OMNIQ Corp 10-Q for FY2022 Q1
OMNIQ Corp. (OMQS)
About this 10-Q
OMNIQ Corp filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $26.32M
- up 33.3% from $19.75M a year earlier
- Net loss
- $2.64M
- compared with a net loss of $3.34M 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
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| The
|
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 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 | ||
| (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 April 29, 2022.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNIQ CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| (UNAUDITED) | ||||||||
| As of | ||||||||
| (In thousands, except share and per share data) | March 31, 2022 | December 31, 2021 | ||||||
| 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 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 | ( | ) | ( | ) | ||||
| Cumulative Translation Adjustment | ( | ) | ( | ) | ||||
| Total OmniQ stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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, except share and per share data) | 2022 | 2021 | ||||||
| For the three months | ||||||||
| ending March 31, | ||||||||
| (In thousands, except share and per share data) | 2022 | 2021 | ||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
| Net income attributable to noncontrolling interest | - | |||||||
| Net Loss attributable to OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| 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 less series C dividend | $ | ( | ) | $ | ( | ) | ||
| Net income after series C dividend attributable to noncontrolling interest | - | |||||||
| Net loss after series C dividend attributable to common stockholders’ of OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp | $ | ( | ) | $ | ( | ) | ||
| 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)
| Series C | Additional | Non | Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Shares | Accumulated | Controlling | Comprehensive | Equity | |||||||||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Repurchased | Deficit | Interest | Income (Loss) | (Deficit) | ||||||||||||||||||||||||||||||
| 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 | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Dividend on Class C Shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| ESPP Stock Issuance | - | |||||||||||||||||||||||||||||||||||||||
| Warrant issued for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Cumulative Translation Adjustment | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
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) | March 31, 2022 | March 31, 2021 | ||||||
| Cash flows from operations | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Loss on disposal of property and equipment | - | |||||||
| Stock-based compensation | ||||||||
| 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 provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| 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 | ( | ) | - | |||||
| Payments on notes/loans payable | ( | ) | ||||||
| Net proceeds from draw on line of credit | ( | ) | ||||||
| Net cash provided by (used in) 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: | ||||||||
| Declared dividends payable | $ | $ | ||||||
| Purchase of PP&E with financing | $ | $ | ||||||
| Warrants/stock issued for service | $ | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
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
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of OMNIQ Corp, and its wholly owned subsidiaries, referred to herein as “we,” “us,” “OMNIQ,” or the “Company”. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. During three-month period ended March 31, 2022, there were no significant changes to those accounting policies.
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 three-months ended March 31, 2022 and 2021 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 | March 31, 2022 | March 31, 2021 | ||||||
| Options to purchase common stock | ||||||||
| Convertible preferred stock | - | - | ||||||
| Warrants to purchase common stock | ||||||||
| Potential shares excluded from diluted net loss per share | ||||||||
| F-5 |
NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The following are the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue as a going concern:
| ● | 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
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. | |
| ● | March
25, 2022 management finalized an $ | |
| ● | As
of March 31, 2022, 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 March 31, 2022 was approximately $ |
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.
NOTE 3 – CONCENTRATIONS
For
the three-months ended March 31, 2022 and the year ended December 31, 2021, two customers accounted for
Accounts
receivable at March 31, 2022 and December 31, 2021 are made up of trade receivables due from customers in the ordinary course of business.
Four customers made up
For
the three months ended March 31, 2022 and the year ended December 31, 2021 one vendor made up
| F-6 |
NOTE 4 – BUSINESS ACQUISITION
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. 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 $thousand and (b) cash in the amount of $thousand and $thousand payable to owner.
Effective October 1, 2021 the Company exercised
a portion of its option and purchased an additional
The following proforma unaudited revenue and earnings as if the acquisition had been included in the consolidated results of the company for the three months ended March 31, 2021.
SCHEDULE OF ACQUISITIONS UNAUDITED REVENUE
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (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 three months ended March 31, 2022, was $
| F-7 |
NOTE 5 – 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.
On
March 25, 2022 we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance
Bank (“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term
financing by selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal
amount of advances made by BridgeBank at any time shall not exceed $
The
annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis)
is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus
NOTE 6 – RELATED PARTY NOTES PAYABLE
Related party notes payable, consisted of the following as of:
SCHEDULE OF NOTES PAYABLE, RELATED PARTIES
| March 31, 2022 | December 31, 2021 | |||||||
| In thousands | ||||||||
| Note payable –Marin | $ | $ | ||||||
| Note payable –Thomet | ||||||||
| Total notes payable | ||||||||
| Less current portion | ||||||||
| Long-term portion | $ | $ | ||||||
Note Payable -Marin
In
December 2017, we entered into a $
Note Payable – Thomet
In
December 2017, we entered into a $
Future maturities of related party notes payable as of March 31, 2022, are as follows:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES
In thousands
| 2022 | ||||
| 2023 | ||||
| Total | $ |
| F-8 |
NOTE 7 – OTHER NOTES PAYABLE
SCHEDULE OF OTHER NOTES PAYABLE
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Note Payable- Supplier | $ | $ | ||||||
| Note Payable 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
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. |
Notes Payable other
On
July 29, 2021 the Company entered into a long-term loan from Leumi Bank totaling NIS
On
November 28, 2021 the Company entered into another long-term loan from Leumi Bank totaling NIS
During
the year ended December 31, 2021, the Company entered into five lines of credit totaling 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 totaling NIS
NOTE 8 – OTHER LIABILITIES
SCHEDULE OF OTHER LIABILITIES
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Other vendor payable | $ | $ | ||||||
| Dividend payable | ||||||||
| Others | ||||||||
| Total other liabilities | ||||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Total long term other liabilities | $ | $ | ||||||
| F-9 |
NOTE 9 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
Series A
As
of March 31, 2022, there were Series A preferred shares designated and Series A preferred shares outstanding.
Series B
As of March 31, 2022, there was preferred share designated and preferred shares outstanding.
Series C
As
of March 31, 2022, there were Series C Preferred Shares (“Series C”) authorized with 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 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. On February 25, 2022, the Company granted stock options. These options were granted to employees as part of the Company’s Equity Incentive Plan.
For the three months ending March 31, 2022, in stock options and stock warrants were exercised in exchange for shares of OMNIQ common stock.
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the three months
ending March 31, 2022 employees purchased shares
or $
NOTE 10 – LITIGATION
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 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 11 – SUBSEQUENT EVENTS
On
April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase % of
the capital stock, thereby making Dangot a fully owned subsidiary of the Company. The Company paid $
| F-10 |
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, 2021 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, 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 operations for the three months ended March 31, 2022, were $26.3 million, an increase of approximately $6.6 million, or 33.3%, over the three months ended March 31, 2021.
The loss from operations for the three months ended March 31, 2022, was $1.4 million, a decrease of $1.5 million compared with the loss in the three months ended March 31, 2021, of $2.9 million. Basic loss per share from continuing operations for the three months ended March 31, 2022, was ($0.34) versus ($0.70) per share for the same period in 2021.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The following are the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue as a going concern:
| ● | Balancing the need for operational cash with the need to add additional products | |
| ● | Timely and cost-effective development of products | |
| ● | Working capital deficit of $25 million as of March 31, 2022 | |
| ● | Accumulated deficit of $73 million as of March 31, 2022 | |
| ● | 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 received 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. See note 11. | |
| ● | 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 finalized an $8.5M line of credit from Western Alliance Bank. This line of credit will replaced 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 March 31, 2022, 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 June 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 March 31, 2022 was approximately $33M. Blue Star is an unsecured creditor, financing a substantial amount of 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. |
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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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.
| Three months ended March 31, | Variation | |||||||||||||||
| In thousands | 2022 | 2021 | $ | % | ||||||||||||
| Revenue | $ | 26,322 | $ | 19,751 | $ | 6,571 | 33.27 | % | ||||||||
| Cost of Goods sold | 20,194 | 17,115 | 3,079 | 17.99 | % | |||||||||||
| Gross Profit | 6,128 | 2,636 | 3,492 | 132.50 | % | |||||||||||
| Operating Expenses | 7,537 | 5,500 | 2,037 | 37.04 | % | |||||||||||
| Loss from operations | (1,409 | ) | (2,864 | ) | 1,455 | (50.80 | )% | |||||||||
| Net loss | (2,569 | ) | (3,343 | ) | 774 | (23.14 | )% | |||||||||
| Net Loss per common Share from continuing operations | $ | (0.34 | ) | $ | (0.70 | ) | $ | 0.36 | (51.43 | )% | ||||||
Revenues
For the three months ended March 31, 2022 and 2021, the Company generated net revenues in the amount of $26.3 million and $19.8 million, respectively. The increase between the three-month periods was attributable to the additional sales channel’s provided by the acquisition of Dangot.
Cost of Goods Sold
For the three months ended March 31, 2022 and 2021, the Company recognized a total of $20.2 million and $17.1 million, respectively, of cost of goods sold. For the three months ended March 31, 2022 and 2021, cost of goods sold were 77% and 87% of net revenues, respectively. The 2022 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 March 31, 2022 and 2021 recognized was $7.5 million and $5.5 million, respectively, representing a 36.4% increase. The increases are related to the additional operations from Dangot.
Research and Development – Research and development expenses for the three months ended March 31, 2022 and 2021 totaled $523 thousand and $494 thousand, respectively, representing a 5.8% increase. The increases are primarily attributed to expanding our range of solutions offered and development of our AI proprietary products.
Selling, general and Administrative – Selling, general and administrative expenses for the three months ended March 31, 2022 and 2021 totaled $6.5 million and $4.4 million, respectively, representing a 45.9% increase. The increase was due primarily to increased number of employees and operating activities from the acquisition of Dangot.
Depreciation – Depreciation expenses for the three months ended March 31, 2022 and 2021 totaled $93 thousand and $43 thousand, respectively, representing a 115% increase. The increase is directly increased by the acquisition of additional fixed assets.
Intangible amortization – Intangible amortization expenses for the three months ended March 31, 2022 and 2021 totaled $445 thousand and $525 thousand, respectively. The decrease is due to diminishing life of intangibles.
Other income and expenses
Interest Expense – Interest expense for the three months ended March 31, 2022 totaled $812 thousand, as compared to $589 thousand for the three months ended March 31, 2021. The increase is primarily attributable to additional lines of credit.
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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 March 31, 2022, 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 March 31, 2022, 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 2021, 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, 2022.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. The Company intends to defend the case. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
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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.
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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: May 16, 2022
| OMNIQ CORP. | ||
| By: | /s/ Shai Lustgarten | |
| Shai Lustgarten | ||
| President and Chief Executive Officer | ||
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EXHIBIT INDEX
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Shai Lustgarten, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March, 31, 2022 of OMNIQ Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 16, 2022 | /s/ Shai Lustgarten |
| Shai Lustgarten, | |
| Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Neev Nissenson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2022 of OMNIQ Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 16, 2022 | /s/ Neev Nissenson |
| Neev Nissenson | |
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b) UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
Each of the undersigned, Shai Lustgarten and Neev Nissenson, certifies pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, that (1) this quarterly report on Form 10-Q for the quarter ended March 31, 2022 of OMNIQ Corp. (the “Company”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 16, 2022
| /s/ Shai Lustgarten | |
| Shai Lustgarten, | |
| Chief Executive Officer | |
| /s/ Neev Nissenson | |
| Neev Nissenson | |
| Chief Financial Officer |