UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, 2022

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

For the transition period from________ to__________

Commission File Number: 001-40768

OMNIQ Corp.

(Exact name of registrant as specified in its charter)

Delaware

20-3454263

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

1865 West 2100 South

Salt Lake City, UT 84119

(Address of principal executive offices) (Zip Code)

(801) 244-9577

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		OMQS		The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-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 ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 7,694,052 shares of common stock, $0.001 par value, as of November 7, 2022.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	F-1
ITEM 1. FINANCIAL STATEMENTS	F-1
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2022 AND DECEMBER 31, 2021	F-1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021	F-2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND DECEMBER 31, 2021	F-3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021	F-4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F-5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7
ITEM 4. CONTROLS AND PROCEDURES	7
PART II - OTHER INFORMATION	8
ITEM 1. LEGAL PROCEEDINGS.	8
ITEM 1A. RISK FACTORS.	8
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.	9
ITEM 4. MINE SAFETY DISCLOSURES.	9
ITEM 5. OTHER INFORMATION.	9
SIGNATURES	10
ITEM 6. EXHIBITS.	11

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMNIQ CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	(UNAUDITED)
(In thousands, except share and per share data)	As of
	September 30, 2022			December 31, 2021
	(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents	$	3,791		$	7,085
Accounts receivable, net		26,583			27,123
Inventory		8,038			6,955
Prepaid expenses		2,311			1,987
Other current assets		13			9
Total current assets		40,736			43,159

Property and equipment, net of accumulated depreciation of $1,397 and $2,203 respectively		940			1,127
Goodwill		16,519			16,453
Trade name, net of accumulated amortization of $4,309 and $3,863, respectively		1,975			2,421
Customer relationships, net of accumulated amortization of $10,487 and $9,660, respectively		5,242			6,069
Other intangibles, net of accumulated amortization of $1,485 and $1,457, respectively		723			865

Right of use lease asset		2,582			3,556
Other assets		1,628			1,431
Total assets	$	70,345		$	75,081

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	50,874		$	45,553
Line of credit		7,533			5,951
Accrued payroll and sales tax		2,860			2,658
Notes payable, related parties – current portion		390			390
Notes payable – current portion		7,995			7,521
Lease liability – current portion		1,000			1,341
Other current liabilities		2,558			2,683
Total current liabilities		73,210			66,097

Long term liabilities
Notes payable, related party, less current portion		-			293
Accrued interest and accrued liabilities, related party		71			63
Notes payable, less current portion		2,855			2,646
Lease liability		1,628			2,266
Other long term liabilities		145			1,418
Total liabilities		77,909			72,783

Stockholders’ equity (deficit)
Series A Preferred stock; $0.001 par value; 2,000,000 shares designated, 0 shares issued and outstanding		-			-
Series B Preferred stock; $0.001 par value; 1 share designated, 0 shares issued and outstanding		-			-
Series C Preferred stock; $0.001 par value; 3,000,000 shares designated, 544,500 shares issued and outstanding, respectively		1			1
Preferred Stock Value		1			1
Common stock; $0.001 par value; 15,000,000 shares authorized; 7,612,744 and 7,448,597 shares issued and outstanding, respectively.		8			20
Additional paid-in capital		72,568			70,606
Accumulated (deficit)		(80,401	)		(70,571	)

Cumulative Translation Adjustment		260			(154	)
Total OmniQ stockholders’ deficit		(7,564	)		(98	)
Non controlling interest		-			2,396
TOTAL EQUITY (DEFICIT)		(7,564	)		2,298

Total liabilities and equity (deficit)	$	70,345		$	75,081

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)


	For the three months						For the nine months
	ending September 30,						ending September 30,
(In thousands, except share and per share data)	2022			2021			2022			2021
Revenues
Total Revenues	$	27,008		$	20,513		$	77,539		$	53,383

Cost of goods sold
Cost of goods sold		21,032			15,842			59,449			42,778

Gross profit		5,976			4,671			18,090			10,605

Operating expenses
Research & Development		445			474			1,436			1,437
Selling, general and administrative		7,624			6,801			21,173			15,348
Depreciation		91			82			241			167
Amortization		474			1,528			1,326			2,575
Total operating expenses		8,634			8,885			24,176			19,527

Loss from operations		(2,658	)		(4,214	)		(6,086	)		(8,922	)

Other income (expenses):
Interest expense		(880	)		(587	)		(2,569	)		(1,890	)
Other (expenses) income		(217	)		(158	)		(870	)		2
Total other expenses		(1,097	)		(745	)		(3,439	)		(1,888	)

Net Loss Before Income Taxes		(3,755	)		(4,959	)		(9,525	)		(10,810	)

Provision for Income Taxes
Current		(55	)		(117	)		(41	)		(119	)
Total Provision for Income Taxes		(55	)		(117	)		(41	)		(119	)

Net Loss	$	(3,810	)	$	(5,076	)	$	(9,566	)	$	(10,929	)
Net income attributable to noncontrolling interest		-			166			67			166
Net Loss attributable to OmniQ Corp	$	(3,810	)	$	(5,242	)	$	(9,633	)	$	(11,095	)

Net Loss	$	(3,810	)	$	(5,076	)	$	(9,566	)	$	(10,929	)

Foreign currency translation adjustment		241			(58	)		260			(24	)

Comprehensive loss		(3,569	)		(5,134	)		(9,306	)		(10,953	)

Reconciliation of net loss to net loss attributable to common shareholders
Net loss		(3,810	)		(5,076	)		(9,566	)		(10,929	)

Less: Dividends attributable to non-common stockholders’ of OmniQ Corp		(149	)		(12	)		(197	)		(57	)

Net loss less non-common stockholder dividends	$	(3,959	)	$	(5,088	)	$	(9,763	)	$	(10,986	)

Net income after non-common stockholder dividends attributable to noncontrolling interest		-			166			-			166
Net loss attributable to common stockholders of OmniQ Corp		(3,959	)		(5,242	)		(9,763	)		(11,095	)


Net (loss) per share - basic attributable to common stockerholders’ of OmniQ Corp	$	(0.52	)	$	(0.73	)	$	(1.29	)	$	(1.86	)

Weighted average number of common shares outstanding - basic		7,578,351			7,224,958			7,545,190			5,971,440

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			Accumulated			Controlling			Comprehensive			Equity
(In thousands)	Shares			Amount			Shares		Amount			Capital			Deficit			Interest			Income (Loss)			(Deficit)

Balance, December 31, 2020		2,145		$	2			4,685	$	5			51,842		$	(56,726	)		-		$	(166	)	$	(5,043	)
Dividend on class C shares		-			-			-		-			-			(31	)		-			-			(31	)
ESPP stock issuance		-			-			-		-			1			-			-			-			1
ESPP stock issuance, shares
Stock-based compensation – options, warrants, issuances		-			-			-		-			786			-			-			-			786
Stock and warrant issued for services		-			-			25		-			188			-			-			-			188
Exercise of stock options and warrants		-			-			6		-			2			-			-			-			2
Cumulative translation adjustment		-			-			-		-			-			-			-			105			105
Other		-			-			-		-			-			(4	)		-			-			(4	)
Net (loss) income		-			-			-		-			-			(3,343	)		-			-			(3,343	)
Balance, March 31, 2021		2,145			2			4,716		5			52,819			(60,104	)		-			(61	)		(7,339	)
Dividend on class C shares		-			-			-		-			-			(14	)		-			-			(14	)
ESPP stock issuance		-			-			1		-			4			-			-			-			4
Stock-based compensation – options, warrants, issuances		-			-			-		-			786			-			-			-			786
Exercise of stock options and warrants		-			-			240		-			304			-			-			-			304
Cumulative translation adjustment		-			-			-		-			-			-			-			(71	)		(71	)
Conversion of equity		(1,400	)		(1	)		70		-			1			-			-			-			-
Conversion of debt		-			-			25		-			203			-			-			-			203
Net (loss) income		-			-			-		-			-			(2,510	)		-			-			(2,510	)
Balance, June 30, 2021		745		$	1			5,052	$	5		$	54,117		$	(62,628	)	$	-		$	(132	)	$	(8,637	)
Dividend on class C shares		-			-			-		-			-			(12	)		-			-			(12	)
ESPP stock issuance		-			-			1		-			10			-			-			-			10
Stock-based compensation – options, warrants, issuances		-			-					-			653			-			-			-			653
Exercise of stock options and warrants		-			-			33		-			132			-			-			-			132
Stock and warrant issuances, net of issuance costs		-			-			2,143		15			13,280			-			-			-			13,295
Stock and warrant issuance for acquisition		-			-			220		-			2,084			-			-			-			2,084
Cumulative translation adjustment		-			-					-			-			-			59			(58	)		1
Dangot acquisition		-			-			-		-			-			-			6,508			-			6,508
Post acquisition adjustment		-			-			-		-			-			(1	)		(324	)		-			(325	)
Net (loss) income		-			-			-		-			-			(5,242	)		166			-			(5,076	)
Balance, September 30, 2021		745		$	1			7,449	$	20		$	70,276		$	(67,883	)	$	6,409		$	(190	)	$	8,633
Balance, December 31, 2021		544		$	1			7,459		20			70,606			(70,571	)		2,396			(154	)		2,298
Dividends		-			-			-		-			-			(48	)		-			-			(48	)
ESPP stock issuance		-						2		-			8			-			-			-			8
Stock and warrant issued for services		-			-			-		-			298			-			-			-			298
Stock-based compensation – options, warrants, issuances		-			-			-		-			460			-			-			-			460
Exercise of stock options and warrants		-			-			99		-			41			-			-			-			41
Cumulative translation adjustment		-			-			-		-			-			-			(20	)		(10	)		(30	)
Net (loss) income		-			-			-		-			-			(2,636	)		67			-			(2,569	)
Balance, March 31, 2022		544		$	1			7,560	$	20		$	71,413		$	(73,255	)	$	2,443		$	(164	)	$	458
Dividends		-			-			-		-			-			(141	)		-			-			(141	)
ESPP stock issuance		-			-			1		-			10			-			-			-			10
Noncontrolling interests - distributions and other		-			-			-		-			(668	)		-			(2,443	)		-			(3,111	)
Exercise of stock options and warrants		-			-			18		-			87			-			-			-			87
Stock-based compensation – options, warrants, issuances		-			-			-		-			743			-			-			-			743
																			-
Cumulative translation adjustment		-						-		-			-			-			-			241			241
Net (loss) income													-			(3,186	)		-			-			(3,186	)
Balance, June 30, 2022		544		$	1			7,579	$	20		$	71,585		$	(76,582	)	$	-		$	77		$	(4,899	)
Dividends		-			-			-		-			-			(8	)		-			-			(8	)
ESPP stock issuance		-			-			2		-			8			-			-			-			8
Other		-			-			-		(12	)		13			(1	)		-			-			-
Exercise of stock options and warrants		-			-			11		-			19			-			-			-			19
Stock-based compensation – options, warrants, issuances		-			-			-		-			834			-			-			-			834
Stock and warrants issued for services		-			-			20		-			109			-			-			-			109
Cumulative translation adjustment		-			-			-		-			-			-			-			183			183
Net (loss) income		-			-			-		-			-			(3,810	)		-			-			(3,810	)
Balance, September 30, 2022		544		$	1			7,612	$	8		$	72,568		$	(80,401	)	$	-		$	260		$	(7,564	)

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

F-3

OMNIQ CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30,

(In thousands)	2022			2021
Cash flows from operations
Net loss	$	(9,566	)	$	(10,929	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on disposal of PP&E		46			-
Stock-based compensation		2,817			2,620
Depreciation and amortization		1,567			3,544
Amortization of ROU asset		695			53
Changes in operating assets and liabilities:
Accounts receivable		(1,311	)		2,502
Prepaid expenses		(502	)		(1,139	)
Inventory		(1,847	)		(671	)
Other assets		168			428
Accounts payable and accrued liabilities		6,951			(1,104	)
Accrued interest and accrued liabilities, related party		7			7
Accrued payroll and sales taxes payable		404			345
Lease liability		(693	)		920
Deferred tax assets, net		(107	)		-
Other liabilities		(630	)		1,632
Net cash used in operating activities		(2,001	)		(1,792	)

Cash flows from investing activities
Payment for additional ownership in subsidiary		(3,518	)		-
Payment for acquisition, net of cash acquired		-			(4,392	)
Purchase of property and equipment		(230	)		(976	)
Proceeds from sale of other assets		(175	)		-
Net cash used in investing activities		(3,923	)		(5,368	)

Cash flows from financing activities
Proceeds from private placement		-			13,295
Proceeds from ESPP stock issuance		27			14
Proceeds from exercise of options and warrants		147			435
Dividends paid		(1,448	)		-
Payments on notes/loans payable		(3,092	)		(4,793	)
Proceeds from the issuance of notes/loans payable		4,822			2,172
Proceeds from draw on line of credit		1,879			926
Net cash provided by financing activities		2,335			12,049

Net change in cash and cash equivalents		(3,589	)		4,889

Effect of foreign exchange rates on cash and cash equivalents		295			(23	)

Cash and cash equivalents at beginning of period		7,085			5,127

Cash and cash equivalents at end of period	$	3,791		$	9,993

Non-cash activities:
Stock issued for services	$	-		$	188
Declared dividends payable	$	24		$	-
Net assets acquired in business combination	$	-		$	13,052
Stock options and warrants issued	$	-		$	171
Right of use asset acquired in exchange for lease liability	$	-		$	1,276
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,569		$	1,101
Cash paid for income taxes	$	66		$	110

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 nine-month period ended September 30, 2022, there were no significant changes to those accounting policies.

Net Loss Per Common Share

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the nine-months ended September 30, 2022, and 2021 were 7,558,311 and 5,971,440, 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 anti-dilutive.

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

In thousands	September 30, 2022		September 30, 2021
Options to purchase common stock		2,174		1,654
Warrants to purchase common stock		1,482		1,404
Potential shares excluded from diluted net loss per share		3,656		3,058

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 $32 million as of September 30, 2022
	●	Accumulated deficit of $80 million as of September 30, 2022
	●	Multiple years of net 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 on March 30, 2022. The Company also expects that Dangot’s cashflow will be able to service the debts associated with its acquisition without the need for cash from the rest of the group.
	●	The acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders 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.
	●	March 25, 2022 management finalized an $8.5M line of credit from Western Alliance Bank. This line of credit 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 September 30, 2022, the Company had approximately $3.8 million, in cash.
	●	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 September 30, 2022 was approximately $35M. Blue Star is an unsecured creditor, financing a substantial amount the Company’s supply chain demand. Blue Star continues selling to the Company with preferable credit terms. Blue Star has agreed to reduce the annual interest rate on invoices that are past due to just 5%. We anticipate, consistent with prior periods, Blue Star will continue to extend us such preferable payments terms in the foreseeable future. As an unsecured creditor of the Company, Blue Star has no incentive to force a liquidation. The Company has enjoyed a good mutual relationship for the past four years.

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 nine-months ended September 30, 2022 there were no customers concentrations to disclose, and for the year ended December 31, 2021, there were two customer accounted for 23% of the Company’s consolidated revenues.

Accounts receivable at September 30, 2022 and December 31, 2021 are made up of trade receivables due from customers in the ordinary course of business. Two customers made up 44.3% of the accounts receivable balance at September 30, 2022 and one customer represented 17% of the balance of accounts receivable at December 31, 2021.

For the nine months ended September 30, 2022 and the year ended December 31, 2021 one vendor made up 65% and 65%, respectively, of our purchases.

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 220,103 shares of its common stock having a share value of $2,084 thousand and (b) cash in the amount of $5,058 thousand and $600 thousand payable to owner.

Effective October 1, 2021, the Company exercised a portion of its option and purchased an additional 26% of Dangot bringing its ownership to 77%. The Company paid $4,012,000 to purchase the additional shares.

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

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 $8.5 million. BridgeBank reserves and withholds to 15% of the face amount of each account purchased in a reserve account. During the nine months ended September 30, 2022 we had a net borrowing of an additional $1.8 million on the line and incurred $645 thousand in origination fees. As a result of entering into the BFA we have paid off and terminated the Factoring and Security Agreement with Action Capital. See notes 11 and 19 the 2021 Form 10-K.

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

NOTE 6 – RELATED PARTY NOTES PAYABLE

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

	September 30, 2022			December 31, 2021
In thousands
Note payable –Marin	$	240		$	420
Note payable –Thomet		150			263
Total notes payable		390			683
Less current portion		(390	)		(390	)
Long-term portion	$	-		$	293

Note Payable -Marin

In December 2017, we entered into a $660 thousand, 1.89% annual interest rate note payable (the “Marin Note”) with two individuals from whom we previously acquired their company (in 2014). The Marin Note is payable in 60 monthly principal payments of $20 thousand beginning in October 2018. Accrued interest payable as of September 30, 2022, was $71 thousand. Accrued interest is payable at maturity.

Note Payable – Thomet

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

Future maturities of related party notes payable as of September 30, 2022, are as follows:

In thousands


2022		98
2023		292

Total	$	390

F-8

NOTE 7 – NOTES PAYABLE

SCHEDULE OF OTHER NOTES PAYABLE

(In thousands)	September 30, 2022			December 31, 2021
Note Payable- Supplier	$	-		$	2,243
Note Payable other		10,850			7,924

Total		10,850			10,167
Less current portion		(7,995	)		(7,521	)
Long Term Notes Payable	$	2,855		$	2,646

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 $12.5 million (the “Secured Promissory Note”). The USD Note accrues interest at 18% per annum and is payable in six consecutive monthly installments of principal and accrued interest in a minimum principal amount of $250 thousand each, with any remaining principal and accrued interest due and payable on December 31, 2016.

●

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 18% to 10%. 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. As has been the case with each previous amendment, the Company is in continual negotiations with the holder of the Secured Promissory Note to extend the maturity date and establish a new schedule of payments.

●	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 7 million, which at the time was approximately $2.16 million. The note accrues interest at 4.7% per annum and is payable in 8 installments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

On November 28, 2021 the Company entered into another long-term loan from Leumi Bank totaling NIS 3.5 million, which at the time was approximately $1.1 million. The note accrues interest at 7% per annum and is payable in 8 installments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

During the year ended December 31, 2021, the Company entered into five lines of credit totaling NIS 17.5 million, as of September 30, 2022 the outstanding balance was NIS 17.5 million, approximately $4.9 million.

On August 11, 2021, the Company purchased vehicles using cash and financing of NIS 500 thousand, approximately $155 thousand, to be paid off in monthly interest and principal payments over 5 years. The loan accrues interest at 7.5% per annum and is secured by the vehicles. As of September 30, 2022, the remaining balance was NIS 231 thousand, which was approximately $65 thousand.

On March 27, 2022 the Company entered into another long-term loan from Leumi Bank totaling NIS 3.5 million, which at the time was approximately $1.1 million. The note accrues interest at 7% per annum and is payable in 8 installments of principal and interest over 4 years. The note is secured by shares of Dangot Computers, Ltd.

NOTE 8 – OTHER LIABILITIES

SCHEDULE OF OTHER LIABILITIES

(In thousands)	September 30, 2022			December 31, 2021
Other vendor payable	$	801		$	801
Dividend payable		145			1,418
Others		1,757			1,882
Total other liabilities		2,703			4,101
Less Current Portion		(2,558	)		(2,683	)
Total long term other liabilities	$	145		$	1,418

F-9

NOTE 9 – STOCKHOLDERS’ EQUITY

PREFERRED STOCK

Series A

As of September 30, 2022, there were 2,000,000 Series A preferred shares designated and no Series A preferred shares outstanding. The board of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share of preferred to 250 common shares.

Series B

As of September 30, 2022, there was 1 preferred share designated and no preferred shares outstanding.

Series C

As of September 30, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 544,500 issued and outstanding. The Series C shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $0.06 per share per annum and have a liquidation preference of $1 per share. Series C shares outstanding are convertible into common stock at the rate of 20 preferred shares to one share of common stock. As of September 30, 2022, the accrued dividends on the Series C Preferred Stock was $71 thousand.

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

COMMON STOCK

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

For the nine months ending September 30, 2022, $147 thousand in stock options and stock warrants were exercised in exchange for 128,221 shares of OMNIQ common stock.

In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the nine months ending September 30, 2022 employees purchased 4,989 shares or $27 thousand of common stock.

On June 15, 2022 our Board of Directors approved issuing 20,000 shares as part of a consulting agreement. The shares were valued at $109 thousand.

On June 15, 2022 our Board of Directors granted 30,000 warrants as part of a consulting agreement. The shares were valued at $176 thousand.

On June 15, 2022 our Board of Directors granted 30,000 stock options as part of a consulting agreement. The shares were valued at $173 thousand.

On August 8, 2022 our Board of Directors approved issuing 80,000 shares as compensation for executives valued at $670 thousand. As of September 30, 2022 the shares have not been issued.

On August 8, 2022 our Board of Directors approved issuing 40,000 warrants as part of a consulting agreement valued at $209 thousand.

NOTE 10 – LITIGATION

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

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

NOTE 11 – SUBSEQUENT EVENTS

On October 23, 2022, the Company granted 19,000 stock options valued at $91 thousand to certain employees under the Company’s 2021 Equity Incentive Plan.

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 September 30, 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.

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

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

OVERVIEW

The Company’s sales from operations for the nine months ended September 30, 2022, were $77.5 million, an increase of approximately $24 million, or 45.25%, over the nine months ended September 30, 2021.

The loss from operations for the nine months ended September 30, 2022, was $6.1 million, a decrease of $2.8 million compared with the loss in the nine months ended September 30, 2021, of $8.9 million. Basic loss per share from continuing operations for the nine months ended September 30, 2022, was ($1.29) versus ($1.86) per share for the same period in 2021.

LIQUIDITY AND CAPITAL RESOURCES

	●	Balancing the need for operational cash with the need to add additional products
	●	Timely and cost-effective development of products
	●	Working capital deficit of $32 million as of September 30, 2022
	●	Accumulated deficit of $80 million as of September 30, 2022
	●	Multiple years of net losses from operations
	●	Multiple years of negative cash flows from operations

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 replace the high interest Action Capital line of Credit ($6M) and settle the ScanSource debt $2.5M. Overall the effective interest rate of the new line of credit is approx. 7% compared to 12% with Action and 10% with ScanSource.
	●	As of September 30, 2022, the Company had approximately $3.8 million, in cash.
	●	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 September 30, 2022 was approximately $35 M. 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.

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 September 30,						Variation
In thousands	2022			2021			$			%
Revenue	$	27,008		$	20,513		$	6,495			31.66	%
Cost of Goods sold	$	21,032		$	15,842		$	5,190			32.76	%
Gross Profit	$	5,976		$	4,671		$	1,305			27.94	%
Operating Expenses	$	8,634		$	8,885		$	(251	)		(2.82	)%
Loss from operations	$	(2,658	)	$	(4,214	)	$	1,556			(36.92	)%
Net loss	$	(3,810	)	$	(5,076	)	$	1,266			(24.94	)%
Net Loss per common Share from continuing operations	$	(0.52	)	$	(0.73	)	$	0.21			(28.77	)%

Revenues

For the three months ended September 30, 2022 and 2021, the Company generated net revenues in the amount of $27 million and $20.5 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 September 30, 2022 and 2021, the Company recognized a total of $21 million and $15.8 million, respectively, of cost of goods sold. For the three months ended September 30, 2022 and 2021, cost of goods sold were 78% and 77% of net revenues, respectively.

Operating expenses

Total operating expense for the three months ended September 30, 2022 and 2021 recognized was $8.6 million and $8.9 million, respectively, representing a 2.8% decrease.

Research and Development – Research and development expenses for the three months ended September 30, 2022 and 2021 totaled $445 thousand and $474 thousand, respectively.

Selling, general and Administrative – Selling, general and administrative expenses for the three months ended September 30, 2022 and 2021 totaled $7.6 million and $6.8 million, respectively. The increase is due to non-cash stock compensation for employees and consultants.

Depreciation – Depreciation expenses for the three months ended September 30, 2022 and 2021 totaled $91 thousand and $82 thousand, respectively, representing a 11% increase. The increase is attributable to the addition of fixed assets.

Intangible amortization – Intangible amortization expenses for the three months ended September 30, 2022 and 2021 totaled $474 thousand and $1.5 million, respectively. The decrease is due to diminishing life of intangibles.

Other income and expenses

Interest Expense – Interest expense for the three months ended September 30, 2022 totaled $880 thousand, as compared to $587 thousand for the three months ended September 30, 2021. The increase is primarily attributable to additional lines of credit.

		Nine months ended September 30,								Variation
In thousands		2022				2021				$				%

SEC Form 10-Q filed by OMNIQ Corp.