NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – NATURE OF OPERATIONS
OMNIQ
Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its wholly owned subsidiaries, referred to herein as “we,”
“us,” and “our” (“OMNIQ” or the “Company”), was incorporated in 1973. Since its incorporation,
the Company has been involved in various lines of business.
From
2008 and to 2013, we were in the business of developing oil and gas reserves. In January 2014, we determined it was in the best interest
of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue bases. Our
strategy developed into leveraging management’s relationships in the business world for investments for the Company.
Since
2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing
solutions:
|
●
|
Quest
Solution, Inc. (January 2014)
|
|
●
|
Bar
Code Specialties, Inc. (November 2014)
|
|
●
|
ViascanQdata,
Inc (October 2015 – later sold in September 2016)
|
|
●
|
HTS
Image Processing, Inc. (October 2018)
|
|
●
|
EyepaxIT
Consulting LLC. (February 2021)
|
We
use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring
for supply chain management, homeland security, public safety, traffic & parking management and access control applications. The
technology and services we provide helps our clients move people, assets and data safely and securely through airports, warehouses, schools,
national borders, and many other applications and environments.
We
offer end-to-end solutions that include hardware, software, communications, and full lifecycle management services. We are an established
manufacturer and distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. Our highly tenured team of professionals
has the knowledge and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions
backed by numerous customer references. We offer comprehensive packaged and configurable software and we are a leading provider of best-in-class
mobile and wireless equipment.
Our
customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage,
manufacturing, retail, distribution, transportation and logistics, and oil, gas, and chemicals.
COVID-19
The
outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions we
operate. Many State Governors issued temporary Executive Orders in 2020, that, among other stipulations, effectively limited in-person
work activities for most industries and businesses having the effect of suspending or severely curtailing operations. Many of these orders
are in the process of being lifted. To date, we have not incurred any significant interruptions to our day-to-day operations or supply
chain, except some of our employees have or are working remotely. In response to the COVID-19 pandemic, we proactively implemented certain
measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety. These measures included the reduction
of payroll costs, a reduction in capital expenditures and other discretionary spending, the elimination of most business travel and restriction
of visitors to our corporate office, enhanced cleaning and disinfection procedures at our corporate office and branch locations, promotion
of social distancing and the wearing of face coverings (masks) at our corporate office and branch locations, and requirements for employees
to work from home where possible.
The
extent of the ultimate impact of the pandemic on our operational and financial performance will depend on various developments, including
the duration and spread of the outbreak, the impact on capital and financial markets, governmental limitations on business operations
generally, and its and their impact on potential customers, employees, vendors and distribution partners, all of which cannot be reasonably
predicted at this time.
NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We
describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form
10-K for the year ended December 31, 2020. During the six-month period ended June 30, 2021, there were no significant changes to those
accounting policies.
Principles
of Consolidation and Basis of Presentation
Our
unaudited condensed consolidated financial statements include the financial position and results of operations of OMNIQ Corp. and its
wholly owned subsidiaries Quest Marketing, Inc., Quest Exchange Ltd., and HTS Image Processing, Inc., collectively referred to herein
as “we” or “us” or “our” or the “Company.”
All
significant intercompany accounts and transactions have been eliminated in these unaudited condensed consolidated financial statements.
Business combinations are included in the unaudited condensed consolidated financial statements from their respective dates of acquisition.
We
have prepared the interim unaudited condensed consolidated financial statements included herein, in accordance with accounting principles
generally accepted in the United States of America, without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and
regulations, although we believe the disclosures are adequate to make the information presented not misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for
fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction
with our financial statements for the year ended December 31, 2020 and notes thereto included in our Form 10-K filed with the SEC on
March 31, 2021. The Company operates in one segment.
Operating
results for the six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ended
December 31, 2021.
Use
of Estimates
We
prepare our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts
of assets and liabilities and related disclosures at the date of the unaudited condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our unaudited
condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an
ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.
Goodwill
and Intangibles
We
have made acquisitions in the past that resulted in the recognition of goodwill. Goodwill is the excess of the consideration transferred
plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable
net assets acquired. We evaluate goodwill for impairment annually or more frequently, if triggering events occur or other impairment
indicators arise which might impair recoverability.
Application
of the goodwill impairment test requires judgment. We performed a Step 1 quantitative assessment of goodwill impairment as of December
31, 2020, our annual impairment test date. We compared the carrying value inclusive of goodwill and definite-lived intangible assets,
to its fair value. We estimated the fair value of these reporting units by weighting results from the income approach and the market
approach, as further described in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2020. Based on this quantitative
test, we determined there was no impairment as of the December 31, 2020.
The assets are being amortized
on the straight-line method over useful lives ranging from 3
to 11
years. No events or indicators have occurred subsequent to December 31, 2020 that would affect the intangible assets. No impairment
expense was recognized for the Six Months Ended June 30, 2021.
Foreign
Currency Translation
Our
unaudited condensed consolidated financial statements are presented in U.S. dollars. The functional currency for the Company is U.S.
dollars. Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of
the transaction. All of our continuing operations are conducted in U.S. dollars except its subsidiary located in Israel. The records
of the Israeli operation were maintained in the local currency and re-measured to the functional currency as follows: monetary assets
and liabilities are converted using the balance sheet period-end date exchange rate, while the non-monetary assets and liabilities are
converted using the historical exchange rate. Expenses and income items are converted using the weighted average exchange rates for the
reporting period. Foreign transaction gains and losses are reported on the unaudited condensed consolidated statement of operations and
were included in the amount of loss from comprehensive income.
Net
Loss Per 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 six-months ended June 30, 2021 and 2020 were 4,816,718 and 4,135,420, 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.
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
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
Options
to purchase common stock
|
|
|
1,605
|
|
|
|
1,553
|
|
Convertible
preferred stock
|
|
|
-
|
|
|
|
-
|
|
Warrants
to purchase common stock
|
|
|
1,237
|
|
|
|
75
|
|
Potential
shares excluded from diluted net loss per share
|
|
|
2,842
|
|
|
|
1,628
|
|
Purchase
Accounting and Business Combinations
We
account for our business combinations using the purchase method of accounting which requires that intangible assets be recognized apart
from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration
exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair
value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of
identifiable acquired assets and liabilities assumed is allocated to goodwill.
The
valuation and allocation processes rely on significant assumptions made by management. In certain situations, the allocations of excess
purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when we receive
updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the
fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date.
Revenue
Recognition.
When
entering into contracts with our customers, we review follow the five steps outline in Accounting Standards Codification Topic 606,
Revenue from Contracts with Customers (Topic 606):
|
i.
|
Identify
the contract with our customer.
|
|
|
|
|
ii.
|
Identify
the performance obligations in the contract.
|
|
|
|
|
iii.
|
Determine
the transaction price.
|
|
|
|
|
iv.
|
Allocate
the transaction price to the performance obligations. And
|
|
|
|
|
v.
|
Evaluate
the satisfaction of the performance obligations,
|
We
account for contracts, with our customers, when we have approval and commitment from both parties, the rights of the parties are identified,
payment terms are established, the contract has commercial substance and collectability of consideration is probable.
We
evaluate, in accordance with Topic 606, whether we meet the criteria to be a principal or an agent and record the revenue on a gross
or net basis. We are considered a principal if we obtain control of any one of the following:
|
i.
|
A
good or another asset from another party that we then transfer to our customer.
|
|
|
|
|
ii.
|
A
right to a service to be performed by another party, which gives the us the ability to direct that party to provide the service to
the customer on our behalf, and
|
|
|
|
|
iii.
|
A
good or service from another party that we then combine with other goods or services in providing the specified good or service to
our customer.
|
We
have certain relationships with manufacturers and suppliers to sell us products or provide services. Our contracts may transfer to our
customer a right to a future service or product to be provided by our manufacturer or supplier. When a specified good or service is a
right to a good or service is provided by a manufacturer or supplier, we evaluate whether we control the right to the goods or services
before that right is transferred to the customer rather than whether we control the underlying goods or services.
Indicators
that we control the specified good or service before it is transferred to the customer (and we are therefore a principal) include, but
are not limited to, the following:
|
i.
|
We
are responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the
acceptability of the specified good or service. If we are primarily responsible for fulfilling the promise to provide the specified
good or service, this may indicate that the other party involved in providing the specified good or service is acting on our behalf.
Often, we provide value added services (combining hardware, integrating hardware to software, etc.) to the products and services
purchased from our manufacturers and suppliers.
|
|
|
|
|
ii.
|
We
have inventory risk before the specified good or service has been transferred to a customer. Our purchases of products or services
from our manufactures and suppliers is evidenced by our issuing a binding purchase order contract with the negotiated terms including
specifications, pricing, delivery among other things. Our obligation for purchased products and services is mutually exclusive of
our customers’ performance (failure to take acceptance, make payment, etc.
|
|
iii.
|
We
have sole discretion in establishing our price for the specified good or service. Establishing the price our customer pays for a
specified good or service may indicate we have the ability to direct the use of that good or service and obtain substantially all
of the remaining benefits. We control and set the pricing for the product or services to be provided to our customers.
|
If
the terms of a transaction do not indicate we are acting as a principal in the transaction, we are then considered acting as an agent
and the associated revenues would be recognized on a net basis.
As
principal, when (or as) we satisfy a performance obligation, we recognize revenue in the gross amount of consideration which we expect
to be entitled in exchange for the specified good or service transferred. We are an agent if our performance obligation is to arrange
for the provision of the specified good or service by another party. As an agent, we do not control the specified good or service provided
by another party before that good or service is transferred to our customer. As an agent, when (or as) we satisfy a performance obligation,
we recognize revenue in the amount of any fee or commission which we expect to be entitled in exchange for arranging for the specified
goods or services to be provided by another party to our customer.
Under
Topic 606, we recognize revenue (on either a gross or net basis previously discussed) only when we satisfy a performance obligation by
transferring a promised good or service to our customer. A good or service is considered to be transferred when the customer obtains
control. The standard defines control as an entity’s ability to direct the use of, and obtain substantially all of the remaining
benefits from, an asset. We recognize revenue (either gross or net) once control has passed to the customer. The following indicators
are evaluated in determining when control has passed to the customer:
|
i.
|
We
have a right to payment for the product or service,
|
|
ii.
|
The
customer has legal title to the product,
|
|
iii.
|
We
have transferred physical possession of the product to the customer,
|
|
iv.
|
The
customer has the risk and rewards of ownership of the product, and
|
|
v.
|
The
customer has accepted the product.
|
Revenue
Recognition for Hardware. Revenues from sales of hardware products are recognized on a gross basis as we are acting as a principal
in these transactions, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost
of sales. We recognize revenue from these transactions when control has passed to the customer.
Manufacturers
and suppliers, from whom we purchase hardware, often provide their warranties only providing assurance the products and services will
conform to their specifications. These assurance type warranties are not sold separately and are not considered separate performance
obligations. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold
separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these
warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services
be provided by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of sale.
Revenue
Recognition for Software. Sales of software licenses are generally considered a single performance obligation. When we are considered
to be the principal, we recognize revenues on a gross basis at the point the software is delivered to and accepted by our customer. Generally,
software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade,
at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in
effect.
As
explained above, we evaluate whether the software assurance is a separate performance obligation by assessing if the third-party delivered
software assurance is critical or essential to the core functionality of the software itself. This involves considering:
|
i.
|
If
the software provides its original intended functionality to the customer without the updates,
|
|
ii.
|
If
the customer would ascribe a higher value to the upgrades versus the up-front deliverable,
|
|
iii.
|
If
the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality),
and
|
|
iv.
|
If
the customer chooses to not delay or always install upgrades.
|
If
we determine the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software
license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation.
In
some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and
provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties
to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided
by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of sale.
Revenue
Recognition for Services. We provide professional services, which include project managers and consultants recommending, designing
and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or proportionally,
as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and we transfer
those services.
Revenues
from the sale of professional and support services, provided by us, are recognized over the period the service is provided. As the customer
receives the benefit of the service each month, we recognize the respective revenue on a gross basis as we are acting as a principal
in the transaction. Additionally, we manage services team provides project support to customers that are billed on a fixed fee basis.
We are acting as the principal in the transaction and recognize revenue on a gross basis based on the total number of hours incurred
for the period over the total expected hours for the project. Total expected hours to complete the project is updated for each period
and best represents the transfer of control of the service to the customer.
Contract
Asset. The Company recognizes revenue as explained in accordance with ASC 606. The Company has entered into contracts with customers
that only allow us to invoice the customer once the total project is completed, creating a contract asset which is presented on a separate
line item on the balance sheet as a current asset.
Freight
Costs. We record both the freight billed to its customers and the related freight costs as cost of sales when the underlying product
revenue is recognized. For freight not billed to its customers, we record the freight costs as cost of sales. The Company considers shipping
to be a fulfillment activity and not a separate performance obligation.
Stock-Based
Compensation
We
periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for
financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided
by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on the date of grant and recognized
as compensation expense on the straight-line basis over the vesting period.
We
record stock-based compensation expense according to the provisions of ASC Topic 718, Compensation – Stock Compensation. ASC Topic
718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values. Under the provisions of ASC Topic 718, the Company determines the appropriate fair value model to be used
for valuing share-based payments and the amortization method for compensation cost. The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option-pricing model.
We
account for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30
of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all
transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based
on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur.
Recent
Accounting Pronouncements
We
have evaluated the recent pronouncements and believe their adoption will not have a material effect on our financial statements.
Reclassifications
and Comparability
Certain
amounts in the financial statements of prior years have been reclassified to conform to the current year presentation for comparative
purposes. This had no effect on total assets or net income.
NOTE
3 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.
As of June 30, 2021, we had a working capital deficit of $28.7 million and an accumulated deficit of $62.6 million. These facts and others
raise substantial doubt 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.
Management’s
plan to eliminate the going concern situation includes, but is not limited to, the following:
|
●
|
The
continuation of improving cash flow by maintaining moderate cost reductions (subsequent to aggressive cost reduction actions implemented
in previous years);
|
|
|
|
|
●
|
Increasing
the accounts receivable factoring line of credit;
|
|
|
|
|
●
|
Negotiating
lower interest rates on outstanding debt;
|
|
|
|
|
●
|
Potential
issuances of additional common stock;
|
|
|
|
|
●
|
The
creation of additional sales and profits across its product lines, and the obtaining of sufficient financing to restructure current
debt in a manner more in line with the Company’s improving cash flow and cost reduction successes;
|
|
|
|
|
●
|
In
our portfolio of products, we have a computer vision technology that is based on AI and machine learning concepts. These solutions
have a higher gross profit that will provide an increase in cashflow on a consolidated basis going forward. The Company has an operating
facility with the ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit
margins;
|
NOTE
4 – CONCENTRATIONS
For
the six-months ended June 30, 2021 and the year ended December 31, 2020, two customers accounted for 41.3%
and 37.2%,
respectively, of the Company’s consolidated revenues.
Accounts
receivable at June 30, 2021 and December 31, 2020 are made up of trade receivables due from customers in the ordinary course of business.
Two customers made up 22.7% of the accounts receivable balance at June 30, 2021 and one customer represented 46% of the balance of accounts
receivable at December 31, 2020.
Accounts
payable are made up of amounts due to suppliers in the ordinary course of business at June 30, 2021 and December 31, 2020. One vendor
made up 94% and 92.4% of our accounts payable on June 30, 2021 and December 31, 2020, respectively.
NOTE
5 – BUSINESS ACQUISITION
In
February 2020, OMNIQ entered in an asset purchase agreement with Eyepax IT Consulting LLC, a California limited liability company, (“Eyepax”)
and its principal owners (collectively the “Sellers”), pursuant to which we purchased certain assets from the Sellers at
a cash purchase price of $245,000. As additional consideration, the Company issued to the Sellers 80,000 shares of the Company’s
common stock and an option to purchase 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share, subject
to adjustment, which shall vest quarterly in four (4) equal installments and expire on February 28, 2023. The Company entered into an
employment agreement with Mr. Lalith Caldera, a principal owner of Eyepax, agreeing to pay Mr. Caldera an annual salary of $100,000.
NOTE
6 – CREDIT FACILITIES AND LINE OF CREDIT
We
maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us working
capital.
In
July 2016, we entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation (“Action”)
to establish a sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable
accounts receivable to Action. Pursuant to the FASA, the outstanding principal amount of advances made by Action at any time shall not
exceed $5.0
million. Action reserves and withholds up
to 5%
of the face amount of each account purchased in a reserve account. As of June 30, 2021 and December 31, 2020, the balance outstanding
was $1.8 million
and $4.9 million,
respectively.
The
annual interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a monthly basis)
is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 2.0%,
plus a monthly fee equal to 0.75%
of the average outstanding balance. We also pay all other costs incurred by Action under the FASA, including all bank fees. The
FASA continues in full force and effect unless terminated by either party upon 30 days’ prior written notice. The FASA credit facility
is collateralized with a security interest in certain assets of the Company. The FASA includes customary representations and warranties
and default provisions for transactions of this type.
NOTE
7 – RELATED PARTY NOTES PAYABLE
Related
party notes payable, consisted of the following as of:
SCHEDULE OF NOTES PAYABLE, RELATED PARTIES
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
In thousands
|
|
|
|
|
|
|
Note payable –Marin
|
|
$
|
540
|
|
|
$
|
660
|
|
Note payable –Thomet
|
|
|
338
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
Note payable–Shareholder Convertible Note
|
|
|
-
|
|
|
|
43
|
|
Total notes payable
|
|
|
878
|
|
|
|
1,116
|
|
Less current portion
|
|
|
(390
|
)
|
|
|
(433
|
)
|
Long-term portion
|
|
$
|
488
|
|
|
$
|
683
|
|
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 June 30, 2021, was $60 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.
Note
Payable – Shareholder Convertible Note
In
October 2018, we entered into a $700
thousand, 6%
annual interest rate convertible note payable (the “Shareholder Convertible Note”) with Walefar and Campbeltown (collectively
the “Holders”), in connection with the HTS Image Processing, Inc. Mr. Shai Lustgarten, our Chief executive Officer
and Director is the principal shareholder in Walefar. Mr. Carlos J. Nissensohn, a consultant and significant shareholder in OMNIQ, is
the principal shareholder in Campbeltown. The Shareholder Convertible Note was retired in 2021.
Future
maturities of related party notes payable as of June 30, 2021, are as follows:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES
In
thousands
2021
|
|
|
195
|
|
2022
|
|
|
390
|
|
2023
|
|
|
293
|
|
2024
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
878
|
|
NOTE
8 – OTHER NOTES PAYABLE
Other
notes payable at June 30, 2021 and December 31, 2020, consists of the following:
SCHEDULE OF OTHER NOTES PAYABLE
(In thousands)
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Note Payable- Supplier
|
|
$
|
5,443
|
|
|
$
|
6,443
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
4
|
|
|
|
7
|
|
Total
|
|
|
5,447
|
|
|
|
6,450
|
|
Less current portion
|
|
|
(5,447
|
)
|
|
|
(6,449
|
)
|
Long Term Notes Payable
|
|
$
|
-
|
|
|
$
|
1
|
|
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
September 7, 2018, the Company entered into a Sixth Amendment to the Secured Promissory Note (the “Sixth Amendment”)
extending the maturity date to January 31, 2019. The Sixth Amendment also increases the principal amount to $8.7 million, an increase
of $6.8 million, by rolling the Company’s then existing and outstanding accounts payable into the note by the previously mentioned
amount of increase. The Company will continue to make monthly payments in the amount of $300 thousand for the first three monthly
payments, and also in the amount of $500 thousand for the last two monthly payments prior to the note’s maturity.
|
|
|
|
|
●
|
On
April 30, 2019, the Company entered into a Seventh Amendment to the Secured Promissory Note (the “Seventh Amendment”) extending
the maturity date to July 31, 2019. The Seventh Amendment also provides that the Company will continue to make monthly installments of
principal and accrued interest in a minimum principal amount of $350
thousand each. The Company has made partial payments
towards the required monthly installments under the terms of the Seventh Amendment.
|
|
|
|
|
●
|
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.
|
NOTE
9 – OTHER LIABILITIES
At
June 30, 2021 and December 31, 2020, other liabilities consisted of the following:
SCHEDULE OF OTHER LIABILITIES
(In thousands)
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Other vendor payable
|
|
$
|
801
|
|
|
$
|
801
|
|
Dividend payable
|
|
|
94
|
|
|
|
253
|
|
Bonus payable
|
|
|
-
|
|
|
|
27
|
|
Others
|
|
|
1,253
|
|
|
|
1,477
|
|
Total other liabilities
|
|
|
2,148
|
|
|
|
2,558
|
|
Less Current Portion
|
|
|
(1,160
|
)
|
|
|
(1,412
|
)
|
Total long term other liabilities
|
|
$
|
988
|
|
|
$
|
1,146
|
|
NOTE
10 – STOCKHOLDERS’ EQUITY
PREFERRED
STOCK
Series
A
As
of June 30, 2021, there were 1,000,000 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 June 30, 2021, there was 1 preferred share designated and no preferred shares outstanding.
Series
C
As
of June 30, 2021, there were 3,000,000
Series C Preferred Shares (“Series
C”) authorized with 745,030 issued and outstanding. The Series C shares have preferential rights above common shares and the Series
B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $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 June 30, 2021, the accrued dividends on the
Series C Preferred Stock was $95
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
August 2020, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain existing
employees and attract new employees, directors, officers, consultants, and advisors to the Company. Pursuant to the Plan, one million
(1,000,000) shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for
issuance. As of June 30, 2021, we had issued 361,146 shares or $1.8 million to consultants and advisors for services rendered.
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the six months ending
June 30, 2021 employees purchased 746 or $5 thousand shares of commons stock.
On
February 15, 2021 the Company issued 25,000 shares to Orion 4, LLC as part of a consulting agreement. The shares were valued at $188
thousand.
For
the six months ending June 30, 2021, 293,000 in stock options and stock warrants were exercised in exchange for 246,620 shares of OMNIQ
common stock.
For
the six months ended June 30, 2021 we did not grant or issue any options or warrants.
Warrants
The
following table summarizes information about warrants granted during the six-month periods ended June 30, 2021 and 2020:
SCHEDULE OF WARRANTS ACTIVITY
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
1,366,667
|
|
|
$
|
7.19
|
|
|
|
1,166,667
|
|
|
$
|
6.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
|
|
|
-
|
|
|
|
|
|
|
|
75,000
|
|
|
|
10.53
|
|
Warrants expired
|
|
|
15,000
|
|
|
|
14.00
|
|
|
|
(10,000
|
)
|
|
|
5.60
|
|
Warrants cancelled, forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
115,000
|
|
|
|
3.87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
1,236,667
|
|
|
$
|
7.41
|
|
|
|
1,231,667
|
|
|
$
|
6.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable warrants
|
|
|
1,153,334
|
|
|
$
|
7.41
|
|
|
|
1,231,667
|
|
|
$
|
6.68
|
|
Outstanding
warrants as of June 30, 2021 are as follows:
SCHEDULE OF OUTSTANDING WARRANTS
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
residual life
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
span
|
|
|
Outstanding
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Prices
|
|
|
(in years)
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.00
|
|
|
3.27
|
|
|
851,667
|
|
|
|
7.00
|
|
|
|
851,667
|
|
|
|
7.00
|
|
7.50
|
|
|
5.18
|
|
|
250,000
|
|
|
|
7.50
|
|
|
|
166,667
|
|
|
|
7.50
|
|
8.00
|
|
|
0.66
|
|
|
10,000
|
|
|
|
8.00
|
|
|
|
10,000
|
|
|
|
8.00
|
|
10.00
|
|
|
1.72
|
|
|
125,000
|
|
|
|
10.00
|
|
|
|
125,000
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.20 to 10.00
|
|
|
3.27
|
|
|
1,236,667
|
|
|
$
|
7.41
|
|
|
|
1,153,334
|
|
|
$
|
7.41
|
|
Warrants
outstanding at June 30, 2021 and 2020 have the following expiry date and exercise prices:
SCHEDULE
OF WARRANTS OUTSTANDING, EXPIRY DATE AND EXERCISE PRICES
|
|
Exercise
|
|
|
|
|
|
|
|
Expiry Date
|
|
Prices
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
October 10, 2020
|
|
|
12.00
|
|
|
|
-
|
|
|
|
15,000
|
|
December 30, 2020
|
|
|
4.00
|
|
|
|
-
|
|
|
|
150,000
|
|
February 02, 2021
|
|
|
14.00
|
|
|
|
-
|
|
|
|
15,000
|
|
August 02, 2021
|
|
|
2.20
|
|
|
|
-
|
|
|
|
75,000
|
|
October 10, 2021
|
|
|
10.00
|
|
|
|
25,000
|
|
|
|
25,000
|
|
February 27, 2022
|
|
|
8.00
|
|
|
|
10,000
|
|
|
|
10,000
|
|
May 18, 2023
|
|
|
10.00
|
|
|
|
50,000
|
|
|
|
50,000
|
|
October 14, 2023
|
|
|
10.00
|
|
|
|
50,000
|
|
|
|
-
|
|
October 06, 2024
|
|
|
7.00
|
|
|
|
793,667
|
|
|
|
891,667
|
|
September 01, 2025
|
|
|
7.50
|
|
|
|
83,334
|
|
|
|
-
|
|
June 04, 2026
|
|
|
7.50
|
|
|
|
83,333
|
|
|
|
-
|
|
December 04, 2027
|
|
|
7.50
|
|
|
|
83,333
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,236,667
|
|
|
|
1,231,667
|
|
Stock
Options
The
following table summarizes information about stock options granted during the six months ended June 30, 2021 and 2020:
SCHEDULE OF STOCK OPTIONS GRANTED
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
stock options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
stock options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
1,811,550
|
|
|
$
|
4.32
|
|
|
|
1,133,550
|
|
|
$
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
-
|
|
|
|
|
|
|
|
30,000
|
|
|
|
4.73
|
|
Stock options expired
|
|
|
-
|
|
|
|
|
|
|
|
(30,250
|
)
|
|
|
3.98
|
|
Stock options cancelled, forfeited
|
|
|
(28,750
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Stock options exercised
|
|
|
(178,000
|
)
|
|
|
|
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
1,604,800
|
|
|
$
|
4.48
|
|
|
|
1,073,300
|
|
|
$
|
4.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable stock options
|
|
|
848,863
|
|
|
$
|
4.34
|
|
|
|
947,863
|
|
|
$
|
3.99
|
|
On
September 30, 2020, the Company granted 775,000 stock options. These options were granted as part of the asset acquisition described
in Note 4, and to a member of the board of advisors, and to certain employees as part of the Company’s Equity Incentive Plan.
Outstanding
stock options as of June 30, 2021 are as follows:
SCHEDULE OF OUTSTANDING STOCK OPTIONS
Range of
Exercise
Prices
|
|
|
Weighted
Average
residual life
span
(in years)
|
|
|
Outstanding
Stock Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Exercisable
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
.64
|
|
|
|
38,017
|
|
|
$
|
1.50
|
|
|
|
38,017
|
|
|
$
|
1.50
|
|
$
|
1.80
|
|
|
|
.64
|
|
|
|
76,033
|
|
|
$
|
1.80
|
|
|
|
76,033
|
|
|
$
|
1.80
|
|
$
|
2.20
|
|
|
|
.09
|
|
|
|
72,500
|
|
|
$
|
2.20
|
|
|
|
72,500
|
|
|
$
|
2.20
|
|
$
|
2.40
|
|
|
|
1.68
|
|
|
|
247,000
|
|
|
$
|
2.40
|
|
|
|
247,000
|
|
|
$
|
2.40
|
|
$
|
4.20
|
|
|
|
3.81
|
|
|
|
10,000
|
|
|
$
|
4.20
|
|
|
|
75,000
|
|
|
$
|
4.20
|
|
$
|
4.40
|
|
|
|
9.26
|
|
|
|
375,000
|
|
|
$
|
4.40
|
|
|
|
110,000
|
|
|
$
|
4.40
|
|
$
|
4.84
|
|
|
|
9.26
|
|
|
|
380,000
|
|
|
$
|
4.84
|
|
|
|
-
|
|
|
$
|
4.84
|
|
$
|
5.00
|
|
|
|
2.02
|
|
|
|
147,500
|
|
|
$
|
5.00
|
|
|
|
124,063
|
|
|
$
|
5.00
|
|
$
|
5.40
|
|
|
|
2.42
|
|
|
|
133,750
|
|
|
$
|
5.40
|
|
|
|
133,750
|
|
|
$
|
5.40
|
|
$
|
10.00
|
|
|
|
3.39
|
|
|
|
125,000
|
|
|
$
|
10.00
|
|
|
|
125,000
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.50 to 10.00
|
|
|
|
5.23
|
|
|
|
1,604,800
|
|
|
$
|
4.48
|
|
|
|
848,863
|
|
|
$
|
5.23
|
|
Stock
options outstanding at June 30, 2021, and 2020 have the following expiration date and exercise prices:
SCHEDULE
OF STOCK OPTIONS, EXPIRY DATE AND EXERCISE PRICES
Expiration Date
|
|
Exercise Prices
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
August 2, 2021
|
|
$
|
2.20
|
|
|
|
72,500
|
|
|
|
175,000
|
|
February 17, 2022
|
|
$
|
1.50
|
|
|
|
38,017
|
|
|
|
38,017
|
|
February 17, 2022
|
|
$
|
1.80
|
|
|
|
76,033
|
|
|
|
76,033
|
|
February 28, 2023
|
|
$
|
5.00
|
|
|
|
20,000
|
|
|
|
20,000
|
|
March 5, 2023
|
|
$
|
2.40
|
|
|
|
247,000
|
|
|
|
275,000
|
|
July 31, 2023
|
|
$
|
5.00
|
|
|
|
127,500
|
|
|
|
127,500
|
|
October 31, 2023
|
|
$
|
4.40
|
|
|
|
25,000
|
|
|
|
93,000
|
|
November 30, 2023
|
|
$
|
5.40
|
|
|
|
133,750
|
|
|
|
133,750
|
|
November 20, 2024
|
|
$
|
10.00
|
|
|
|
125,000
|
|
|
|
125,000
|
|
April 20, 2025
|
|
$
|
4.20
|
|
|
|
10,000
|
|
|
|
10,000
|
|
September 30, 2030
|
|
$
|
4.40
|
|
|
|
350,000
|
|
|
|
-
|
|
September 30, 2030
|
|
$
|
4.84
|
|
|
|
380,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,604,800
|
|
|
|
1,073,300
|
|
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Profit
Sharing Plan
We
maintain a contributory profit-sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement
Income Security Act of 1974 (“ERISA”). In 2016, the Safe Harbor element was removed from the plan and the employer may make
a discretionary matching contribution equal to a uniform percentage or dollar amount of participants’ elective deferrals for each
Plan Year. In 2015, we were required to make a safe harbor non-elective contribution equal to 3 percent of a participant’s compensation.
The plan also includes a 401(k) savings plan feature that allows substantially all employees to make voluntary contributions and provides
for discretionary matching contributions determined annually by the Board of Directors. For the six months ending June 30, 2021, we elected
to forgo the match.
Operating
Leases
As
of June 30, 2021, we had two operating leases as follows:
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●
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Office
space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of 14.55%. As of June 30, 2021, we had
23 months remaining on the lease.
|
|
●
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A
vehicle with monthly payments of less than $1 thousand. As of June 30, 2021, the Company had 7 months remaining on the lease.
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NOTE
12 – LITIGATION
In
September 2020 the Company was named as a defendant in a Mississippi state lawsuit (the “Mississippi case”) filed by Riverland
Technologies LLC (“Riverland”) in the Circuit Court of Rankin County, Mississippi. The subject matter of the Mississippi
case directly relates to the RedLPR case, to which Riverland was also a party. Subject to a settlement between the Company and Riverland,
all of Riverland’s claims against the Company in the Mississippi case have been dismissed, and the Company is no longer a party
to the Mississippi case.
The
Company was named a defendant in a case involving a former employee who claims he is owed approximately $60
thousand in unpaid commissions. This case was
filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. The Company believes the claim is
without merit and intends to defend itself against said claim.
The
Company is not a party to any other pending material legal proceeding. To the knowledge of management, no federal, state or local governmental
agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer
or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party
adverse to the Company or has a material interest adverse to the Company in any proceeding.
NOTE
13 – RELATED PARTY TRANSACTIONS
Related
party transactions are discussed in Note 7.
NOTE
14 – SUBSEQUENT EVENTS
On
May 6, 2021, the Company announced it entered into a definitive acquisition agreement pursuant to which OMNIQ will acquire 51% of Dangot
Computers Ltd. (“Dangot”), a leader in providing state of the art technology enabling frictionless automated order processing
& digital payment processing products for retail, fast food and parking, integrated working stations for physicians, drug delivery
and blood tests, robotics for smart warehouses, point of sales and other innovative solutions.
OMNIQ
agreed to pay the shareholder of Dangot a total of approximately $7.6
million (depending upon exchange rate to the
Israeli Shekel) comprised of approximately $5.6
million to be paid in cash and $2
million in restricted shares based on average
closing share price over the 30 trading days prior to signing. OMNIQ will have a one-year option to acquire the remaining 49%
at the same valuation. The Closing Consideration was paid on July 8, 2021 in the following manner: (a) the Company issued 220,103
shares of its common stock having a share value
of $2,000,000
based on the average of the last 30 trading days
prior to signing (May 3, 2021); and (b) cash in the amount of $5,600,000.
On
July 8, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors providing
for the sale of 2,142,857
shares of Common Stock at a purchase price of
$7.00
per share resulting in gross proceeds of approximately
$15,000,000.
In connection with the offering (the “July Offering”),
the Company paid ThinkEquity, Inc., a commission of 8%
and issued it warrants to purchase an aggregate of 171,429
shares at an exercise price of $7.70
per share and reimbursed them for expenses in
the amount of $150,000.
On July 20, 2021, the Company entered into
the Eighth Amendment to the Secured Promissory Note (the “Eighth Amendment”) extending the maturity date to August 15,
2022. The Eighth Amendment also provides that the Company will continue to make monthly installments of principal and accrued
interest at a minimum of $300
thousand each month and a final balloon payment of the remaining balance to be paid on August 15, 2022.
The
Company assessed other potential subsequent events and there were none as of the filing date.