OMNIQ Corp 10-Q for FY2021 Q2
OMNIQ Corp. (OMQS)
About this 10-Q
OMNIQ Corp filed this 10-Q on August 12, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $13.12M
- up 3.5% from $12.68M a year earlier
- Net loss
- $2.51M
- compared with a net loss of $1.99M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
For the transition period from________ to__________
Commission
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N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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
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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
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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 | |||
| (Do not check if a smaller reporting company) | ||||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: shares of common stock, $0.001 par value, as of August 10, 2021.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. 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 “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021. |
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.
For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com.
| 3 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNIQ CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| 30-Jun-21 | 31-Dec-20 | |||||||
| (In thousands, except share and per share data) | As of | |||||||
June 30, 2021 | December 31, 2020 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Contract Asset | - | |||||||
| 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 $ | ||||||||
| Restricted Cash | - | |||||||
| Right of use lease asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| 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 | ||||||||
| Stockholders’ 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, shares issued and outstanding, respectively | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying unaudited notes should be read on conjunction with these unaudited condensed consolidated financial statements.
| F-1 |
OMNIQ CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| (In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| For the three months | For the six months | |||||||||||||||
| ending June 30, | ending June 30, | |||||||||||||||
| (In thousands, except share and per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenues | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research & 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 | - | - | ||||||||||||||
| Total Provision for Income Taxes | ( | ) | - | ( | ) | - | ||||||||||
| Net Loss attributable to OMNIQ Corp. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reconciliation of net loss to net loss attributable to common shareholders | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock – Series C dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to the common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) per share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic | ||||||||||||||||
The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements.
| F-2 |
OMNIQ CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| Total | ||||||||||||||||||||||||||||||||
| Series C | Additional | Other | Stockholders’ | |||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Comprehensive | Equity | |||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | (Deficit) | ||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Dividend on Class C Shares | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Accumulated other comprehensive loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation – options and warrants | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Subscribed common stock | - | - | - | |||||||||||||||||||||||||||||
| Professional fees – restricted shares | - | - | - | - | ||||||||||||||||||||||||||||
| exercise of stock options and warrants | ||||||||||||||||||||||||||||||||
| exercise of stock options and warrants, shares | ||||||||||||||||||||||||||||||||
| Conversion agreements - preferred shares | ||||||||||||||||||||||||||||||||
| Converion agreements - preferred shares, shares | ||||||||||||||||||||||||||||||||
| Conversion agreements - debt | ||||||||||||||||||||||||||||||||
| ESPP Stock Issuance | ||||||||||||||||||||||||||||||||
| ESPP Stock Issuance, shares | ||||||||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | ||||||||||||||||||||||||||||||||
| Stock and Warrant issued for services | ||||||||||||||||||||||||||||||||
| Stock and Warrant issued for services, shares | ||||||||||||||||||||||||||||||||
| Stock and warrant issuance for Acquisition | ||||||||||||||||||||||||||||||||
| Cumulative Translation Adjustment | ||||||||||||||||||||||||||||||||
| Conversion of Equity | ||||||||||||||||||||||||||||||||
| Conversion of Equity, shares | ||||||||||||||||||||||||||||||||
| Conversion of debt | ||||||||||||||||||||||||||||||||
| Conversion of debt, shares | ||||||||||||||||||||||||||||||||
| Subscribed common stock, shares | ||||||||||||||||||||||||||||||||
| Other misc. items | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net (loss) | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Dividend on Class C Shares | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Accumulated other comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock-based compensation – options and warrants | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Subscribed common stock | - | - | - | - | ||||||||||||||||||||||||||||
| Professional fees – restricted shares | - | - | - | - | - | |||||||||||||||||||||||||||
| exercise of stock options and warrants | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Conversion agreements - preferred shares | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||
| Conversion agreements - debt | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net (loss) | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Dividend on Class C Shares | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| ESPP Stock Issuance | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock and Warrant issued for services | - | - | - | - | - | |||||||||||||||||||||||||||
| exercise of stock options and warrants | - | - | - | - | - | |||||||||||||||||||||||||||
| Cumulative Translation Adjustment | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Other | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Net (loss) income | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividend on Class C Shares | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| ESPP Stock Issuance | - | - | - | - | - | |||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock and Warrant issued for services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| exercise of stock options and warrants | - | - | - | - | - | |||||||||||||||||||||||||||
| Cumulative Translation Adjustment | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of Equity | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||
| Conversion of debt | - | - | - | - | - | |||||||||||||||||||||||||||
| Net (loss) income | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
The accompanying unaudited notes should be read in conjunction with these condensed unaudited consolidated financial statements.
| F-3 |
OMNIQ CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
| (In thousands) | 2021 | 2020 | ||||||
| For the six months ended | ||||||||
| June 30, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Cash flows from continuing operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Stock based compensation | ||||||||
| Amortization of ROU lease asset | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Contract Asset | ( | ) | - | |||||
| Accounts payable and accrued liabilities | ||||||||
| Accrued interest and accrued liabilities, related party | ( | ) | ||||||
| Accrued payroll and sales taxes payable | ( | ) | ||||||
| Other assets | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Other assets | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from ESPP stock issuance | - | |||||||
| Net Proceeds from Warrant exercise | - | |||||||
| Net Proceeds from Options exercise | - | |||||||
| Proceeds from / (payments on) line of credit | ( | ) | ||||||
| Proceeds from notes/loans payable | - | |||||||
| Payment on notes/loans payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Foreign currency Exchange | - | |||||||
| Net increase (decrease) in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplementary for non-cash flow information: | ||||||||
| Stock issued for services | $ | $ | ||||||
| Intangible assets acquired in non-cash exchange | - | |||||||
| Stock options and warrants issued | $ | $ | ||||||
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
OMNIQ CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS
OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its 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 Solution, 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 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.
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.
The extent of the ultimate impact of the pandemic on our 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.
| F-5 |
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. During the six-month period ended June 30, 2021, there were no significant changes to those accounting policies.
Principles of Consolidation and Basis of Presentation
Our unaudited condensed 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., collectively referred to herein as “we” or “us” or “our” or the “Company.”
All significant intercompany accounts and transactions have been eliminated in these unaudited condensed consolidated financial statements. Business combinations are included in the unaudited condensed consolidated financial statements from their respective dates of acquisition.
We have prepared the interim unaudited condensed consolidated financial statements included herein, in accordance with accounting principles generally accepted in the United States of America, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with our financial statements for the year ended December 31, 2020 and notes thereto included in our Form 10-K filed with the SEC on March 31, 2021. The Company operates in one segment.
Operating results for the six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.
Use of Estimates
We prepare our unaudited condensed 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 unaudited condensed 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 unaudited condensed 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.
Goodwill and Intangibles
We have made acquisitions in the past that resulted in the recognition of goodwill. Goodwill is the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. We evaluate goodwill for impairment annually or more frequently, if triggering events occur or other impairment indicators arise which might impair recoverability.
| F-6 |
Application
of the goodwill impairment test requires judgment. We performed a Step 1 quantitative assessment of goodwill impairment as of December
31, 2020, our annual impairment test date. We compared the carrying value inclusive of goodwill and definite-lived intangible assets,
to its fair value. We estimated the fair value of these reporting units by weighting results from the income approach and the market
approach, as further described in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2020. Based on this quantitative
test, we determined there was
The assets are being amortized
on the straight-line method over useful lives ranging from
Foreign Currency Translation
Our unaudited condensed 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 of 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 unaudited condensed consolidated statement of operations and were included in the amount of loss from comprehensive income.
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 six-months ended June 30, 2021 and 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.
SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNINGS PER SHARE
| In thousands | June 30, 2021 | December 31, 2020 | ||||||
| Options to purchase common stock | ||||||||
| Convertible preferred stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Potential shares excluded from diluted net loss per share | ||||||||
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.
| F-7 |
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, |
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. |
| F-8 |
| 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 to be 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 to be 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.
| F-9 |
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.
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.
Contract Asset. The Company recognizes revenue as explained in accordance with ASC 606. The Company has entered into contracts with customers that only allow us to invoice the customer once the total project is completed, creating a contract asset which is presented on a separate line item on the balance sheet as a current asset.
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.
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.
We account 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.
| F-10 |
Recent Accounting Pronouncements
We have evaluated the recent pronouncements and believe their adoption will not have a material effect on our financial statements.
Reclassifications and Comparability
Certain amounts in the financial statements of prior years have been reclassified to conform to the current year presentation for comparative purposes. This had no effect on total assets or net income.
NOTE 3 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.
As of June 30, 2021, we had a working capital deficit of $
Management’s plan to eliminate the going concern situation includes, but is not limited to, the following:
| ● | The continuation of improving cash flow by maintaining moderate cost reductions (subsequent to aggressive cost reduction actions implemented in previous years); | |
| ● | Increasing the accounts receivable factoring line of credit; | |
| ● | Negotiating lower interest rates on outstanding debt; | |
| ● | Potential issuances of additional common stock; | |
| ● | The creation of additional sales and profits across its product lines, and the obtaining of sufficient financing to restructure current debt in a manner more in line with the Company’s improving cash flow and cost reduction successes; | |
| ● | In our portfolio of products, we have a computer vision technology that is based on AI and machine learning concepts. These solutions have a higher gross profit that will provide an increase in cashflow on a consolidated basis going forward. The Company has an operating facility with the ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit margins; |
NOTE 4 – CONCENTRATIONS
For
the six-months ended June 30, 2021 and the year ended December 31, 2020, two customers accounted for
Accounts
receivable at June 30, 2021 and December 31, 2020 are made up of trade receivables due from customers in the ordinary course of business.
Two customers made up
| F-11 |
Accounts
payable are made up of amounts due to suppliers in the ordinary course of business at June 30, 2021 and December 31, 2020. One vendor
made up
NOTE 5 – BUSINESS ACQUISITION
In
February 2020, OMNIQ entered in an asset purchase agreement with Eyepax IT Consulting LLC, a California limited liability company, (“Eyepax”)
and its principal owners (collectively the “Sellers”), pursuant to which we purchased certain assets from the Sellers at
a cash purchase price of $
NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT
We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us 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
NOTE 7 – RELATED PARTY NOTES PAYABLE
Related party notes payable, consisted of the following as of:
SCHEDULE OF NOTES PAYABLE, RELATED PARTIES
| June 30, 2021 | December 31, 2020 | |||||||
| In thousands | ||||||||
| Note payable –Marin | $ | $ | ||||||
| Note payable –Thomet | ||||||||
| Note payable–Shareholder Convertible Note | ||||||||
| Total notes payable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
Note Payable -Marin
In
December 2017, we entered into a $
| F-12 |
Note Payable – Thomet
In
December 2017, we entered into a $
Note Payable – Shareholder Convertible Note
In October 2018, we entered into 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.
Future maturities of related party notes payable as of June 30, 2021, are as follows:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES
In thousands
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total | $ |
| F-13 |
NOTE 8 – OTHER NOTES PAYABLE
Other notes payable at June 30, 2021 and December 31, 2020, consists of the following:
SCHEDULE OF OTHER NOTES PAYABLE
| (In thousands) | June 30, 2021 | December 31, 2020 | ||||||
| Note Payable- Supplier | $ | $ | ||||||
| All Other | ||||||||
| Total | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long Term Notes Payable | $ | $ | ||||||
Note Payable - Supplier
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 |
| F-14 |
NOTE 9 – OTHER LIABILITIES
At June 30, 2021 and December 31, 2020, other liabilities consisted of the following:
SCHEDULE OF OTHER LIABILITIES
| (In thousands) | June 30, 2021 | December 31, 2020 | ||||||
| Other vendor payable | $ | $ | ||||||
| Dividend payable | ||||||||
| Bonus payable | - | |||||||
| Others | ||||||||
| Total other liabilities | ||||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Total long term other liabilities | $ | $ | ||||||
NOTE 10 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
Series A
As
of June 30, 2021, there were Series A preferred shares designated and Series A preferred shares outstanding.
Series B
As of June 30, 2021, there was preferred share designated and preferred shares outstanding.
Series C
As
of June 30, 2021, there were Series C Preferred Shares (“Series
C”) authorized with 745,030 issued and outstanding. The Series C shares have preferential rights above common shares and the Series
B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $per share per annum and have a liquidation preference
of $
COMMON STOCK
In
August 2020, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain existing
employees and attract new employees, directors, officers, consultants, and advisors 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. As of June 30, 2021, we had issued shares or $
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the six months ending
June 30, 2021 employees purchased or $
On
February 15, 2021 the Company issued shares to Orion 4, LLC as part of a consulting agreement. The shares were valued at $
For the six months ending June 30, 2021, in stock options and stock warrants were exercised in exchange for shares of OMNIQ common stock.
For the six months ended June 30, 2021 we did not grant or issue any options or warrants.
| F-15 |
Warrants
The following table summarizes information about warrants granted during the six-month periods ended June 30, 2021 and 2020:
SCHEDULE OF WARRANTS ACTIVITY
| June 30, 2021 | June 30, 2020 | |||||||||||||||
Number of warrants | Weighted Average Exercise Price | Number of warrants | Weighted Average Exercise Price | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||
| Warrants granted | ||||||||||||||||
| Warrants expired | ( | ) | ||||||||||||||
| Warrants cancelled, forfeited | - | |||||||||||||||
| Warrants exercised | ||||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Exercisable warrants | $ | $ | ||||||||||||||
Outstanding warrants as of June 30, 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 | $ | $ | |||||||||||||||||
Warrants outstanding at June 30, 2021 and 2020 have the following expiry date and exercise prices:
SCHEDULE OF WARRANTS OUTSTANDING, EXPIRY DATE AND EXERCISE PRICES
| Exercise | ||||||||||||
| Expiry Date | Prices | 2021 | 2020 | |||||||||
| F-16 |
Stock Options
SCHEDULE OF STOCK OPTIONS GRANTED
| June 30, 2021 | June 30, 2020 | |||||||||||||||
Number of stock options | Weighted Average Exercise Price | Number of stock options | Weighted Average Exercise Price | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||
| Stock options granted | ||||||||||||||||
| Stock options expired | ( | ) | ||||||||||||||
| Stock options cancelled, forfeited | ( | ) | ||||||||||||||
| Stock options exercised | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Exercisable stock options | $ | $ | ||||||||||||||
On September 30, 2020, the Company granted stock options. These options were granted as part of the asset acquisition described in Note 4, and to a member of the board of advisors, and to certain employees as part of the Company’s Equity Incentive Plan.
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
| Expiration Date | Exercise Prices | June 30, 2021 | June 30, 2020 | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| F-17 |
NOTE 11 – 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 six months ending June 30, 2021, we elected to forgo the match.
Operating Leases
As of June 30, 2021, we had two operating leases as follows:
| ● | Office
space in Akron, Ohio, with monthly payments of $ | |
| ● | A
vehicle with monthly payments of less than $ |
NOTE 12 – LITIGATION
In September 2020 the Company was named as a defendant in a Mississippi state lawsuit (the “Mississippi case”) filed by Riverland Technologies LLC (“Riverland”) in the Circuit Court of Rankin County, Mississippi. The subject matter of the Mississippi case directly relates to the RedLPR case, to which Riverland was also a party. Subject to a settlement between the Company and Riverland, all of Riverland’s claims against the Company in the Mississippi case have been dismissed, and the Company is no longer a party to the Mississippi case.
The
Company was named a defendant in a case involving a former employee who claims he is owed approximately $
The Company is not a party to any other pending material legal proceeding. 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 13 – RELATED PARTY TRANSACTIONS
Related party transactions are discussed in Note 7.
NOTE 14 – SUBSEQUENT EVENTS
On
May 6, 2021, the Company announced it entered into a definitive acquisition agreement pursuant to which OMNIQ will acquire
OMNIQ
agreed to pay the shareholder of Dangot a total of approximately $
On
July 8, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors providing
for the sale of shares of Common Stock at a purchase price of
$per share resulting in gross proceeds of approximately
$
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. The Eighth Amendment also provides that the Company will continue to make monthly installments of principal and accrued
interest at a minimum of $
The Company assessed other potential subsequent events and there were none as of the filing date.
| F-18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.
For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com.
Introduction
We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management and access control applications. The technology and services we provide helps our clients move people, assets and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments.
We offer end-to-end solutions that include hardware, software, communications, and full lifecycle management services. We are an established manufacturer and distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions backed by numerous customer references. We offer comprehensive packaged and configurable software and we are a leading provider of best-in-class mobile and wireless equipment.
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Our customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage, manufacturing, retail, distribution, transportation and logistics, and oil, gas, and chemicals.
The following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements contained in this Form 10-Q.
OVERVIEW
The Company’s sales from continuing operations for the six months ended June 30, 2021 were $32.9 million, an increase of approximately $6.4 million, or 24.2%, over the six months ended June 30, 2020.
The loss from continuing operations for the six months ended June 30, 2021 was $4.7 million, an increase of $1.4 million compared with the loss in the six months ended June 30, 2020 of $3.4 million. Basic loss per share from continuing operations for the six months ended June 30, 2021 was ($1.24) versus ($1.21) per share for the same time period in 2020.
SUBSEQUENT EVENT
On May 6, 2021, the Company announced it entered into a definitive acquisition agreement pursuant to which OMNIQ will acquire 51% of Dangot Computers Ltd. (“Dangot”), a leader in providing state of the art technology enabling frictionless automated order processing & digital payment processing products for retail, fast food and parking, integrated working stations for physicians, drug delivery and blood tests, robotics for smart warehouses, point of sales and other innovative solutions.
OMNIQ agreed to pay the shareholder of Dangot a total of approximately $7.6 million (depending upon exchange rate to the Israeli Shekel) comprised of approximately $5.6 million to be paid in cash and $2 million in restricted shares based on average closing share price over the 30 trading days prior to signing. OMNIQ will have a one-year option to acquire the remaining 49% at the same valuation. 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 $2,000,000 based on the average of the last 30 trading days prior to signing (May 3 ,2021); and (b) cash in the amount of $5,600,000.
On July 8, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors providing for the sale of 2,142,857 shares of Common Stock at a purchase price of $7.00 per share resulting in gross proceeds of approximately 15,000,000. In connection with the offering (the “July Offering”), the Company paid ThinkEquity, Inc., a commission of 8% and issued it warrants to purchase an aggregate of 171,429 shares at an exercise price of $7.70 per share and reimbursed them for expenses in the amount of $150,000.
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. The Eighth Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest at a minimum of $300 thousand each month and a final balloon payment of the remaining balance to be paid on August 15, 2022.
GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2021, we had a working capital deficit of $28.7 million. These facts and others raise substantial doubt about our 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.
Management’s plan to eliminate the going concern situation includes, but is not limited to, the following:
| ● | The continuation of improving cash flow by implementing and maintaining moderate cost reductions; | |
| ● | Increasing the accounts receivable factoring line of credit; | |
| ● | Negotiating lower interest rates on outstanding debt; | |
| ● | Potential issuances of additional common stock; | |
| ● | The creation of additional sales and profits across product lines, and obtaining sufficient financing to restructure current debt in a manner more in line with the Company’s improving cash flow and cost reduction successes; | |
| ● | In our portfolio of products, we have a computer vision technology that is based on AI and machine learning concepts. These solutions have a higher gross profit that will provide an increase in cashflow on a consolidated basis going forward. We have an operating facility with the ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit margins; |
The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Results of Operations
The following tables set forth certain selected unaudited condensed consolidated statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.
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| (In thousands, except per share data) | Three months ended June 30 | Variation | ||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| Revenue | $ | 13,119 | $ | 12,677 | 442 | 3.5 | % | |||||||||
| Cost of Goods sold | 9,820 | 10,099 | (279 | ) | -2.8 | % | ||||||||||
| Gross Profit | 3,299 | 2,578 | 721 | 28.0 | % | |||||||||||
| Operating Expenses | 5,141 | 3,892 | 1,250 | 32.1 | % | |||||||||||
| Income (loss) from operations | (1,842 | ) | (1,314 | ) | (529 | ) | 40.3 | % | ||||||||
| Net loss from continuing operations | (2,510 | ) | (1,992 | ) | (519 | ) | 26.1 | % | ||||||||
| Net Loss per common Share | $ | (0.53 | ) | $ | (0.49 | ) | (0.04 | ) | 8.6 | % | ||||||
Revenues
For the three months ended June 30, 2021 and 2020, the Company generated net revenues in the amount of $13.1 million and $12.7 million, respectively. The increase between the three-month periods was attributable to stronger fulfillment and deliveries by the Company and demand by certain customers in connection with the COVID-19 pandemic.
Cost of Goods Sold
For the three months ended June 30, 2021 and 2020, the Company recognized a total of $9.8 million and $10.1 million, respectively, of cost of goods sold. For the three months ended June 30, 2021 and 2020, cost of goods sold were 74.85% and 79.7% of net revenues, respectively. The 2021 decrease in cost of goods sold as a percentage of net revenue was attributable to discounts being granted during the Covid pandemic which are no longer being offered.
Operating expenses
Total operating expense for the three months ended June 30, 2021 and 2020 recognized was $5.1 million and $3.9 million, respectively, representing an 32.1% increase. The increases are primarily attributable to an increase in non-cash stock-based compensation awarded to professional service providers.
Research and Development – Research and development expenses for the three months ended June 30, 2021 and 2020 totaled $468 thousand and $447 thousand, respectively, representing a 4.7% increase. The increases are primarily attributed to expanding our range of solutions offered and development of the AI proprietary products.
Selling, general and Administrative – Selling, general and administrative expenses for the three months ended June 30, 2021 and 2020 totaled $4.1 million and $2.9 million, respectively, representing a 42% increase. The increase was due primarily to increased commissions and non-cash based compensation for employees.
Depreciation – Depreciation expenses for the three months ended June 30, 2021 and 2020 totaled $42 thousand and $43 thousand, respectively, representing an 2.3% decrease.
Intangible amortization – Intangible amortization expenses for the three months ended June 30, 2021 and 2020 totaled $522 thousand and $510 thousand, respectively.
Other income and expenses
Interest Expense - Interest expense for the three months ended June 30, 2021 totaled $714 thousand, as compared to $418 thousand for the three months ended June 30, 2020. The increase is primarily attributable to interest expense incurred in connection with vendor interest agreements.
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| (In thousands, except per share data) | Six months ended June 30 | Variation | ||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| Revenue | $ | 32,870 | $ | 26,476 | 6,394 | 24.2 | % | |||||||||
| Cost of Goods sold | 26,936 | 20,862 | 6,074 | 29.1 | % | |||||||||||
| Gross Profit | 5,934 | 5,614 | 320 | 5.7 | % | |||||||||||
| Operating Expenses | 10,641 | 8,964 | 1,677 | 18.7 | % | |||||||||||
| Income (loss) from operations | (4,707 | ) | (3,350 | ) | (1,357 | ) | 40.5 | % | ||||||||
| Net loss from continuing operations | (5,853 | ) | (4,865 | ) | (988 | ) | 20.3 | % | ||||||||
| Net Loss per common Share | $ | (1.24 | ) | $ | (1.21 | ) | (0.03 | ) | 2.6 | % | ||||||
Revenues
For the six months ended June 30, 2021 and 2020, the Company generated net revenues in the amount of $32.9 million and $26.5 million, respectively. The increase between the six-month periods was attributable to stronger fulfillment and deliveries by the Company and demand by certain customers in connection with the COVID-19 pandemic.
Cost of Goods Sold
For the six months ended June 30, 2021 and 2020, the Company recognized a total of $26.9 million and $20.9 million, respectively, of cost of goods sold. For the six months ended June 30, 2021 and 2020, cost of goods sold were 81.95% and 78.80% of net revenues, respectively. The 2021 increase in cost of goods sold as a percentage of net revenue was attributable to certain lower-margin deals reached by the Company with certain large customers during the COVID-19 pandemic.
Operating expenses
Total operating expense for the six months ended June 30, 2021 and 2020 recognized was $10.6 million and $9.0 million, respectively, representing an 18.7% increase. The increases are primarily attributable to an increase in non-cash stock-based compensation awarded to professional service providers.
Research and Development – Research and development expenses for the six months ended June 30, 2021 and 2020 totaled $962 thousand and $832 thousand, respectively, representing a 15.6% increase. The increases are primarily attributed to expanding our range of solutions offered and development of the AI proprietary products.
Selling, general and Administrative – Selling, general and administrative expenses for the six months ended June 30, 2021 and 2020 totaled $8.5 million and $7 million, respectively, representing a 21.6% increase. The increase was due primarily to increased revenues.
Depreciation – Depreciation expenses for the six months ended June 30, 2021 and 2020 totaled $85 thousand and $90 thousand, respectively, representing an 5.6% decrease.
Intangible amortization – Intangible amortization expenses for the six months ended June 30, 2021 and 2020 totaled $1,047 thousand and $1,011 thousand, respectively.
Other income and expenses
Interest Expense - Interest expense for the six months ended June 30, 2021 totaled $1.3 million, as compared to $1.2 million for the six months ended June 30, 2020. The increase is primarily attributable to interest expense incurred in connection with vendor interest agreements.
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Net loss from operations
The Company realized a net loss from continuing operations of $5.9 million for the six months ended June 30, 2021, compared to a net loss of $4.9 million for the six months ended June 30, 2020, an increase of $1 million.
The increase in net loss between the six-month periods is mainly attributable to the Company’s lower margin in 2021 compared with the same periods in 2020.
Liquidity and capital resources
As of June 30, 2021, the Company had cash in the amount of $5.4 million of which $220 thousand is on deposit and a working capital deficit of $28.7 million, compared to cash in the amount of $5.1 million, of which $.5 million was restricted, and a working capital deficit of $25.3 million as of December 31, 2020. In addition, the Company had a stockholders’ deficit of $8.6 million as of June 30, 2021 and stockholders’ deficit of $5 million as of December 31, 2020.
The Company’s accumulated deficit was $62.6 million and $56.7 million on June 30, 2021, and December 31, 2020, respectively.
The Company’s operations resulted in net cash provided of $4.2 million during the six months ended June 30, 2021, compared to net cash used of $549 thousand during the six months ended June 30, 2020, an increase of $3.7 million. The changes in the non-cash working capital accounts are primarily attributable the large increases in accounts receivable and accounts payable during the first six months of 2021.
Net cash provided by investing activities was $562 thousand for the six months ended June 30, 2021, compared to net cash provided of $48 thousand for the six months ended June 30, 2020, an decrease of $19 thousand.
The Company’s financing activities used net cash of $4 million during the six months ended June 30, 2021, compared to net cash provided of $2.3 million during the six months ended June 30, 2020.
Inflation
The Company’s results of operations have not been affected by inflation and management does not expect inflation to have a material impact on its operations in the future.
Off- Balance Sheet Arrangements
The Company currently does not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of June 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.
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Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of June 30, 2021, our disclosure controls and procedures were ineffective as of the end of the period covered to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weaknesses which are indicative of many small companies with limited staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure.
During 2020, we identified material weaknesses in our internal control over financial reporting, which were disclosed in our annual report on Form 10-K filed with the SEC on March 31, 2021.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that occurred during the six months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 2020 the Company was named as a defendant in a Mississippi state lawsuit (the “Mississippi case”) filed by Riverland Technologies LLC (“Riverland”) in the Circuit Court of Rankin County, Mississippi. The subject matter of the Mississippi case directly relates to the RedLPR case, to which Riverland was also a party. Subject to a settlement between the Company and Riverland, all of Riverland’s claims against the Company in the Mississippi case have been dismissed, and the Company is no longer a party to the Mississippi case.
The Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. The Company believes the claim is without merit and intends to defend itself against said claim.
The Company is not a party to any other pending material legal proceeding. 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.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at SEC’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.
You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements.
Our website is located at http://www.omniq.com. The Company’s website and the information to be contained on that site, or connected to that site, is not part of or incorporated by reference into this filing.
ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 12, 2021
| OMNIQ CORP. | ||
| By: | /s/ Shai Lustgarten | |
| Shai Lustgarten | ||
| President and Chief Executive Officer | ||
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EXHIBIT INDEX
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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