclosures and regulatory filings in which they appear; | |
| ● | the systems of internal control over financial reporting, operations, and legal/regulatory compliance; | |
| ● | the performance, qualifications and independence of the Company’s independent accountants; | |
| ● | the performance, qualifications and independence of the Company’s internal audit function, and | |
| ● | compliance with the Company’s ethics policies and applicable legal and regulatory requirements. |
Our Audit Committee charter is available on the “About” subpage of our website (www.omniq.com) under the link “Corporate Governance”.
Compensation Committee
The Compensation Committee consists of Mr. Andrew J. MacMillan, and Mr. Yaron Shalem. Mr. MacMillan serves as Chairperson
The Compensation Committee’s responsibilities include, among others:
| ● | approve annually the corporate goals and objectives applicable to the compensation of the Chief Executive Officer and/or President, evaluate at least annually the Chief Executive Officer’s and/or President’s performance in light of those goals and objectives, and determine and approve the Chief Executive Officer’s and/or President’s compensation level based on this evaluation; | |
| ● | review matters relating to executive succession and management development; | |
| ● | formulate, evaluate, and approve compensation for the Company’s officers; | |
| ● | formulate, evaluate, and approve cash incentives and deferred compensation plans for executives; | |
| ● | formulate, approve, and administer and, when appropriate, recommend to the Board for approval, incentive compensation plans and equity-based plans; and | |
| ● | approve employment contracts, severance agreements, change in control provisions, and other compensatory arrangements with Company executives. |
The Compensation Committee has the authority, in its sole discretion, to select, retain, and obtain the advice of a compensation consultant as necessary to assist with the execution of its duties and responsibilities.
Our Compensation Committee charter is available on the “About” subpage of our website (www.omniq.com) under the link “Corporate Governance”.
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Corporate Governance/Nominating Committee
The Corporate Governance/Nominating Committee consists of Andrew J. MacMillan, and Yaron Shalem. Andrew J. MacMillan is the Chairman.
The Corporate Governance/Nominating Committee’s responsibilities include, among others:
| ● | develop and oversee the Company’s corporate governance practices and procedures, including identifying best practices, reviewing, and recommending to the Board for approval any changes to the documents, policies, and procedures in the Company’s corporate governance framework; |
| ● | establish procedures for the director nomination and to determine the qualifications, qualities, skills, and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director; | |
| ● | identify and screen individuals qualified to become members of the Board, consistent with the above criteria, considering any director candidates recommended by the Company’s stockholders; | |
| ● | oversee a process for an annual evaluation of the Company’s Chief Executive Officer and/or President; and | |
| ● | develop and oversee a process for an annual evaluation of the Board and its committees, including a formal assessment of each individual director. |
Our Corporate Governance/Nominating Committee charter is available on the “About” subpage of our website (www.omniq.com) under the link “Corporate Governance”.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our Common Stock as of December 31, 2021: (i) by each of our directors; (ii) by each of our executive officers; (iii) by our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own 5% or more of any class of our common stock. As of December 31, 2021, there were 7,459,534 shares of our common stock outstanding.
| Name and Address of Beneficial Owner | Amount
of Beneficial Ownership | Percentage of Shares Outstanding | ||||||
| Shai Lustgarten (Chairman and CEO) (1) | 1,403,217 | 13.46 | % | |||||
| Andrew MacMillan (2) | 71,496 | .69 | % | |||||
| Yaron Shalem (6) | 71,525 | .69 | % | |||||
| Neev Nissenson (CFO) (5) | 132,289 | 1.27 | % | |||||
| All Executive Officers and Directors as a group (4 individuals) | 1,678,527 | 16.10 | % | |||||
| David Marin (3) | 127,125 | 1.22 | % | |||||
| Carlos Nissenson (4) | 969,667 | 9.30 | % | |||||
| 1. | Includes 484,050 shares issuable upon the exercise of options. Also includes (i) 746,808 shares and (ii) 33,333 shares issuable upon the exercise of warrants held by Walefar Investments Ltd., which is beneficially owned by Mr. Lustgarten. | |
| 2. | Includes 52,500 shares issuable upon the exercise of options. Also includes (i) 18,996 shares | |
| 3. | Includes 127,125 shares issuable upon the conversion of preferred stock and the exercise of warrants. The address of the shareholder is 12272 Monarch Street, Garden Grove, CA 92841. | |
| 4. | The address of the shareholder is Vasili Michailidi 9, 3206 Limassol, Cyprus. Includes 729,308 shares held by Campbeltown Consulting Ltd., which is beneficially owned by Mr. Carlos J. Nissensohn. Also includes (i) 57,026 shares. Also includes 183,333 shares underlying option and warrants. | |
| 5. | Includes 105,000 shares issuable upon exercise of options. Also includes (i) 27,289 shares | |
| 6. | Includes 52,500 shares issuable upon the exercise of options. Also includes (i) 19,025 shares |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
2020
In February 2020, OMNIQ entered into a consulting agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the Company and principal stockholder, (the “Nissensohn Agreement”) pursuant to Mr. Carlos J. Nissensohn and/or an entity under his control will provide certain consulting services to the Company. The Nissensohn Agreement has a four (4) year term and automatically renews for additional one (1) year periods unless either party elects to terminate the Nissensohn Agreement. Pursuant to the Nissensohn Agreement, we will pay Mr. Nissensohn a monthly fee of $30,000. Mr. Nissensohn shall also be eligible to receive certain milestone bonuses as set forth in the Nissensohn Agreement. Mr. Nissensohn is a principal stockholder of the Company. Mr. Carlos J. Nissensohn is the father of Neev Nissenson, our CFO and board member.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Aggregate fees billed or incurred related to the following years for professional services rendered by Haynie & Company for 2021 and 2020 were $182 thousand and $181 thousand respectively.
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In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit of a company’s financial statements included in the annual report on Form 10-K, for the review of a company’s financial statements included in the quarterly reports on Form 10-Q, and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of a company’s financial statements; “tax fees” are fees for tax compliance, tax advice, and tax planning; and “all other fees” are fees for any services not included in the first three categories.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our Audit Committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project-based services and routine consultations. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. Our Audit Committee approved all services that our independent accountants provided to us in the past two fiscal years.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) The following documents are filed under pages F-1 through F-26 and are included as part of this Form 10-K:
(a)(2) Financial statement schedules are omitted as they are not applicable.
(a)(3) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed on the attached Exhibit Index, which begins immediately following the financial statements of this Annual Report on Form 10-K.
ITEM 16. SUMMARY.
NONE.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 2022
| OMNIQ CORP. | ||
| By: | /s/ Shai Lustgarten | |
| Shai Lustgarten | ||
| Chief Executive Officer and Chairman of the Board | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Shai Lustgarten | Chairman of the Board, Chief Executive Officer | March 31, 2022 | ||
| Shai Lustgarten | ||||
| /s/ Neev Nissenson | Director, Chief Financial Officer | March 31, 2022 | ||
| Neev Nissenson | ||||
| /s/ Yaron Shalem | Director | March 31, 2022 | ||
| Yaron Shalem | ||||
| /s/ Andrew J. MacMillan | Director | March 31, 2022 | ||
| Andrew J. MacMillan | ||||
| /s/ Itzhak Almog | Director | March 31, 2022 | ||
| Itzhak Almog | ||||
| /s/ Guy Elhananai | Director | March 31, 2022 | ||
| Guy Elhanani |
| 29 |
OMNIQ CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of OMNIQ Corp
Opinion on the Financial Statements
We have audited the accompanying balance sheets of OMNIQ Corp. and Subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going Concern — Refer to Note 3 to the consolidated financial statements
As discussed in Note 3 to the financial statements, the Company has a working capital deficit and an accumulated deficit, that are negative indicators which raise doubt about their ability to continue as a going concern. The Company has concluded that positive factors including the ability of financing as indicated by the private placement during the year, the addition of a significant acquisition with positive cash flows, and the amount of cash on hand at year end are sufficient to satisfy obligations for one year from the date of this report. The Company’s analysis requires that they estimate whether these factors are sufficient to cover obligations and negate historical trends. These valuation methods require management to make significant estimates and assumptions related to projected cash flows.
We identified going concern as a critical audit matter because of the significant estimates and assumptions made by management to estimate future cash flows and the current condition that reverse negative trends. This required a high degree of auditor judgment and an increased extent of effort.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, gaining an understanding of management’s process for assessing their ability to continue as a going concern. We considered the plausibility of each factor described in management’s plan. We primarily considered the Company’s projected use of cash for the year based on funds available using historical trends and existing obligations. We also evaluated the impact of the Company’s new acquisition on the available cash in-flows also by comparing historical trends. Finally, we considered the improvements to their existing condition and availability of capital by confirming terms with their largest creditor.
Business Acquisition- Refer to Note 4 to the consolidated financial statements
As discussed in Note 4 to the consolidated financial statements, the Company acquired Dangot Computers Ltd., an Israel Company, for purchase consideration of $13,052 (in thousands). As part of the transaction, the Company acquired tangible assets, identifiable intangible assets, and goodwill. The allocation of the purchase price requires management to make significant judgement regarding the assigned value to intangible assets.
We identified the business acquisition as a critical audit matter because management’s assessment of the acquisition is highly subjective. Auditor judgment and an increased extent of effort, including the need to involve our internal valuation specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, gaining an understanding of management’s process for developing the fair value estimate. We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the evaluation. We used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology. In evaluating the Company’s assumptions, we compared them to historical results, financial information subsequent to year end, and to customer orders to be filled. Finally, we considered the inputs, sources of data used, assumptions, and estimates to determine the acquisition date fair value. We tested the mathematical accuracy of the underlying schedules used in the valuation assessment to ensure the completeness and accuracy of the reports.
| /s/
|
|
| We have served as the Company’s auditor since 2019. | |
| March 31, 2022 |
| F-2 |
OMNIQ CORP.
CONSOLIDATED BALANCE SHEETS
As of December 31,
| 31-Dec-21 | 31-Dec-20 | |||||||
| (In thousands, except share and per share data) | 2021 | 2020 | ||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property
and equipment, net of accumulated depreciation of $ | ||||||||
| Goodwill | ||||||||
| Trade
name, net of accumulated amortization of $ | ||||||||
| Customer
relationships, net of accumulated amortization of $ | ||||||||
| Other
intangibles, net of accumulated amortization of $ | ||||||||
| Right of use lease assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Line of credit | ||||||||
| Accrued payroll and sales tax | ||||||||
| Notes payable, related parties – current portion | ||||||||
| Notes payable – current portion | ||||||||
| Lease liability – current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities | ||||||||
| Notes payable, related party, less current portion | ||||||||
| Accrued interest and accrued liabilities, related party | ||||||||
| Notes payable, less current portion | ||||||||
| Lease liability | ||||||||
| Other long term liabilities | ||||||||
| Total liabilities | ||||||||
| Equity (deficit) | ||||||||
| Series A Preferred stock; $par value; shares designated, shares issued and outstanding | - | - | ||||||
| Series B Preferred stock; $par value; share designated, shares issued and outstanding | - | - | ||||||
| Series C Preferred stock; $par value; shares designated, and shares issued and outstanding, respectively | ||||||||
| Preferred Stock Value | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total OmniQ stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | - | |||||||
| TOTAL EQUITY (DEFICIT) | ( | ) | ||||||
| Total liabilities and equity (deficit) | $ | $ | ||||||
The accompanying unaudited notes to the financials should be read in conjunction with these condensed consolidated financial statements.
| F-3 |
OMNIQ CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31,
| (In thousands, except share and per share data) | 2021 | 2020 | ||||||
| Total Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other (expenses) income | ||||||||
| Total other expenses | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Current, net of deferred | ( | ) | ( | ) | ||||
| Total provision for income taxes | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interest | - | |||||||
| Net loss attributable to OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Less comprehensive loss attributable to noncontrolling interests | ( | ) | - | |||||
| Comprehensive loss attributable to OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Reconciliation of net loss to net loss after series C dividend attributable to common stockholders’ of OmniQ Corp | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Preferred stock – Series C dividend | ( | ) | ( | ) | ||||
| Net loss less series C dividend | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interest | - | |||||||
| Net loss after series C dividend attributable to common stockholders’ of OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - basic and diluted attributable to common stockholders’ of OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic | ||||||||
The accompanying notes to the financials should be read in conjunction with these financial statements.
| F-4 |
OMNIQ CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2021 and 2020
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income (Loss) | (Deficit) | |||||||||||||||||||||||||||
| Series C | Additional | Non | Accumulated Other | Total
Stockholders’ | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Controlling | Comprehensive | Equity | ||||||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Income (Loss) | (Deficit) | |||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Dividend on Class C shares | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| ESPP Stock Issuance | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Stock and warrant issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Dividend declared to non controlling interest | ||||||||||||||||||||||||||||||||||||
| Stock and warrant issuances, net of issuance costs | ||||||||||||||||||||||||||||||||||||
| Stock and warrant issuances, net of issuance costs, shares | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Stock and warrant issuance for acquisition | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Dangot Acquisition | ||||||||||||||||||||||||||||||||||||
| Exercise to purchase additional Dangot shares | ||||||||||||||||||||||||||||||||||||
| Post-acquisition adjustment | ||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Other | - | |||||||||||||||||||||||||||||||||||
| Conversion of equity | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||
| Conversion of debt | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Dangot Acquisition | ||||||||||||||||||||||||||||||||||||
| Post acquisition adjustment | ||||||||||||||||||||||||||||||||||||
| Misc Adjustment | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Balance, December 31, 2020 | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Dividend on Class C shares | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Dividend declared to non controlling interest | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| ESPP stock issuance | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Stock and warrant issued for services | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Stock and warrant issuances, net of issuance costs | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Stock and warrant issuance for Acquisition | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Dangot
acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Exercise to purchase additional Dangot shares | - | - | - | - | - | - | ( | ) | - | ( |
) | |||||||||||||||||||||||||
| Post-acquisition adjustment | - | - | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Cumulative translation adjustment | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Conversion of equity | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||
| Conversion of debt | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes to the financials should be read in conjunction with these financial statements.
| F-5 |
OMNIQ CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
| (In thousands) | 2021 | 2020 | ||||||
| Cash flows from operations | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Early extinguishment of debt | - | ( | ) | |||||
| Stock-based compensation | ||||||||
| Stock and warrant issued for services | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of ROU asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Accrued interest and accrued liabilities, related party | ( | ) | ||||||
| Accrued payroll and sales taxes payable | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred tax assets, net | - | |||||||
| Other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Payment for additional ownership in subsidiary | ( | ) | - | |||||
| Payment for acquisition, net of cash acquired | ( | ) | - | |||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of other assets | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from ESPP stock issuance | ||||||||
| Proceeds from exercise of options and warrants | - | |||||||
| Dividends paid to non-controlling interests | ( | ) | - | |||||
| Net proceeds from issuance of common stock | - | |||||||
| Payments on notes/loans payable | ( | ) | ( | ) | ||||
| Proceeds from the issuance of notes/loans payable | ||||||||
| Proceeds from draw on line of credit | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Effect of foreign exchange rates on cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Non-cash activities: | ||||||||
| Stock issued for services | $ | $ | ||||||
| Declared dividends payable | ||||||||
| Net assets acquired in business combination | ||||||||
| Purchase of PP&E with financing | ||||||||
| Debt conversion | ||||||||
| Equity Conversion | ||||||||
| Right of use asset acquired in exchange for lease liability | ||||||||
| Change in terms of accounts payable | ( | ) | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
The accompanying notes are integral to these consolidated financial statements.
| F-6 |
OMNIQ CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
NOTE 1 – NATURE OF OPERATIONS
OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its majority and wholly owned subsidiaries, referred to herein as “we,” “us,” and “our” (“OMNIQ” or the “Company”), was incorporated in 1973. Since its incorporation, the Company has been involved in various lines of business.
From 2008 and to 2013, we were in the business of developing oil and gas reserves. In January 2014, we determined it was in the best interest of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue bases. Our strategy developed into leveraging management’s relationships in the business world for investments for the Company.
Since 2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing solutions:
| ● | Quest Solutions, Inc. (January 2014) | |
| ● | Bar Code Specialties, Inc. (November 2014) | |
| ● | ViascanQdata, Inc (October 2015 – later sold in September 2016) | |
| ● | HTS Image Processing, Inc. (October 2018) | |
| ● | EyepaxIT Consulting LLC. (February 2020) | |
| ● | Dangot Computers Ltd. (July 2021) |
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.
| F-7 |
COVID-19
The outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions we operate. Many State Governors issued temporary Executive Orders in 2020, that, among other stipulations, effectively limited in-person work activities for most industries and businesses having the effect of suspending or severely curtailing operations. Many of these orders are in the process of being lifted. To date, we have not incurred any significant interruptions to our day-to-day operations or supply chain, except some of our employees have or are working remotely. In response to the COVID-19 pandemic, we proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety. These measures included the reduction of payroll costs, a reduction in capital expenditures and other discretionary spending, the elimination of most business travel and restriction of visitors to our corporate office, enhanced cleaning and disinfection procedures at our corporate office and branch locations, promotion of social distancing and the wearing of face coverings (masks) at our corporate office and branch locations, and requirements for employees to work from home where possible.
As the impact of COVID-19 became more widespread in March 2020, our sales volumes began to decline from previous years. Our total revenues for the year ended December 31, 2020, were % lower than those of the year ended December 31, 2019. COVID-19 had a more significant impact on our gross margin. Total gross margin percentage dropped % for the year ended December 31, 2020 compared to 2019. The timing and the extent of the continued recovery in our sales volumes cannot be reasonably estimated at this time. As such, the extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments, including the duration and spread of the outbreak, the impact on capital and financial markets, governmental limitations on business operations generally, and its and their impact on potential customers, employees, vendors and distribution partners, all of which cannot be reasonably predicted at this time.
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include the financial position and results of operations of OMNIQ Corp. and its wholly owned subsidiaries Quest Marketing, Inc., Quest Exchange Ltd., and HTS Image Processing, Inc., OmniQ Tech Ltd., and majority owned subsidiary Dangot Computers Ltd. collectively referred to herein as “we” or “us” or “our” or the “Company.”
All significant intercompany accounts and transactions have been eliminated in these consolidated financial statements. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.
Use of Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.
Cash and Cash Equivalents
Cash
consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid
investments with an original maturity of three months or less are considered cash equivalents. There were
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.
| F-8 |
Accounts Receivable
We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) and Accounting Standards Codification Topic 326, Credit Losses (Topic 326)., the discussions below on credit risk and our allowances for doubtful accounts address our total revenues from Topic 606 and Topic 326.
We believe concentration of credit risk, with respect to our receivables, is limited because our customer base is comprised of a number of geographically diverse customers. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Pursuant
to Topic 326 for our accounts receivables, we maintain an allowance for doubtful accounts that reflects our estimate of our expected
credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical
experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and
our own judgment as to the likelihood of ultimate payment based upon available data. We perform credit evaluations of customers and establish
credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is
somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit
losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances,
including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase
or decrease our allowance for doubtful accounts. Based on management’s evaluation, accounts receivable has a balance in the allowance
for doubtful accounts of $
Inventory
Substantially all inventory consists of raw materials and finished goods and are valued at the lower of actual cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.
Property and Equipment
Property and equipment are recorded at cost and depreciated using straight-line over the estimated useful lives. Ordinary repair and maintenance costs are included in sales, general and administrative (“SG&A”) expenses on our consolidated statements of operations. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in the statements of operations in gains from sales of property and equipment, net.
| F-9 |
We
periodically evaluate the appropriateness of remaining depreciable lives assigned to property and equipment. Leasehold improvements are
amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter.
Depreciation expense for the years ended December 31, 2021 and 2020 was $
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| Category | Estimated Useful Life | ||
Furniture and fixtures Computer equipment Office equipment Software Leasehold improvements |
|||
| Vehicles |
Fair Value of Financial Instruments
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observable inputs may result in a reclassification of assets and liabilities within the three levels of the hierarchy outlined above.
The carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
| F-10 |
Definite-lived Intangible Assets
The
Company periodically evaluates the carrying value of definite-lived intangibles when events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include,
but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes
in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. The Company
amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded
When the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate and recognizes an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset.
If the Company’s revenues or other estimated operating results are not achieved at or above our forecasted level, and the Company is unable to recover such costs through price increases, the carrying value of certain of the Company’s intangible assets may prove to be unrecoverable and we may incur impairment charges of definitive-live intangible assets.
Definite-lived
intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over
useful lives ranging from
Indefinite-lived Intangible Assets, Including Goodwill
Indefinite-lived
intangible assets, including goodwill, are not amortized but are required to be reviewed for impairment at least annually or when events
or circumstances indicate that carrying value may exceed fair value. The Company is permitted the option to first assess qualitative
factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value
of the Company’s reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and circumstances,
the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its corresponding carrying
value then the Company is not required to take further action. However, if the Company concludes otherwise, then the Company must calculate
the fair value of the reporting unit and compare it with its carrying amount, including Indefinite-lived intangible assets and recognize
impairment equal to the difference between the carrying amount of the reporting unit and its fair value, considering the related income
tax effect from any tax-deductible goodwill. The estimated fair value of the reporting unit exceeded the carrying value as of December
31, 2021 and 2020, and, therefore,
Leases
We determine whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to determine if an identified asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the asset.
| F-11 |
Our lease portfolio is substantially comprised of operating leases related to leases of real estate and improvements. From time to time, we may also lease various types of small equipment and vehicles.
Operating lease right-of-use (“ROU”) assets represent our right to use an individual asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining the present value of lease payments by utilizing a fully collateralized rate for a fully amortizing loan with the same term as the lease.
Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Our leases can include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when such renewal options and/or termination options are reasonably certain of exercise.
A ROU asset is subject to the same impairment guidance as assets categorized as plant, property, and equipment. As such, any impairment loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets.
A lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease. For example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying assets, or extends or shortens the contractual lease term, is a modification. Depending on facts and circumstances, a lease modification may be accounted as either: (1) the original lease plus the lease of a separate asset(s) or (2) a modified lease. A lease will be remeasured if there are changes to the lease contract that do not give rise to a separate lease.
Purchase Accounting and Business Combinations
We account for our business combinations using the purchase method of accounting which requires that intangible assets be recognized apart from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill.
The valuation and allocation processes rely on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when we receive updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date.
Revenue Recognition.
When entering into contracts with our customers, we review follow the five steps outline in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606):
| i. | Identify the contract with our customer. | |
| ii. | Identify the performance obligations in the contract. | |
| iii. | Determine the transaction price. | |
| iv. | Allocate the transaction price to the performance obligations. And | |
| v. | Evaluate the satisfaction of the performance obligations, |
| F-12 |
We account for contracts, with our customers, when we have approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable.
We evaluate, in accordance with Topic 606, whether we meet the criteria to be a principal or an agent and record the revenue on a gross or net basis. We are considered a principal if we obtain control of any one of the following:
| i. | A good or another asset from another party that we then transfer to our customer. | |
| ii. | A right to a service to be performed by another party, which gives the us the ability to direct that party to provide the service to the customer on our behalf, and | |
| iii. | A good or service from another party that we then combine with other goods or services in providing the specified good or service to our customer. |
We have certain relationships with manufacturers and suppliers to sell us products or provide services. Our contracts may transfer to our customer a right to a future service or product to be provided by our manufacturer or supplier. When a specified good or service is a right to a good or service is provided by a manufacturer or supplier, we evaluate whether we control the right to the goods or services before that right is transferred to the customer rather than whether we control the underlying goods or services.
Indicators that we control the specified good or service before it is transferred to the customer (and we are therefore a principal) include, but are not limited to, the following:
| i. | We are responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service. If we are primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on our behalf. Often, we provide value added services (combining hardware, integrating hardware to software, etc.) to the products and services purchased from our manufacturers and suppliers. | |
| ii. | We have inventory risk before the specified good or service has been transferred to a customer. Our purchases of products or services from our manufactures and suppliers is evidenced by our issuing a binding purchase order contract with the negotiated terms including specifications, pricing, delivery among other things. Our obligation for purchased products and services is mutually exclusive of our customers’ performance (failure to take acceptance, make payment, etc.) | |
| iii. | We have sole discretion in establishing our price for the specified good or service. Establishing the price our customer pays for a specified good or service may indicate we have the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. We control and set the pricing for the product or services to be provided to our customers. |
If the terms of a transaction do not indicate we are acting as a principal in the transaction, we are then considered acting as an agent and the associated revenues would be recognized on a net basis.
As principal, when (or as) we satisfy a performance obligation, we recognize revenue in the gross amount of consideration which we expect to be entitled in exchange for the specified good or service transferred. We are an agent if our performance obligation is to arrange for the provision of the specified good or service by another party. As an agent, we do not control the specified good or service provided by another party before that good or service is transferred to our customer. As an agent, when (or as) we satisfy a performance obligation, we recognize revenue in the amount of any fee or commission which we expect to be entitled in exchange for arranging for the specified goods or services to be provided by another party to our customer.
| F-13 |
Under Topic 606, we recognize revenue (on either a gross or net basis previously discussed) only when we satisfy a performance obligation by transferring a promised good or service to our customer. A good or service is considered transferred when the customer obtains control. The standard defines control as an entity’s ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. We recognize revenue (either gross or net) once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer:
| i. | We have a right to payment for the product or service, | |
| ii. | The customer has legal title to the product, | |
| iii. | We have transferred physical possession of the product to the customer, | |
| iv. | The customer has the risk and rewards of ownership of the product, and | |
| v. | The customer has accepted the product. |
Revenue Recognition for Hardware. Revenues from sales of hardware products are recognized on a gross basis as we are acting as a principal in these transactions, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. We recognize revenue from these transactions when control has passed to the customer.
Manufacturers and suppliers, from whom we purchase hardware, often provide their warranties only providing assurance the products and services will conform to their specifications. These assurance type warranties are not sold separately and are not considered separate performance obligations. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of sale.
Revenue Recognition for Software. Sales of software licenses are generally considered a single performance obligation. When we are considered the principal, we recognize revenues on a gross basis at the point the software is delivered to and accepted by our customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect.
As explained above, we evaluate whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering:
| i. | If the software provides its original intended functionality to the customer without the updates, | |
| ii. | If the customer would ascribe a higher value to the upgrades versus the up-front deliverable, | |
| iii. | If the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and | |
| iv. | If the customer chooses to not delay or always install upgrades. |
If we determine the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation.
In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of sale.
| F-14 |
Revenue Recognition for Services. We provide professional services, which include project managers and consultants recommending, designing and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or proportionally, as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and we transfer those services.
Revenues from the sale of professional and support services, provided by us, are recognized over the period the service is provided. As the customer receives the benefit of the service each month, we recognize the respective revenue on a gross basis as we are acting as a principal in the transaction. Additionally, we manage services team provides project support to customers that are billed on a fixed fee basis. We are acting as the principal in the transaction and recognize revenue on a gross basis based on the total number of hours incurred for the period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and best represents the transfer of control of the service to the customer.
Freight Costs. We record both the freight billed to its customers and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, we record the freight costs as cost of sales. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.
Stock-Based Compensation
We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period.
We record stock-based compensation expense according to the provisions of ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under the provisions of ASC Topic 718, the Company determines the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation – Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight-line basis primarily over the vesting period of the options.
| F-15 |
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, shares of the Company’s common stock, par value $(the “Shares”), were set aside and reserved for issuance. The Plan approved by our stockholders at the December 2021, shareholders’ meeting. shares were issued in 2021 as part of the Plan.
In August 2020, the Board of Directors approved our 2020 Equity Incentive Plan and later amended it. In September 2020, our shareholders adopted and ratified the 2020 Equity Incentive Plan. The total number of shares of Common Stock authorized for issuance under the 2020 Plan is .
Equity instruments issued to parties other than employees for acquiring goods or services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
Warrants
The fair value of the warrants is estimated on the date of issuance using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the expected term of the warrants, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management’s judgment. Expected volatilities used in the valuation model are based on the average volatility of the Company’s stock. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant.
Advertising
The
Company expenses marketing and advertising costs as incurred. During 2021 and 2020, the Company spent $
The Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense.
Foreign Currency Translation
Our consolidated financial statements are presented in U.S. dollars. The functional currency for the Company is U.S. dollars. Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of the transaction. All our continuing operations are conducted in U.S. dollars except its subsidiary located in Israel. The records of the Israeli operation were maintained in the local currency and re-measured to the functional currency as follows: monetary assets and liabilities are converted using the balance sheet period-end date exchange rate, while the non-monetary assets and liabilities are converted using the historical exchange rate. Expenses and income items are converted using the weighted average exchange rates for the reporting period. Foreign transaction gains and losses are reported on the consolidated statement of operations and comprehensive loss and were included in the amount of loss from comprehensive income.
| F-16 |
Income Taxes
We account for our income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.
We
also follow the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company
recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized
in the financial statements is the largest benefit that has a
Our income is subject to taxation in both the U.S. and a foreign jurisdiction, Israel. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company establishes reserves for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when we believe positions do not meet the more-likely-than-not recognition threshold. We adjust uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities that are considered appropriate.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our other comprehensive income (loss) is composed of foreign currency translation adjustments.
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 years ended December 31, 2021 and December 31, 2020 were and , 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.
| F-17 |
SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNINGS PER SHARE
| In thousands | 2021 | 2020 | ||||||
| Options to purchase common stock | $ | $ | ||||||
| Convertible preferred stock | - | - | ||||||
| Warrants to purchase common stock | ||||||||
| Potential shares excluded from diluted net loss per share | $ | $ | ||||||
Correction of an Immaterial Error
During
the year ended December 31, 2021, the Company identified an error related to its calculation of net loss attributable to the common stockholders.
The Company determined that in the prior period reported, these amounts were improperly calculated. This error did not affect net income,
assets, liabilities, stockholders’ equity, cash flows from financing activities or the net increase or decrease in cash and cash
equivalents for the period. In accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, “Materiality,” and SAB No.
108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,”
we evaluated the materiality of the error from qualitative and quantitative perspectives and concluded that the error was immaterial
to the current and prior periods mentioned above. Consequently, the net loss per share – basic attributable to common stockholders
of OmniQ Corp contained in these financial statements have been restated for the year ended December 31, 2020. The change resulted in
an additional net loss after series C dividend attributable to common stockholders’ of OmniQ Corp $
Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. Our exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on balances outstanding under our Credit Facility. The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU 2020-04, is not currently estimable.
| F-18 |
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements and footnotes.
NOTE 3 – GOING CONCERN
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:
| ● | Balancing the need for operational cash with the need to add additional products | |
| ● | Timely and cost-effective development of products | |
| ● | Working capital deficit of $ | |
| ● | Accumulated deficit of $ | |
| ● | Multiple years of losses from operations | |
| ● | Multiple years of negative cash flows from operations |
These facts and others have in the past 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 by management to address the Company’s conditions:
| ● | The Company has common stock which is now traded publicly on the NASDAQ stock exchange. Accordingly, it is better able to successfully raise capital when needed. In addition, there are outstanding warrants from prior offerings that could be exercised depending upon the performance of our stock. | |
| ● | The
Company raised gross proceeds of $ | |
| ● | The
Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability, and cash flow, including positive
cash flows from operations of $ | |
| ● | ||
| ● | The
acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders (so far approx.
$ | |
| ● | Management is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations. | |
| ● | Management
is in the final steps of receiving a $ | |
| ● | As
of December 31, 2021, the Company had approximately $ | |
| ● | Historical results - For over ten years, the Company’s audit opinion has contained an explanatory paragraph describing an uncertainty about the Company’s ability to continue as a going concern. The fact that the Company has a ten plus year plus history of continuing operations, in and of itself, demonstrates an ability to continue for a period of 12 months, post-issuance of each report. | |
| ● | Blue
Star - The Company’s total accounts payable due to Blue Star as of December 31, 2021 was approximately $ | |
| ● | Beginning in 2022 the Company expects positive cash flow from operations. |
Management believes that the aggregate impact of these plans is to mitigate the conditions raising substantial doubt about the Company’s ability to continue as a going concern within one year after the date financial statement issuance.
| F-19 |
NOTE 4 – BUSINESS ACQUISITIONS
Eyepax IT Consulting, LLC
In February 2020, (the “Closing Date”), we entered into an Asset Purchase Agreement (the “Eyepax Agreement”), with Eyepax IT Consulting, LLC (the “Seller”); whereby, we acquired Seller’s accounts receivable and the license, ownership rights and source code of the parking Enforcement and Revenue Control System. The Company also assumed the Seller’s accounts payable liabilities. Pursuant to the terms of the Eyepax Agreement, the purchase price paid was to be paid as follows:
| 1. | $ | |
| 2. | $ | |
| 3. | Beginning
on the first month after Closing Date, $ | |
| 4. | shares of the Company’s common stock in the name of the Seller, were issued during 45 days from Closing Date at $per common share. | |
| 5. | Stock options to purchase shares of the Company’s common stock at an exercise price of $per share. The option shares vest in equal quarterly periods, expiring in . |
The purchase price was measured at fair value on the Closing Date as follows (in thousands):
SCHEDULE OF FAIR VALUE OF PURCHASE PRICE
| Cash payments to Seller | $ | |||
| Subscribed common stock | ||||
| Stock purchase options | ||||
| Total | $ |
The assets acquired and liabilities assumed have been recognized at the Closing date and were measured at fair value as follows (in thousands):
SCHEDULE OF RECOGNIZED FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| Accounts receivable | $ |
|||
| Software (intangible) | ||||
| Liabilities assumed | ( |
) | ||
| Net assets acquired at fair value | ||||
| Total purchase price | ||||
| Goodwill recognized | $ |
We estimated the fair value the stock purchase option using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. In valuing these options, the Company assumed a cumulative stock volatility of %, months expected life, and a risk-free interest rate of % and dividend yield of %.
Dangot Computers Ltd
On May 3, 2021, the Company and Omniq Technologies Ltd., a wholly owned subsidiary of the Company (“Omniq Technologies”) entered into a share purchase agreement (the “Dangot Share Purchase Agreement”) with Mr. Haim Dangot. Pursuant to the Dangot Share Purchase Agreement, Omniq Technologies agreed to purchase %, or shares, of the capital stock of Dangot Computers Ltd., an Israel company (“Dangot”), from Dangot’s sole shareholder, Haim Dangot, for consideration equivalent to NIS (New Israeli Shekel), which is equal to US$million (the “Closing Consideration”), based on the then current exchange rate at the date of acquisition of NIS to dollars.
The Closing Consideration was paid on July 8, 2021 in the following manner: (a) the Company issued shares of its common stock having a share value of $and (b) cash in the amount of $thousand payable to owner.
Haim
Dangot also granted Omniq Technologies an irrevocable option to purchase the remaining shares, or %,
of Dangot’s capital stock (the “Dangot Option”) in the 12-month period following the closing date (the “Dangot
Option Period”) at a share purchase price of NIS, which is equal to
US$ per each %
of Dangot’s remaining shares on a fully diluted basis which is the same valuation per share as the purchase price for the %.
Effective October 1, 2021 the Company exercised a portion of its option and purchased an additional
The following table summarizes the consideration given and the purchase price allocation:
SCHEDULE OF RECOGNIZED FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| Purchase Price Consideration (in thousands) | Total Consideration | |||
| Cash payments | $ | |||
| Accrued payable to owner | ||||
| Fair value of stock issued (shares) | ||||
| Debt assumed | ||||
| Total consideration | $ | |||
| Cash | $ | |||
| Accounts Receivable | ||||
| Inventory | ||||
| Other Assets | ||||
| Property and equipment | ||||
| Goodwill | ||||
| Trade name | ||||
| Customer relationship | ||||
| Other intangible assets | ||||
| Assets acquired | $ | |||
| Current liabilities assumed | ( | ) | ||
| Non-controlling interest | ( | ) | ||
| Net assets acquired | $ | |||
The following proforma unaudited revenue and earnings as if the acquisition had been included in the consolidated results of the company for the full year ending December 31, 2021.
SCHEDULE OF ACQUISITIONS UNAUDITED REVENUE
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands/unaudited) | ||||||||
| Revenue | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
Individual pro forma results for each acquisition are not disclosed, as individually these acquisitions would not have a material impact on the Company’s financial statements.
Since
the acquisition the amounts included in the consolidated statement of comprehensive income from Dangot Computers Ltd. for the year ended
December 31, 2021, was $
| F-20 |
NOTE 5 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of December 31:
SCHEDULE OF ACCOUNTS RECEIVABLE
| In thousands | 2021 | 2020 | ||||||
| Trade Accounts Receivable | $ | $ | ||||||
| Less Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total Accounts Receivable (net) | $ | $ | ||||||
Accounts
receivable as of December 31, 2021 and 2020 are made up of trade receivables due from customers in the ordinary course of business. One
customer represented
NOTE 6 – INVENTORY
Inventory consisted of the following as of December 31:
SCHEDULE OF INVENTORY
| In thousands | 2021 | 2020 | ||||||
| Raw Materials | $ | $ | ||||||
| Finished goods (less Allowance) | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 7 – PROPERTY AND EQUIPMENT
The following is a summary of the components of property and equipment (in thousands):
SCHEDULE OF PROPERTY AND EQUIPMENT
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Manufacturing and lab equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Software and computer equipment | ||||||||
| Furniture and equipment | ||||||||
| Vehicle | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense for the year ended December 31, 2021 was approximately $
NOTE 8 – GOODWILL AND INTANGIBLE ASSETS
We
have made acquisitions in the past that resulted in the recognition of goodwill. Based on our analysis there have been
Goodwill and Intangible assets consisted of the following as of December 31:
SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS
| In thousands | 2021 | 2020 | ||||||
| Goodwill | $ | $ | ||||||
| Trade names | ||||||||
| Customer relationships | ||||||||
| Other intangibles | ||||||||
| Accumulated amortization | ( |
) | ( |
) | ||||
| Intangibles, net | $ | $ | ||||||
The future amortization expense on the Trade names, Customer relationships, and Other intangibles are as follows:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE
| In thousands | |||||
| Years ending December 31, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
| F-21 |
Goodwill is not amortized but is evaluated for impairment annually or when indicators of a potential impairment are present. The impairment testing of goodwill is performed separately from our impairment testing of intangibles. The annual evaluation for impairment of goodwill and intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. None of the goodwill is deductible for income tax purposes.
Purchased
intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for
customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets
consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over
periods ranging from to
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable are made up of payables due to vendors in the ordinary course of business a December 31, 2021 and 2020. One vendor made up
NOTE 10 – 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 working capital.
In
July 2016, we entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation (“Action”)
to establish a sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable
accounts receivable to Action. Pursuant to the FASA, the outstanding principal amount of advances made by Action at any time shall not
exceed $
The
annual interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a monthly basis)
is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus
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 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 $
| F-22 |
NOTE 11 – RELATED PARTY NOTES PAYABLE
Related party notes payable, consisted of the following as of December 31:
SCHEDULE OF NOTES PAYABLE, RELATED PARTIES
| 2021 | 2020 | |||||||
| In thousands | ||||||||
| Note payable –Marin | $ | $ | ||||||
| Note payable –Thomet | ||||||||
| Note payable – Shareholder Convertible Note | - | |||||||
| Total notes payable | ||||||||
| Less current portion | ||||||||
| Long-term portion | $ | $ | ||||||
For
the years ended December 31, 2021 and December 31, 2020, the Company recorded interest expense in connection with these notes in the
amount of $
Note Payable -Marin
In
December 2017, we entered into a $
Note Payable – Thomet
In
December 2017, we entered into a $
Note Payable – Shareholder Convertible Note
In October 2018, we entered a $thousand, % annual interest rate convertible note payable (the “Shareholder Convertible Note”) with Walefar and Campbeltown (collectively the “Holders”), in connection with the HTS Image Processing, Inc. Mr Shai Lustgarten, our Chief executive Officer and Director is the principal shareholder in Walefar. Mr. Carlos J. Nissensohn, a consultant and significant shareholder in OMNIQ, is the principal shareholder in Campbeltown. The Shareholder Convertible Note was retired in 2021.
The Shareholder Convertible Note provided Holders a right, at any time on or after the loan origination date, to convert all or any portion of the then outstanding and unpaid principal amount and interest (including any Default Interest) into fully paid and non-assessable shares of OMNIQ’s common stock. The number of conversion shares to be issued upon each conversion of the note shall be determined by dividing the conversion amount by the applicable conversion price then in effect on the date specified in the notice of conversion delivered us by the Holder. The conversion rate was set at $per share.
In April 2019, and in accordance with the Convertible Shareholder Note, the Holders converted $thousand ($thousand each) of unpaid principal outstanding. The Holders received (each) common stock shares and (each) in common stock warrants.
| F-23 |
The repayment of the notes payable, related parties as of December 31, 2021, is as follows for the years ending December 31, 2021:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES
In thousands
| 2022 | $ | |||
| 2023 | ||||
| Total | $ |
NOTE 12 – OTHER NOTES PAYABLE
Other notes payable consists of the following as of December 31, 2021:
SCHEDULE OF OTHER NOTES PAYABLE
| In thousands | 2021 | 2020 | ||||||
| Note Payable - Secured Supplier Note | $ | $ | ||||||
| Notes Payable - other | ||||||||
| Total | ||||||||
| Less current portion | ||||||||
| Long Term Notes Payable | $ | $ | ||||||
Future maturities of notes payable are as follows for the years ending December 31, 2021:
SCHEDULE OF FUTURE MATURITIES OF NOTE PAYABLE
In thousands
| 2022 | $ | |||
| 2023 | ||||
| Thereafter | ||||
| Total | $ |
Secured Supplier Note Payable
On
July 18, 2016, the Company and the Supplier entered into a certain secured promissory note, with an effective date of July 1, 2016, in
the principal amount of $
| ● | On
September 7, 2018, the Company entered into a Sixth Amendment to the Secured Promissory Note (the “Sixth Amendment”)
extending the maturity date to January 31, 2019. The Sixth Amendment also increases the principal amount to $ | |
| ● | On
April 30, 2019, the Company entered into a Seventh Amendment to the Secured Promissory Note (the “Seventh Amendment”)
extending the maturity date to July 31, 2019. The Seventh Amendment also provides that the Company will continue to make monthly
installments of principal and accrued interest in a minimum principal amount of $ | |
| ● | On
July 20, 2021, the Company entered into the Eighth Amendment to the Secured Promissory Note (the “Eighth Amendment”)
extending the maturity date to August 15, 2022 and reducing the interest rate from | |
| ● | On March 25, 2022 the Company has paid off the entire remaining balance owed to the supplier. |
Other Notes Payable
On July 29, 2021 the Company entered into a long-term
loan from Leumi Bank totalling NIS
On November 28, 2021 the Company entered into
another long-term loan from Leumi Bank totalling NIS
During the year ended
December 31, 2021, the Company entered into five lines of credit totalling NIS
On August 11, 2021, the Company purchased vehicles
using cash and financing of NIS
On March 27, 2022 the Company entered into another
long-term loan from Leumi Bank totalling NIS
| F-24 |
NOTE 13 – OTHER LIABILITIES
As of December 31, 2021 and 2020, other liabilities consisted of the following:
SCHEDULE OF OTHER LIABILITIES
| In thousands | 2021 | 2020 | ||||||
| Other vendor payable | $ | |||||||
| Dividend payable | ||||||||
| Bonus payable | - | |||||||
| Others | ||||||||
| Total other liabilities | ||||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Total long term other liabilities | $ | $ | ||||||
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Profit Sharing Plan
We maintain a contributory profit-sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). In 2016, the Safe Harbor element was removed from the plan and the employer may make a discretionary matching contribution equal to a uniform percentage or dollar amount of participants’ elective deferrals for each Plan Year. In 2015, we were required to make a safe harbor non-elective contribution equal to 3 percent of a participant’s compensation. The plan also includes a 401(k) savings plan feature that allows substantially all employees to make voluntary contributions and provides for discretionary matching contributions determined annually by the Board of Directors. For the year ending December 31, 2021, the company has elected to match and 2020, the Company elected to forgo the match.
Operating Leases
As of December 31, 2021, we had 5 Operating leases as follows:
| ● | Office
space in Akron, Ohio, with monthly payments of $ | |
| ● | Office
space in Salt Lake City UT with monthly payments of $ | |
| ● | Dangot’s
corporate offices are currently located at Yad harutzim 14 Tel-Aviv, Israel and serves as the company’s main operating location.
As of December 31, 2021, we had | |
| ● | The
Company lease additional office space for our finance
and service department at Yad harutzim 14 Tel-Aviv, Israel. As of December 31, 2021, the Company had | |
| ● | The
Company also lease office and warehouse space for our products
and technical support staff in Hofman and Rival Street, Tel-Aviv, Israel. As of December 31, 2021, the Company had |
As of December 31, 2021 we had two operating leases for office and assembly space and no financing leases. We elected the practical expedient ASU 2018-11, Leases (Topic 842): Targeted Improvements which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date. Therefore, we recognized and measured leases existing at January 1, 2019 (inception date). In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. Lastly, the Company elected a short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less. No impact was recorded to the income statement or beginning retained earnings for Topic 842.
| F-25 |
Other information related to our operating leases is as follows:
SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE
| In thousands | ||||
| ROU asset - January 1, 2020 | $ | |||
| Effective foreign exchange rates | $ | |||
| Amortization | ( | ) | ||
| ROU asset - December 31, 2020 | ||||
| Increase | ||||
| Effective foreign exchange rates | ||||
| Amortization | ( | ) | ||
| ROU asset - December 31, 2021 | $ | |||
| In thousands | ||||
| Lease liability - January 1, 2020 | $ | |||
| Decrease | ||||
| Effective foreign exchange rates | $ | |||
| Amortization | ( | ) | ||
| Lease liability - December 31, 2020 | ||||
| Increase | ||||
| Increase (Decrease) | $ | |||
| Effective foreign exchange rates | ||||
| Amortization | ( | ) | ||
| Lease liability - December 31, 2021 | $ | |||
As
of December 31, 2021, our operating leases had a weighted average remaining lease term of
The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2021:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
| In thousands | ||||
| Year | Minimum lease payments | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less interest | ||||
| Present value of future minimum lease payments | ||||
| Less current obligations | ||||
| Long term lease obligations | $ | |||
LITIGATION
The
Company was named a defendant in a case involving a former employee who claims he is owed approximately $
| F-26 |
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 15 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
Series A
As
of December 31, 2021 and 2020, there were Series A preferred shares authorized and
Series A preferred shares outstanding.
Series B
As of December 31, 2021 and 2020, there was one () preferred share authorized and preferred shares outstanding.
Series C
As
of December 31, 2021 and 2020, there were Series C Preferred Shares (“Series
C”) authorized with and issued and outstanding, respectively. 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 $per share per annum and have a liquidation preference
of $
In
2021, certain holders of Series C Shares elected to convert $
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, shares of the Company’s common stock, par value $(the “Shares”), were set aside and reserved for issuance. The Plan approved by our stockholders at the December 2021, shareholders’ meeting. shares were issued under the Plan in 2021.
In
August 2020, 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,
one million ()
shares of the Company’s common stock, par value $(the “Shares”), were set aside and
reserved for issuance. The Plan approved by our stockholders at the September 2020, shareholders’ meeting. For the year ending
December 31, 2020, we issued shares ($
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the years ending
December 31, 2021 and 2020, employees purchased ($
On
February 15, 2021 the Company issued shares to Orion 4, LLC as part of a consulting
agreement. The shares were valued at $
On
May 4, 2021, the Company issued shares as part of a series of conversion agreements
with a former noteholder and preferred shareholder. The shares were valued at $
On July 8, 2021, the Company issued shares in connection with the acquisition of Dangot Computers. The shares were valued at approximately $million. See note 4.
On
July 8, 2021, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with
accredited investors. Pursuant to the Securities Purchase Agreement, on July 8, 2021 (the Closing Date”), the Company sold an aggregate
gross proceeds of $
Each
Unit is comprised of one share of the Company’s common stock, $par value per share. As a result of the Offering,
the Company issued shares of common Stock (the “Shares”)
and warrants (the “Warrants”) to purchase
On
October 13, 2021, the Company issued shares as part of a series of conversion agreements
with a former noteholder and preferred shareholder. The shares were valued at less than $
For the years ending December 31, 2021 and 2020, and , respectively, in stock options and stock warrants were exercised in exchange for and shares of OMNIQ common stock.
| F-27 |
In April 2020 and in conjunction with the Eyepax acquisition, we issued the former owner share of OMNIQ common stock.
In September 2020 and pursuant to the 2020 Equity Incentive Plan, we granted options to purchase an aggregate of shares of our common stock to certain of our employees, officers and directors. Included in the total shares granted are options to purchase shares of its common stock to Mr. Shai Lustgarten, our Chief Executive Officer, options to purchase shares of its common stock to Mr. Neev Nissenson, our Chief Financial Officer, options to purchase shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase shares of its common stock to our Directors Andy MacMillan and Yaron Shalem, respectively. The remaining granted options are for other employees and consultants. The exercise price of all of the options granted was $per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five () years and the balance of the options have a term of ten () years.
| F-28 |
Warrants and Stock Options
In
connection with the July 2021 Securities Purchase Agreement previously described, we issued warrants to purchase
Options and warrants are valued at the grant date using the Black-Scholes valuation methodology. The Company determines the assumptions used in the valuation of warrants and option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options and warrants granted throughout the year.
The valuation assumptions used to determine the fair value of each warrants awarded in 2021: expected stock price volatility % expected term in years ; and risk-free interest rate %.
The valuation assumptions used to determine the fair value of each option/warrants awarded in 2020: expected stock price volatility % - %; expected term in years -; and risk-free interest rate % - %.
No additional options were issued in 2021.
For warrants exercised during the year ended December
31, 2021, the difference between the fair value of the Common Stock issued and the respective exercise price was $
The following table summarizes information about warrants granted during the years ended December 31:
SCHEDULE OF WARRANTS ACTIVITY
| 2021 | 2020 | |||||||||||||||
| Number
of warrants | Weighted Average Exercise Price | Number
of warrants | Weighted Average Exercise Price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Warrants granted | ||||||||||||||||
| Warrants expired | ||||||||||||||||
| Warrants cancelled, forfeited | ||||||||||||||||
| Warrants exercised | ||||||||||||||||
| Balance, end of year | ||||||||||||||||
| Exercisable warrants | $ | $ | ||||||||||||||
Outstanding warrants as of December 31, 2021 are as follows:
SCHEDULE OF OUTSTANDING WARRANTS
| Weighted Average | Weighted | Weighted | ||||||||||||||||||||
| Range of | residual life | Average | Average | |||||||||||||||||||
| Exercise | span | Outstanding | Exercise | Exercisable | Exercise | |||||||||||||||||
| Prices | (in years) | Warrants | Price | Warrants | Price | |||||||||||||||||
| $ | $ | |||||||||||||||||||||
| to | $ | $ | ||||||||||||||||||||
| F-29 |
Warrants outstanding have the following expiry date and exercise prices as of the years ended December 31, 2021:
SCHEDULE OF WARRANTS OUTSTANDING, EXPIRY DATE AND EXERCISE PRICES
| Exercise | ||||||||||||
| Expiry Date | Prices | 2021 | 2020 | |||||||||
| $ | ||||||||||||
We have a stock option plan whereby the Board of Directors, may grant to directors, officers, employees, or consultants of the Company options to acquire common shares. The Board of Directors of the Company has the authority to determine the terms, limits, restrictions and conditions of the grant of options, to interpret the plan, and make all decisions relating thereto. The plan was adopted by the Company’s Board of Directors on November 17, 2014 in order to provide an inducement and serve as a long-term incentive program. The maximum number of common shares that may be reserved for issuance was set at .
The option exercise price is established by the Board of Directors and may not be lower than the market price of the common shares at the time of grant. The options may be exercised during the option period determined by the Board of Directors, which may vary, but will not exceed ten years from the date of the grant. There are of the Company’s common shares which may be issued pursuant to the exercise of share options granted under the Plan.
For options exercised during the year ended December
31, 2021, the difference between the fair value of the Common Stock issued and the respective exercise price was $
Stock Options - The following table summarizes information about stock options granted during the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||||||||||
| Number
of stock options | Weighted Average Exercise Price | Number
of stock options | Weighted Average Exercise Price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Stock options granted | ||||||||||||||||
| Stock options expired | - | |||||||||||||||
| Stock options cancelled, forfeited | - | - | ||||||||||||||
| Stock options exercised | - | |||||||||||||||
| Balance, end of year | ||||||||||||||||
| Exercisable stock options | $ | $ | ||||||||||||||
| F-30 |
SCHEDULE OF OUTSTANDING STOCK OPTIONS
| Range
of Exercise Prices | Weighted
Average residual life span (in years) | Outstanding
Stock Options | Weighted
Average Exercise Price | Exercisable
Stock Options | Weighted
Average Exercise Price | |||||||||||||||||
| $ | $ | |||||||||||||||||||||
| to | $ | $ | ||||||||||||||||||||
SCHEDULE OF STOCK OPTIONS, EXPIRY DATE AND EXERCISE PRICES
| Exercise | ||||||||||||
| Expiry Date | Prices | 31-Dec-21 | 31-Dec-20 | |||||||||
| $ | ||||||||||||
| F-31 |
SCHEDULE OF STOCK COMPENSATION EXPENSE
| 2021 | 2020 | |||||||
| In thousands | ||||||||
| Stock compensation | $ | $ | ||||||
| Stock Option vesting | ||||||||
| Total | $ | $ | ||||||
NOTE 16 – RELATED PARTY TRANSACTIONS
In February 2020 we amended the consulting agreement with Mr. Carlos J. Nissensohn, a principal shareholder of the Company and a family member of a Director and Officer of the Company. The terms and condition of the contract are as follows:
| ● | 48-month term with 90 day termination notice by the Company | |
| ● | A
monthly fee of $ | |
| ● | ||
| ● | In
addition to the above, in the event of an equity financing resulting in gross proceeds of at least $ | |
| ● | In
addition to the above, Mr. Nissensohn will be entitled to a $ | |
| ● | In
addition to the aforementioned, in the event that we close any M&A transaction with a third party target, Mr. Nissensohn shall
be entitled to a success fee in the amount equal to |
Additional related party transactions are discussed in Note 11.
NOTE 17 – GEOGRAPHIC DATA
For
the years ended December 31, 2021 and 2020, two customers accounted for
Information about Geographic Areas
Revenues by geography are based on the billing addresses of our customers. The following tables set forth revenues by geographic area (in thousands):
SCHEDULE OF REVENUES
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues: | ||||||||
| United States | $ | $ | ||||||
| Israel | ||||||||
| Rest of the world | ||||||||
| Total revenues | $ | $ | ||||||
The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the countries in which the Company operates. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
NOTE 18 – INCOME TAX
For
the year ended December 31, 2021, the Company has $
The tax effect of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows as of December 31,
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| In thousands | ||||||||
| Deferred tax assets | 2021 | 2020 | ||||||
| Reserves and deferred revenue | $ | $ | ||||||
| 163(J) Limitation | ||||||||
| Stock options | - | - | ||||||
| Foreign deferred tax assets | - | |||||||
| Net operating loss | ||||||||
| Total gross deferred tax assets | ||||||||
| Less: Valuation Allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | ||||||||
| Deferred tax liabilities | ||||||||
| Amortization of intangible assets and depreciation | ( | ) | ( | ) | ||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
| F-32 |
Components of net deferred tax assets, including a valuation allowance, are as follows as of December 31:
SCHEDULE OF DEFERRED TAX ASSETS AND VALUATION ALLOWANCES
| 2021 | 2020 | |||||||
| Deferred tax assets | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets | $ | $ | ||||||
The
valuation allowance for deferred tax assets as of December 31, 2021 and 2020 was $
The reconciliation between statutory rate and effective rate is as follows as of December 31, 2021 and 2020:
SCHEDULE OF RECONCILIATION OF STATUTORY RATE AND EFFECTIVE TAX RATE
| 2021 | 2020 | |||||||
| Federal statutory tax rate | % | % | ||||||
| State taxes | ( | )% | % | |||||
| Foreign income taxes | ( | )% | - | % | ||||
| Nondeductible items | - | % | ( | )% | ||||
| Acquisition accounting adjustments | - | % | - | % | ||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Return to provision adjustments | % | % | ||||||
| Rate Change | - | % | % | |||||
| Other | ( | )% | % | |||||
| Effective tax rate | ( | )% | ( | )% | ||||
The Company reported no uncertain tax liability as of December 31, 2021 and expects no significant change to the uncertain tax liability over the next twelve months. The Company’s 2015, 2016, 2017, 2018, 2019, and 2020 federal and state income tax returns are open for examination by the applicable governmental authorities.
As
of December 31, 2021, the Company had a net operating loss (NOL) carryforward of approximately $
NOTE 19 – SUBSEQUENT EVENTS
On March 25, 2022 we entered into a Business Finance Agreement (“BFA”) with BridgeBank a division of Western Alliance Bank. In accordance with the BFA we’ve terminated our lending relationship with Action Capital and paid of the remaining balance on a supplier note payable. See notes 10 and 12.
On March 27, 2022 we entered into another
long-term loan from Leumi Bank totalling NIS
In accordance with ASC 855, “Subsequent Events”, the Company has evaluated all subsequent events through the date of this filing. No other significant events have occurred besides the events disclosed in the Notes to the Financial Statements.
| F-33 |
EXHIBIT INDEX—we will update the exhibit index
| 30 |
* Filed herewith.
ITEM 16. NONE.
| 31 |