Omniq (OMQS) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents OMNIQ Corp.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended June 30, 2025 ITEM 1. FINANCIAL STATEMENTS This section presents OMNIQ Corp.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining significant accounting policies, going concern issues, business combinations, debt, equity, and the impact of discontinued operations UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS This section provides a comparative overview of OMNIQ Corp.'s financial position at June 30, 2025, and December 31, 2024, detailing assets, liabilities, and stockholders' equity Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Total Assets | $26,780 | $43,589 | $(16,809) | -38.56% | | Total Liabilities | $37,754 | $87,477 | $(49,723) | -56.84% | | Total Stockholders' Equity (Deficit) | $(10,974) | $(43,888) | $32,914 | 74.99% | | Current Assets | $15,630 | $31,880 | $(16,250) | -50.97% | | Current Liabilities | $26,517 | $86,323 | $(59,806) | -69.28% | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS This statement details OMNIQ Corp.'s revenues, gross profit, operating loss, net income (loss), and comprehensive income (loss) for the three and six months ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $7,802 | $8,436 | $15,782 | $17,587 | | Gross profit | $1,981 | $2,172 | $4,164 | $4,129 | | Loss from operations | $(484) | $(813) | $(678) | $(2,267) | | Net Income (Loss) | $2,051 | $(3,045) | $(34) | $(5,143) | | Net Income (Loss) per share - basic | $0.19 | $(0.28) | $(0.00) | $(0.48) | | Comprehensive income (loss) | $3,220 | $(1,876) | $(1,872) | $(3,733) | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) This statement outlines changes in OMNIQ Corp.'s stockholders' equity (deficit), including additional paid-in capital and accumulated deficit, for the periods ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :-------------------- | :------------ | :------------ | :---------------- | | Total Stockholders' Equity (Deficit) | $(10,974) | $(38,358) | $(43,888) | | Additional Paid-in Capital | $113,513 | $78,694 | $78,713 | | Accumulated Deficit | $(123,947) | $(119,025) | $(123,899) | - The increase in Additional Paid-in Capital by $34,734 thousand for the six months ended June 30, 2025, is primarily due to the sale of assets from a division, which was recorded as a capital contribution due to its related-party nature[14][58][63] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS This statement presents OMNIQ Corp.'s cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $6,072 | $(3,671) | | Net cash provided by (used in) investing activities | $(2,463) | $(103) | | Net cash (used in) provided by financing activities | $(1,716) | $1,369 | | Net change in cash and cash equivalents | $1,893 | $(2,405) | | Cash and cash equivalents at end of period | $2,209 | $1,373 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, significant events, and financial positions NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OMNIQ Corp.'s financial statements adhere to U.S. GAAP, with no material accounting policy changes except for the adoption of ASU 2023-09, and include details on net loss per common share calculation - The company adopted ASU 2023-09, 'Income Taxes (Topic 740), Improvement to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024, but it is not expected to have a material impact on financial statements[21] Potentially Dilutive Securities (in thousands) | Potentially Dilutive Securities (in thousands) | June 30, 2025 | June 30, 2024 | | :--------------------------------------------- | :------------ | :------------ | | Options to purchase common stock | 2,126,833 | 1,297,333 | | Warrants to purchase common stock | 959,235 | 1,606,734 | | Total Potential shares excluded from diluted net loss per share | 3,086,068 | 2,904,067 | NOTE 2 – GOING CONCERN OMNIQ Corp. faces substantial doubt about its going concern ability due to significant deficits and operating losses, mitigated by management's cost reduction, sales focus, and recent division sale plans - The company has a working capital deficit of $10.9 million as of June 30, 2025, and an accumulated deficit of $124 million, raising substantial doubt about its ability to continue as a going concern[24][27] - Management's plans to mitigate going concern issues include evaluating and reducing operating expenses, strategically focusing on increasing sales with prime customers, and concentrating sales efforts on the most profitable product lines[25][27] - The Company completed the sale of one of its divisions as of June 30, 2025, which included the removal of a net $45 million worth of debt from the Company's books, contributing to the mitigation plan[27] NOTE 3 – CONCENTRATIONS OMNIQ Corp. significantly reduced customer and vendor concentration risks, with no single customer or vendor exceeding 3% of revenues or payables respectively for the six months ended June 30, 2025 Concentration Metric | Concentration Metric | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Largest Customer Revenue | < 3% | 23.7% | | Largest Customer Receivables | 6% | 26% | | Largest Vendor Payables | < 3% | 47% | NOTE 4 – BUSINESS COMBINATIONS OMNIQ's subsidiary acquired CodeBlocks Ltd. for approximately $1.2 million in February 2024, which was subsequently divested as part of a larger business unit sale by June 30, 2025 - OMNIQ acquired CodeBlocks Ltd. on February 1, 2024, for approximately $1,190,360 (NIS 4,356,720)[28] - CodeBlocks Ltd. was subsequently sold as part of the divestiture discussed in Note 11 by June 30, 2025[28] NOTE 5 – INVENTORY Total inventories decreased significantly from $7.4 million at December 31, 2024, to $3.0 million at June 30, 2025, primarily due to the reclassification of $4.2 million in inventories related to discontinued operations Inventory (in thousands) | Inventory (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Raw materials | $308 | $287 | | Inventory in transit | $53 | $4,076 | | Finished goods (less allowance) | $3,407 | $49 | | Less allowance for obsolescence | $(763) | $(1,204) | | Total inventories (continuing operations) | $3,005 | $3,208 | | Inventories related to discontinued operations | $- | $4,197 | | Total inventories | $3,005 | $7,405 | NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT OMNIQ Corp. utilizes various credit facilities for working capital, with a significant $7.5 million factoring agreement terminated and zeroed out concurrent with a recent asset sale - A factoring agreement with Prestige Capital Finance, LLC, with a maximum outstanding balance of $7.5 million, was terminated concurrent with the sale of Quest Marketing, Inc. assets, resulting in a $0 balance as of June 30, 2025[31] NOTE 7 – RELATED PARTY NOTES PAYABLE OMNIQ Corp. holds a $660 thousand Marin Note with zero accrued interest and entered into a new $10 million Summit Note at 5% interest, amortized over 10 years, concurrent with a business unit sale - The Marin Note, a $660 thousand note from December 2017, had $0 accrued interest payable as of June 30, 2025[32] - On June 30, 2025, the company entered into a $10 million promissory note (Summit Note) at 5% annual interest, amortized over 10 years with a balloon payment in 3 years, concurrent with a business unit sale[33] - A $200,000 prepaid expense related to transaction costs with Summit Junction was recorded on the balance sheet as of June 30, 2025[33] NOTE 8 – OTHER NOTES PAYABLE OMNIQ Corp. has various other notes payable, primarily with Israeli banks, and as of June 30, 2025, was non-compliant with certain financial covenants, leading to debt reclassification as current, though early repayment has not been requested Other Notes Payable (in thousands) | Note Payable (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Note payable other | $7,342 | $8,746 | | Less current portion | $(6,932) | $(8,512) | | Long-term notes payable | $410 | $234 | - As of June 30, 2025, the company was not in compliance with certain financial covenants related to its Bank Leumi and Bank Hapoalim debt, resulting in the reclassification of the total balance as current debt[42] - Despite non-compliance, the lenders have not requested early repayment of the loans as of the date the financial statements were issued[42] NOTE 9 – OTHER INCOME For the six months ended June 30, 2025, OMNIQ Corp. recognized approximately $1.66 million in other income, including $609 thousand from government relief funds and $1.05 million from Employee Retention Credit refunds for prior years - The company received approximately $609 thousand (NIS 1.7 million) in government relief funds during the six months ended June 30, 2025[43] - Employee Retention Credit refunds amounted to approximately $1.05 million for returns filed for prior years during the six months ended June 30, 2025[43] NOTE 10 – STOCKHOLDERS' EQUITY OMNIQ Corp. has Series C Preferred Stock with preferential rights and $226 thousand in accrued dividends, and issued 1,035,000 stock options/warrants to employees and consultants, incurring $63,000 in compensation expense - As of June 30, 2025, 502,000 Series C Preferred Shares were issued and outstanding, entitled to a quarterly dividend of $0.06 per share per annum and a liquidation preference of $1 per share[46] - Accrued dividends on Series C Preferred Stock totaled $226 thousand as of June 30, 2025[46] - During the quarter, the company issued 1,035,000 stock options or warrants to 47 employees and consultants, including 50,000 options to the CEO and 100,000 warrants to an affiliated company, resulting in approximately $63,000 in compensation expense[50] NOTE 11 – LITIGATION OMNIQ Corp. is involved in an ongoing $5.6 million Israeli lawsuit for lease breach and a new $389 thousand claim from a terminated consultant, following a settled employee commission case in February 2024 - A lawsuit was filed in an Israeli court on November 3, 2024, against Dangot Computers, OmniQ Technologies, and officers, alleging breach of a lease arrangement with an initial claim of approximately $5.6 million (NIS 21 million)[52][101] - In March 2025, the company was named a defendant in a case involving a terminated consultant claiming approximately $389 thousand in unpaid fees and commissions[53][102] NOTE 12 – BUSINESS SEGMENT OMNIQ Corp. operates as a single reportable segment, offering software, communications, and automated management services, with performance evaluated by the CEO based on operating income (loss) - The company operates in a single reportable segment, providing solutions including software, communications, and automated management services[54] NOTE 13 – DISCONTINUED OPERATIONS OMNIQ Corp. divested its legacy business line to a related party for approximately $45.0 million, resulting in a $34.7 million gain recorded to Additional Paid-in Capital, while discontinued operations reported a $1.7 million net loss for the six months ended June 30, 2025 - On July 11, 2025 (effective June 30, 2025), OMNIQ Corp. sold substantially all assets and assumed certain liabilities of its legacy business line to Summit Junction Holdings LLC[55][56] - The transaction consideration was approximately $45.0 million, comprising the buyer's assumption of up to $55.0 million in specified liabilities and OMNIQ's issuance of a $10.0 million promissory note[57] - The sale resulted in a net gain on disposal of approximately $34.7 million, which was recorded directly to Additional Paid-in Capital due to the related-party nature of the transaction and specific accounting guidance[58][63] Discontinued Operations (in thousands) | Discontinued Operations (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | | Revenues | $24,599 | $19,787 | | Cost of goods sold | $19,115 | $13,975 | | Selling, general and administrative | $7,281 | $5,706 | | Net Loss from Discontinued Ops (Net of Tax) | $1,725 | $1,024 | - The CEO, Shai Lustgarten, is entitled to a bonus of $1.72 million (4% of the total transaction price) related to the divestiture, which has been accrued but not yet paid[62] NOTE 14 – SUBSEQUENT EVENTS Subsequent to June 30, 2025, OMNIQ Corp. settled approximately $62,500 of debt by issuing 900,000 shares, including 450,000 to the CEO, and relocated its headquarters under a new 7-year lease - In July 2025, the company settled approximately $62,500 of debt by issuing 900,000 shares, with 450,000 shares issued to CEO Shai Lustgarten to settle $31,500 owed to him[64] - In July 2025, the company relocated its corporate headquarters to a new office/warehouse with a 7-year lease at $15,000 per month[64] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of OMNIQ Corp.'s financial condition and operational results, highlighting the impact of divestiture, improved operating loss and net income, and enhanced liquidity driven by asset sales PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This cautionary note indicates the report contains forward-looking statements based on management's beliefs, which involve inherent risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement[65][66] INTRODUCTION OMNIQ Corp. leverages patented AI technology to provide machine vision image processing solutions for diverse applications like supply chain, public safety, and traffic management, serving multiple billion-dollar markets - OMNIQ Corp. uses patented and proprietary artificial intelligence (AI) technology to deliver machine vision image processing solutions[68] - Solutions include data collection, real-time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management, and access control applications[68] - The company engages with several billion-dollar markets with double-digit growth, such as the Global Safe City market and the Ticketless Safe Parking market[71] OVERVIEW OMNIQ Corp. reclassified a divested division as discontinued operations, with continuing operations showing a 10.26% revenue decrease but a significant 70.09% improvement in operating loss and basic loss per share - The company reclassified revenues and expenses of a divested division into 'Discontinued Operations' for both current and prior periods[74] Overview Metrics (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Revenues | $15,782 | $17,587 | $(1,805) | -10.26% | | Loss from operations | $(678) | $(2,267) | $1,589 | -70.09% | | Basic loss per share from continuing operations | $(0.00) | $(0.48) | $0.48 | -100.00% | LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2025, OMNIQ Corp. reported $2.2 million in cash and a significantly improved $10.9 million working capital deficit, with net cash from operating activities increasing to $6.08 million, primarily due to asset sales and operational efficiencies Liquidity and Capital Resources (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $2,200 | $2,300 | | Working capital deficit | $(10,900) | $(54,400) | | Stockholders' deficit | $(11,000) | $(43,800) | Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $6,080 | $(3,600) | | Net cash used in investing activities | $2,500 | $103 | | Net cash used in financing activities | $1,700 | $1,340 | - The increase in cash provided by operations by approximately $10 million is attributed to increased revenue and decreased overhead[78] Results of Operations For the six months ended June 30, 2025, OMNIQ Corp. saw a 10.26% revenue decrease but improved gross profit and a 70.09% reduction in operating loss, leading to a significantly reduced overall net loss despite increased loss from discontinued operations Results of Operations (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Variation ($) | Variation (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------ | :------------ | | Revenue | $15,782 | $17,587 | $(1,805) | (10.26)% | | Cost of Goods sold | $11,618 | $13,458 | $(1,841) | (13.68)% | | Gross Profit | $4,164 | $4,129 | $35 | 0.85% | | Operating Expenses | $4,842 | $6,396 | $(1,554) | (24.3)% | | Income (Loss) from operations | $(678) | $(2,267) | $1,589 | (70.09)% | | Net income (loss) from continuing operations | $1,691 | $(4,118) | $5,809 | -141% | | Loss from discontinued operations (net of tax) | $(1,725) | $(1,024) | $(701) | (68.46)% | | Net income (loss) | $(34) | $(5,142) | $5,108 | (99.34)% | - Revenues decreased by 10.26% due to deceleration of customer projects[82] - Cost of goods sold decreased by 13.68%, improving to 74% of net revenues from 77% in the prior year[83] - Total operating expenses decreased by 24% due to management's cost savings plan and the elimination of expenses associated with the legacy business sold[84] - Selling, general and administrative expenses decreased by 31% due to cost savings initiatives, including headcount reductions and lower professional-services fees, and the removal of expenses associated with the legacy business[86] - Depreciation expenses decreased by 82% due to the reduction in fixed assets following the sale of the legacy business[87] - Interest expense decreased due to fluctuations in borrowings and the retirement of debt associated with the legacy business, and included a $325 thousand gain on debt settlement[89] - Loss from discontinued operations increased to $1.7 million, reflecting transaction-related expenses and a one-time loss on the sale of certain assets[90] - Net loss significantly improved from $5.1 million to $34 thousand, driven by higher margins on continuing operations, lower operating expenses, and the gain on debt settlement, partially offset by increased loss from discontinued operations[91] Inflation OMNIQ Corp. states that its results of operations have not been materially affected by inflation, and management does not anticipate a material impact from inflation in the future - Inflation has not materially affected the company's operations and is not expected to have a material impact in the future[92] Off- Balance Sheet Arrangements OMNIQ Corp. currently does not have any off-balance sheet arrangements - The company currently does not have any off-balance sheet arrangements[93] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK OMNIQ Corp. states that this item is not applicable for the current reporting period - This item is not applicable[95] ITEM 4. CONTROLS AND PROCEDURES OMNIQ Corp.'s CEO and CFO deemed disclosure controls ineffective as of June 30, 2025, due to a material weakness in internal control over financial reporting related to segregation of duties, with no material changes during the quarter EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of OMNIQ Corp.'s disclosure controls and procedures as of June 30, 2025, and concluded they were not effective due to a previously reported material weakness in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting[96] Material Weakness in Internal Control over Financial Reporting A material weakness in internal control over financial reporting was identified during the 2024 financial statements audit, specifically concerning segregation of duties and other immaterial weaknesses in data management and documentation - A material weakness in internal control over financial reporting was identified, specifically related to segregation of duties and other immaterial weaknesses in data management and documentation[97] Changes in Internal Control Over Financial Reporting There were no changes in OMNIQ Corp.'s internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect the controls[98] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. LEGAL PROCEEDINGS OMNIQ Corp. is involved in an ongoing $5.6 million Israeli lawsuit for lease breach and a new $389 thousand claim from a terminated consultant, following a settled employee commission case in February 2024 - An ongoing lawsuit in an Israeli court alleges breach of a lease arrangement, with an initial claim of approximately $5.6 million (NIS 21 million)[101] - A new lawsuit was filed in March 2025 by a terminated consultant claiming approximately $389 thousand in unpaid fees and commissions[102] ITEM 1A. RISK FACTORS OMNIQ Corp. states that this item is not applicable for the current quarterly report, directing readers to its 2024 Form 10-K for a detailed discussion of risk factors - This item is not applicable for the current quarterly report; readers are referred to the 2024 Form 10-K for risk factors[103] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS OMNIQ Corp. reports no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds were reported[104] ITEM 3. DEFAULTS UPON SENIOR SECURITIES OMNIQ Corp. reports no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[105] ITEM 4. MINE SAFETY DISCLOSURES OMNIQ Corp. states that this item is not applicable for the current reporting period - This item is not applicable[106] ITEM 5. OTHER INFORMATION OMNIQ Corp. reports no other information for the current reporting period - No other information was reported[107] ITEM 6. EXHIBITS This section lists the exhibits filed with OMNIQ Corp.'s Form 10-Q, including certifications from executive officers (Sarbanes-Oxley Act Sections 302 and 906), various Inline XBRL documents, and a previously incorporated Share Purchase Agreement - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act) and various Inline XBRL documents[113] SIGNATURES The Form 10-Q report is duly signed on behalf of OMNIQ Corp. by Shai Lustgarten, who serves as the Chief Executive Officer, Interim Chief Financial Officer, and Chairman of the Board, as of August 19, 2025 - The report was signed by Shai Lustgarten, Chief Executive Officer, Interim Chief Financial Officer, and Chairman of the Board, on August 19, 2025[116]