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:
SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION
OF EARNINGS PER SHARE
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 | |
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.
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.
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:
SCHEDULE OF NOTES PAYABLE, RELATED PARTIES
| |
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:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES
In
thousands
| |
| | |
2022 | |
| 98 | |
2023 | |
| 292 | |
| |
| | |
Total | |
$ | 390 | |
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 | |
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.