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 27, 2023.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNIQ CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (In thousands, except share and per share data) | As of | |||||||
| March 31, 2023 | December 31, 2022 | |||||||
| (UNAUDITED) | ||||||||
| 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’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Line of credit | ||||||||
| Accrued payroll and sales tax | ||||||||
| Notes payable, related parties – current portion | ||||||||
| Notes payable – current portion | ||||||||
| Lease liability – current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities | ||||||||
| Accrued interest and accrued liabilities, related party | ||||||||
| Notes payable, less current portion | ||||||||
| Lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ 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 | ( | ) | ( | ) | ||||
| Total liabilities and deficit | $ | $ | ||||||
The accompanying unaudited notes should be read in 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 ended | ||||||||
| March 31, | ||||||||
| (In thousands, except share and per share data) | 2023 | 2022 | ||||||
| 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: Dividends attributable to non-common stockholders’ of OmniQ Corp | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interest | ||||||||
| Net loss 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 Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Controlling | Income | Equity | ||||||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | (Loss) | (Deficit) | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | | | ( | ) | | ( | ) | ||||||||||||||||||||||||||||
| Dividend on Class C shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| ESPP stock issuance | - | |||||||||||||||||||||||||||||||||||
| Stock and warrants 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Dividend on Class C shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| ESPP stock issuance | - | |||||||||||||||||||||||||||||||||||
| Stock and warrants issued for services | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation – options, warrants, issuances | - | - | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | - | |||||||||||||||||||||||||||||||||||
| Conversion of shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
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 FLOWS
For the Three Months Ended March 31,
(UNAUDITED)
| (In thousands) | 2023 | 2022 | ||||||
| Cash flows from operations | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on disposal of PP&E | ||||||||
| Stock-based compensation | ||||||||
| Stock and warrants issued for services | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of ROU asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Accrued interest and accrued liabilities, related party | ||||||||
| Accrued payroll and sales taxes payable | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred tax assets, net | ( | ) | ( | ) | ||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of other assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from private placement | ||||||||
| Proceeds from ESPP stock issuance | ||||||||
| Proceeds from exercise of options and warrants | ||||||||
| Dividends paid to non-controlling interest | ( | ) | ||||||
| Proceeds (payments) on notes/loans payable | ( | ) | ||||||
| Proceeds from draw on line of credit | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Effect of foreign exchange rates on cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Non-cash activities: | ||||||||
| Declared dividends payable | $ | $ | ||||||
| Warrants/stock issued for service | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | $ | |||||||
| Cash paid for interest | $ | $ | ||||||
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. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).
We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. During three-month period ended March 31, 2023, there were no significant changes to those accounting policies.
Recent Accounting Pronouncements
In August 2020, the Financial Statement Accounting Board (the “FASB”) issued ASU 2020-06 which simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. For contracts in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification such as the requirement that settlement in unregistered shares is permitted. In addition, the new guidance reduces the number of accounting models that require separating embedded conversion features from convertible instruments, including eliminating the requirement to recognize a beneficial conversion feature if the conversion feature is in the money and does not require bifurcation as a derivative liability. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The Company adopted the new standards January 1, 2023. The adoption of this standard may allow the Company, in the future and in certain circumstances, to avoid derivative treatment of warrants and avoid beneficial conversion treatment of certain convertible preferred shares. Adoption of this standard had no effect on the Company’s financial statements.
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, 2023, and 2022 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.
| March 31, 2023 | March 31, 2022 | |||||||
| Options to purchase common 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 periods of losses from operations |
| ● | Noncompliance with certain debt covenants |
These facts and others have raised concerns about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, which we have successfully accomplished to date.
The following conditions, plans and actions are currently being implemented to address the Company’s conditions:
| ● | Outstanding warrants exist from prior offerings that could be exercised for cash depending upon the performance of our stock. |
| ● | The Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability, and cash flow and is expected to help the Company as a whole to generate positive cash flows from operations for the foreseeable future. |
| ● | 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. Management has already cut staff by about 5% and will continue to do additional overhead cuts. |
| ● | Blue
Star - The Company’s total accounts payable due to Blue Star as of March 31, 2023 was approximately $ |
NOTE 3 – CONCENTRATIONS
For
the three-months ended March 31, 2023, and the year ended December 31, 2022, two customers accounted for
Accounts
receivable at March 31, 2023 and December 31, 2022 are made up of trade receivables due from customers in the ordinary course of business.
No customer accounted for more than
For
the three months ended March 31, 2023, and the year ended December 31, 2022 two vendors made up
NOTE 4 – BUSINESS ACQUISITION
Dangot Computers Ltd
On April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase %
of the capital stock, thereby making Dangot a fully owned subsidiary of the Company. The Company paid $
NOTE 5 – INVENTORY
Inventory consisted of the following as of:
| In thousands | March 31, 2023 | December 31, 2022 | ||||||
| Raw materials | $ | $ | ||||||
| Inventory in transit | ||||||||
| Finished goods (less allowance) | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT
We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us with working capital.
On
March 25, 2022, we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance Bank
(“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term financing by
selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal amount of advances
made by BridgeBank at any time shall not exceed $
NOTE 7 – RELATED PARTY NOTES PAYABLE
Related party notes payable, consisted of the following as of:
| In thousands | March 31, 2023 | December 31, 2022 | ||||||
| Note payable –Marin | $ | $ | ||||||
| Note payable –Thomet | ||||||||
| Total notes payable | ||||||||
| Less current portion | ||||||||
| Long-term portion | $ | $ | ||||||
| F-6 |
Note Payable -Marin
In December 2017, we entered into a $ thousand, % 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 principal payments of $ thousand beginning in October 2018. Accrued interest payable as of March 31, 2023, was $
Note Payable – Thomet
In December 2017, we entered into a $ thousand, 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 principal payments of $ thousand beginning in October 2018.
NOTE 8 – OTHER NOTES PAYABLE
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Note payable other | ||||||||
| Total | ||||||||
| Less current portion | ||||||||
| Long term notes payable | $ | $ | ||||||
Notes Payable Other
On
July 29, 2021, the Company entered into a long-term loan from Leumi Bank totalling NIS
On
November 28, 2021, the Company entered into another long-term loan from Leumi Bank totalling NIS
On
August 11, 2021, the Company purchased vehicles using cash and financing of NIS
On
March 27, 2022, the Company entered into another long-term loan from Leumi Bank totalling NIS
On September 13, 2022, the Company entered into a
long-term loan from Hapoalim Bank totalling NIS
During the year ended December 31, 2022, the Company
entered into five short term loans totalling NIS
As of March 31, 2023, the Company was not in compliance with certain financial covenants related to the Bank Leumi and Bank Hapoalim debt. The Company’s failure to comply with these financial covenants could result in an event of default under its debt agreements. Therefore, we reclassified the total balance as current debt on the balance sheet. The Company is actively pursuing options to address its noncompliance. The lenders have not requested early repayment of the loan as of the date when these financial statements were available to be issued.
NOTE 9 – OTHER LIABILITIES
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Other vendor payable | $ | $ | ||||||
| Dividend payable | ||||||||
| Others | ||||||||
| Total other liabilities | ||||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Total long term other liabilities | $ | $ | ||||||
| F-7 |
NOTE 10 – STOCKHOLDERS’ EQUITY
PREFERRED STOCK
Series A
As
of March 31, 2023, there were Series A preferred shares designated and no Series A preferred shares outstanding.
Series B
As of March 31, 2023, there was preferred share designated and preferred shares outstanding.
Series C
As
of March 31, 2023, 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 was approved by our stockholders at the December 2021, shareholders’ meeting. On February 25, 2022, the Company granted stock options. These options were granted to employees as part of the Company’s Equity Incentive Plan. No options were issued in the three months ended March 31, 2023.
For
the three months ending March 31, 2023,
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the three months
ending March 31, 2023, employees purchased shares or $
On
August 10, 2022, our Board of Directors approved issuing shares as part of an employment agreement. Shares were issued January
3, 2023, and valued at $
NOTE 11 – 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 12 – SUBSEQUENT EVENTS
| F-8 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.
For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com.
Introduction
We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management and access control applications. The technology and services we provide helps our clients move people, assets and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments.
We offer end-to-end solutions that include hardware, software, communications, and full lifecycle management services. We are an established manufacturer and distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions backed by numerous customer references. We offer comprehensive packaged and configurable software and we are a leading provider of best-in-class mobile and wireless equipment.
| 3 |
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, 2023, were $27.8 million, an increase of approximately $1.5 million, or 5.7%, over the three months ended March 31, 2022.
The loss from operations for the three months ended March 31, 2023, was $2 million, an increase of $602 thousand compared with the loss in the three months ended March 31, 2022, of $1.4 million. Basic loss per share from continuing operations for the three months ended March 31, 2023, was ($0.45) versus ($0.34) per share for the same period in 2022. Comprehensive loss for the three months ended March 31, 2023 and 2022 was $3.1 million and $2.6 million respectively, the only component to comprehensive loss besides net loss is foreign currency translation.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2023, the Company had cash in the amount of $3.2 million and a working capital deficit of $39.6 million, compared to cash in the amount of $1.3 million, and a working capital deficit of $38 million as of December 31, 2022. The Company had stockholders’ deficit attributable to OmniQ stockholders of $12.8 million and $10.5 million as of March 31, 2023, and December 31, 2022, respectively. This increase in our stockholders’ deficit was primarily attributable to net losses.
The Company’s accumulated deficit was $88 million and $84.4 million as of March 31, 2023, and December 31, 2022.
The Company’s operations used net cash of $1.3 million and $775 thousand in the three months ended March 31, 2023, and 2022, respectively. The increase in cash used in operations of $514 thousand is due to the increase in revenue.
The Company’s cash used in investing activities was $341 thousand for the three months ended March 31, 2023, compared to cash used in investing activities of $64 thousand for the three months ended March 31, 2022.
The Company’s financing activities provided $3 million of cash during the three months ended March 31, 2023, and provided $968 thousand during the three months ended March 31, 2022. During the three months ended March 31, 2023, the Company made payments of $544 thousand on its notes payable, including its Supplier Secured Promissory note and related party notes payable, compared to the net proceeds from the three months ended March 31, 2022, of $566 thousand on its notes payable, including its Supplier Secured Promissory note and related party notes payable. Additionally, the Company borrowed $3.4 million on the Company’s line of credit during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, when $1.7 million was borrowed on the Company’s line of credit.
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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 | 2023 | 2022 | $ | % | ||||||||||||
| Revenue | $ | 27,821 | $ | 26,322 | $ | 1,499 | 5.69 | % | ||||||||
| Cost of Goods sold | 22,099 | 20,194 | 1,905 | 9.43 | % | |||||||||||
| Gross Profit | 5,722 | 6,128 | (406 | ) | (6.63 | %) | ||||||||||
| Operating Expenses | 7,733 | 7,537 | 196 | 2.60 | % | |||||||||||
| Loss from operations | (2,011 | ) | (1,409 | ) | (602 | ) | 42.73 | % | ||||||||
| Net loss | (3,507 | ) | (2,569 | ) | (938 | ) | 36.51 | % | ||||||||
| Net Loss per common Share from continuing operations | $ | (0.45 | ) | $ | (0.34 | ) | $ | (0.11 | ) | 32.35 | % | |||||
Revenues
For the three months ended March 31, 2023, and 2022, the Company generated net revenues in the amount of $27.8 million and $26.3 million, respectively. The increase between the three-month periods was attributable to the additional sales channels.
Cost of Goods Sold
For the three months ended March 31, 2023, and 2022, the Company recognized a total of $22 million and $20.2 million, respectively, of cost of goods sold. For the three months ended March 31, 2023, and 2022, cost of goods sold were 79% and 77% of net revenues, respectively.
Operating expenses
Total operating expenses for the three months ended March 31, 2023, and 2022 recognized was $7.7 million and $7.5 million, respectively, representing a 2.6% increase. The increase in operating expenses was due primarily to the increase in revenue.
Research and Development – Research and development expenses for the three months ended March 31, 2023, and 2022 totaled $423 thousand and $523 thousand, respectively, representing a 19% decrease. The decreases are primarily attributed to the maturity of the development of solutions offered for our AI proprietary products.
Selling, general and Administrative – Selling, general and administrative expenses for the three months ended March 31, 2023, and 2022 totaled $6.8 million and $6.5 million, respectively, representing a 4.5% increase. The increase was due primarily to the increase in revenue.
Depreciation – Depreciation expenses for the three months ended March 31, 2023, and 2022 totaled $108 thousand and $93 thousand, respectively, representing a 16% increase. The increase is directly related to the acquisition of additional fixed assets.
Intangible amortization – Intangible amortization expenses for the three months ended March 31, 2023, and 2022 totaled $436 thousand and $445 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, 2023, totaled $938 thousand, as compared to $812 thousand for the three months ended March 31, 2022. 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, 2023, the end of the period covered by this Quarterly Report on Form 10-Q.
Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of March 31, 2023, our disclosure controls and procedures were ineffective as of the end of the period covered to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weaknesses which are indicative of many small companies with limited staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure.
During 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 30, 2023.
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.
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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.
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 stockholder’s 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 contained on that site, or connected to that site, is not part of or incorporated by reference into this filing.
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ITEM 6. EXHIBITS
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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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 15, 2023
| OMNIQ CORP. | ||
| By: | /s/ Shai Lustgarten | |
| Shai Lustgarten | ||
| President and Chief Executive Officer | ||
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