Omniq (OMQS) - 2024 Q4 - Annual Report

Part I Business OMNIQ provides AI-powered image-processing solutions for supply chain and security markets while facing Nasdaq delisting challenges - The company uses patented and proprietary artificial intelligence (AI) technology for data collection, real-time surveillance, and monitoring in sectors like supply chain management, homeland security, and public safety[15] - OMNIQ is facing delisting from Nasdaq due to non-compliance with several listing rules, including failure to maintain a minimum $1.00 bid price, a minimum market value of $35 million, and failure to hold a timely annual meeting[18][20][22] - The company's strategy is to focus on operational excellence, cost reduction, addressing debt, and pursuing revenue growth and technological leadership[24] - OMNIQ targets two main markets: Safe City (including homeland security, access control, and parking) and Supply Chain Management[36] - As of December 31, 2024, the company had approximately 166 employees[44] Customer and Vendor Concentration (FY 2024) | Concentration Type | Percentage | Note | | :--- | :--- | :--- | | Revenue | 24% | From a single customer | | Accounts Receivable | 26% | From a single customer | | Purchases | 47% | From a single vendor | Risk Factors As a smaller reporting company, OMNIQ is not required to provide this section - This section is not required for smaller reporting companies[50] Unresolved Staff Comments As a smaller reporting company, OMNIQ is not required to provide this section - This section is not required for smaller reporting companies[51] Cybersecurity The company manages cybersecurity risks through established policies and board oversight, with no material incidents reported to date - The company has established processes for assessing, identifying, and managing material risks from cybersecurity threats, which are integrated into its overall risk management system[52] - The board of directors' audit committee is responsible for overseeing the company's cybersecurity risk management processes[57] - The company has not encountered cybersecurity challenges that have materially impaired its operations or financial standing[56] Properties The company leases corporate offices in Utah and California, with its subsidiary leasing facilities in Israel - The corporate office is located in Salt Lake City, UT, under a five-year lease expiring in June 2026, with an annual expense of $284,000[61] - The company leases additional office and warehouse space in Anaheim, California, and multiple locations in Tel-Aviv, Israel, for its subsidiary Dangot[62][63][64] Legal Proceedings The company is defending two significant lawsuits concerning a lease agreement and unpaid consultant fees, and recently settled a smaller case - A lawsuit filed by a commercial real estate company in Israel against subsidiary Dangot Computers alleges breach of a letter of intent for a lease, with an initial claim of approximately US $5.6 million[66] - In March 2025, a terminated consultant filed a lawsuit claiming approximately $389,000 in unpaid fees and commissions[67] - A case involving a former employee claiming $60,000 in unpaid commissions was settled in February 2024[65] Mine Safety Disclosures The company has no mine safety disclosures to report - No mine safety disclosures are reported[68] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock was delisted from Nasdaq to OTCMKTS, has not paid dividends, and raised $3.0 million through a 2023 offering - The company's common stock, symbol OMQS, was delisted from Nasdaq and now trades on the OTCMKTS[71][2] - The company has never paid cash dividends on common stock[76] - In October 2023, the company raised approximately $3.0 million in gross proceeds from an offering of common stock and pre-funded warrants[79][80] Quarterly Stock Price Range ($) | Period | High | Low | | :--- | :--- | :--- | | FY 2023 | | | | Q1 | 5.15 | 4.27 | | Q2 | 4.14 | 3.95 | | Q3 | 1.61 | 1.53 | | Q4 | 0.65 | 0.57 | | FY 2024 | | | | Q1 | 0.69 | 0.33 | | Q2 | 0.81 | 0.11 | | Q3 | 0.33 | 0.11 | | Q4 | 0.25 | 0.12 | [Reserved] This item is reserved and contains no information - This item is reserved[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased 9.4% to $73.6 million and net loss narrowed to $10.0 million, but substantial doubt exists about its 'going concern' status Going Concern Substantial doubt about the company's ability to continue as a going concern arises from a $54 million working capital deficit and recurring losses - Principal conditions raising substantial doubt about the company's ability to continue as a going concern include a working capital deficit of $54 million, an accumulated deficit of $124 million, and multiple years of operating losses[87][88][273] - Management's mitigation plans involve reducing expenditures, focusing on profitable sales, and leveraging its relationship with key supplier Blue Star, to whom it owed approximately $53.6 million as of December 31, 2024[88][275] Results of Operations Revenue for FY2024 fell 9.4% to $73.6 million, while net loss improved to $10.0 million due to the absence of a prior-year goodwill impairment charge - The 9% decrease in revenue was due to a decrease in deliverables and a delay in a significant customer project[91] - The significant decrease in operating expenses and net loss in 2024 is primarily because 2023 results included a non-cash goodwill impairment charge of $14.7 million, which was not present in 2024[93][97][101] Consolidated Results of Operations (in thousands) | Account | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $73,573 | $81,193 | $(7,620) | (9.39)% | | Gross Profit | $15,356 | $15,708 | $(352) | (2.24)% | | Loss from operations | $(6,911) | $(26,196) | $19,285 | (73.62)% | | Net loss | $(10,002) | $(29,431) | $19,429 | (66.02)% | | Net Loss per common Share | $(0.94) | $(3.50) | $2.56 | (73.14)% | Liquidity and Capital Resources The company's working capital deficit worsened to $54 million, with operations providing $2.4 million in cash during FY2024 Key Liquidity Metrics (in millions) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash | $2.3 | $1.7 | | Working Capital Deficit | $(54.0) | $(45.0) | | Stockholders' Deficit | $(43.9) | $(35.0) | | Accumulated Deficit | $(123.9) | $(113.9) | Cash Flow Summary (FY 2024 vs FY 2023, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operations | $2,368 | $170 | | Net cash used in investing | $(32) | $(331) | | Net cash used in financing | $(2,871) | $(50) | Critical Accounting Policies Key accounting policies involve significant judgment in revenue recognition, goodwill impairment testing, and stock-based compensation valuation - Revenue Recognition: The company follows a five-step model to recognize revenue when performance obligations are satisfied and control is transferred to the customer[109][252] - Impairment of Goodwill and Intangibles: Indefinite-lived assets like goodwill are tested for impairment at least annually[116][119] - Stock-Based Compensation: The company uses the Black-Scholes option-pricing model to estimate the fair value of stock option grants[121][123] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, OMNIQ is not required to provide this section - This section is not required for smaller reporting companies[129] Financial Statements and Supplementary Data Audited financial statements reveal a 'going concern' warning from the auditor and identify goodwill valuation as a critical audit matter - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern, citing the deficit in stockholders' equity and recurring losses from operations[193][273] - The valuation of goodwill and intangible assets was identified as a Critical Audit Matter due to the significant estimates and complex judgments involved in determining their fair value[197][198][199] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $31,880 | $27,354 | | Total Assets | $43,589 | $39,486 | | Total Current Liabilities | $86,323 | $72,705 | | Total Liabilities | $87,477 | $74,506 | | Total OmniQ stockholders' equity (deficit) | $(43,888) | $(35,020) | Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Revenues | $73,573 | $81,193 | | Gross Profit | $15,356 | $15,708 | | Loss from Operations | $(6,911) | $(26,196) | | Net Loss | $(10,002) | $(29,431) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on matters of accounting and financial disclosure - The company reported no disagreements with its accountants[131] Controls and Procedures Management concluded that both disclosure controls and internal controls over financial reporting were ineffective due to a material weakness in segregation of duties - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2024[133] - Management concluded that internal controls over financial reporting were not effective as of December 31, 2024, due to a material weakness[137] - A material weakness was identified in controls related to segregation of duties, a situation attributed to the small size of the company's management team[138][139] Other Information The company has no information to report under this item - No other information is reported[143] Part III Directors, Executive Officers and Corporate Governance The company's governance is led by a two-member board, with the CEO also serving as Chairman and interim CFO - The Board of Directors consists of two members: Shai Lustgarten (CEO and Chairman) and Guy Elhanani (Director)[145][160] - Shai Lustgarten has served as CEO since April 2017 and is also currently the interim CFO[147] - Director Guy Elhanani is deemed independent and serves as the sole member and Chairperson for the Audit, Compensation, and Corporate Governance/Nominating Committees[161][163][165][168] - The company adopted a Clawback Policy on December 1, 2023, for the recovery of certain incentive-based compensation from executive officers[170] Executive Compensation CEO Shai Lustgarten's total compensation was $690,000 in 2024, with his employment agreement detailing salary and severance terms - CEO Shai Lustgarten's employment agreement includes an annual base salary of $560,000 and specifies severance benefits[153] - Director compensation for 2024 consisted of $24,000 in cash fees for each of the three directors listed for that year[155] Named Executive Officer Compensation (in thousands) | Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Shai Lustgarten (CEO and Interim CFO) | 2024 | 637 | 25 | 28 | 690 | | | 2023 | 600 | 120 | 28 | 748 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Executive officers and directors as a group beneficially owned 11.6% of the company's common stock as of year-end 2024 Beneficial Ownership as of December 31, 2024 | Name of Beneficial Owner | Percentage of Shares Outstanding | | :--- | :--- | | Shai Lustgarten (Chairman and CEO) | 10.6% | | All Executive Officers and Directors as a group (5 individuals) | 11.6% | | Carlos Nissensohn | 7.4% | Certain Relationships and Related Transactions, and Director Independence The company discloses a related party transaction involving a $30,000 monthly consulting agreement with a principal stockholder - The company had a consulting agreement with principal stockholder Carlos J. Nissensohn, providing for a monthly fee of $30,000[175] Principal Accountant Fees and Services Information on accountant fees is incorporated by reference from the company's upcoming Proxy Statement - The required information will be included in the Proxy Statement and is incorporated by reference[176] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and provides an index of exhibits filed with the report - This section lists the financial statements filed with the report, commencing on page F-1[179] - An index of exhibits required by Regulation S-K is provided, with documents incorporated by reference or filed herewith[180] Form 10-K Summary This item is not applicable, and no summary is provided - No summary is provided under this item[181]