UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 20152020

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-09047

 

Quest Solution, Inc.OMNIQ CORP.

(Exact name of Registrant as specified in its charter)

 

Delaware 20-3454263
(State or other jurisdiction of incorporation) (IRS Employer
incorporation or organization)Identification No.)

 

860 Conger Street1865 West 2100 South, Salt Lake City, UT 84119

Eugene, OR 97402
(Address of principal executive offices)

2580 Anthem Village Drive

Henderson, NV 89052
(Former Address)zip code)

 

(714) 899-4800

(Issuer’s telephone number)number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None.

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $0.001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[  ]
Accelerated filer[  ]
Non-accelerated filer[  ] (Do not check if a smaller reporting company)X]
Smaller reporting company[X]
Emerging growth company[  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2015,2020, was $11,489,225.$15,081,894.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 36,871,478date: 4,684,718 shares of common stock were outstanding as of April 14, 2016.March 31, 2021.

 

 

 
 

 

TABLE OF CONTENTS

 

PART I 
ITEM 1. DESCRIPTION OF BUSINESS4
ITEM 1A. RISK FACTORS78

ITEM 1B. UNRESOLVED STAFF COMMENTS

78
ITEM 2. DESCRIPTION OF PROPERTYPROPERTIES8
ITEM 3. LEGAL PROCEEDINGS8
ITEM 4. MINE SAFETY DISCLOSURES8
PART II 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES9
ITEM 6. SELECTED FINANCIAL DATA1110
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS1211
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 1219
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENETARY DATA1519
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE1520
ITEM 9A. CONTROLS AND PROCEDURES1520
ITEM 9B. OTHER INFORMATION1521
PART III 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE1621
ITEM 11. EXECUTIVE COMPENSATION1622
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS1626
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE1627
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES1627
PART IV 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES28
ITEM 16. SUMMARY1628

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

SomeThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this Annual Report on Form 10-K. These factors should not be construed as exhaustive and should be read with the other cautionary statements in this Annual Report on Form 10-K.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, thatthose results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not historical facts are “forward-looking statements,” which can be identified bylimited to, the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Annual Report on Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:following:

 

 ●

risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of projects, supply chain disruptions and other impacts to the business;

●Our ability to raise capital when needed and on acceptable terms and conditions;

 ●Our ability to manage credit and debt structures from vendors, debt holders and secured lenders.
 
 ●Our ability to manage the growth of our business through internal growth and acquisitions;
 
 ●The intensity of competition;Competitive pressures;
 
 ●General economic conditions;conditions, including the overall effect of the current COVID19 Crisis; and
 
 ●Our ability to attract and retain management, and to integrate and maintain technical information and management information systems.
●compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and
●other factors discussed under Item 1A – Risk Factors or elsewhere in this Annual Report on Form 10-K.

 

All writtenExcept as required by applicable law, including the securities laws of the United States and oralthe rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements made in connection withafter we file this Annual Report on Form 10-K, thatwhether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are attributableurged to us or persons acting on our behalf are expressly qualifiedconsider the above-mentioned factors carefully in their entirety by these cautionary statements. Givenevaluating the uncertainties that surround suchforward-looking statements youand are cautioned not to place undue reliance on such forward-looking statements. Except as may be required under applicable securities laws,Although we undertake no obligation to publicly update or revise anybelieve that the expectations reflected in the forward-looking statements whether as a result more information,are reasonable, we cannot guarantee future eventsresults or occurrences.performance.

PART I

 

ITEM 1. BUSINESS

 

General

 

Quest Solution, Inc.OMNIQ Corp., a Delaware corporation, formerly Amerigo Energy,Quest Solution, Inc., together with its two wholly owned subsidiaries, referred to herein as “we,” “us,” and “our” (“Quest”OMNIQ” or the “Company”), was incorporated in 1973. Since its incorporation, the Company has been involved in various lines of business.

 

BetweenOur Company

From 2008 andto 2013, the Company waswe were in the business of developing oil and gas reserves while increasing the production rate base and cash flow. The plan was to continue acquiring oil and gas leases for drilling and to take advantage of other opportunities and strategic alliances. Due to declines in production with respect to the Company’s oil and gas leases, the Company sought to explore its position in the oil industry. As the operational leases for the Company were not providing sufficient cash flow from operations to allow management to expand its investment in this industry, other potential opportunities were evaluated.

In February 2013, the Company acquired the rights to a spirits line of business and compiled a team of beverage, entertainment, retail and consumer product industry professionals. On January 10, 2014, the Company came to agreement with the original owners of the spirits brand, to cancel the previous agreement and the license was returned to them. The cancellation of a Consulting Agreement between the Company and the previous owners resulted in the return and cancellation 1,765,000 of the shares of common stock of the Company that had previously been issued.

reserves. In January 2014, the Company hadwe 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. The Company’sOur strategy developed into leveraging management’s relationships in the business world for investments for us.

Since 2014, we have made the Company. On January 10, 2014,following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing solutions:

●Quest Solutions, 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 2020)

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 Company entered into that certain Share Purchase Agreement with Quest Solution, Inc., an Oregon corporation (“Quest Solution”), inknowledge and expertise to simplify the technology,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 data collection systems business,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. Since 2014, our annual consolidated revenues have grown to more than $50 million with clients in ordermore than 40 countries. We currently address several billion-dollar markets with double-digit growth, including the Global Safe City market, forecasted to acquire Quest Solution for a purchase price of $16,000,000, payable ingrow to $29.6 billion by 2022, and the form of (i) a promissory note for $4,969,000; and (ii) a promissory note for $11,031,000.Ticketless Safe Parking market, forecasted to grow to $5.2 billion by 2023.

 

In May 2014, our Board of Directors voted to change the name ofNovember 2019, the Company from Amerigo Energy, Inc. to Quest Solution, Inc., and the Company received the approval from a majority of its stockholders and filed thean amendment to its ArticlesCertificate of Incorporation, as amended, with the Secretary of State for the State of Delaware. The name change became effective by the State of Delaware, on May 30, 2014. The Company also requested a new stock symbol as a result of the name change and we were assigned our new trading symbol “QUES” on the OTCQB.

On November 19, 2014, the Company entered into a Stock Purchase Agreement with Bar Code Specialties, Inc., a California corporation (“BCS”), and David Marin, the sole stockholder of BCS, pursuant to which the Company agreedwe changed our name from Quest Solution, Inc. to purchase all outstanding shares of common stock of BCS held by the Mr. Marin for an aggregate purchase price of $11,000,000, payable in the form of a five-year secured subordinated convertible promissory note. BCS is a company specializing in systems integration and data collection. Initially the company focused on the distribution vertical, but quickly grew its operational focus to include retail, manufacturing, food, and healthcare.OMNIQ Corp.

 

Effective October 1, 2015, the Company acquired the interest in ViascanQdata, Inc. (“ViascanQData”), a Canadian based operation in the same business line as Quest and their CEO, Gilles Gaudreault, was appointed the CEO of Quest, with our then CEO, Tom Miller, remaining as President and Chairman of the Board.

4

 

Our Strategy

 

Following the acquisition of Quest Solution, BCS and ViascanQdata, the Company’sOur strategy is to usefocus on operational excellence and cost reduction, addressing the identifiedbalance sheet debt and putting together a business plan that is based on revenue growth and technological leadership. We intend to continue to identify synergies betweenwithin the companiesCompany to offer a more complete offering of products, services and technological solutions to customers throughout North America. Furtherthe United States. Furthermore, the market in which QuestOMNIQ operates is undergoing consolidation and Quest may potentially acquire profitable,OMNIQ intends to start identifying strategic companies in the data collection, big data analytics and mobile systems integration market, as well as other complementary technologies for potential future acquisition in order to become the leading specialty integrator within our served markets.

 

4

We are a provider of products and solutions to two main markets, supply chain management and smart/safe city. We have expanded our product solutions, which are based on artificial intelligence and machine learning algorithms, offering computer vision applications. Our product offerings have established us as an innovative and technological company, and we are able to offer our fortune 1,000 customers an end-to-end solution. We are a pioneer in providing cutting-edge technology solutions to the markets we serve.

 

The Company isAs a North Americanworld-wide systems integrator, with awe focus on design, delivery, deployment and support of fully integrated mobile and automatic identification data collection solutions. The Company isWe use unique computer vision technology and additional identification technologies in its solutions. We also a manufacturer andand/or distributor of labels, tags, ribbons and RFID identification tags. Quest takesWe take a consultative approach by offering end-to-end solutions that include software, algorithm, hardware, software,service contracts, communications and full lifecycle management services. Quest simplifies

We are able to simplify the integration process with itsbecause of our experienced team of professionals. The Company deliversWe deliver problem solving solutions backed by numerous customer references. The Company offersWe offer comprehensive packaged and configurable software. Questsoftware, some of which we developed and some of it is alsosourced from third parties. We are a leading providing of bar code labels and ribbons (media) to companies in Canada and Southern California. Quest provides. We provide consultative services to companies to select, design and manufacture the right label for their product offering. Once a company selects thepurchases our product, sales are highly repeatablegenerally recur on a regular basis.

 

Quest’sOur groundbreaking AI-based vision solutions are currently in use for sensitive Homeland Security anti-terror projects and automated parking solutions. Inspired by time-critical “friend or foe” decision-making processes, our patented algorithms are based on a combination of cognitive science and machine learning-based pattern recognition technology which is arbitrated through a multi-layered decision-making process that offers both speed and accuracy.

Our experienced team of consulting and integration professionals guide companies through the entire development and deployment process, from selecting technology to the successful company-wide rollout of a customized solution that fits a company’s unique requirements. After performing a thorough technical evaluation of the client’s current operations and specific operational problems, Quest’sour team determines the optimal hardware and software solutions to optimize the client’s operational workflow. Quest delivers,We deliver, ongoing services provided throughout the deployment process and throughout the entire product life cycle. QuestWe also deliversdeliver full installation services for all mobile, data collection computers and printing equipment including full staging and kitting of the equipment.

 

We have been successful in delivering mission critical mobile computing and data collection solutions to Fortune 1000 companies for over two decades. The requirements and needs of our customers continue to evolve as they require new mobile and wireless technologies and services to make their business more competitive and profitable. The result is a continuous flow of opportunities for us to assist customers to evaluate, choose, implement, and support the right mobile and data collection solutions. As we focus on what we do best, we believe that there is more than adequate market size, growth and opportunity available to the Company to succeed.

Core to the solutions offered by Questthe Company is a full suite of configurable packaged software solutions that were internally developed and provide customers with unique solutions with significant business Return on Investment (“ROI”), including:

 

Order Entry:Software designed to increase productivity in the field.Remote workers increasingly demand rapid access to real-time information and up to date data to facilitate and streamline their job functions in the field Quest’sfor which we believe our Order Entry Software is the answer.

DSD and Route:Software packages designed to increase overall productivity.Quest DSD and Route software packages include proprietary applications for portable devices, computer servers and management dashboards that extend the power of existing systems out to field associates to enhance routing and delivery efficiency.

Intelligent Order Entry:Adds intelligence to aging order entry system to maximize profits.The hand held industry is a vital link in getting remote orders from the field to corporate. Quest’sOur Intelligent Order Entry Software adds this capability to aging order entry systems.

 

ITrack:iTrack: Track Device Deployment. iTrack, an Internet Tracking System, is a management tool that tracks the deployment of hardware devices in the field and their repair history.

 

Warehouse:Enhances Enhance efficiency in distribution and manufacturing environments.WarehouseThe warehouse is a collection of applications for portable devices that we believe extend the power of your existing system out to the warehouse floor and dock doors.

 

Proof of Delivery:Enhances document delivery performance.Quest offers We offer proof-of-delivery capabilities as part of its Mobility Suite that we believe gives companies an edge over competitors by improving customer service.

 

WTMiP:Extends business beyond four walls.WTMiP provides the link between corporate and the mobile worker. WTMiP servers allow files and data to seamlessly synchronize between the corporate host and laptops, hand heldhandheld devices and Windows CE or Windows Mobile devices.

 

5

Easy Order:Easy order on-line purchasing portal.Quest’s Our Easy Order Solution offers companies a customized portal that streamlines and simplifies ordering by providing clients with their own unique private on-line store.

 

QTSaaS (Quest Total Solutions as a Service): QTSaaS is a complete mobile services offering that includes hardware, software, services and wireless data in a bundled subscription payment offering over a period of time. Quest’sOur partnership with Hyperion Partners LLC and wireless carriers allows Questus to offer mobility solutions to our customers on platforms that extend the market into new mobile applications that previously were not being automated.

 

Media and Label Business:Repeatable easy order online purchasing portal.The largest segment of data collection opportunity for Questus is the barcode label market providing ongoing and repeatable purchasing business. The acquisition of ViascanQdata enables QuestWe intend to provide a full service label and ribbon offering throughout North America. Quest intends to investcontinue in the expansion of the label business in the United States of America to drive business growth and increased margins.

 

Our Target Markets

 

Based on itsTwo markets we serve are Smart/Safe City and Supply Chain Management. Our groundbreaking AI-based vision solutions are currently in use for sensitive Homeland Security anti-terror projects and discerning customers within the access control, airport, border crossing, municipality safety and parking industries. We seek to utilize our expertise competence, success and end-to-end software solution set, Quest focuses onsolutions in markets that represent high-return mobile line of business applications. Quest believes itwhich we believe provide the greatest opportunity to increase margins.

Within the Supply Chain Management market, we believe we can further develop itsour existing and substantial installedcustomer base of customers who are in need of replacement ofneeding to replace their legacy systems with a new go-to-market strategy that leveragesleveraging our field sales and system resources, telemarketing, customer portals and vertical market and barcode label specialists. Quest also believes that itsWe believe our base of industry leading customers are candidates for the Company’s barcode label and ribbon (media) offerings toproducts in the Company’s core markets are manufacturing, distribution, transportation and logistics, retail and healthcare sectors.sectors, which sectors are at the core of our business, are ideal candidates for our machine learning technology.

For over two decades, we have been successful in integrating mission critical mobile computing and data collection solutions for Fortune 1000 companies. The requirements and needs of our customers continue to evolve as they require new mobile and wireless technologies and services to make their business more competitive and profitable. The result is a continuous flow of opportunities to assist customers to evaluate, choose, implement, and support the right mobile and data collection solutions. As we focus on what we do best, we believe there is more than adequate market size, growth and opportunity available for us to succeed.

We believe integrating our patented and proprietary AI technology into its existing Supply Chain offerings will allow for automated logistics monitoring and optimization, creating operational efficiencies at higher margins both us and our fortune 1000 clients.

 

Competitive overview

The mobile system integration market is characterized by a limited number of large competitors and numerous smaller niche players. Quest typically pursues larger accounts and national customers, competing most often with the larger channel partners, including Stratix, Peak Technologies, Lowry, and Barcoding.com. For specific solutions the Company also competes with niche players that are often focused on a single industry. Hardware sales are often pressured by competition from online retailers, but Quest’s consultative, integrated solutions approach is a clear differentiator for most prospective customers.

Our Sales Strategy

 

The Company’s currentOur direct sales teams are supported by systems engineers averaging over twenty (20) years of experience in the mobile industry. The sales organization’s growth in size and reachin-reach mirrors the Company’s addition of new products and services. Sales team members are organized by territory, and to a lesser extent,industry areas of expertise. Quest’sopportunity, areas of expertise and territory. Our sales team adequately addressesteams are organized to address national accounts offering a broad array of unique solutions for linekey lines of business application,applications, which allowsprovides opportunities for upsell and cross sell opportunities within each client.to our clients. For the barcode label (media) business, Quest utilizeswe utilize a specialty sales force, and well as resellers and distributors of Questour manufactured private label products to serve the market.products.

 

Sales personsSalespeople are supported internally by sales support personnel who coordinate quotes and logistics and by members of the systems engineering group and software teams.

 

The normal sales cycle is one (1) to six (6) to nine (9) months, and typically involves the development of a scope of work and preparation of a ROI analysis. Quest preparesWe use Company developed analysis templates for this purpose which reduceswe believe reduce the sales cycle. The analyses and proposals include information on leasing and other financing options, which helps differentiate the Companyus from itsour competitors. The label business sales cycles are shorter, with purchases made more frequently on a transactional basis.

 

Competition

The mobile system integration market is characterized by a limited number of large competitors and numerous smaller niche players. We typically pursue larger accounts and national customers, competing most often with larger channel partners. For specific solutions, we also compete with niche players who are often focused on a single industry. Hardware sales are competitive because of online retailers. We believe our consultative, integrated solutions approach is a clear differentiator for most prospective customers.

Human Capital

OMNIQ’s operating philosophy is our growth and continued success are the result of management and employees working together in a spirit of cooperation and teamwork. Our core values emphasize an environment where safety, diversity, inclusion, talent development, training and retention are top priorities. We believe this has enabled us to meet various challenges over the years, and the progress that has been achieved by us reflects this strong mutual commitment between the Company and its employees. We believe our employees are our greatest asset. We remain focused on furnishing friendly and safe working conditions, providing competitive pay and offering quality benefits, and producing revenue for the continued growth of the Company and the communities in which we operate, with an emphasis on the welfare of our employees and their families. We realize our success is a direct result of the hard work and dedication of our employees. Each employee at OMNIQ is a contributing partner in our future growth and we strive to maintain a mutually beneficial workplace culture that also fosters the professional development of each employee.

As of December 31, 2020, we had approximately 61 employees. Of these employees, 46 are salaried (including commissioned employees) personnel and 15 are hourly personnel. Our employees perform the following functions: sales operations, parts operations, technical services and office and administrative support. We believe our relations with our employees are good, and we have never experienced a work stoppage. Generally, the total number of employees does not significantly fluctuate throughout the year.

7
 6

General Discussion of Operations

 

Concentrations

 

For the yearyears ended December 31, 2014,2020 and 2019, one customer accounted for 13%37.2% and 12.3%, respectively, of the Company’s consolidated revenues.

 

Accounts receivable at December 31, 20142020 and 2019 are made up of trade receivables due from customers in the ordinary course of business. One customerTwo customers made up 34%46% of the accounts receivable balance for 2014, whichat December 31, 2020 and two customers together represented greater than 10%20.9% of the balance of accounts receivable at December 31, 2014.2019.

 

Accounts payable are made up of trade payablesamounts due to vendorssuppliers in the ordinary course of business. Atbusiness at December 31, 2014, one2020 and 2019. One vendor made up 82%92.4% and 83.0% of the balance, which represented greater than 10% ofour accounts payable.

For the year ended December 31, 2015, one customer accounted for 12.1% of the Company’s revenues.

Accounts receivable at December 31, 2015 are made up of trade receivables due from customerspayable in the ordinary course of business. One customer made up 13.6% of the balance for 2015, which represented greater than 10% of accounts receivable at December 31, 2015.

Accounts payable are made up of trade payables due to vendors in the ordinary course of business. At December 31, 2015, one vendor made up 62.2% of the balance, which represented greater than 10% of accounts payable.2020 and 2019, respectively.

 

Employees and ConsultantsAvailable Information

 

As of December 31, 2015, we had a total of 151 full time employees and 5 part time employees.

As of March 15, 2016, we had a total of 146 full time employees and 7 part time employees.

Expected Significant Changes In The Number Of Employees

The Company anticipates some change in the number of employees over the next twelve months as administrative functions are consolidated. As noted previously, the Company currently coordinates all operations, using its executive officers and various consultants as necessary. Should the Company be approached with an accretive acquisition that the Company determines is a positive return on investment and/or weighted average cost of capital, then there will likely be increases in employees who come with the acquired company.

Quest’sOMNIQ’s website is located atwww.QuestSolution.comwww.omniq.com. The Company’s website and the information to be contained on that site, or connected to that site, isare not part of or incorporated by reference into this filing.

We file electronically with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of these reports, proxy and information statements and other information may be obtained by electronic request at the following e-mail address: publicinfo@sec.gov. We use the Investor section of our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor section of our website, in addition to following press releases, SEC filings and public conference calls and webcasts.

 

ITEM 1A. RISK FACTORS

 

This section is not required for smaller reporting companies.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

This section is not required for smaller reporting companies.

7

 

ITEM 2. PROPERTIESPROPERTIES

 

TheOMNIQ’s corporate offices of the Company are currently located at 860 Conger Street, Eugene, Oregon 97402. In April 2012, Quest Marketing, Inc. signed an operating1865 West 2100 South, Salt Lake City, UT 84119. Our executive management, sales, operations accounting and administrative functions are located at the corporate offices. The corporate office annual lease at 860 Conger Street, Eugene, Oregon 97402. The premises consist of approximately 7,000 square feet of warehouseexpense is $177,600 and the lease term does not exceed one year.

We lease office space.space for our software developers in Akron, Ohio. The lease provides for monthly payments of $3,837 through March 2013,$3000. The space is under a five-year lease and is adjusted annually to reflect changesexpires May 2023.

We lease office and warehouse space for our satellite sales and technical support staff in the cost of living for the remainder of the lease term. In no event shall the monthly rent be increased by more than 2% in any one year.Anaheim, California. The lease is duemonth to expire March 2017. This location handles administrative functions as well as having an operations team, inside sales, warehousemonth and support center for Quest’s sales team.annual lease expense is $36,000.

 

We also lease office space for research and development employees located in Israel. The lease at the Company’s Ohio location, signed by Quest Marketing, Inc. in July 2011, provides for monthly payments of $2,587 through June 2012, and $2,691 thereafter. The lease is due to expire June 30, 2018. This location is used by the Company’s engineers for assistance with its sales team.

The Company has a commercial real estate operating lease with the former owner of BCSexpense for the Company’s officeyears ending December 31, 2020 and warehouse location in Garden Grove, California. The Company pays rent at the rate of $9,000 per month. This location houses the original BCS operations team, which2019 was acquired in November 2014, as well as the label production facility, administrative and finance for the Company.

The Company has a commercial real estate lease in Henderson, Nevada 89052. The Company lease expires in June 2016 and is at a cost of $85020 Thousand Shekels per month.

On February 1 2005, Qdata Inc. (“Qdata”) signed an operating lease at 6 Shields Court, Suite 105 Markham L3R 4S1 Ontario. The premises, consisting of approximately 5,750 square feet of warehouse/office space shall serve as the Qdata new headquarters. The lease provides for monthly payments of $6,904 CDN. The lease expires January 2016. A new agreement was signed on January 12, 2016 for a reduced area of 2,875 square feet for monthly payments of $2,276 CDN for the space being utilized by Quest Canada, the Company’s Canadian Division. The lease started February 1, 2016 and is due to expire January 2018.

On August 1 2011, Viascan Group Inc. signed an operating lease at 651 Harwood Ave North Ajax Ontario. The premises, consists of approximately 36,656 square feet of warehouse/office space with monthly payments of $28,688 CDN and the lease is due to expire July 31, 2018.

On August 1 2013, Qdata Inc. signed an operating lease at 530 – 538 Berry Street, Winnipeg Manitoba. The premises consists of 2,250 square feet of warehouse/office space with monthly payments of $2,462 CDN and the lease is due to expire July 31, 2016.

On June 1 2014, ViascanQdata signed an operating lease at 110-737 West 3rd Avenue, Suite 110 Vancouver, British Columbia V6J 1K7. The premises consists of office space and the lease provide for monthly payments of $4,754 CDN and is due to expire May 31, 2016.

 

ITEM 3. LEGAL PROCEEDINGS

 

During 2019, our subsidiary, HTS USA, INC., was in litigation with Sagy Amit, a former employee. As of December 31, 2015,the date of this filing, the case has been resolved.

The Company is currently pursuing legal claims against two former employees who resigned from the Company to launch a competing business, RedLPR LLC (the “RedLPR case”). The claims include trade secret misappropriation and tortious interference. The RedLPR case was filed in the U.S. District Court, District of Utah on June 24, 2019.

The Company recently was named a defendant in a Mississippi state lawsuit that is notdirectly related to the RedLPR case (the “Mississippi case”). The Mississippi case also names RedLPR, LLC as a defendant. The Mississippi case was brought by Riverland Park Technologies (“Riverland”). Riverland is also a party to any pending material legal proceeding. To the knowledgeRedLPR case. The Mississippi case was filed in the Circuit Court of management,Rankin County, Mississippi on September 21, 2020.

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 position is that the former employee’s claims have no federal, state or local governmental agency is presently contemplating any proceeding againstapparent factual basis and appear to be designed to force a quick “nuisance value” settlement. This case was filed in the Company. To the knowledge of management, no director, executive officer or affiliateSuperior Court of the Company, any ownerState of record or beneficiallyCalifornia, County of more than 5% 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.San Diego on October 21, 2020.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.NONE.

8

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

In November 2019, the Company filed an amendment to its Certificate of Incorporation, as amended, with the Secretary of State of Delaware, pursuant to which we i) changed our name from Quest Solution, Inc. to OMNIQ Corp. and ii) effected a reverse split of its common stock at a ratio of one (1) for twenty (20), effective November 20, 2019 (the “Reverse Split”). All discussions of the Company’s securities, in this Annual Report Form 10k, reflect the consolidation of shares as a result of the Reverse Split.

Shares of OMNIQ’s common stock are not traded on an established market. Quest’sOMNIQ’s common stock is traded through broker/dealers and in private transactions, and quotations are reported on the OTCQB under the symbol “QUES”“OMQS”. OTCQB quotations reflect interdealer prices, without mark-up, mark-down or commission and may not represent actual transactions. The table below sets forth the range of high and low prices paid for transactions in Quest’s common stock as reported on the OTCQB for the periods indicated. No dividends have been declared or paid on Quest’sOMNIQ’s common stock and none are likely to be declared or paid in the near future.

 

  Common Stock
  High Low
     
Fiscal Year Ended December 31, 2014:         
Fiscal Quarter Ended March 31, 2014  $0.71  $0.13 
Fiscal Quarter Ended June 30, 2014  $0.72  $0.40 
Fiscal Quarter Ended September 30, 2014  $0.61  $0.30 
Fiscal Quarter Ended December 31, 2014  $0.53  $0.35 
  Common Stock 
  High  Low 
       
Fiscal Year Ended December 31, 2019:        
Fiscal Quarter Ended March 31, 2019 $13.00  $3.52 
Fiscal Quarter Ended June 30, 2019 $10.00  $4.16 
Fiscal Quarter Ended September 30, 2019 $8.60  $4.00 
Fiscal Quarter Ended December 31, 2019 $8.00  $2.62 
         
Fiscal Year Ended December 31, 2020:        
Fiscal Quarter Ended March 31, 2020 $5.76  $2.50 
Fiscal Quarter Ended June 30, 2020 $7.39  $3.77 
Fiscal Quarter Ended September 30, 2020 $7.25  $4.25 
Fiscal Quarter Ended December 31, 2020 $6.86  $4.03 
         

 

Fiscal Year Ended December 31, 2015:         
Fiscal Quarter Ended March 31, 2015  $0.47  $0.35 
Fiscal Quarter Ended June 30, 2015  $0.49  $0.28 
Fiscal Quarter Ended September 30, 2015  $0.45  $0.26 
Fiscal Quarter Ended December 31, 2015  $0.42  $0.12 

On March 22, 2021, the common stock closed at $9.00 per share.

Equity Compensation Plan Information

Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) 
  (a)  (b)  (c) 
Equity compensation plans approved by security holders  1,811,550  $4.32   312,250 
             
Total  1,811,550  $4.32   312,250 

In August 2020, OMNIQ’s 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, one million (1,000,000) shares of OMNIQ’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for issuance. The Plan was approved by our stockholders at the September 2020, shareholders’ meeting.

In September 2020 and pursuant to the 2020 Equity Incentive Plan, we granted options to purchase an aggregate of 745,000 shares of the Company’s common stock to certain of our employees, officers and directors. Included in the total shares granted are options to purchase 230,000 shares of its common stock to Mr. Shai Lustgarten, our Chief Executive Officer, options to purchase 40,000 shares of its common stock to Mr. Neev Nissenson, our Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to our Directors Andy MacMillan and Yaron Shalem, respectively. The remaining 305,000 granted options are for other employees and concsultants. The exercise price of the options granted was $4.40 per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $4.84 per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five (5) years and the balance of the options have a term of ten (10) years.

On January 23, 2019, the Company received shareholder approval to adopt its 2018 Equity Incentive Plan.

 

Dividends and other Distributions

 

QuestOMNIQ has never declared or paid any cash dividends on its common stock. The Company currently plans to retain future earnings to finance growth and development of its business and does not anticipate paying any cash dividends in the foreseeable future. QuestOMNIQ may incur indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although the Company has no current plans to do so. Any future determination to pay cash dividends will be at the discretion of Quest’s boardOMNIQ’s Board of directors.Directors The Company’s Series C Preferred Stock pays a 6% dividend, but the Company has been unable to make such dividend payments and so those dividends are accrued quarterly. Accrued but unpaid dividends do not bear interest. Pursuant to the settlement agreements made certain shareholders in February 2018, in which over $15 million in debt was extinguished, the shares of Series C Preferred Stock issued in exchange, totaling 1,685,000 shares, will not pay and will not accrue dividends for a 24 month period, or any time prior to March 1, 2020.

 

Recent Sales of Unregistered Securities

 

In January 2014, concurrent withDuring the cancellation of the license agreement with Le Flav Spirits, the Company cancelled two consulting agreements previously entered into during April 2013, in which shares previously issued were returned to the Company, a total of 1,765,000 shares were returned and canceled in full settlement, the shares were not repurchased by the Company but were voluntarily returned by the consultant.

On March 1, 2014,2020, the Company issued a totalan aggregate of 100,000302 shares of common stock to certain individuals as part of the Company’s Employee Stock Purchase Program valued at $41,000 to the then Chief Operating Officer, Doug Zorn, for services. During 2014, those shares were returned and canceled in exchange for agreement to compensate the individual with $30,000, deferred until successful completion of an equity fundraising. The shares were not repurchased by the Company but voluntarily returned by the individual.

During January 2014, the Company issued warrants to the sellers of Quest Marketing, Inc. vesting with the following milestones. When the warrants vest the Company will have consulting costs charged to operations.

●When the Company reaches $35,000,000 in sales from the Quest Solution subsidiary, 5,000,000 warrants at $1.00 per share vest and become exercisable. These warrants expire on January 9, 2016.
●When the Company makes it to the NASDAQ, AMEX or a larger exchange, 2,000,000 warrants at $3.00 per share vest and become exercisable. These warrants expire on January 9, 2017.
●When the Company reaches $40,000,000 in sales, a 2,000,000 share bonus is given to the executives. This expires January 8, 2017.

9

During 2015, the latter three options were voluntarily canceled.

On May 9, 2014, the Company issued a total of 240,000 shares; consulting costs charged to operations were $124,800 for marketing services to an outside Consultant.

On August 8, 2014, the Company issued 250,000 shares of stock related to warrants which were exercised by a prior Consultant.

On September 25, 2014, the Company sold 50,000 restricted common stock valued at $25,000 to a private investor.

On November 10, 2014, the Company issued 900,000 shares valued at $387,000 to settle $450,000 of debt due to the then Company President, Kurt Thomet. These shares were redeemed by the Company in December 2015.

In December 2014, the Company issued a total of 419,079 shares valued at $159,250 to settle debts owed to the then CEO (69,079 shares) and our CFO (350,000 shares), and a total of $30,000 was recognized as forgiveness of salary for the CEO in the year ending December 31, 2014.approximately $1 thousand.

 

On July 1, 2014,17, 2020, the Company issued 70,000 shares to IRTH Communications, LLC as part of a consultant a total of 200,000 warrantsconsulting agreement. The shares were valued at $113,548 for services to be performed. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $1.50, term of 2 years; risk free interest rate of 0.47%; dividend yield of 0% and expected volatility of 283%. As of December 31, 2014, the agreement with this consultant had been canceled, a total of $14,194 had been recognized as expense.$392 thousand.

 

On July 1, 2014,17, 2020, the Company issued an advisory board member50,000 shares to Stock Loan Solutions LLC as part of a total of 200,000 warrantsconsulting agreement. The shares were valued at $109,999 for services to be performed.$280 thousand.

On July 28, 2020, the Company issued 251,635 shares as part of a series of conversion agreements with former noteholders and preferred shareholders. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $1.00, term of 4 years; risk free interest rate of 1.70%; dividend yield of 0% and expected volatility of 441%. As of December 31, 2014 a total of $13,750 had been recognized as expense.shares were valued at $3.5 million including conversion penalties.

 

During November 2014, concurrent withJuly 2020, various holders exercised in cashless transactions options and warrants resulting in the acquisitionissuance of BCS, the Company granted two stock options to purchase an aggregate of 2,500,00056,248 shares of common stock: (i) a time-vested options to purchase 1,500,000 shares based on the duration of the BCS stockholder’s service with the Company to that Executive with an exercise price of $0.50 per share, which expire on November 20, 2024. The options vest in over the next four (4) years, with the first vesting of 12.5% of the balancevalued at six (6) months from the date of issuance. (ii) a performance stock option to purchase 1,000,000 shares based on the achievement of specified revenue and net income milestones to an Executive with an exercise price of $0.50 per share, which expire on November 20, 2024. The options vest after completion of nine (9) years of service with the Company or on having consolidated revenues greater than $45 million. 1,000,000 shares vested during 2015, but have not been exercised.$339 thousand.

 

During November 2014, with the acquisition of BCS,On October 16, 2020, the Company issued two service-based stock options50,000 shares to purchase 1,200,000Three Rivers Business Consulting, LLC as part of a consulting agreement. The shares of common stock each. These Options vests with respect to 200,000 shares on November 20, 2014, and the balance will vest in a series of twenty (20) equal installments on the last day of each complete calendar quarter over the five (5)-year period commencing on January 1, 2015, subject to their continuous service with the Company. On November 20, 2014, the Company vested a total of 400,000 warrantswere valued at $183,662. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.50, term of 5 years; risk free interest rate of 1.64%; dividend yield of 0% and expected volatility of 154%. As of December 31, 2014 a total value of these 400,000 warrants had been recognized as a non-cash expense related to these options. In 2015, 1,200,000 of these stock options were canceled.$270 thousand.

10

During November 2014, with the acquisition of BCS, the Company issued two performance-based stock options to purchase 2,200,000 shares of Common Stock each. These options will vest and become exercisable for all of the shares on November 21, 2023, provided that the Executives remain in continuous service with the Company on such date. The shares subject to the option will vest as follows: (a) if the Company achieves annual net revenues between $100 million and $150 million in any given year, an additional 200,000 shares shall immediately vest; (b) if the Company achieves net revenues between $150 million and $200 million in any given year, an additional 400,000 shares shall immediately vest; (c) if the Company achieves annual net revenues between $200 million and $300 million in any given year, an additional 600,000 shares shall immediately vest; and (d) if the Company achieves annual net revenues in excess of $300 million in any given year, an additional 1,000,000 shares shall immediately vest (until, in each case, the option is fully vested). In the event of any vesting event in (a) through (d) above where net income as a percentage of net revenues exceeds 10%, the shares vesting on such event shall be increased by 50%. In the event net income as a percentage of net revenues for such year is less than 5%, the shares vesting on such event shall be decreased by 50%. In 2015, 2,200,000 of these stock options were canceled.

On May 19, 2015, Quest entered into a Security Purchase Agreement (the “SPA”) with an accredited investor, who is also a subordinated debt holder and an employee of Quest, pursuant to which Quest issued 667,000 shares of Common Stock in exchange for $200,000.

On June 24, 2015, Quest issued subordinated promissory notes (the “Promissory Notes”) to three investors (who are also Quest employees) in the aggregate principal amount of $400,000 in exchange for an aggregate 170,000 shares of Quest’s restricted common stock, par value $0.001 per share. The Company recorded an interest expense of $62,731 relative to this issuance.

During the quarter ended June 30, 2015, the Company issued 650,000 shares of restricted common stock to consultants of the Company relative to a 12 month contract. The Company has the option to repurchase 550,000 of the shares issued within the 12 month period. The Company also issued 100,000 shares to the Chief Executive Officer in connection with his employment contract on May 1, 2015. The Company recorded a $288,880 expense related to the consulting contracts to be amortized over the period of these contracts.

During the quarter ended September 30, 2015, a stockholder of the Company voluntarily returned 2,517 shares of Common Stock, which were canceled from the Company’s issued and outstanding shares.

During the quarter ended December 31, 2015, the Compensation Committee of the board of directors agreed to quarterly issuance / vesting of 12,500 common shares per independent board member as compensation. During the 4th quarter, 37,500 shares were issued in conjunction with this agreement at a value of $15,375.

During the quarter ended December 31, 2015, the Company issued 100,000 common shares to a consultant for services valued at $22,000 and 20,000 common shares to an employee valued at $4,600.

Related Party

As discussed in Note 19 Quest Solution agreed to redeem 900,000 shares of common stock from Thomet pursuant to the Settlement Agreement which was redeemed on December 31, 2015.

As discussed in Note 19 Quest Solution issued 1,000,000 shares of restricted common stock to a note holder pursuant to the Settlement Agreement valued at $357,000 during the third quarter of 2015.

As of December 31, 2015, the company had 36,871,478 common shares outstanding.

The foregoing issuances of securities were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) as transactions not involving a public offering.

 

ITEM 6. SELECTED FINANCIAL DATA

 

This section is not required for smaller reporting companies.

 

10
 11

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion is intended to assist insummarizes the understandingfinancial position of OMNIQ, Corp. and assessmentits consolidated subsidiaries as of significant changesDecember 31, 2020, and trends related to the Company’sits consolidated results of operations for the year ended December 31, 2020, and its financial condition together with its consolidated subsidiaries. This discussion and analysis should be read in conjunction with theour consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. HistoricalThe following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K). Our actual results and percentage relationshipsmay differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form 10-K.

The outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the statementprimary regions we operate. Many State Governors issued temporary Executive Orders in 2020, which continue to remain effective in many states that, among other stipulations, effectively limit 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.

As the impact of COVID-19 became more widespread in March 2020, our sales volumes began to decline from previous years. Our total revenues for the year ended December 31, 2020, were 3.48% lower than those of the year ended December 31, 2019. COVID-19 had a more significant impact on our gross margin. Total gross margin percentage dropped 5% for the year ended December 31, 2020 compared to 2019. The timing and the extent of any continued recovery, or subsequent contraction, in our sales volumes cannot be reasonably estimated at this time. As such, the extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments, including trendsthe 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.

The Company’s consolidated revenue from continuing operations for the year ended December 31, 2020 were $55.2 million, representing a decrease of $2.0 million from 2019’s amount of $57.2 million. Revenues in 2020 and 2019 are presented in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606).

The loss from continuing operations for common stockholders was $11.5 million in 2020, an increase of $6 million from the prior year loss of $5.5 million. Basic and Diluted loss per share from continuing operations was $2.46 and $2.66 in 2020 compared to $1.37 per share in 2019.

In February 2020, OMNIQ entered in an asset purchase agreement with EyepaxIT Consulting LLC, a California limited liability company, (“Eyepax”) and its principal owners (collectively the “Sellers”), effective September 30, 2019, pursuant to which the Company 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.

In May 2020, we entered into a Loan Agreement with Zions Bank corporation, NA (“Zions”) whereby the Company borrowed $887,500 from Zions under the Small Business Administration’s (the “SBA”) Paycheck Protection Program. In October 2020, OMNIQ applied for and was granted forgiveness of the full amount owed (including accrued interest) by Zions on behalf of the SBA.

In August 2020, we filed an Amendment to the Certificate of Designation of the Rights and Preferences of its Series C Preferred Stock (the “Amendment”) clarifying that the conversion price and voting rights of the Series C Preferred Stock were amended to equitably reflect the reverse stock split of November 1, 2019. The holders of a majority of the Series Preferred Stock consented to such Amendment.

In August 2020, OMNIQ 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, 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. The Plan was approved by the Company’s stockholders in September 2020.

In September 2020 and pursuant to the 2020 Equity Incentive Plan, the Company granted options to purchase an aggregate of 440,000 shares of the Company’s common stock to certain of its employees, officers and directors, including options to purchase 230,000 shares of its common stock to Mr. Shai Lustgarten, the Company’s Chief Executive Officer, options to purchase 40,000 shares of its common stock to Mr. Neev Nissenson, its Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to Company Directors Andy MacMillan and Yaron Shalem, respectively. The exercise price of all of the options granted was $4.40 per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $4.84 per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five (5) years and the balance of the options have a term of ten (10) years.

In September 2020, the Company filed an amendment to its Certificate of Incorporation, as amended (the “Amendment”), with the Secretary of State of Delaware, pursuant to which the Company reduced the amount of its authorized common stock to 15,000,000 and reduced the amount of its authorized preferred stock to 5,000,000, of which 3,000,000 shares shall be designated as Series C Preferred Stock.

In May 2019, the Company, Campbeltown and Walefar entered into an Amendment to the HTS Purchase Agreement which provided for an adjustment to the number of shares of common stock issued to Walefar and Campbeltown in the acquisition of HTS. Pursuant to the Amendment, Campbeltown and Walefar agreed to return for cancelation 277,166 and 277,116 shares of common stock, respectively. This Amendment reduced the number of shares issued in the acquisition to 568,415 shares from 1,122,648 shares and the amount of share consideration to approximately $2.7 million from approximately $5.3 million. This adjustment was made as a result of a correction in the calculation of working capital and other share give back provisions of the HTS Purchase Agreement.

In April 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors (the “Purchasers”). Pursuant to the Securities Purchase Agreement, in April, 2019, the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”) resulting in gross proceeds of $5.0 million (the individual Unit price purchase price was $6.00), before deducting placement agent fees and offering expenses (the “Offering”). Each Unit was comprised of one share of the Company’s common stock, $0.001 par value per share (the “Common Stock”), and a warrant to purchase one share of Common Stock, and, as a result of the Offering, the Company issued 833,333 shares of Common Stock (the “Shares”) and warrants (the “Warrants”) to purchase 833,333 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $7.00 per Warrant Share, which Warrants are exercisable for a period of five and one-half years from the issuance date. Both Mr. Shai Lustgarten, the Company’s Chief Executive Officer, and Mr. Carlos J. Nissensohn, a consultant to and principal stockholder of the Company, participated in the offering by each converting $200 thousand of unpaid principal owed to them from the HTS acquisition (the “Conversions”), by the Company in exchange for Shares and Warrants on the same terms as all other Purchasers. With the Conversions included, the Offering resulted in gross proceeds of $5.0 million. As a result of the Conversions, a principal amount of $150 thousand is owed to each Walefar and Campbeltown respectively under the note issued to them as partial consideration in the sale of HTS Image Processing to the Company on October 2018.

GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of December 31, 2020, we had a working capital deficit of $ 25.3 million. These facts and others raise substantial doubt about our 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 implementing and maintaining moderate cost reductions;
●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 product lines, and obtaining 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. We have an operating facility with the ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit margins;
●In April 2019, the Company raised approximately $5.0 million in gross proceeds from the sale of 833,333 shares of the Company’s common stock.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might appear, are not necessarily indicative of future operations.be necessary should we be unable to continue as a going concern.

13

 

Overview -– Results of Operations

 

The following table sets forth certain selected condensed statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.

  Years Ended December 31  Variation 
In thousands 2020  2019  $  % 
Revenue $55,209  $57,199  $(1,990)  -3.48%
Cost of Goods sold $44,293  $43,165  $1,128   2.61%
Gross Profit $10,916  $14,034  $(3,118)  -22.22%
Operating Expenses $19,899  $16,898  $3,001   17.76%
Loss from operations $(8,983) $(2,864) $(6,119)  213.65%
Net loss $(11,504) $(5,456) $(6,048)  110.85%
Net Loss per common Share from continuing operations $(2.46) $(1.37) $(1.09)  79.56%

Revenues

 

ForRevenue for the years ended December 31, 20152020 and 2014, the Company recognized $63,854,132 and $37,309,973 in net revenues, respectively. The increase in revenue is attributable to the acquisitions of BCS that the Company completed during the fourth quarter 2014 and ViascanQdata that closed on October 1, 2015. Revenue for 2015 and 2014 was2019 were generated from the sales of hardware, service contracts, software, labels and ribbons and related services provided by the Company to its customers. For the years ended December 31, 2020 and 2019, the Company recognized $55.2 million and $57.2 million in net revenues, respectively. This represents a decrease of 3.48%.

Cost of Goods Sold

For the years ended December 31, 2020 and 2019, the Company recognized a total of $44.3 million and $43.2 million respectively, of cost of goods sold. Cost of goods sold was 80% of net revenues for 2020 and 75.5% for 2019. Our gross margin percentage has remained relatively stable in an industry that which is experiencing gross margin pressure.

 

Operating expenses

 

For the years ended December 31, 2020 and 2019, operating expenses related to continuing operations were $19.9 million and $16.9 million, respectively. This represents an increase of $3.0 million, or 17.76%, which is due to a general increase in business operations, including the addition of HTS in October 2018. The following explains in detail the change in operating expenses.

SalaryResearch & Development – Research and benefits – Salary, commissions and employee benefitsdevelopment for the year ended December 31, 20152020 totaled $8,492,549,$1.8 million, compared to $5,462,268$1.1 million for the year ended December 31, 2014.2019, representing an increase of $.7 million, or 70%. The increase in expenses is attributableresearch and development was due to development on the acquisitions of BCS that the Company completed during 2014 and ViascanQdata in 2015 and the related increases of sales commissions associated with increased net revenues of the Company. The Company had 151 full time staff and 5 part time contractors and consultants as of December 31, 2015 and 68 people on full time and 2 on part time staff as of December 31, 2014.HTS proprietary products.

 

Selling, General and Administrative – Selling, General and administrativeAdministrative expenses were $2,714,546$15.8 million for the year ended December 31, 2015,2020, compared to $1,038,308$13.7 million for the year ended December 31, 2014.2019, representing an increase of $2.1 million, or 15%. The increase is relatedwas due primarily to a full yearthe inclusion of BCS and one quarter of ViascanQdataHTS general and administrative expenses consisting primarily of $443,698 in occupancy costs and $492,773 of business travel and related expenses.

 

Professional FeesDepreciation – Professional feesDepreciation for the year ended December 31, 20152020 were $429,518$178 thousand compared to $656,238$151 thousand for the period year ended December 31, 2014. The decrease was related to the decreased use2019. This represents an increase of outside consultants and specifically legal fees$27 thousand, or 6% attributable to the acquisitions of ViascanQdata that the Company completed during 2015 and BCSgrowth in 2014. In 2015, the Company incurred $75,532 of professional and legal fees and $24,367 in accounting consulting expenses, including auditing expenses related to the acquisitions of ViascanQdata. In 2014, the Company incurred $90,202 of professional and legal fees and $137,765 in accounting consulting expenses, including auditing expenses related to the acquisitions of Quest Solution and BCS.fixed assets.

 

Stock based compensation expenseIntangible Amortization – Stock based compensationIntangible amortization expenses for the year ended December 31, 20152020 were $ 751,054,$2.1 million, compared to $308,453$2.0 million for the Yearyear ended December 31, 2014. This increase in 2015 relates to the Company issuing additional net shares for services, the increase in vesting of incentive stock options and the increase in stock price during the period. In 2014, $183,662 of the stock based compensation charge relates to options issued to the Company’s officers and directors, while the balance relates to shares issued for consulting contracts which were expensed over the term of the contract.2019.

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Other income and expenses

 

As of December 31, 2015 and 2014, the Company had $71,461 and $42,148, respectively, in other income. This increase is attributable to increased operations due to the acquisitions of BCS in 2014 and ViascanQdata that the Company completed October 1, 2015.

The Company incurred $1,610,237$2.6 million in interest expense for year ended December 31, 2015, compared to $871,971 for the year ended December 31, 2014. This is directly attributable to $893,702 and $800,000 of debt discount amortized for the years ended December 31, 2015 and 2014, respectively on the issuance of acquisition promissory notes with Quest Solution in 2014, as well as the increased borrowings on the credit facility and the interest expense on the subordinated debts issued in the 2015 and 2014 acquisitions.

The Company had a $0 gain in debt settlement as of December 31, 2015,2020, compared to gain on settlement of debt of $184,351$2.6 million for the year ended December 31, 2014. These related to settlement2019. The interest expense in 2020 is comprised of liabilities to outside parties, inclusiveinterest incurred on promissory notes payable, the company’s line of settlement of other debts settled at a discount.

In third quarter 2015 the Company recognized a $374,500 gain on sale of technology licensescredit, and trade agreements that were transferred to a former employee and shareholder in the ordinary course of business as part of an omnibus settlement agreement (Note 9). In the fiscal year ending December 31, 2014, the Company recognized a non-cash loss on license settlement of $93,578 related to the liquor brand and a charge of $82,020 to other expense related to one-time costs incurred for the business related to the acquisitions during the year.vendor payables.

 

Foreign currency transactions

 

The Company uses the temporal method to translate itsOur subsidiary, HTS Image Processing, Inc., has operations in Israel, therefore had foreign currency transactions. Under this method, monetary assetstransactions conducted in 2020 and liabilities are translated at the exchange rate in effect at the consolidated balance sheet date. Other assets and liabilities are translated at the exchange rate in effect at the2019. Foreign transaction date. Items appearing in the current year’s consolidated statement of loss, except for cost of inventory and amortization, which are translated using the historical rate, are translated at average yearly rates. Foreign exchange gains and losses are included inreported on the consolidated statement of loss.operations and were included in the amount of loss from comprehensive income.

 

Provision for income taxes

 

During the year ended December 31, 2015,2020, the Company recognized ahad $5 thousand in state income tax benefit of $1,797,977 related toexpenses for states in which the deferred tax asset true upCompany recently began operations and for the items allocated from acquisitions that werewhich past net operating losses may not deductible for tax purposes, mainly intangible assets. Forapply.

During the year ended December 31, 2014,2019, the Company recognized a nethad $14 thousand in state income tax benefit of $1,299,417, related toexpenses for states in which the cumulativeCompany recently began operations and for which past net operating losses of the company. Management’s analysis of the future utilization of the cumulative net operating loss carryforwards determined that it is more likely thanmay not that a portion will be utilized prior to expiration. Accordingly, the valuation allowance on the deferred tax asset is 67% during the periods ended December 31, 2015, and 2014, respectively.

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apply.

 

Net income (loss) attributable to common stockloss from continuing operations

 

The Company realized a net loss from continuing operations of $1,715,080$11.5 million for the year ended December 31, 2015,2020, compared to a net incomeloss from continuing operations of $301,649$5.5 million for the year ended December 31, 2014.2019. The decreaseincreased loss in income2020 is attributabledue primarily to the $2,629,833an increase in amortization expenseSelling, General and Administrative expenses, and cost of acquired intangibles, the non-cash interest expense of $718,202 as well as the acquisition costs for ViascanQdata on October 1, 2015 offset in part by the deferred tax benefit of $1,785,524 ..goods.

 

Liquidity and capital resources

 

For the year endedAt December 31, 2015,2020, the Company had cash in the amount of $1,533,565$5.1 million of which $690,850$.5 million is on deposit and restricted, as collateral for a letter of credit and a corporate purchasing card, and a working capital deficit of $12,946,637 excluding the current portion of subordinated notes payable,$25.3 million, compared to cash in the amount of $233,741,$2.1 million of which $0.5 million was on deposit and restricted, and a working capital deficit of $5,093,594$20.2 million for the year ended December 31, 2014. In addition, the Company’s stockholder’s2019. The Company had stockholders’ deficit of $(5) million and stockholders’ equity (deficit) of ($471,367) and $1,193,512$1.8 million for the years ended December 31, 20152020 and 2014,2019, respectively. This decrease in our stockholders’ equity was primarily due to the book net loss for 2020.

 

The Company’s accumulated deficit is $18,457,236was $56.7 million and $16,742,156$45.1 million for the years ended December 31, 20152020 and 2014,2019, respectively.

 

The Company’s operations providedused net cash of $7,057,757$420 thousand and $618,761provided $4.3 million for the years ended December 31, 20152020 and 2014, respectively, an increase2019, respectively. The decrease in cash from operations of $6,438,996. Non-cash charges$4.7 million is primarily a result of a decrease in 2015 included a $5,107,707 increase in accounts payable, $718,202 of accretion on debt discount related to the Quest Solution acquisition, stock compensation charges of $429,617 with an offset of $1,785,524 related to the reduction in the valuation allowance of the deferred tax asset that the Company recorded on the books. The Company’s current assets increased to $16,962,346 and current liabilities increased to $37,055,082 at December 31, 2015 from $10,507,759 and $15,601,353 at December 31, 2014.gross margin.

 

The Company’s cash used inprovided by investing activities was $1,117,134$94 thousand for the year ended December 31, 20152020 compared to $2,333,362 fromcash used in investing activities of $251 thousand for the year ended December 31, 2014. This was attributable to the $690,805 held as restricted at the bank and $74,855 in cash on the acquired company (Viascan) and acquisition costs of $232,026 in the acquisitions of ViascanQdata 2015.

2019.

 

The Company’s financing activities used $6,502,942$3.4 million of cash during the year ended December 31, 2015,2020, and $2,333,362used $2.8 million during the year ended December 31, 2014, an increase in usage of $5,971,259. The increase is attributable to the payments of subordinated and senior debt on the books of the Company related to the acquisitions during 2015 and 2014.2019. During the year ended December 31, 2015, $8,304,621 was paid down2020, the Company made payments of $1.3 million on its notes payable, including its Supplier Secured Promissory note and related party notes payable, compared to the year ended December 31, 2019, when the Company as partmade payments of $3.4 million on its notes payable, including notes payable, related party, and its Supplier Secured Promissory note. Additionally, the acquisitions, as well as proceeds receivedCompany borrowed $3.5 million on the Company’s line of $1,968,179credit, compared to the year ended December 31, 2019, when $866 thousand was borrowed from the Company’s line of credit.

 

The Company’s results of operations have not been affected by inflation and management does not expect inflation to have a material impact on the Company’s operations in the future.

Off-Balance Sheet Arrangements

 

The Company currently does not have any off-balance sheet arrangements.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The application of many accounting principles requires us to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and they and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts first become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. See also note 2 to our consolidated financial statements for a summary of our significant accounting policies.

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 or not 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.

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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 transfers 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.

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.

Evaluation of Goodwill Impairment.

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 below. Based on this quantitative test, we determined there was no impairment as of the December 31, 2020.

For purposes of performing the quantitative impairment test described above, we estimate the fair value by utilizing fair value techniques consistent with the income approach and market approach. When performing the income approach for each reporting unit, we use a discounted cash flow analysis based on our internal projected results of operations, weighted average cost of capital (“WACC”) and terminal value assumptions. Our cash flow projections are based on five-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth. The WACC is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise and represents the expected cost of new capital likely to be used by market participants. The WACC is used to discount our combined future cash flows. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of a reporting unit’s fair value, and therefore could affect the likelihood and amount of potential impairment. Under the market approach, we compare the reporting units to selected reasonably similar (or “guideline”) publicly traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies; and (iii) applied to the operating data of our reporting unit to arrive at an indication of value. The application of the market approach results in an estimate of the price reasonably expected to be realized from a sale of the Company.

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. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation – Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straightline basis primarily over the vesting period of the options.

Additional accounting policies can be found in Note 2 to our Audited Consolidated Financial Statements.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. ASU 2019-12 became effective on January 1, 2021 and is not expected to have a material impact on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

On January 1, 2020, we adopted Accounting Standards Codification Topic 326, Credit Losses (Topic 326). This standard establishes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, we recognize an allowance for our estimate of expected credit losses over the entire contractual term of our receivables from the date of initial recognition of the financial instrument. Measurement of expected credit losses are based on relevant forecasts that affect collectability. Topic 326 applies to trade receivables from certain revenue transactions including receivables from equipment sales, parts and service sales. Under Topic 606 revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that these trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The adoption of Topic 326 did not have a material impact on our consolidated financial statements and related disclosures or our existing internal controls because accounts receivable are of short duration and there is not a material difference between incurred losses and expected losses.

On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement - Disclosure Framework. ASU 2018-13 modifies the disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements and footnotes.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

This section is not required for smaller reporting companies.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required by this Item are included as a separate section of this report commencing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

NoneNONE

 

ITEM 9A. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Control Procedures:

We maintain “disclosure controls and procedures”, as such terms are defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. The Company’s management conductedCompany acknowledges that any controls and procedures can provide only reasonable assurances of achieving the desired control objectives.

We have carried out an evaluation as required by Rule 13a-15(d) under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,”procedure as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (the “Commission”) rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.December 31, 2020. Based on thisupon their evaluation, the Company’s Chief Executive Officer and Chief FinancialPrincipal Accounting Officer concluded that, as of December 31, 2015, that2020, the Company’s disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be notedwere not effective. Although we have determined that the design of any system ofexisting controls is based in part upon certain assumptions aboutand procedures are not effective, the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.deficiencies identified have not been deemed material to our reporting disclosures. 

 

(b) Management’s Report on Internal ControlControls over Financial Reporting:Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal. Internal control over financial reporting isrefers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The

Internal control over financial reporting cannot provide absolute assurance of achieving their objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal controlscontrol over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. Management is responsible for the Company are provided by executive management’s reviewestablishing and approval of all transactions. The Company’smaintaining adequate internal control over financial reporting also includes those policies and procedures that:

(1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject tofor the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Company.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, managementhas used the criteriaframework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management’s assessment included an evaluation(2013 framework), known as COSO, to evaluate the effectiveness of the designour internal control over financial reporting.

A material weakness is a deficiency, or a combination of itsdeficiencies, in internal control over financial reporting, and testingsuch that there is a reasonable possibility that a material misstatement of the operational effectiveness of these controls.

Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on this assessment, management hassuch evaluation, our CEO concluded that, as of December 31, 2015,2020, our internal controls over financial reporting were not effective.

As a result of our evaluation, we identified a material weakness in our controls related to segregation of duties and other immaterial weaknesses in several areas of data management and documentation.

Our management is composed of a small number of professionals resulting in a situation where limitations on segregation of duties exist. Accordingly, as a result of the material weakness identified above, we have concluded that the control deficiencies result in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented on a timely basis by the Company’s internal control overcontrols. We continue to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by executives. In addition, we evaluate and assess our internal controls and procedures regarding our financial reporting, was effectiveutilizing standards incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies in Auditing Internal Controls Over Financial Reporting as necessary on an on-going basis. We have implemented a new ERP and accounting software in 2020 that encompasses all our subsidiaries. This software allows for a higher level of control, better audit trail and improved segregation of duties and improves the Company’s overall compliance with COSO but the deficiency is still present. The hiring of additional staff is dependent upon our obtaining sufficient cash flows from operations or financings.

While the material weakness set forth above were the result of the scale of the Company’s operations and is intrinsic to provide reasonable assurance regardingits small size, the reliabilityCompany believes the risk of material misstatements relative to financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.are minimal.

 

This Annual Report on Form 10-Kannual report does not include an attestation report of the Company’sour registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sits registered public accounting firm pursuant to the rules of the Commission that permitDodd-Frank Wall Street Reform and Consumer Protection Act, which permits the Company to provide only management’s report in this Annual Report on Form 10-K.annual report.

 

(c) Changes Inin Internal Control Overover Financial Reporting

 

There were no changes in the Company’sour internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during theour most recently completed fiscal quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, itsour internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.NONE.

 

15

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table presents information calledwith respect to our officers and directors as of the date of this Report:

Name and AddressAge[update]Position(s)
Shai Lustgarten50CEO and Chairman
Neev Nissenson42Chief Financial Officer and Director
Andrew J. MacMillan73Director
Yaron Shalem48Director

Background of our officers and directors

The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Shai S. Lustgarten, was appointed the Company’s CEO in April 2017 and served as the Company’s interim CFO from December 2018 through September 4, 2019. Mr. Lustgarten had been the Chief Executive Officer of Teamtronics, Inc. beginning June 2016. Teamtronics manufactures rugged computers and electronic equipment mainly used in the Gas and oil industry. From 2014 to 2017, Mr. Lustgarten was the Chief Executive Officer at Micronet Limited Inc., a developer and manufacturer of mobile computing platforms for by this item is incorporated herein by referenceintegration into fleet management and mobile workforce solutions listed on the Tel Aviv Stock Exchange. From 2013 to 2014, Mr. Lustgarten served as EVP Business Development and Head of the Aerospace and defense Division of Micronet EnertecTechnologies, a technology company listed on the NASDAQ Capital Market. From 2009 to 2013 Mr. Lustgarten was VP of Sales, Marketing and CMO of TAT Technologies, a world leading supplier of electronic systems to the definitive Proxy Statement, which will be filedcommercial and defense markets, from. His prior experience also includes serving as CEO of T.C.E. Aviation Ltd. in Belgium and serving from 1993 to 1997 as the assistant to the Military Attaché at the Embassy of Israel in Washington, DC. He received his Bachelor of Science degree in Business Management & Computer Science from the University of Maryland.

21

Neev Nissenson became a director of the Company in April 2017 and was appointed as our CFO on September 5, 2019, effective October 10, 2019. He is an experienced entrepreneur and financial officer. In 2015, Mr. Nissenson founded Hotwine, Inc., a California based wine startup company. Since August 2016 and until October 10, 2019, Mr. Nissenson served as the Chief Financial Officer of Hypnocore, Ltd., an Israeli based startup company that develops mobile applications for sleep monitoring and therapy. During 2011 to 2015, Mr. Nissenson was the Chief Financial Officer of GMW, Inc., a high-end wine retailer from Napa, California. Before that, Mr. Nissenson served as the Vice President from 2006 to 2011 and the Chief Financial Officer from 2009 to 2011 at Phoenix International Ventures, Inc., an aerospace defense company. Mr. Nissenson was also a member of the Municipal Committee for Business from 2004 to 2007 and a member of Municipal Committee for Street Naming from 2005 to 2007 in the City of Herzliya, Israel. He is also an armored platoon commander in the Israeli Defense Forces (Reserve) Armored Corps with a rank of Captain. Mr. Nissenson graduated from Tel Aviv University in 2005 with a B.A. majoring in General History and Political Science. In 2007, he graduated from the Commission pursuantHebrew University with an Executive Master’s degree in Business Administration specializing in Integrative Management.

Andrew J. MacMillan became a director of the Company in April 2017. He is a corporate communications professional with 20 years of corporate communications experience in the global securities industry, plus 18 years of direct investment banking and related experience. He was a director of NTS, Inc. since December 20, 2012 and since December 27, 2012 served as the Chairman of its Nominating and Corporate Governance Committee until NTS’ sale to Regulation 14A undera private equity firm in June 2014. Since 2010, Mr. MacMillan has served as an independent management consultant providing marketing and communications advisory to clients. Prior to that from 2007 until 2010, Mr. MacMillan served as Director, Global Communications & Marketing of AXA Rosenberg, a leading equity asset management firm. Prior to that, Mr. MacMillan served in a variety of corporate communication roles including Senior Vice President of Corporate Communications & Government Affairs at Ameriprise Financial, Head of Corporate Communications (Americas) at Barclays Capital, Senior Vice President of Corporate Communications of The NASDAQ Stock Market and Director of Corporate Communications at Credit Suisse First Boston. Mr. MacMillan previously served as an investment banker, acquisition officer, and consultant directly involved with capital raising, acquisitions, and financial feasibility studies. Mr. MacMillan holds a BS in Industrial Engineering from the Exchange Act.University of Iowa and a Masters in Business Administration from Harvard.

Yaron Shalem became a director of the Company in April 2017. He has extensive experience in financial and business management. Mr. Shalem has served as the Chief Financial Officer at Saga Foundation since January 2018. Prior to that Mr. Shalem served as the Chief Financial Officer at Singulariteam VC since January 2014 till January 2018. He also worked as the Chief Financial Officer at Mobli Media Inc. from January 2014 to December 2016. Mr. Shalem’s experience also includes serving as the Chief Financial Officer of TAT Technologies Ltd., a NASDAQ listing company, from April 2008 to December 2013. Mr. Shalem is a CPA in Israel. He received his B.A. in Economy & Accounting from Tel Aviv University in 1999 and an MBA degree from Bar-Ilan University 2004.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information calledtable below shows the compensation for by this item is incorporated herein by referenceservices in all capacities we paid during the year ended December 31, 2020 to the definitive Proxy Statement,individuals serving as our principal executive officers during the last completed fiscal year and our other two most highly paid executive officers at the end of the last completed fiscal year (whom we refer to collectively as our “named executive officers”);

Name and Principal Position Year  

Salary

($)

  

Bonus

($)

  

Stock

Awards

  

Option

Awards

  

All Other

Compensation

  Total 
In thousands                            
Shai Lustgarten(1)  2020   523   -   

-

   1,136          9  $1,668 
Chief Executive Officer  2019   489   -   250   43   -  $782 
                             
Neev Nissenson (2)  2020   180   -   -   198   -  $   378 
Chief Financial Officer  2019   32   3   90   -   -  $125 

1.The fair market value of the options awarded to Mr. Lustgarten for 2020 is $1.1 million.
2.Neev Nissenson was appointed as the Company’s Chief Financial Officer in September 2019, effective October 10, 2019.

22

Bonuses

Any bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s responsibilities with the Company. As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels.

Employment Contracts

In February 2020, we entered into an employment agreement with Mr. Lustgarten, the Company’s Chief Executive Officer, (the “Lustgarten Agreement”) pursuant to which Mr. Lustgarten shall continue to serve as the Company’s Chief Executive Officer. The Lustgarten Agreement has a four (4) year term and automatically renews for additional one (1) year periods unless either party elects to terminate the Lustgarten Agreement. Pursuant to the Lustgarten Agreement, the Company shall pay Mr. Lustgarten an annual base salary of $560,000. Mr. Lustgarten shall also be eligible to receive i) equity awards pursuant to the Company’s 2018 Equity Incentive Plan and the 2020 Equity Incentive Plan and ii) certain milestone bonuses as set forth in the Lustgarten Agreement. In the event Mr. Lustgarten’s employment is terminated by Mr. Lustgarten for good reason, or terminated by the Company without cause, Mr. Lustgarten shall be entitled to the greater of (i) the unpaid base salary or (ii) one (1) year’s base salary.

In September 2019, the Company and HTS Image Ltd., a wholly owned subsidiary, entered into an employment agreement with Mr. Neev Nissenson to serve as the Chief Financial Officer of each the Company and HTS Image Ltd., effective October 10, 2019, pursuant to which the Company shall pay Mr. Neev Nissenson a monthly base salary of NIS (New Israeli Shekels) 44 thousand. Mr. Nissenson is eligible to earn certain bonuses upon the Company’s achievement of certain performance milestones as set forth in his employment agreement. Mr. Nissenson’s employment agreement has an initial term of two (2) years and shall automatically renew for one (1) year periods. As consideration and pursuant to the Company’s 2018 Equity Incentive Plan, the Company issued to Mr. Nissenson an option to purchase 35,000 shares of the Company’s common stock at an exercise price of $5.00 per share. Mr. Nissenson is eligible to receive equity awards pursuant to the 2020 Equity Incentive Plan.

At the sole discretion of our Board, all officers are entitled to merit-based cash and equity bonuses.

Director Compensation

Name Year  Fees Earned or Paid in Cash ($)  Stock Awards  Option(1) Awards  Non-Equity Incentive Plan Compensation  Nonqualified Deferred Compensation  All Other Compensation  Total 
In thousands                                
Neev Nissenson (1)  2019   10   

-

   -   -   -   -   10 
   2020   -   -   -   -   -   -   - 
Andrew MacMillan (1)  2019   17      32   -   -   -   49 
   2020   -       10               10 
Yaron Shalem (1)  2019   17   -   32   -   -   -   49 
   2020   24   -   10   -   -   -   34 

1.The fair value of the options awarded to Mr. Nissenson, Mr. MacMillan and Mr. Shalem in 2020 and 2019 was determined to be $100 thousand and $266 thousand, respectively using the Black-Scholes Option Pricing Model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends

23

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The employment agreements for our named executive officers generally provide that in the event of termination of such executive’s employment for any reason, or if the executive resigns, the Company is required pay certain separation benefits, including (i) unpaid annual salary earned through the termination date; (ii) unused vacation; (iii) accrued and unpaid expenses; and (iv) other vested and accrued benefits to which he is entitled under the Company’s employee benefit plan. In the event the executive voluntarily resigns for “good reason” (as defined in each executive’s respective Employment Agreement) or the Company terminates their employment for any reason other than for cause (as defined in each executive’s respective Employment Agreement), the Company will be filedrequired to pay certain termination benefits, including (i) a lump sum payment equal to the greater of (A) unpaid annual salary through the end of the Initial Term or Renewal Term (as those terms are defined in each executive’s respective Employment Agreement) or (B) two years of annual salary and (ii) COBRA reimbursement.

CORPORATE GOVERNANCE

Board Leadership Structure and Risk Oversight

Our Board currently consists of four members, Mr. Shai Lustgarten, Mr. Neev Nissenson, Mr. Andrew J. MacMillan and Mr. Yaron Shalem. Mr. Lustgarten also serves as our Chief Executive Officer and Mr. Neev Nissenson serves as our Chief Financial Officer.

One of the key functions of our Board is to provide oversight of our risk management process. Our Board administers this oversight function directly, with support from its three standing committees—the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee.

Director Independence

Pursuant to Item 407(a)(1)(ii) of Regulation S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as set forth in Rules 5000(a)(19) and 5605(a)(2) of the rules of the Nasdaq Stock Market. The Board determined that Mr. Andrew J. MacMillan and Mr. Yaron Shalem qualify as “independent directors” pursuant to such rules.

Meetings

Our Board of Directors met 4 times during 2020. Each member of our Board of Directors attended 100% of the total number of meetings of our Board and its committees on which he served during 2020.

Board Committees

We have three standing committees: the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee. We believe that the members of the Audit Committee, Compensation Committee and Corporate Governance/Nominating Committee are deemed to be “independent” pursuant to the NASDAQ listing standards and applicable SEC rules. We believe that all members of our Board have been and remain qualified to serve on the committees of our Board and have the experience and knowledge to perform the duties required of the committees.

Audit Committee

The Audit Committee consists of Mr. Yaron Shalem and Mr. Andy MacMillan, whereby Mr. Shalem is the Chairperson. Our Board has determined that Mr. Shalem qualifies as an “audit committee financial expert,” as defined under the rules of the SEC.

The primary responsibility of the Audit Committee is to oversee our financial reporting process on behalf of the Board and report the results of their activities to the Board. The Audit Committee’s responsibilities include providing assistance to the Board in fulfilling the Board’s oversight responsibility relating to:

●the integrity of the Company’s financial statements and the related public reports,
●disclosures and regulatory filings in which they appear;
●the systems of internal control over financial reporting, operations, and legal/regulatory compliance;
●the performance, qualifications and independence of the Company’s independent accountants;
●the performance, qualifications and independence of the Company’s internal audit function, and
●compliance with the Company’s ethics policies and applicable legal and regulatory requirements.

Our Audit Committee charter is available on the “About” subpage of our website (www.omniq.com) under the link “Corporate Governance”.

Compensation Committee

The Compensation Committee consists of Mr. Andrew J. MacMillan, Mr. Shai Lustgarten and Mr. Yaron Shalem. Mr. MacMillan serves as Chairperson

The Compensation Committee’s responsibilities include, among others:

●approve annually the corporate goals and objectives applicable to the compensation of the Chief Executive Officer and/or President, evaluate at least annually the Chief Executive Officer’s and/or President’s performance in light of those goals and objectives, and determine and approve the Chief Executive Officer’s and/or President’s compensation level based on this evaluation;
●review matters relating to executive succession and management development;
●formulate, evaluate, and approve compensation for the Company’s officers;
●formulate, evaluate, and approve cash incentives and deferred compensation plans for executives;
●formulate, approve, and administer and, when appropriate, recommend to the Board for approval, incentive compensation plans and equity-based plans; and
●approve employment contracts, severance agreements, change in control provisions, and other compensatory arrangements with Company executives.

The Compensation Committee has the authority, in its sole discretion, to select, retain and obtain the advice of a compensation consultant as necessary to assist with the Commission pursuant to Regulation 14Aexecution of its duties and responsibilities.

Our Compensation Committee charter is available on the “About” subpage of our website (www.omniq.com) under the Exchange Act.link “Corporate Governance”.

Corporate Governance/Nominating Committee

The Corporate Governance/Nominating Committee consists of Andrew J. MacMillan, Yaron Shalem and Shai S. Lustgarten, whereby Shai Lustgarten is the Chairman.

The Corporate Governance/Nominating Committee’s responsibilities include, among others:

●develop and oversee the Company’s corporate governance practices and procedures, including identifying best practices and reviewing and recommending to the Board for approval any changes to the documents, policies and procedures in the Company’s corporate governance framework;

●establish procedures for the director nomination and to determine the qualifications, qualities, skills, and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director;
●identify and screen individuals qualified to become members of the Board, consistent with the above criteria, considering any director candidates recommended by the Company’s stockholders;
●oversee a process for an annual evaluation of the Company’s Chief Executive Officer and/or President; and
●develop and oversee a process for an annual evaluation of the Board and its committees, including a formal assessment of each individual director.

Our Corporate Governance/Nominating Committee charter is available on the “About” subpage of our website (www.omniq.com) under the link “Corporate Governance”.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information called forregarding beneficial ownership of our Common Stock as of December 31, 2020: (i) by this item is incorporated hereineach of our directors; (ii) by referenceeach of our executive officers; (iii) by our executive officers and directors as a group, and (iv) by each person or entity known by us to the definitive Proxy Statement, which will be filed with the Commission pursuant to Regulation 14a under the Exchange Act.beneficially own 5% or more of any class of our common stock. As of December 31, 2020, there were 4,684,736  shares of our common stock outstanding.

Name and Address of Beneficial Owner (1) Amount of Beneficial
Ownership		  Percentage
of Shares
Outstanding		 
Shai Lustgarten (Chairman and CEO) (1)  1,377,858   29.41%
Andrew MacMillan (2)  77,500   1.65%
Yaron Shalem (2)  77,500   1.65%
Neev Nissenson (CFO) (5)  140,000   2.99%
All Executive Officers and Directors as a group (4 individuals)  1,672,858   35.71%
David Marin (3)  232,667   4.97%
Carlos Nissenson (4)  954,308   20.37%

1.Includes 319,050 shares issuable upon the exercise of options. Also includes (i) 746,808 shares and (ii) 33,333 shares issuable upon the exercise of warrants held by Walefar Investments Ltd., which is beneficially owned by Mr. Lustgarten.
2.Represents shares issuable upon exercise of options.
3.Includes 296,988 shares issuable upon the conversion of preferred stock and the exercise of warrants. The address of the shareholder is 12272 Monarch Street, Garden Grove, CA 92841.
4.The address of the shareholder is Vasili Michailidi 9, 3206 Limassol, Cyprus. Includes 729,308 shares held by Campbeltown Consulting Ltd., which is beneficially owned by Mr. Carlos J. Nissensohn. Also includes 158,333 shares underlying warrants.
5.Includes 130,000 shares issuable upon exercise of options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information called for by this item is incorporated herein by reference2020

In February 2020, OMNIQ entered into a consulting agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the definitive Proxy Statement, which will be filed with the CommissionCompany and principal stockholder, (the “Nissensohn Agreement”) pursuant to Regulation 14AMr. Carlos J. Nissensohn and/or an entity under his control will provide certain consulting services to the Exchange Act.Company. The Nissensohn Agreement has a four (4) year term and automatically renews for additional one (1) year periods unless either party elects to terminate the Nissensohn Agreement. Pursuant to the Nissensohn Agreement, we will pay Mr. Nissensohn a monthly fee of $30,000. Mr. Nissensohn shall also be eligible to receive certain milestone bonuses as set forth in the Nissensohn Agreement. Mr. Nissensohn is a principal stockholder of the Company. Mr. Carlos J. Nissensohn is the father of Neev Nissenson, our CFO and board member.

2019

In September 2019, the Company entered into a letter agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the Company and principal stockholder, (the “Nissensohn Agreement”) pursuant to which they agreed to extend the term of Mr. Nissensohn’s and/or an entity under his control’s consulting agreement, for an additional two (2) years. As consideration and in light of Mr. Nissensohn’s and/or an entity under his control’s past consulting services which the Company believes were essential to its achievements, the Company, pursuant to its 2018 Equity Incentive Plan, issued to Mr. Nissensohn and/or an entity under his control 27,500 shares of the Company’s common stock.

Certain conflicts of interest may exist between the Company and its management, and conflicts may develop in the future. The Company has not established policies or procedures for the resolution of current or potential conflicts of interest between the Company, its officers and directors or affiliated entities. There can be no assurance that management will resolve all conflicts of interest in favor of the Company, and conflicts of interest may arise that can be resolved only through the exercise by management their best judgment as may be consistent with their fiduciary duties. Management will try to resolve conflicts to the best advantage of all concerned.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Our Board is directly responsible for the appointment, compensation, and oversight of our independent auditor. It is the policy of our Board to pre-approve all audit and non-audit services provided by our independent registered public accountants. On June 6, 2019, RBSM LLP (“RBSM”) notified the Company of its resignation, effective immediately, as the Company’s independent registered public accounting firm. RBSM served as the auditors of the Company’s financial statements for the period from the Company’s fiscal year end December 31, 2014 through the date of dismissal. On June 6, 2019, the Company entered into an engagement agreement with Haynie & Company to provide audit services for the year ending December 31, 2019. Our Board has considered whether the provision by Haynie & Company of services of the varieties described below is compatible with maintaining the independence of Haynie & Company. Our Board believes that Haynie & Company only provided audit services. We use another firm to provide tax compliance services.

 

The information calledfees shown in the table under the 2019 column reflect fees billed to us by RBSM and Haynie & Company while the 2020 column reflects fees billed by multiple firms.

  Fiscal Year Ended 
  December 31, 
In thousands 2020  2019 
Audit fees $263  $207 
Audit related fees  -   - 
Tax fees $72   - 
All other fees $14   - 
Totals $349  $207 

In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit of a company’s financial statements included in the annual report on Form 10-K, for the review of a company’s financial statements included in the quarterly reports on Form 10-Q, and for services that are normally provided by this item is incorporated herein by referencethe accountant in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the definitive Proxy Statement, which will be filed withperformance of the Commission pursuantaudit or review of a company’s financial statements; “tax fees” are fees for tax compliance, tax advice, and tax planning; and “all other fees” are fees for any services not included in the first three categories.

Our policy is to Regulation 14A underpre-approve all audit and permissible non-audit services performed by the Exchange Act.independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our Audit Committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project-based services and routine consultations. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. Our Audit Committee approved all services that our independent accountants provided to us in the past two fiscal years.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Commission this Annual Report on Form 10-K including exhibits. You may read and copy all or any portion of any reports, statements or other information in the files at Commission’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.

You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. The Company’s filings, including this Annual Report on Form 10-K, will also be available to you on the website maintained by the Commission at http://www.sec.gov.

The Company’s website is located at http://www.QuestSolution.com. The Company’s website and the information to be contained on that site, or connected to that site, is not part of or incorporated by reference into this filing.

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1) The following documents are filed under pages F-1 through F-26 and are included as part of this Form 10-K:

 

REPORTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-1F-2
CONSOLIDATED BALANCE SHEETSF-2F-3
CONSOLIDATED STATEMENTS OF OPERATIONSF-3F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)F-4F-5
CONSOLIDATED STATEMENTS OF CASH FLOWSF-5F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-6F-7

 

(a)(2) Financial statement schedules are omitted as they are not applicable.

 

(a)(3) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed on the attached Exhibit Index, which begins immediately following the financial statements of this Annual Report on Form 10-K.

 

ITEM 16. SUMMARY.

NONE.

28
 16

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: April 18, 2016March 31, 2021

 

 QUEST SOLUTION, INC.OMNIQ CORP.
   
 By:/s/ Gilles GaudreaultShai Lustgarten
  Gilles GaudreaultShai Lustgarten
  Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature Title Date
     

/s/ Gilles GaudreaultShai Lustgarten

 Director andChairman of the Board, Chief Executive Officer April 18, 2016March 31, 2021
Gilles Gaudreault(principal executive officer)
/s/ Scot RossChief Financial Officer (principal financial officerApril 18, 2016
Scot Rossand principal accounting officer)
/s/ William Austin Lewis, IVDirectorApril 18, 2016
William Austin Lewis, IVShai Lustgarten    
     
/s/ Ian R. McNeilNeev NissensonDirector, Chief Financial OfficerMarch 31, 2021
Neev Nissenson
/s/ Yaron Shalem Director April 18, 2016March 31, 2021
Ian R. McNeilYaron Shalem    
     
/s/ Thomas O. MillerDirector, President and Chairman of the BoardApril 18, 2016
Thomas O. Miller
/s/ Robert F. ShepardAndrew J. MacMillan Director April 18, 2016March 31, 2021
Robert F. ShepardAndrew J. MacMillan    

17

QUEST SOLUTION, INC.OMNIQ CORP.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

PAGES
REPORTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-1F-2
CONSOLIDATED BALANCE SHEETSF-2F-3
CONSOLIDATED STATEMENTS OF OPERATIONSF-3F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)F-4F-5
CONSOLIDATED STATEMENTS OF CASH FLOWSF-5F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-6F-7

 

18

 

Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To Thethe Board of Directors and

Stockholders of OMNIQ Corp

Quest Solution, Inc.

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Quest Solution, Inc.OMNIQ Corp. and subsidiaries (“The Company”)Subsidiaries (the Company) as of December 31, 20152020 and 2014,2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 20152020, and 2014. the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a deficit in stockholders’ equity, and has sustained recurring losses from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits, we are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion,Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements referredthat were communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material respects,to the financial positionstatements and (2) involved our especially challenging, subjective, or complex judgments. The communication of Quest Solution, Inc.critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and subsidiaries,we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill — Refer to Note 2 to the consolidated financial statements

The Company has goodwill of $14.7 million as of December 30, 2020. The Company evaluates its goodwill at least annually or more frequently when events or changes in circumstances indicate the carrying value may not be recoverable. The Company performed a goodwill analysis by calculating the fair value of its operating segment using both an income and market approach and comparing it to the carrying amount of its goodwill. The income approach employed a discounted cash flow using a forecast developed by management. The market approach used information from comparable companies to calculate a value using multiples of revenue and earnings before interest, taxes, depreciation, and amortization. These valuation methods require management to make significant estimates and assumptions related to projected cash flows. No impairment was recorded by the Company for the year ended December 31, 2020

We identified goodwill as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value, including the impact of forecasted growth, and the difference between the fair values and the carrying values as of December 31, 20152020. This required a high degree of auditor judgment and 2014an increased extent of effort, including the need to involve our fair value specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to certain assumptions within the results of its operations, and itsprojected cash flows for the years ended December 31, 2015 and 2014 in conformity with accounting principles generally accepted in the United States of America.flows.

 

The accompanyingAddressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements have been prepared assuming thatstatements. These procedures included, among others, gaining an understanding of management's process for developing the Company will continue as a going concern. As discussed in Note 2fair value estimate. We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the financial statements, the Company has a working capital deficiencyevaluation. We used professionals inside our firm with specialized skills and significant subordinated debt resulting from acquisitions. These factors raise substantial doubt aboutknowledge to assess the Company’s abilitymethodology. In evaluating the Company’s assumptions, we compared them to continue as a going concern. Management’s plans in regardhistorical results, financial information subsequent to these matters are also described in Note 2. The financial statements do not include any adjustments that might result fromyear end, and to customer orders to be filled. Finally, we considered the outcomesensitivity of this uncertainty.their cash flow model assumptions by assessing different scenarios.

 

/s/ RBSM LLPHaynie & Company
Salt Lake City, Utah
March 31, 2021
We have served as the Company’s auditor since 2019. 

RBSM LLP

Leawood, Kansas

April 18, 2016

F-1

QUEST SOLUTION, INC.OMNIQ CORP.

CONSOLIDATED BALANCE SHEETS

As of December 31,

  December 31, 
  2015  2014 
ASSETS        
Current assets        
Cash $842,715  $233,741 
Cash, restricted  690,850  - 
Accounts receivable, net  11,409,258   9,099,229 
Inventory  2,731,612   606,231 

Prepaid expenses

  730,591   191,498 
Deferred tax asset, current  160,545   - 
Other current assets  396,775   377,060 
Total current assets  16,962,346   10,507,759 
         
Fixed assets, net of accumulated depreciation of $1,962,497 and $1,781,086, respectively  1,450,660   206,662 
Deferred tax asset, non-current  433,997   1,299,417 
Goodwill  21,252,024   14,101,306 
Trade name  3,513,481   2,700,000 
Intangibles, net  8,250   466,870 
Customer relationships  7,560,352   4,390,000 
Other assets  689,347   317,304 
Total assets $51,870,457  $33,989,318 
         
 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
Current liabilities        
Accounts payable and accrued liabilities $19,849,978  $7,406,146 
Accounts payable and accrued liabilities, related party  177,776   51,806 
Line of credit  5,450,657   1,819,345 
Advances, related party  400,000   50,000 
Accrued payroll and sales tax  1,598,335   917,079 

Deferred revenue, net

  742,976   

288,342

 
Current portion of note payable  1,255,477   310,000 
Notes payable, related parties, See Note 5, 15, 16  7,146,820   4,201,650 
Other current liabilities  433,784   

556,985

 
Total current liabilities  37,055,803   15,601,353 
         
Long term liabilities        
Note payable, related party, net of debt discount  13,910,768   17,007,175 
Long term portion of note payable  569,477   - 
Deferred tax liability  -   29,783 
Deferred revenue, net  533,874   - 
Other long term liabilities  271,902   157,495 
Total liabilities  52,341,824   32,795,806 
         
Stockholders’ equity (deficit)        
Series A Preferred stock; $0.001 par value; 25,000,000 shares authorized 0 and 500,000 shares outstanding as of December 31, 2015 and December 31, 2014, respectively.  -   500 
Series B Preferred stock; $0.001 par value; 5,200,000 shares authorized 5,200,000 and 0 shares outstanding as of December 31, 2015 and December 31, 2014, respectively.  5,200   - 
Common stock; $0.001 par value; 100,000,000 shares authorized; 36,871,478 and 35,029,495 shares outstanding of December 31, 2015 and December 31, 2014 respectively.  36,871   35,029 
Additional paid-in capital  17,943,798   17,900,139 
Accumulated (deficit)  (18,457,236)  (16,742,156)
Total stockholders’ equity (deficit)  (471,367)  1,193,512 
Total liabilities and stockholders’ equity (deficit) $51,870,457  $33,989,318 

(In thousands, except share and per share data) 2020  2019 
ASSETS        
Current assets        
Cash and cash equivalents $4,594  $1,615 
Accounts receivable, net  9,661   6,694 
Inventory  1,507   1,889 
Prepaid expenses  670   362 
Other current assets  10   65 
Total current assets  16,442   10,625 
         
Property and equipment, net of accumulated depreciation of $600 and $2,195, respectively  289   463 
Goodwill  14,695   13,921 
Trade name, net of accumulated amortization of $3,362 and $2,932, respectively  1,028   1,458 
Customer relationships, net of accumulated amortization of $8,111 and $6,578, respectively  4,479   6,012 
Other intangibles, net of accumulated amortization of $382 and $185, respectively  1,042   1,138 
Cash, restricted  533   533 
Right of Use asset  76   131 
Other assets  74   172 
Total assets $38,658  $34,453 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and accrued liabilities $26,811  $18,694 
Line of credit  4,914   1,365 
Accrued payroll and sales tax  1,717   1,556 
Notes payable, related parties – current portion  433   1,025 
Notes payable – current portion  6,449   6,497 
Lease liability – current portion  31   54 
Other current liabilities  1,412   1,599 
Total current liabilities  41,767   30,790 
         
Long term liabilities        
Notes payable, related party, less current portion  683   1,172 
Accrued interest and accrued liabilities, related party  56   76 
Notes payable, less current portion  1   143 
Lease liability, less current portion  48   80 
Other long term liabilities  1,146   384 
Total liabilities $43,701  $32,615 
         
Stockholders’ equity (Deficit)        
Series A Preferred stock; 0.001 par value; 1,000,000 shares designated, 0 shares issued and outstanding  -   - 
Series B Preferred stock; 0.001 par value; 1 share designated, 0 shares issued and outstanding  -   - 
Series C Preferred stock; 0.001 par value; 5,000,000 shares designated, 2,145,030 and 4,828,530 shares issued and Outstanding, respectively  2   5 
Common stock; 0.001 par value; 15,000,000 shares authorized; 4,684,736 and 3,960,405 shares issued and outstanding, respectively.  5   4 
Additional paid-in capital  51,842   46,861
Accumulated (deficit)  (56,726)  (45,063)
Accumulated other comprehensive loss  (166)   1 
Total stockholders’ equity $(5,043) $1,808 
Total liabilities and stockholders’ equity (deficit) $38,658  $34,453 

The accompanying unaudited notes to the financials should be read in conjunction with these condensed consolidated financial statements.

OMNIQ CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,

(In thousands, except share and per share data) 2020  2019 
Revenues        
Total Revenues, net $55,209  $57,199 
         
Cost of goods sold        
Cost of goods sold  44,293   43,165 
         
Gross profit  10,916   14,034 
         
Operating expenses        
Research and development  1,805   1,063 
Selling, General and Administrative  15,802   13,682 
Depreciation  178   151 
Intangible amortization  2,114   2,002 
   19,899   16,898 
         
Loss from operations  (8,983)  (2,864)
         
Other income (expenses):        
Interest expense  (2,628)  (2,555)
Other (expenses) income  112   (23)
Total other expense  (2,516)  (2,578)
         
Net loss before income taxes  (11,499)  (5,442)
         
(Provision) benefit for Income Taxes        
Current  (5)  (14)
Deferred  -   - 
Total income tax benefit (provision)  (5)  (14)
         
Net loss from continuing operations $(11,504) $(5,456)
Less: Preferred stock – series C dividend  (191)  (146)
         
Net loss attributable to the common stockholders  (11,313)  (5,310)
Foreign currency translation adjustment  (167

)

  - 
Other comprehensive income (loss) $(11,150) 

$

(5,310)
         
Net loss per share – basic 

$

(2.46) $(1.37)
Net loss per share – diluted 

$

(2.66) 

$

(1.37)
         
Weighted average number of common shares outstanding – basic and diluted  4,322,303  3,889,478 

 

The accompanying notes to the financials should be read in conjunction with these financial statements.

F-2

QUEST SOLUTION, INC.OMNIQ CORP.

CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONSSTOCKHOLDERS’ EQUITY (DEFICIT)

 

  Year ended 
  December 31, 
  2015  2014 
Revenues        
Gross Sales $64,512,302  $37,559,554 
Less sales returns, discounts, & allowances  (658,170)  (249,581)
Total Revenues  63,854,132   37,309,973 
         
Cost of goods sold        
 Cost of goods sold  50,696,771   28,703,519 
 Cost of goods sold, related party  -   1,273,292 
Total cost of goods sold  50,696,771   29,976,811 
         
Gross profit  13,157,361   7,333,162 
         
Operating expenses        
General and administrative  3,465,514   1,346,761 
Salary and employee benefits  8,492,549   5,462,268 
Depreciation and amortization  2,703,038   25,598 
Professional fees  429,519   656,238 
Total operating expenses  15,090,620   7,490,865 
         
Loss from operations  (1,933,259)  (157,703)
         
Other income (expenses):        
Gain on debt settlement  -   184,351 
Gain (Loss) on intangible  374,500   (93,578)
Loss on settlement  -   (18,995)
Interest expense  (1,610,237)  (871,971)
Other expenses  (173,627)  (82,020)
Loss on foreign currency  (229,442)  - 
Other income  71,461   42,148 
Total other expense  (1,567,345)  (840,065)
         
Net Loss Before Income Taxes  (3,500,604)  (997,768)
         
Benefit for Income Taxes        
Deferred  1,797,977   1,299,417 
Current  (12,453)  - 
 Total Benefit for Income Taxes  1,785,524   1,299,417  
         
Net income (loss) $(1,715,080) $301,649 
         
Net income (loss) per share - basic $(0.05) $0.01 
Net income (loss) per share - diluted $(0.05) $0.01 
         
Weighted average number of common shares outstanding - basic  36,195,065   33,596,375 
Weighted average number of common shares outstanding - diluted  36,195,065   45,477,429 

For the Years Ended December 31, 2020 and 2019

  Series C
Preferred Stock		  Common Stock  Additional
Paid-in		  Shares  Accumulated  Other
Comprehensive		  Total
Stockholders’
Equity		 
(In thousands) Shares  Amount  Shares  Amount  Capital  Repurchased  Deficit  Income (Loss)  (Deficit) 
                            
Balance, December 31, 2018  4,829  $5   3,597  $4  $42,266   (230) $(39,753) $          1  $2,523 
Dividend on Class C Shares  -   -   -   -   -   -   146   -   146 
ESPP Stock Issuance  -   -   -   -   1   -   -   -   1 
Stock-based compensation – options, warrants, issuances  -   -   78   -   1,267   -   -   -   1,267 
Stock and warrant issuances, net of issuance costs  -   -   833   1   3,406   -   -   -   3,407 
Purchase price adjustment – shares to be received  -   -   (555)  (1)  1   -   -   -   - 
Stock redemption  -   -   (25)  -   (230)  230   -   -   (230)
Conversion of debt  -   -   32   -   150   -   -   -   150 
Net (loss)  -   -   -   -   -   -   (5,456)  -   (5,456)
Balance, December 31, 2019  4,829  $5   3,960  $4  $46,861   -  $(45,063) $1  $1,808 
                                     
Dividend on Class C Shares  -   -   -   -   -   -   (191)  -   (191)
ESPP Stock Issuance  -   -   

-

   -   1   -   -   -   1 
Stock-based compensation – options, warrants, issuances  -   -   -   -   2,012   -   -   -    2,012 
Stock and warrant issuance for services  -   -   302   1   1,639   -   -   -   1,640 
Stock and warrant issued for Acquisition  -   -   80   -   504   -   -   -   504 
Cumulative Translation Adjustment  -   -   -   -   -   -        (167) (167)

exercise of stock options and warrants

  -   -   91   -   -   -   -   -   - 

Conversion of Equity

  (2,684)  (3)  134       3               - 

Other

  -                       32       32 
Conversion of debt         118   -   822   -     -     -   822
Net (loss)  -   -   -    -   -    -    (11,504)  -   (11,504)
Balance, December 31, 2020  2,145  $2   4,685  $5  $51,842   -  $(56,726) $(166) $(5,043)

 

The accompanying notes to the financials should be read in conjunction with these financial statements.

F-3

QUEST SOLUTION, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

  Series A  Series B        Additional     Unamortized     Total 
  Preferred Stock  Preferred Stock  Common Stock  Paid-in  Shares  Share-based  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Unissued  Compensation  Deficit  Equity (deficit) 
                                  
Balance, December 31, 2013  3,500,000  $3,500   -   -   34,935,416  $34,935  $16,919,705  $360  $(23,400) $(17,043,805) $(108,705)
                                             
Issuance of warrants related to services  -   -   -   -   -   -   592,425   -   -   -   592,425 
Shares issued for consulting  -   -   -   -   590,000   590   167,710   -   -   -   168,300 
Shares issued for settlement of debt, related party  -   -   -   -   1,319,079   1,319   607,931   -   -   -   609,250 
Cancellation of consulting agreements  -   -   -   -   (1,765,000)  (1,765)  (203,490)  -   -   -   (205,255)
Cancellation of shares issued for consulting services and license  -   -   -   -   -   -   360   (360)  23,400   -   23,400 
Preferred shares returned  (3,000,000)  (3,000)  -   -   -   -   3,000   -   -   -   - 
Cancellation of warrants  -   -   -   -   (100,000)  (100)  (396,114)  -   -   -   (396,214)
Purchase of shares  -   -   -   -   50,000   50   24,950   -   -   -   25,000 
Options issued, related party  -   -   -   -   -   -   183,662   -   -   -   183,662 
Net income                                      301,649   301,649 
                                            
Balance, December 31, 2014  500,000   500   -   -   35,029,495   35,029  17,900,139   -   -   (16,742,156)  1,193,512 
Stock compensation  -   -   -   -   870,000   870  $314,610   -   -   -   315,480 
Sale of shares  -   -   -   -   667,000   667   199,333   -   -   -   200,000 
Shares issued for interest  -   -   -   -   170,000   170   62,561   -   -   -   62,731 
Options earned  -   -   -   -   -   -   429,617   -   -   -   429,617 
Shares canceled  -   -   -   -   (2,517)  (3)  -   -   -   -   (3)
Debt settlement  -   -   -   -   1,000,000   1,000   356,000   -   -   -   357,000 
Preferred and options cancelled for debt issued  (500,000) (500)  -   -   -   -   (3,119,500)  -   -   -   (3,120,000)
Board issuances  -   -   -   -   37,500   38   15,338   -   -   -   15,375 
Share redemption  -   -   -   -   (900,000)  (900)  (341,100)  -   -   -   (342,000)
Viascan Purchase          5,200,000  5,200   -   -   2,126,800   -   -   -   2,132,000 
Net loss                                      (1,715,180)  (1,715,180)
                                             
Balance, December 31, 2015  -  $-   5,200,000  $5,200   36,871,478  $36,871  $17,943,798  $-  $-  $(18,457,236) $(471,367)

The accompanying notes to the financials should be read in conjunction with these financial statements.

F-4

QUEST SOLUTION, INC.OMNIQ CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

  For the Year Ending 
  December 31, 
  2015  2014 
Cash flows from operating activities:        
Net (loss) income $(1,715,080) $301,649 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Stock based compensation - shares for services  261,828   44,100 
Option compensation  429,617   183,662 

Shares issued for interest related to line of credit

  62,731   - 
Warrants granted  -   83,216 
loss on line of credit  -   18,995 
Deferred tax asset  (1,785,524)  (1,299,417)
Debt discount accretion  718,202   800,000 
Depreciation and amortization  2,703,308   25,598 
Gain on cancelled shares  -   (601,470)
Loss on license settlement  -   93,578 
Settlement of debt  -   609,252 
Gain on note receivable settlement  -   (37,491)
Bad debt expense  -   1,559 
Changes in operating assets and liabilities:        

(Increase) in accounts receivable

  (146,527)  (2,789,824)
(Increase) / decrease in prepaid  (469,566)  605,417 

Decrease in prepaid, related party

  -   1,273,292 

Decrease in inventory

  (538,109)  373,061 
(Increase) / decrease in customer deposit  -   (45,367)

Decrease in interest payable

  160,378   - 

(Increase) / decrease in deferred revenue, net

  914,752   - 

Increase in accounts payable and accrued liabilities

  5,788,963   975,151 
Increase / (decrease) in accounts payable and accrued liabilities, related party  177,776   (42,000)

(Increase) in salary payable, related party

  -   (45,000)

Decrease in other liabilities

  495,005   73,242 

Increase in advances from related party

  -   17,558 

Net cash provided by operating activities

  7,057,754   618,761 
         
Cash flows from investing activities:        

Cash from acquisitions

  74,855   2,025,810 

(Increase) in restricted cash

  (690,850)  - 
Change in other assets  (277,548)  438,386 
Intangible licenses acquired  8,435   (150,000)
Accrued interest on note payables  -   51,807 
(Purchase of) Sale of property and equipment  -   (32,641)
Acquisitions costs  (232,026)  - 
Net cash provided by (used in) investing activities  (1,117,134)  2,333,362 
         
Cash flows from financing activities:        
Gain on sale of intangibles  (374,500)  - 
Proceeds from shares sold  200,000   25,000 
Proceeds from loan receivable  -   78,000 
Proceeds from note receivable  -   4,500 
Proceeds from line of credit  1,968,179   1,819,345 

Payment on line of credit

  -   (60,000)

Payment of notes/loans payable

  (7,133,325)  (3,756,844)
Share redemption  (342,000)  - 
(Payment) Proceeds on loans payable  350,000   (841,685)

Net cash (used in) financing activities

  (5,331,646)  (2,731,684)
         
Net increase in cash  608,974   220,439 
Cash, beginning of period  233,741   13,302 
Cash, end of period $842,715  $233,741 
         
Cash paid for interest $

445,415

  $6,010 
Cash paid for taxes $

96,069

  $26,129 
Supplementary for non-cash flow information:        
Note payable for purchase of intangibles $-  $300,000 
Stock issued for Services $

261,828

     
Stock issued for interest expense $

62,731

     
Debt issued to redeem preferred and stock options $

3,120,000

     
Gain on license settlement $

374,500

     
Stock options issued $

429,617

     
Acquisition of ViascanQdata, Inc. $11,063,006     

(In thousands, except share and per share data) 2020  2019 
Cash flows from operations        
Net loss $(11,504) $(5,456)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Early extinguishment of debt  (948)  - 
Stock-based compensation  2,012   1,267 
Stock and warrant issued for services  1,640   - 
Depreciation and amortization  2,292   2,154 
Amortization of ROU asset  55   93 
Changes in operating assets and liabilities:        
Accounts receivable  (2,953)  5,568 
Prepaid expenses  (313)  (271)
Inventory  381   (178)
Other assets  84  (11)
Accounts payable and accrued liabilities  8,062   2,011 
Accrued interest and accrued liabilities, related party  (20)  43 
Accrued payroll and sales taxes payable  161   (617)
Lease liability  (55)  (89)
Other liabilities  686   (259)
Net cash (used in) provided by operating activities  (420)  4,255 
         
Cash flows from investing activities        
Purchase of property and equipment  (4

)

  (134)
Other assets  98   (117)
Net cash provided by (used in) investing activities  94   (251)
         
Cash flows from financing activities        
Proceeds from ESPP stock issuance  1   1 
Proceeds from sale of common stock  

 

   3,770 
Payments on notes/loans payable  (1023)  (3,369)
Proceeds from the issuance of notes/loans payable  898   - 
Proceeds from (payments on) line of credit  3,549   (3,169)
Net cash (used in) provided by financing activities  3,425   (2,767)
         
Net increase in cash  3,099   1,237 
Foreign currency translation adjustment  (120)  - 
Cash beginning of year  1,615   378 
Cash, end of year $4,594  $1,615 
         
Cash paid for interest $2,404  $2,167 
Cash paid for taxes $196  $47 
Supplementary for non-cash flow information:        
Stock issued for services $2,012  $274 
Accounts payable converted to notes payable $-  $- 
Debt conversion $822  $550 

Equity Conversion

  3   - 
Change in terms of accounts payable $(8,115) $(801)

 

The accompanying notes are integral to the financials should be read in conjunction with these consolidated financial statements.

F-5

QUEST SOLUTION, INC.OMNIQ CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As ofFor the Years Ended December 31, 20152020 and 20142019

 

NOTE 1 – HISTORY AND ORGANIZATIONNATURE OF THE COMPANYOPERATIONS

 

Quest Solution, Inc.OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its wholly owned subsidiaries, referred to herein as “we,” “us,” and “our” (“Quest”OMNIQ” or the “Company”), formerly named Amerigo Energy, Inc., was incorporated in 1973. Prior to 2008,Since its incorporation, the Company washas been involved in various unrelatedlines of business.

From 2008 and to 2013, we were in the business activities. From 2008-2014 the Company was involved in multiple businesses inclusive of andeveloping oil and gas investment company. Due to changes in market conditions, management determined to look for acquisitions which were positive cash flow and would provide immediate shareholder value.reserves. In January 2014, we madedetermined it was in the best interest of our first such acquisition of Quest Marketing Inc. (dba Quest Solution, Inc.) (“Quest Marketing”).

Quest is a national mobility systems integratorstockholders to focus on operating companies with a focus on design, delivery, deploymenttrack record of positive cash flows and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The professionals simplify the integration process and deliver the solutions to our customers. Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI and Zebra are major suppliers which Quest Solution uses in the solutions we provide to our customers.

In May 2014, our Board of Directors voted to get approval from the shareholders of the Company for a name change from Amerigo Energy, Inc. to Quest Solution, Inc. The Company received the approval from a majority of its stockholders and filed the amendment to its Articles of Incorporation with the State of Delaware. The name change became effective by the State of Delaware on May 30, 2014. The Company also requested a new stock symbol as a result of the name change and we assigned our new trading symbol “QUES”.

The Quest business plan previously included developing oil and gas reserves while increasing the production rate base and cash flow. Due to declines in production on the oil leases, the Company had an interest in, the company was forced to revisit its position in the oil industry.

The Company’s businesslarger existing revenue bases. Our strategy developed into leveraging management’s relationships in the business world for investments for the Company. The company intends to continue with its acquisition of existing companies with revenues and positive cash flow.

 

In NovemberSince 2014, we have made the company acquired 100%following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing solutions:

●Quest Solutions, 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 2020)

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 sharesCOVID-19 pandemic continues to affect the United States of Bar Code Specialties, Inc. (“BCS”) locatedAmerica and the world, including in Southern California. BCS isthe 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 national mobility systems integratorreduction in capital expenditures and label manufacturer withother 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.

As the impact of COVID-19 became more widespread in March 2020, our sales volumes began to decline from previous years. Our total revenues for the year ended December 31, 2020, were 3.48% lower than those of the year ended December 31, 2019. COVID-19 had a focusmore significant impact on warehouseour gross margin. Total gross margin percentage dropped 5% for the year ended December 31, 2020 compared to 2019. The timing and the extent of the continued recovery in our sales volumes cannot be reasonably estimated at this time. As such, the extent of the ultimate impact of the pandemic on the Company’s 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 industries. Since the combinationpartners, all of the two companies, the company has been exploring efficiencies in all facets of the businesses and learning best practices from both executive teams.which cannot be reasonably predicted at this time.

Effective October 1, 2015, the Company acquired the interest in ViascanQdata, Inc., (“Viascan”) a Canadian based operation in the same business line as Quest and their CEO, Gilles Gaudreault, was appointed the CEO of Quest, with our then CEO, Tom Miller, remaining as President and Chairman of the Board.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has acquired a significant working capital deficit and issued a substantial amount of subordinated debt in connection with its recent acquisitions. As of December 31, 2015, the Company had a working capital deficit of $20,093,457 and an accumulated deficit of $18,457,236. The Company is dependent on the completion of working capital financings, vendor trade credit extensions, restructuring of subordinated debt and private placement of its securities in order to continue operations. These factors taken together raise doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-6

 

NOTE 3 – BASIS OF PRESENTATION AND SUMMARY2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATIONPrinciples of Consolidation and Basis of Presentation

 

TheOur consolidated financial statements of Quest include the combined accounts of Quest Marketing, BCSfinancial position and ViascanQdata. BCS was acquired on November 21, 2014, and as such the operating results of BCS have been consolidated into the Company’s consolidated results of operations beginning on November 22, 2014. Effective October 1, 2015,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 financial statements of ViascanQData, Inc. (“ViascanQdata”) have been consolidated into the Company’s consolidated results of operations as well. The Companies currently operate as a single business unit. “Company.”

All materialsignificant intercompany transactionsaccounts and accountstransactions have been eliminated in consolidation.these consolidated financial statements. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.

 

CASH AND CASH EQUIVALENTSUse of Estimates

We prepare our 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 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 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.

Cash, Cash Equivalents and Restricted Cash

 

Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 20152020 and 2014.2019.

 

The Company maintains its cash in bank deposit accounts which, at times, may exceed federalfederally insured limits. At

The Company has restricted cash on deposit with a federally insured bank in the amount of $533 thousand at December 31, 20152020 and 2014,2019, respectively.

Accounts Receivable

We manage credit risk associated with our accounts receivables at the Company’s uninsured cashcustomer level. Because the same customers typically generate the revenues that are accounted for under both Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) and Accounting Standards Codification Topic 326, Credit Losses (Topic 326)., the discussions below on credit risk and our allowances for doubtful accounts address our total revenues from Topic 606 and Topic 326.

We believe concentration of credit risk, with respect to our receivables, is limited because our customer base is comprised of a number of geographically diverse customers. We manage credit risk through credit approvals, credit limits and other monitoring procedures.

Pursuant to Topic 326 for our accounts receivables, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts. Based on management’s evaluation, accounts receivable has a balance totaled $0in the allowance for doubtful accounts of $28 thousand and $0,$36 thousand for the years ended December 31, 2020 and 2019, respectively.

 

USE OF ESTIMATESInventory

 

The preparationSubstantially all inventory consists of consolidated financial statements in conformity with accounting principles generally acceptedraw materials and finished goods and are valued at the lower of actual cost or net realizable value; where net realizable value is considered to be estimated selling price in the United Statesordinary course of America requires managementbusiness, less reasonably predictable cost of completion, disposal and transportation.

Property and Equipment

Property and equipment are recorded at cost and depreciated using both straight-line over the estimated useful lives. Ordinary repair and maintenance costs are included in sales, general and administrative (“SG&A”) expenses on our consolidated statements of operations. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in the statements of operations in gains from sales of property and equipment, net.

We periodically evaluate the appropriateness of remaining depreciable lives assigned to make estimatesproperty and assumptionsequipment. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter. Depreciation expense for the years ended December 31, 2020 and 2019 was $178 thousand and $151 thousand, respectively. Generally, we assign the following estimated useful lives to these categories:

CategoryEstimated Useful Life

Furniture and fixtures

Computer equipment

Office equipment

Software

Leasehold improvements

5 to 7 years

3 to 5 years

3 to 10 year

3 years

15 years

Fair Value of Financial Instruments

Fair value is defined as the amount that affectwould be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the reported amountsmeasurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observable inputs may result in a reclassification of assets and liabilities within the three levels of the hierarchy outlined above.

The carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.

F-10

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 consolidated financial statementsidentifiable 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 reported amountsmarket approach, as further described below. Based on this quantitative test, we determined there was no impairment as of revenuesthe December 31, 2020.

For purposes of performing the quantitative impairment test described above, we estimate the fair value by utilizing fair value techniques consistent with the income approach and expenses duringmarket approach. When performing the income approach for each reporting period. Certain accounting policies involve judgmentsunit, we use a discounted cash flow analysis based on our internal projected results of operations, weighted average cost of capital (“WACC”) and uncertaintiesterminal value assumptions. Our cash flow projections are based on five-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to suchsupport anticipated revenue growth. The WACC is an extent that thereestimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise and represents the expected cost of new capital likely to be used by market participants. The WACC is reasonable likelihood that materially different amounts could have been reported under different conditions, or if differentused to discount our combined future cash flows. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions had been used. The Company evaluates itsregarding the impact of operating and macroeconomic changes, as well as estimates and assumptionsof future cash flows. Our estimates regarding future cash flows are based on a regular basis. The Company uses historical experience and variousprojections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of a reporting unit’s fair value, and therefore could affect the likelihood and amount of potential impairment. Under the market approach, we compare the reporting units to selected reasonably similar (or “guideline”) publicly-traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies; and (iii) applied to the operating data of our reporting unit to arrive at an indication of value. The application of the market approach results in an estimate of the price reasonably expected to be realized from a sale of the Company.

Identifiable intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over useful lives ranging from 3 to 11 years.

Leases

We adopted ASU 2016-02, Leases (Topic 842): effective January 1, 2019. We determine whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are believednot leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to be reasonable underdetermine if an identified asset is present, if substantive substitution rights are present, and if the circumstancesarrangement provides the customer control of the asset.

Our lease portfolio is substantially comprised of operating leases related to formleases of real estate and improvements. From time to time, we may also lease various types of small equipment and vehicles.

Operating lease right-of-use (“ROU”) assets represent our right to use an individual asset for the basis for making judgments about carrying values oflease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining the present value of lease payments by utilizing a fully collateralized rate for a fully amortizing loan with the same term as the lease.

Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Our leases can include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when such renewal options and/or termination options are reasonably certain of exercise.

A ROU asset is subject to the same impairment guidance as assets categorized as plant, property, and equipment. As such, any impairment loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets.

A lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease. For example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying assets, or extends or shortens the contractual lease term, is a modification. Depending on facts and circumstances, a lease modification may be accounted as either: (1) the original lease plus the lease of a separate asset(s) or (2) a modified lease. A lease will be remeasured if there are changes to the lease contract that do not readily apparent from other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements.give rise to a separate lease.

 

PURCHASE ACCOUNTING AND BUSINESS COMBINATIONSPurchase Accounting and Business Combinations

 

The Company accountsWe account for itsour 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 process reliesprocesses 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 the Company receiveswe 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.

 

ACCOUNTS RECEIVABLERevenue 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.

 

Accounts receivableManufacturers 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 carriednot 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 their estimated collectible amounts. The Company provides allowancesthe point of sale.

Revenue Recognition for uncollectible accounts receivable equalSoftware. 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 estimated collection losseslatest 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 incurred in collection of all receivables. Accounts receivableseparate performance obligations from the underlying product. For warranties, where we are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company’s management determines which accountsarranging those services be provided by a third-party, we are past due and if deemed uncollectible, the Company charges off the receivableacting as an agent in the periodtransaction and records revenue on a net basis at the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable. Based on management’s evaluation, accounts receivable has a balance in the allowance for doubtful accountspoint of $83,870 and $66,215 for the years ended December 31, 2015 and 2014, respectively.sale.

 

F-7F-14
 

 

PROPERTY AND EQUIPMENTRevenue 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 transfers those services.

 

PropertyRevenues from the sale of professional and equipmentsupport services, provided by us, are stated at purchased cost and depreciated using both straight-line and accelerated methodsrecognized over estimated useful lives ranging from 3 to 15 years. Upon dispositionthe period the service is provided. As the customer receives the benefit of property and equipment, related gains and lossesthe service each month, we recognize the respective revenue on a gross basis as we are recordedacting as a principal in the resultstransaction. 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 operations. Depreciation expensehours incurred for the years ended December 31, 2015period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and 2014best represents the transfer of control of the service to the customer.

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.

Reverse Stock Split

Effective November 20, 2019, we implemented a one-for-20 reverse stock split of the Company’s common stock. The par value of common stock and the number of authorized shares were not adjusted as a result of the reverse stock split. All share and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital. As a result of the Reverse Split, proportionate adjustments have been made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued by the Company and outstanding immediately prior to the Effective Time, which resulted in a proportionate decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, Preferred stock, restricted stock units and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares authorized for future grant under the Company’s equity incentive/compensation plans immediately prior to the Effective Time was $155,798reduced proportionately.

Stock-Based Compensation

We periodically issue stock options and $16,222, respectively. For federal income tax purposes, depreciationwarrants 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 computedmeasured 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 modified accelerated cost recovery system. ExpendituresBlack-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation – Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for major renewalsthose awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straightline basis primarily over the vesting period of the options.

In August 2020, the Board of Directors approved our 2020 Equity Incentive Plan and betterments that extendlater amended it. In September 2020, our shareholders adopted and ratified the useful lives2020 Equity Incentive Plan. The total number of property and equipment are capitalized. Expendituresshares of Common Stock authorized for maintenance and repairs are charged to expenses as incurred.issuance under the 2020 Plan is 1,000,000.

 

F-8

Equity instruments issued to parties other than employees for acquiring goods or services

The Company accounts 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.

 

ADVERTISINGWarrants

The fair value of the warrants is estimated on the date of issuance using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the expected term of the warrants, expected stock price volatility, and expected dividends. These estimates involve inherent uncertainties and the application of management’s judgment. Expected volatilities used in the valuation model are based on the average volatility of the Company’s stock. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant.

Advertising

 

The Company generally expenses marketing and advertising costs as incurred. During 20152020 and 2014,2019, the Company spent $159,599$283 thousand and $236,142,$224 thousand, respectively, on marketing, trade show and store front expense and advertising, net of co-operative rebates.

 

The Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense.

 

INVENTORYForeign Currency Translation

 

Substantially all inventory consists of raw materials and finished goods andOur consolidated financial statements are valued based upon first-in first-out (“FIFO”) cost, notpresented in excess of market.U.S. dollars. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slow moving products or discontinued items as well as the market conditionsfunctional currency for the specific inventory items.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair valueCompany is U.S. dollars. Transactions in currencies other than the price that would be received from selling an asset or paid to transfer a liability (an exit price)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 principal or most advantageous market forlocal currency and re-measured to the asset or liability in an orderly transaction between market participantsfunctional currency as of the measurement date. Applicable accounting guidance provides a hierarchy for inputs used in measuring fair value that prioritize the use of observable inputs over the use of unobservable inputs, when such observable inputs are available. The three levels of inputs that may be used to measure fair value are as follows:

●Level 1 - Quoted prices in active markets for identical monetary assets or liabilities.
●Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
●Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by the Company.

Assets and liabilities are classified based onconverted using the lowest level of input that is significant tobalance sheet period-end date exchange rate, while the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observable inputs may result in a reclassification ofnon-monetary assets and liabilities withinare converted using the three levelshistorical 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 consolidated statement of operations and were included in the hierarchy outlined above.amount of loss from comprehensive income.

 

F-9F-16
 

 

Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The Company measures certain liabilities at fair value on a recurring basis such as our contingent consideration related to business combinations and recognizes transfers within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer occurred. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the fiscal years ending December 31, 2015 and 2014.

The Company has classified its contingent consideration related to the acquisitions as a Level 3 liability.Revenue and other assumptions used in the calculation require significant management judgment. The Company reassesses the fair value of the contingent consideration liabilities on a quarterly basis. Based on that assessment, the Company recognized an adjustment of $0 to the actual calculation of the earn-out obligations during each of the fiscal years ended December 31, 2015 and 2014.

As of December 31, 2015, the Company does not have any contingent liabilities.

REVENUE RECOGNITION

Recurring technology and services revenue consists of subscription-based fees, software subscription license fees, software maintenance fees and hosting fees related to the use of our solution to manage our customers’ communications expenses, as well as fees for perpetual software licenses and professional services and products sold.

We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably over the term of the period of service. The subscription-based services we provide include help desk, staging, carrier activations and provisioning.

Sales revenue is recognized upon the shipment of merchandise to customers. The Company recognizes revenues from software sales when software products are shipped.

Software license fees consist of fees paid for a perpetual license agreement for our technology, which are recognized in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 605, Software Revenue Recognition, as amended.

Professional services related to the implementation of our software products, which we refer to as consulting services, are generally performed on a fixed fee basis under separate service arrangements. Consulting services revenue is recognized as the services are performed by measuring progress towards completion based upon either costs or the achievement of certain milestones.

NET INCOME (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 years ended December 31, 2015 and 2014 were 36,195,065 and 33,596,375, respectively.

F-10

For the year ended December 31, 2014, the fully diluted number of 45,477,429 includes the potential of the existing senior subordinated debt holders converting their debt into common shareholder equity at $1.00 per share (for $2,269,006 in debt) and $2.00 per share (for $1,254,382). Despite the fact the conversion is “out of the money”, accounting rules require these amounts to be included in diluted shares outstanding. Additional terms of the debt would require the Board of Directors to consent to any debt holder converting and having a position greater than 4.99% outstanding on the date of conversion.

The fully diluted number of 45,213,835 includes the potential of the existing senior subordinated debt holders converting their debt into common shareholder equity at $1.00 per share (for $2,269,006 in debt) and $2.00 per share (for $1,254,382) as well as the 5,200,000 shares of Series B exchange shares issued related to the ViascanQdata acquisition. The 5,200,000 shares of Series B are exchangeable on a 1 for 1 basis into common stock of the Company. Despite the fact the conversion is “out of the money”, accounting rules require these amounts to be included in diluted shares outstanding. Additional terms of the debt would require the Board ofDirectors to consent to any debt holder converting and having a position greater than 4.99% outstanding on the date of conversion.

For the year ended December 31, 2015, diluted net loss per share did not include the effect of 7,454,000 shares of common stock issuable upon the exercise of outstanding stock options, 5,200,000 shares of common stock issuable upon the exercise of Series B Preferred Stock and 3,818,769 shares of common stock issuable upon the conversion of convertible debentures, as their effect would be anti-dilutive. 

Goodwill

Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of reporting unit goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. No impairment charges have been recorded as a result of the Company’s annual impairment assessments.Income Taxes

 

We testaccount for our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31, at which date we test our reporting units, which is currently our ownership in Quest Marketing.

None of the goodwill is deductible for income tax purposes.

FOREIGN CURRENCY TRANSLATION

Adjustments resulting from the process of translating foreign functional currency financial statements into U. S. Dollars are included in accumulated other comprehensive income or (loss) in stockholder’s equity. Foreign currency transaction gains and losses are included in current earnings. The functional currency for Quest is the U. S. Dollar.

INCOME TAXES

The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

 

Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.

 

F-11

The CompanyWe also followsfollow the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Our income is subject to taxation in both the U.S. and a foreign jurisdiction, Israel. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company has evaluatedestablishes reserves for income tax-related uncertainties based on estimates of whether, and the deferredextent to which, additional taxes will be due. These reserves for tax contingencies are established when the we believe positions do not meet the more-likely-than-not recognition threshold. We adjust uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes with regards to Section 382includes the impact of the Internal Revenue Codeuncertain tax liabilities and has determined no limitations on the use of net operating loss carryforwards exist at December 31, 2015 and 2014 for all of the net operating loss carryforward except for ViascanQData which has not been analyzed as of December 31, 2015.changes in liabilities that are considered appropriate.

 

STOCK-BASED COMPENSATIONComprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our other comprehensive income (loss) is composed of foreign currency translation adjustments.

Net Loss Per Common Share

See NOTE 14 regarding our 1-for-20 reverse stock split. Share related amounts have been retroactively adjusted in this report to reflect this reverse stock-split for all periods presented.

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 years ended December 31, 2020 and December 31, 2019 were 4,322,303 and 3,889,478, 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:

In thousands 2020  2019 
Options to purchase common stock  1,553   737 
Convertible preferred stock  -   242 
Warrants to purchase common stock  75   225 
Potential shares excluded from diluted net loss per share  1,628   1,204 

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.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. ASU 2019-12 became effective on January 1, 2021 and is not expected to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. Our exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on balances outstanding under our Credit Facility. The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU 2020-04, is not currently estimable.

Recently Adopted Accounting Pronouncements

On January 1, 2020, we adopted Accounting Standards Codification Topic 326, Credit Losses (Topic 326). This standard establishes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, we recognize an allowance for our estimate of expected credit losses over the entire contractual term of our receivables from the date of initial recognition of the financial instrument. Measurement of expected credit losses are based on relevant forecasts that affect collectability. Topic 326 applies to trade receivables from certain revenue transactions including receivables from equipment sales, parts and service sales. Under Accounting Standard Codification Topic 606 (Revenue from Contracts with Customers), revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that these trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The adoption of Topic 326 did not have a material impact on our consolidated financial statements and related disclosures or our existing internal controls because accounts receivable are of short duration and there is not a material difference between incurred losses and expected losses.

On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement - Disclosure Framework. ASU 2018-13 modifies the disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements and footnotes.

NOTE 3 – GOING CONCERN

 

The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requiresaccompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. As of December 31, 2020, we had a working capital deficit of $25.3 million and an accumulated deficit of $56.7 million. These facts and others raise substantial doubt about the measurement and recognition of compensation expense for all share-based payment awards madeCompany’s ability to employees and directors including employee stock options and employee stock purchases relatedcontinue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to an Employee Stock Purchase Plan basedgenerate sufficient cash flow to meet its obligations on the estimated fair values.a timely basis.

 

For non-employee stock-based compensation, we have adopted ASC Topic 505 “Equity-Based PaymentsManagement’s plan to Non-Employees”, which requires stock-based compensation relatedeliminate the going concern situation includes, but is not limited to, non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic 718.following:

 

RECENT ACCOUNTING PRONOUNCEMENTS

The Company has evaluated the recent pronouncements and believes that none of them will have a material effect on the company’s financial statements.

●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;
●In April 2019, the Company raised approximately $5.0 million in gross proceeds from the sale of 833,333 shares of the Company’s common stock.

NOTE 4 – CONCENTRATIONSBUSINESS ACQUISITION

 

In February 2020, (the “Closing Date”), we entered into an Asset Purchase Agreement (the “Eyepax Agreement”), with Eyepax IT Consulting, LLC (the “Seller”); whereby, we acquired Seller’s accounts receivable and the license, ownership rights and source code of the parking Enforcement and Revenue Control System. The Company maintains its cash in bank depositalso assumed the Seller’s accounts payable liabilities. Pursuant to the terms of the Eyepax Agreement, the purchase price paid was to be paid as follows:

1.$100,000 was paid on the Closing Date, less $5,000 previously paid as an advance payment, accordingly the remaining balance paid in cash on Closing Date was $95,000.
2.$25,000 per month for three months to be paid on or before the last business day of the month beginning with the first month after the Closing Date, and a fourth payment of $20,000 until a total of $95,000 has been made.
3.Beginning on the first month after Closing Date, $5,000 per month to be paid in ten (10) monthly installments.
4.80,000 shares of the Company’s common stock in the name of the Seller, were issued during 45 days from Closing Date at $5.50 per common share.
5.Stock options to purchase 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The option shares vest in equal quarterly periods, expiring in February 2023.

The purchase price was measured at fair value on the Closing Date as follows (in thousands):

Cash payments to Seller245
Subscribed common stock440
Stock purchase options91
Total776

The assets acquired and liabilities assumed have been recognized at the Closing date and were measured at fair value as follows (in thousands):

Accounts receivable13
Software (intangible)100
Liabilities assumed(113)
Net assets acquired at fair value1
Total purchase price775
Goodwill recognized774

We estimated the fair value the stock purchase option using the Black-Scholes option valuation model which at times, may exceed federal insured limits. Atincorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. In valuing these options, the Company assumed a cumulative stock volatility of 269.42%, 36 months expected life, and a risk-free interest rate of 1.160% and dividend yield of 0%.

F-20

NOTE 5 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of December 31, 2015 and 2014, the Company’s uninsured cash balance, each totaled $0.31:

In thousands 2020  2019 
Trade Accounts Receivable $9,689  $6,730 
Less Allowance for doubtful accounts  (28)  (36)
Total Accounts Receivable (net) $9,661  $6,694 

 

For the years ended December 31, 20152020 and 2014,2019, one customer accounted for 12.1%37.2% and 13%12.3%, respectively, of the Company’s revenues.

 

Accounts receivable at December 31, 20152020 and 20142019 are made up of trade receivables due from customers in the ordinary course of business. One customer made up 13.6% and 34%represented 35.4% of the balance of accounts receivable at December 31, 2020 and two customers made up 20.9% of the accounts receivable balance at December 31 for 2015 and 2014,2019, which represented greater than 10% of total accounts receivable at December 31, 20152020 and 2014,2019, respectively.

Accounts payable are made up of payable due to vendors in the ordinary course of business at December 31, 2015 and 2014. One vendor made up 62.2% and 82% of the balance, which represented greater than 10% of accounts payable at December 31, 2015 and 2014, respectively.

NOTE 5 – ACQUISITION OF QUEST MARKETING, BCS, AND VIASCANQDATA

On January 10, 2014, the Company completed the purchase of Quest Marketing, Inc. (“Quest”), an Oregon corporation in the technology, software, and mobile data collection systems business.

The Company completed an ASC 805 Purchase Price Allocation for the acquisition by an outside independent valuation analysis.

The purchase price consideration paid was determined to be $18,278,372.

F-12

The consideration given to the shareholders of Quest Marketing were as follows:

$6,375,000 in promissory notes, convertible at $1.00 per share and $9,625,000 in promissory notes for which payments were originally to be a minimum of 45.0% of the cash earned from EBITDA of Quest during the prior quarter.

These promissory notes are recorded net of a debt discount of $4,000,000, which is being accreted to interest expense at $800,000 per year.

In November 2014, the promissory notes were amended to be senior subordinated promissory notes with quarterly payments due pro-rata to the promissory notes issued and outstanding in conjunction with the acquisition of BCS (discussed below) at a maximum of 35% of EBITDA. The promissory notes bear interest at 1.89% per year.

The prior owners of Quest Marketing shall retain a security interest in the subsidiary until the promissory note is satisfied.

In accordance with ASC 805-10-25-13, the following table summarizes the fair values of the assets acquired as determined by our independent valuation analysis and liabilities assumed at the date of acquisition and the preliminary allocation of the purchase price to the fair value of net assets acquired:

Net Fixed Assets $68,000 
Current Assets (excluding inventory)  7,456,000 
Total Inventory (at Net Realizable Value)  60,000 
Other Non-Current Assets  3,000 
Trade Name  2,700,000 
Customer Relationships  4,390,000 
Deferred Tax Liability  

(2,502,858)

 
Goodwill  

6,104,230

 
Total purchase price allocated $18,278,372 

On November 21, 2014, the Company completed the purchase of BCS, a California company in the same industry of technology, software, and mobile data collection systems business. BCS also has a small label printing business to complement its data collection systems business.

The purchase price for the shares of BCS was $11,000,000, with a total purchase price consideration of $10,761,382, after a working capital adjustment based on the net working capital at the date of the acquisition. This was completed during February 2015, which reduced the promissory note $603,684.

The consideration given to the shareholders of BCS were as follows:

$11,000,000 in promissory notes, convertible at $2.00 per share with payments due pro-rata to the promissory notes issued and outstanding in conjunction with the acquisition of Quest Marketing at a maximum of 35% of EBITDA. The promissory note bears interest at 1.89% per year.

The prior owners of BCS shall retain a security interest in the subsidiary until the promissory note is satisfied.

In accordance with ASC 805-10-25-13, the following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the preliminary allocation of the purchase price to the fair value of net assets acquired:

Cash $75,683 
Accounts receivable, net  2,864,661 
Other current assets  1,537,912 
Other assets  548,311 
Fixed assets, net  131,538 
Customer relationships  4,800,000 
Tradename  770,000 
Developed Technology  920,000 
Goodwill  

4,009,934

 
Accounts payable and accrued liabilities  (4,896,657)
     
Total purchase price allocated $10,761,382 

F-13

Effective October 1, 2015, the Company completed the purchase of ViascanQdata, a Canadian based company in the same industry of technology, software, and mobile data collection systems business which also has a media and label business.

The purchase price for the shares of ViascanQdata was 5,200,000 shares of Series B Preferred Stock (which are convertible on a 1:1 basis into common shares, with no other preferential rights) as well as a promissory note of one million five hundred thousand dollars ($1,500,000). Given the associated assumed debts at the closing, the goodwill acquired is estimated at $11,137,861. In 2016, the Company will do a valuation of the assets and liabilities acquired and recognize any intangibles that were acquired.

ViascanQdata historically has used the Canadian Dollar (CDN) as their functional currency. All numbers have been adjusted based on the exchange rate with the US Dollar as of the date of the transaction.

In accordance with ASC 805-10-25-13, the following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the preliminary allocation of the purchase price to the fair value of net assets acquired:

Cash $74,855 
Accounts receivable, net  2,163,502 
Inventory  1,587,272 
Fixed assets, net  1,399,796 
Other assets  114,709 
Goodwill  11,137,861 
Total purchase price allocated $16,477,995 

Accounts Payable and other Current Liabilities $12,008,825 
Long Term Debts Assumed  837,170 
Promissory Note Issued  1,500,000 
Stock Issued  2,132,000 
Total purchase price allocated $16,477,995 

 

NOTE 6 – INVENTORY

 

At December 31, 2015 and 2014, inventoriesInventory consisted of the following:following as of December 31:

 

  2015  2014 

Equipment and Clearing Service

 $174,085  $56,075 
Raw Materials  1,481,909   44,216 
Work in Progress  159,234   18,623 
Finished goods  916,384   487,317 
Total inventories $2,731,612  $606,231 
In thousands 2020  2019 
       
Raw Materials  946   1,055 
Work in process  

-

   44 
Finished goods (less Allowance)  561   790 
Total inventories $1,507  $1,889 

 

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

 

IntangibleWe have made acquisitions in the past that resulted in the recognition of goodwill. Based on our analysis there have been no impairment charges recorded against goodwill in 2020 and 2019. Identifiable intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over the estimated useful lives ranging from 3 to 1011 years. Amortization expense for the years ended December 31, 20152020 and 20142019 was $2,506,168$2.1 million and $9,376,$2.0 million, respectively.

 

  2015  2014 
Goodwill $21,252,024  $

14,101,306

 
Trade Names  3,513,481   

2,700,000

 
Customer Relationships  7,560,352   

7,560,352

 
Software -  1,276,524 
Licenses  -   450,000 
Accumulated amortization  (3,759,201)  (1,251,033)
Intangibles, net $29,782,821  $466,870 

Goodwill and Intangible assets consisted of the following as of December 31:

 

In thousands 2020  2019 
Goodwill $14,695  $13,921 
Trade Names  4,390   4,390 
Customer Relationships  12,590   12,590 
Intellectual property  1,424   1,323 
Accumulated amortization  (11,855)  (9,695)
Intangibles, net $21,244  $22,529 

The future amortization expense on the Customer Relationships, and IP are as follows:

In thousands   
Years ending December 31,   
2021  2,133 
2022  1,507 
2023  934 
2024  487 
2025  472 
Thereafter  1,016 
     
Total $6,549 

Goodwill is not amortized but is evaluated for impairment annually or when indicators of a potential impairment are present. OurThe impairment testing of goodwill is performed separately from our impairment testing of intangibles. The annual evaluation for impairment of goodwill and intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. None of the goodwill is deductible for income tax purposes.

The Company has made a significant investment in software over the years. This amount is treated as intangible assets which are being amortized over the expected useful life. Intangible assets are evaluated annually for potential impairment.

 

Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated, and the remaining carrying value is amortized over the new shorter useful life. No impairments were identified or changes to estimated useful lives have been recorded as of December 31, 20152020 and 2014.2019.

 

NOTE 8 – COST OF GOODS SOLD, RELATED PARTY EXPENSES- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

AtAccounts payable are made up of payables due to vendors in the acquisitionordinary course of Quest Marketing, there was $1,273,292business at December 31, 2020 and 2019. One vendor made up 92.4% and 83.0% of related party prepaid expenses for insurance policies, Quest Marketing previously maintained insurance policies with an insurance companyour accounts payable in 2020 and 2019, respectively, which the previous owners own. The Company deemed this to be a related partyrepresented greater than 10% of total accounts payable at December 31, 2020 and the insurance expenses paid during 2013 which was for 2014 coverage, while not a cash expense for 2014, the cost was recorded as an expense from January 2014 through November 2014. The amount of expense was $1,273,292 in prepaid expenses for insurance coverage, paid in 2013, for 2014 coverage. As of January 1, 2014, the Company will not be renewing any of these policies now that they have expired.

F-14

During 2015, there were no cost of goods sold related party expenses.2019, respectively.

 

NOTE 9 – INTELLECTUAL PROPERTYCREDIT FACILITIES AND LINE OF CREDIT

 

On January 10, 2014, the Company cameWe maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to terms onprovide us working capital.

In July 2016, we entered into a settlementFactoring and Security Agreement (the “FASA”) with its prior investment in the licenseAction Capital Corporation (“Action”) to establish a sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and the related liquor brands. The Company concurrently canceled its consulting contract relatedassigning acceptable accounts receivable to Action. Pursuant to the liquor lineFASA, the outstanding principal amount of advances made by Action at any time shall not exceed $5.0 million. Action reserves and received back 1,765,000withholds to 5% of the shares that had previously been issuedface amount of each account purchased in conjunction with this venture. a reserve account. As of December 31, 2014, there are no amounts remaining due to this transaction.2020 and 2019, the balance outstanding was $4,914 thousand and $1,365 thousand, respectively.

 

DuringThe annual interest rate with respect to the period endingdaily 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 10 – RELATED PARTY NOTES PAYABLE

Related party notes payable, consisted of the following as of December 31:

  2020  2019 
In thousands        
Note payable –Marin $660  $900 
Note payable –Thomet  413   563 
Note payable –Zicman  

-

   135 
Note payable–Shareholder Convertible Note  43   150 
Note payable - RWCC  

-

   449 
Total notes payable  1,116   2,197 
Less current portion  433   1,025 
Long-term portion $683  $1,172 

For the years ended December 31, 2014,2020 and December 31, 2019, the Company acquired four different licenses for technology. The licenses acquired are for (1) re-enforcing steel detection, (2) gun barrel detection, (3) air frame inspection, and (4) mining belt guard inspection. The cost of the first three licenses was $150,000 eachrecorded interest expense in connection with a 5% royalty on sales. The term of these licenses is 15 years each. A fourth license was acquired with minimum purchase requirements statednotes in the contract. There were no sales or licensing activitiesamount of $15 thousand and no royalties earned or$49 thousand, respectively.

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 December 31, 2014.2020, was $56 thousand. Accrued interest is payable at maturity.

 

On August 27, 2015, the CompanyNote Payable – Thomet

In December 2017, we entered into a Settlement$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 – Zicman

In February 2018, we entered into a $180 thousand note payable Zicman. In May 2020, the Company and Zicman entered into a conversion agreement (the “Conversion Agreement”) whereby Zicman agreed to convert the principal outstanding on the note as of May 2020, into OMNIQ common stock ($0.001 par value). The total principal and interest outstanding as of May 2020 was $168 thousand which was converted, in accordance with the Conversion Agreement, into 24,000 shares of OMNIQ common stock.

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 Thomet. UnderWalefar 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 provided Holders a right , at any time on or after the loan origination date, to convert all or any portion of the then outstanding and unpaid principal amount and interest (including any Default Interest) into fully paid and non-assessable shares of OMNIQ’scommon stock.The number of conversion shares to be issued upon each conversion of the note shall be determined by dividing the conversion amount by the applicable conversion price then in effect on the date specified in the notice of conversion delivered us by the Holder. The conversion rate was set at $4.72 per share.

In April 2019, and in accordance with the Convertible Shareholder Note, the Holders converted $400 thousand ($200 thousand each) of unpaid principal outstanding. The Holders received 87,476 (42,373 each) common stock shares and 87,476 (42,373 each) in common stock warrants.

In September 2019, and in accordance with the terms of the Settlement Agreement,Convertible Shareholder Note, the Holders, exercised the right to convert $150 thousand ($75 thousand each) in unpaid principal balance into fully paid and non-assessable shares of our common stock at a conversion price of $4.72. Accordingly, the Company was required to pay Thomet $7,036,000.00 as full satisfaction for two (2) promissory notes held by Thomet by September 30, 2015. Included in this agreement (and deducted from the $7.036 million settlement) was the assignment of license rights to Thomet with an assigned value of $1.15 million. The licenses were previously acquired for $450,000 from Rampart Systems. Thomet shall pay Quest Solution a royalty fee of 3.5% of revenue relatedissued 31,780 common shares (15,890 shareseach) to the “gun-barrel,” “rebar inspection,” and “air frame” licenses forHolders.

Note payable – RWCC

We acquired the Note Payable – RWCC (“RWCC Note”) with the acquisition of HTS. The RWCC Note was a five (5) year period, beginning onnon-interest-bearing note. The RWCC Note was historically discounted using an effective interest rate of 5.0%. As of December 3, 2020, this note is paid off. The RWCC Note was classified as a related party note because the effective dateChief Executive Officer of RWCC is the son of a significant shareholder of the Assignment Agreement (as defined in the Settlement Agreement). The parties agreed to exclude the existing mining distribution license from the royalties to be paidCompany and a sibling to the Company by Thomet. On October 19, 2015, Quest Solution and Thomet entered into that First Amendment to the Omnibus Settlement Agreement, which modified the payment schedule under the Settlement Agreement.Chief Financial Officer.

NOTE 10 – OPERATING LEASE COMMITMENTS

In April 2012, Quest Marketing signed an operating lease at 860 Conger Street, Eugene, OR 97402. The premises, consisting of approximately 7,000 square feet of warehouse/office space shall serve as the Company’s new headquarters. The lease provides for monthly payments of $3,837 through March 2013 and adjusted annually to reflect changes in the cost of living for the remainderrepayment of the lease term. In no event shall the monthly rent be increased by more than 2 percent in any one year. The lease is due to expire March 2017.

The lease at the Company’s Ohio location, signed by Quest Marketing in July 2011, provides for monthly paymentsnotes payable, related parties as of $2,587 through June 2012 and $2,691 thereafter. The lease is due to expire June 30, 2018.

The Company leases space at its corporate office in Henderson, Nevada at the rate of $850 per month. The lease is an annual lease renewable on a month to month basis beginning in December 2016.

F-15

The Company has a commercial real estate operating lease with the former owner of BCS for the company’s BCS office and warehouse location in Garden Grove, CA. Total rent expense at this location was $108,000 for the 12 months ending December 31, 2015 and $9,000 for the 40 days ending December 31, 2014.

On February 1 2005, Qdata signed an operating lease at 6 Shields Court, Suite 105 Markham L3R 4S1 Ontario. The premise consists of approximately 5,750 square feet of warehouse/office space with monthly payments of $6,904 CDN. A new agreement was signed on January 12, 2016 for a reduced area of 2,875 square feet for monthly payments of $2,276 CDN. The lease started February 1, 2016 and2020, is due to expire January 2018

On August 1 2011, Viascan Group Inc. signed an operating lease at 651 Harwood Ave North Ajax Ontario. The premise consists of approximately 36,656 square feet of warehouse/office space with monthly payments of $28,688 CDN. The leaseis due to expire July 31, 2018.

On August 1 2013, Qdata. signed an operating lease at 530 – 538 Berry Street, Winnipeg Manitoba. The premise consists of 2,250 square feet of warehouse/office space with monthly payments of $2,462 CDN. The lease is due to expire July 31, 2016.

On June 1 2014, ViascanQdata signed an operating lease at 110-737 West 3rd Avenue, Suite 110 Vancouver, British Columbia V6J 1K7. The premises consists of office space with monthly payments of $4,754 CDN. The lease is due to expire May 31, 2016.

Total rent expense paid was $293,457 and $204,818as follows for the years ending December 31, 2015 and 2014, respectively. 

The following is a schedule of future minimum facility lease payments required under the related party operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2015.2020:

 

SUMMARY OF OPERATING LEASE COMMITMENTSIn thousands

The future minimum operating lease payments are as follows:

Years ending December 31,    
2016 $550,005 
2017  448,097 
2018  137,958 
2019  108,000 
2020  108,000 
Thereafter  117,000 
Total $1,469,060 
2021  433 
2022  390 
2023  293 
2024    
Thereafter  - 
Total $1,116 

 

NOTE 11 – OTHER LIABILITIESNOTES PAYABLE

 

The Company has purchased key man life insurance policies for someOther notes payable consists of its executives to insure the Company against riskfollowing as of loss of an executive. Should loss of an executive occur, those funds would be used to pay off their respective promissory notes, repurchase their shares and settle out any amounts owed to them and their estate.December 31, 2020:

 

At December 31, 2015, the balance of amount of premium financed notes are $1,194,074 and the cash value of the policy as of this date is $1,101,298, along with $39,694 of prepaid insurance expense costs, with a net negative cash value of the policies of $53,083.

In thousands 2020  2019 
Note Payable - Secured Supplier Note $6,443  $6,490 
Notes Payable - other  7   150 
Total  6,450   6,640 
Less current portion  6,449   6,497 
Long Term Notes Payable $1  $143 

 

The valueFuture maturities of the policiesnotes payable are recorded at the new value per the right of offset noted in FASB No. 39 and 41 and Topics 210-220. To have right of offset, the Company would need to show (1) amounts of debt are determinable, (2) reporting entity has the ‘right’ to setoff, (3) the right is enforceable by law, and (4) reporting entity has the ‘intention’ to setoff. Given that the Company has met all of these, the Company has elected to use the right of setoff as the cash value of the policies are being used as the collateral for the loans. Should the Company default on payments to the policy or determine to not continue with the policies, the cash value of the policy is intended to pay off of the loan. The Company also intends to settle out the loans in the future with the cash value of the policy.

F-16

NOTE 12 – PROFIT SHARING PLAN

The Company maintains a contributory profit sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Company is 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. Company safe harbor contributions were $ 119,721 and $98,066follows for the years ending December 31, 20152020:

In thousands

2021 $6,449 
2022  1 
Thereafter  - 
Total $6,450 

Paycheck Protection Program Note Payable

In May 2020, we entered into a Loan Agreement with Zions Bank corporation, NA (“Zions”) whereby we borrowed $887,500 from Zions under the Small Business Administration’s (the “SBA”) Paycheck Protection Program. In October 2020, OMNIQ applied for and 2014, respectively. The BCS subsidiary also has a Safe Harbor plan within the requirements of ERISA that provides matching contributions equal to 100%was granted forgiveness of the employee deferred contribution up to 3%full amount owed (including accrued interest) by Zions on behalf of the compensation, plus 50%SBA. We recognized a gain on forgiveness of debt of $887,500; included in early other (expenses) income on the consolidated statements of operations.

Supplier Secured Note Payable

In July 2016, we and a supplier entered into a secured promissory note (the “Secured Supplier Note”), in the principal amount of $12.5 million and interest at 12% per annum. The Secured Supplier Note was to be paid in six consecutive monthly installments of a minimum principal amount of $250 thousand each principal and accrued interest, , with any remaining principal and accrued interest due and payable on December 31, 2016.

From November 2016 through March 2019, the Secured Supplier Note was amended six times (the “Amendments”), each time adjusting the payment terms and maturity date.

In April 2019, we entered into a seventh amendment extending the maturity date to July 31, 2019. This amendment requires we make three installment payments as follows:

●First, a minimum payment in the amount $350 thousand plus all accrued interest on the principal due by May 15, 2019;
●Second, a minimum payment in the amount of $500 thousand plus all accrued interest on the principal through such payment date, shall be due by June 15, 2019
●Third, a minimum payment in the amount of $750 thousand plus all accrued interest on the principal through such payment date, shall be due by July 15, 2019; and
●Any remaining principal and interest due at maturity.

We have made partial payments towards the required monthly installments under the terms of this amendment. As has been the case with each previous amendment, we are in continual negotiations with the holder of the deferred contributions that exceed 3% upSecured Supplier Note to 5%extend the maturity date and establish a new schedule of total participant compensation.payments.

Note Payable - Other

In connection with the acquisition of Bar Code Specialties, Inc. (“BCS”), a California corporation, the Company assumed a related party note payable to the former CTO of the RFID division of BCS. The BCS matching contributions fornote is payable in equal monthly installments of $5 thousand beginning October 31, 2014 and ended October 2018. The loan bears interest at 8.0% and is unsecured and subordinated to the calendar year endingCompany’s bank debt. On June 5, 2020, the Company reached an agreement with the noteholder to convert an aggregate of $261 thousand in principal, unpaid interest, and penalties into an aggregate of 37,270 shares of Common Stock at a conversion price of $7.00 per share, which was based on the closing price on June 3, 2020. The balance on this loan at December 31, 2015 was $ 77,4672020 and for the 40 days ending December 31, 2014 were $11,170.

NOTE 13 – DEFERRED REVENUE

Deferred revenue consists2019 was $0 and $137 thousand, respectively, all of prepaid third party hardware service agreements, software maintenance service contracts and the related costs and expenses recorded net of the revenue charged to the customer and paid within normal business terms. The net amount recordedwhich was classified as a deferred revenue liability is being amortized into the results of operations over the related periods on a straight line basis, normally 1-5 years with 3 years being the average term.long-term

F-17

  December 31, 2015  December 31, 2014 
Deferred Revenue $7,263,417  $3,793,181 
Less Deferred Costs & Expenses  (6,113,029)  (3,495,904)
Net Deferred Revenue 1,276,850  $297,227 
Less Current Portion 742,976     
total Long Term net Deferred Revenue $533,874     
         
Expected future amortization of net deferred revenue, are as follows;        
2016     $

742,976

 
2017      

484,838

 
2018      26,919 
2019      22,517 
total     $1,276,850 

 

NOTE 1412 – CREDIT FACILITIES AND LINE OF CREDITOTHER LIABILITIES

 

The Company maintains operating linesAt December 31, 2020 and 2019, other liabilities consisted of credit, factoring and revolving credit facilities with banks and finance companiesthe following:

In thousands 2020  2019 
Other vendor payable $801   801 
Dividend payable  253   344 
Bonus payable  27   385 
Others  1,477   453 
Total other liabilities  2,558   1,983 
Less Current Portion  (1,412)  (1,599)
Total long term other liabilities $1,146  $384 

In prior years, we purchased key man life insurance policies for some of our executives to provide working capital forinsure against risk of loss of an executive. As of December 31, 2020, we had $332 thousand in accrued obligations other liabilities related to the business. These financing relationships are all classified as current liabilities in the financial statements.key man insurance policies.

 

OnNOTE 13 – 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 years ending December 31, 20142020, and 2019, the Company entered into a 3 year, $8 million revolving line of credit agreement with Wells Fargo Bank (“WFB”) which provides for borrowings based on eligible trade accounts receivable, as defined inelected to forgo the WFB loan agreement dated December 31, 2014. The line was secured by trade accounts receivable and a first priority lien on substantially all of the assets of the Company. All other debt of the Company is subordinated to the bank line of credit.match.

Operating Leases

 

As of December 31, 2014, the outstanding balance on the line of credit was approximately $1.819 million and the interest rate was computed based on the daily 3 month LIBOR rate plus the applicable margin2020, we had two Operating leases as defined in the credit agreement or 3.50560%. The line of credit has a certain financial covenant and other non-financial covenants.follows:

●Office space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of 14.55%. As of December 31, 2020, we had 29 months remaining on the lease.
●A vehicle with monthly payments of less than $1 thousand. As of December 31, 2020, the Company had 13 months remaining on the lease.

Effective January 1, 2019 we adopted Topic 842. Targeted Improvements. As of December 31, 20142020 we had two operating leases for office and assembly space and no financing leases. We elected the companypractical expedient ASU 2018-11, Leases (Topic 842): Targeted Improvements which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date. Therefore, we recognized and measured leases existing at January 1, 2019 (inception date). In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. Lastly, the Company elected a short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in compliance with all financialeffect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. As none of our leases included an implicit rate of return, we used our incremental borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The impact of ASU No. 2016-02 on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and non-financial covenants with the bank.lease liabilities for operating leases. Amounts recognized at January 1 and December 31, 2019 for operating leases are as follows:

 

In November 2015, the WFB line of credit was paid off. The Company maintains a purchasing card relationship with WFB with a limit of approximately $300,000 in 2015, of which $47,981 was outstanding as of December 31, 2015, respectively and included in trade accounts payable.

In November 2015, the Company entered into a Sale of Accounts and Security Agreement with Faunus Group International (“FGI”) for the USA with a maximum credit limit of $15,000,000. The line is secured by trade accounts receivable and a first priority lien on substantially all of the assets of the company. The agreement contains certain pricing and fee structures for collateral management, minimum usage, early termination and facility fees. The interest rate at December 31, 2015 was 5.75%. The balance outstanding at December 31, 2015 owed to FGI was $3,586,947.

The Company was not in compliance with the minimum current ratio requirement of .7 to 1.0 at December 31, 2015 and received a default notice from FGI in March 2016. FGI has not enforced any default remedy actions and is working with the company to resolve the default.

Concurrent with the acquisition of ViascanQdata, the Company assumed the existing factoring agreement with FGI with a maximum credit limit of $4,800,000 CDN. The line is secured by trade accounts receivable and a first priority lien on substantially all of the assets of the Company. The balance outstanding and owed to FGI at December 31, 2015 was $2,579,530 CDN or $1,863,710 USD.

F-18

NOTE 15 - NOTES PAYABLE

Notes payable at December 31, consists of the following:

  2015 
Business Development Bank of Canada #1 - 2 $535,687 
Supplier Note Payable  1,162,325 
Insurance Note  59,666 
All Other  67,276 
Total  1,824,954 
Less current portion  1,255,477 
Long Term Notes Payable $569,477 

Future maturities of notes payable are as follows;

2016 $1,255,477 
2017  569,477 
Total $1,824,954 
In thousands January 1, 2019  December 31, 2019 
ROU assets $235  $131 
Lease liability $235  $134 

 

On OctoberJanuary 1, 2015, with the acquisition of ViascanQdata the Company assumed the following existing note payable agreements:2019, we had three operating leases for office and/or warehouse space and one operating lease for a vehicle as follows:

 

BDC loan facility #1 – Viascan/Qdata, The loan facility from the BDC in the amount of $1,250,000CDN was entered into on September 15, 2011, matures on November 12, 2017 and bears interest at a rate of 6.20% per annum. The facility is repayable in monthly installments of $21,105CDN, including interest. The facility is secured by a first rank hypothec on the Company’s property, plant and equipment, with the exception of certain furniture and fixtures, vehicle, computer hardware and computer software.

BDC loan facility #2 – ViascanQdata, The loan facility from the BDC in the amount of $700,000 was entered into on July 23, 2012, matures on November 15, 2017 and bears interest at a rate of 7.70% per annum. The facility is repayable in monthly installments of $11,103CDN, including interest. In addition to the facility being secured by a first rank hypothec on the Company’s property, plant and equipment, with the exception of certain furniture and fixtures, vehicle, computer hardware and computer software, the facility is guaranteed by security interest on all intangible assets and has priority on accounts receivable and inventory to a maximum of $450,000.

The Company finances its Directors and Officers Liability Insurance with First Insurance Funding. The Insurance period is for twelve months and the premium is financed over 9 months in equal monthly installments of $15,688 at 6% interest. The outstanding balance at December 31, 2015 was $59,666 and the monthly payments are current.

On March 24, 2016, the Company converted by negotiated settlement a $1,598,423 CDN ($1,150,864 USD) past due and outstanding trade payable into a 14 month commercial promissory note due May 31, 2017. Monthly payments are structured to the cash flow cycles of the business ranging from $56,667 CDN to $130,000 CDN per month ($40,800 USD to $93,600 USD per month.) The monthly installments under this note total $1,568,422 CDN and the final $30,000 balance will be forgiven if all monthly payments have been timely made under this commercial note agreement.

F-19
 ●We were leasing approximately 7,000 sf of office space in Eugene, Oregon, with monthly payments of $4 thousand and an incremental borrowing rate of 15.06%. This lease was terminated in December 2019.
●We were leasing a small office space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of 14.55%. As of December 31, 2019, we had 41 months remaining on the lease with a lease liability of $96 thousand.
●We were leasing a small office and warehouse in Anaheim, California, with monthly payments of $2 thousand and an incremental borrowing rate of 14.83%. As of December 31, 2019, we had 12 months remaining on the lease with a lease liability of $28 thousand.
●We were leasing a vehicle with monthly payments of less than $1 thousand and an incremental borrowing rate of 14.83%. As of December 31, 2019, the Company had 25 months remaining on the lease with a lease liability of $9 thousand.

 

NOTE 16 – SUBORDINATED NOTES PAYABLEOther information related to our operating leases is as follows:

 

Notes and loans payable consisted of the following:

In thousands   
ROU asset - January 1, 2019 $235 
Decrease $(11)
Amortization $(93)
ROU asset - December 31, 2019 $131 
     
Lease liability - January 1, 2019 $235 
Decrease $(11)
Amortization $(90)
Lease liability - December 31, 2019 $134 
In thousands   
ROU asset - January 1, 2020 $131 
Decrease $

-

 
Amortization $(55)
ROU asset - December 31, 2020 $76 
    
Lease liability - January 1, 2020 $134 
Decrease $

-

 
Amortization $(55)
Lease liability - December 31, 2020 $79 

 

  December 31, 2015  December 31, 2014 
       
Note payable - acquisition of Quest $6,577,509  $13,408,825 
Note payable – acquisition of BCS  10,348,808   11,000,000 
Note payable – acquisition of ViascanQdata  2,446,969    - 
Note payable – BCS CTO  150,000    - 
Shareholder note payable  720,600    - 
Quest Preferred Stock Note Payable  3,120,000    - 
Total notes payable  23,363,886   24,408,825 
Less: debt discount  (2,306,298)  (3,200,000)
Less: current portion  (7,146,820)  (4,201,650)
Total long-term notes payable $13,910,768  $17,007,175 
In thousands December 31, 2020 
Lease liability    
Short term $         31 
Long term $48 
Total $79 

 

As of December 31, 20152020, our operating leases had a weighted average remaining lease term of 39.97 months and 2014, the Company record interest expense in connection with these notes in the amounta weighted average discount rate of $177,774 and $51,806, respectively.

In connection with the BCS acquisition the company assumed a related party note payable to the former CTO of the RFID division of BCS. The note is payable in equal monthly installments of $4,758 beginning October 31, 2014 and ending October 2018. The loan bears interest at 1.89% and is unsecured and subordinated to the company’s bank debt. The balance on this loan at December 31, 2015 was $157,495 of which $53,657 is classified as current and $103,838 is long term.14.57%.

 

The note payabletable below reconciles the fixed component of the undiscounted cash flows for acquisitioneach of Quest was issuedthe first five years and the total remaining years to the lease liabilities recorded on January 9, 2014 in conjunction with the acquisitionConsolidated Balance Sheet as of Quest Marketing, Inc. The current interest is at 1.89%, but subsequent to December 31, 2015,2020:

In thousands   
Year Minimum lease payments 
2021 $41 
2022 $38 
2023 $16 
Thereafter $- 
Total $95 
Less interest $(16)
Present value of future minimum lease payments $79 
Less current obligations $(31)
Long term lease obligations $48 

LITIGATION

Our subsidiary, OMNIQ Vision, Inc. (f/k/a HTS (USA), Inc.), was previously in litigation with a former employee who claimed that he was owed wages and commissions. As of March 31, 2020, the interest was increasedcase had been resolved. While the terms of the resolution are confidential, management has determined that the amounts involved in resolving the case are immaterial to 6% and is due in 2017.the financial statements taken as a whole.

 

The note payable for acquisitionCompany recently was named a defendant in a Mississippi state lawsuit that is directly related to the RedLPR case (the “Mississippi case”). The Mississippi case also names RedLPR, LLC as a defendant. The Mississippi case was brought by Riverland Park Technologies (“Riverland”). Riverland is also a party to the RedLPR case. The Mississippi case was filed in the Circuit Court of BCS was issuedRankin County, Mississippi on NovemberSeptember 21, 2014 in conjunction with the acquisition of BCS. The current interest is at 1.89% and is due in 2018. This note is convertible at $2.00 per share, subsequent to board approval so no debt holder can own more than 5% of the outstanding shares.2020.

 

The note payableCompany was named a defendant in relationa case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. The Company’s position is that the former employee’s claims have no apparent factual basis and appear to be designed to force a quick “nuisance value” settlement. This case was filed in the acquisition of ViascanQdata was issued effective October 1, 2015. $1,500,000Superior Court of the note was issued to Viascan Group, a related party due to the ownership interest our CEO and headState of Media Sales (the former ownersCalifornia, County of ViascanQData). The interest rate is 6%San Diego on this note with payments due 2016-2018. The balance are debts assumed by the Company on the transaction. Principal payments have been postponed.

October 21, 2020.

The note payablecompany 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 BCS former CTO is in relation toCompany or has a settlement with payments of $4,757.58 per month includingmaterial interest at 1.84%.

The shareholder note payable to Kurdi is in conjunction with the amounts owedadverse to the former owner of ViascanQData, this note bears interest at 6%. Principal payments have been postponed.

The Quest preferred stock 6% note payable isCompany in conjunction with the promissory note issued in October 2015 related to the redemption and cancelation of 100% of the issued and outstanding Series A preferred stock as well as 3,400,000 stock options that had been issued to an employee. The principle payments have been postponed.any proceeding.

Subsequent to the acquisition of Quest Marketing, the Company engaged an independent valuation analysis to do a valuation of the purchase accounting. During this process, it was determined a debt discount of $4,000,000 (original issue discount, OID) should be assigned to the promissory note. That debt discount is being accreted over the term of the 5 years at $200,000 per quarter.  

Future maturities of subordinated notes payable at December 31, 2015 is as follows:

2016 $7,146,820 
2017  6,144,698 
2018  9,526,368 
2019  468,000 
2020  78,000 
Total $23,363,886 

 

NOTE 1714 – STOCKHOLDERS’ EQUITY

 

PREFERRED STOCK

 

Series A

 

As of December 31, 2015,2020 and 2019, there were 10,000,0001,000,000 Series A preferred shares authorized and 0 preferred shares outstanding. At December 31, 2014, there were 10,000,000zero Series A preferred shares authorized and 500,000 preferred shares outstanding. The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 25013 common shares.

On October 1, 2015, the Board of directors authorized the repurchase and retirement of all of the issued and outstanding Series A preferred shares and 3,400,000 stock options in exchange for a $3,120,000 subordinated note.

 

Series B

 

As of December 31, 2015,2020 and 2019, there was one (1) preferred share authorized and zero preferred shares outstanding.

Series C

As of December 31, 2020 and 2019, there were 5,200,000 preferred5,000,000 Series C Preferred Shares (“Series C”) authorized with 2,145,030 and 4,828,530 issued and outstanding, respectively. The Series C shares authorizedhave preferential rights above common shares and 5,200,000 preferredthe 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. At December 31, 2014 the preferred had not been authorized.

These preferred shares were issued solely for the purpose of the acquisition of ViascanQdata andoutstanding are only convertible into common sharesstock at the rate of 20 preferred shares to one share of common stock. As of December 31, 2020 and 2019, the accrued dividends on the Series C Preferred Stock was $253 thousand and $344 thousand, respectively.

In June 2020, certain holders of Series C Shares elected to convert $2.7 million or 2,683,500 Series C shares and $283 thousand in accrued dividends in exchange for 190,365 OMNIQ common stock shares.

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 in the employ of and attract new employees, directors, officers, consultants, advisors and employees 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. The Plan approved by our stockholders at the September 2020, shareholders’ meeting. For the year ending December 31, 2020, we issued 336,146 shares ( $1.6 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 years ending December 31, 2020 and 2019, employees purchased 302 ($1 thousand) shares and 287 ($1 thousand) shares of commons stock.

For the years ending December 31, 2020 and 2019, 216,750 and zero, respectively, in stock options and stock warrants were exercised in exchange for 190,691 shares of OMNIQ common stock.

In April 2020 and in conjunction with the Eyepax acquisition, we issued the former owner 80,000 share of OMNIQ common stock.

In September 2020 and pursuant to the 2020 Equity Incentive Plan, we granted options to purchase an aggregate of 745,000 shares of our common stock to certain of our employees, officers and directors. Included in the total shares granted are options to purchase 230,000 shares of its common stock to Mr. Shai Lustgarten, our Chief Executive Officer, options to purchase 40,000 shares of its common stock to Mr. Neev Nissenson, our Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr. Carlos J. Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to our Directors Andy MacMillan and Yaron Shalem, respectively. The remaining 305,000 granted options are for other employees and consultants. The exercise price of all of the options granted was $4.40 per share, which was the closing price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J. Nissensohn, which have an exercise price of $4.84 per share. The options granted to Shai Lustgarten and Carlos J. Nissensohn have a term of five (5) years and the balance of the options have a term of ten (10) years.

Effective November 11, 2019, we implemented a one-for-20 reverse stock split of the Company’s common stock. The par value of common stock and the number of authorized shares were not adjusted as a result of the reverse stock split. All share and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

In September 2019, and in accordance with the terms of the Convertible Promissory Note, Walefar and Campbeltown each exercised the right to convert $75 thousand in unpaid principal balance into fully paid and non-assessable shares of the Company’s common stock at any time. They have no preferential rights abovea conversion price of $0.236. Accordingly, we issued 317,796 shares to each of Walefar and Campbeltown.

In September 2019, we entered into a letter agreement with Shai Lustgarten, the Company’s Chief Executive Officer, pursuant to which we and Mr. Lustgarten agreed to extend the term of Mr. Lustgarten’s employment agreement for an additional two (2) years. As consideration and in light of the Company’s achievements under the leadership of Mr. Lustgarten, the Company, pursuant to its 2018 Equity Incentive Plan, issued to Mr. Lustgarten 50,000 shares of the OMNIQ common shares.stock valued at $250 thousand.

In September 2019, we entered into a letter agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the Company and principal stockholder, pursuant to which they agreed to extend the term of Mr. Nissensohn’s and/or an entity under his control’s consulting agreement for an additional two (2) years. As consideration and in light of Mr. Nissensohn’s and/or an entity under his control’s past consulting services which we believe were essential to its recent achievements, we, pursuant to the 2018 Equity Incentive Plan, issued to Mr. Nissensohn and/or an entity under his control 27,500 shares of the Company’s common stock, valued at $138 thousand.

In April 2019, we entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors (the “Purchasers”). Pursuant to the Securities Purchase Agreement, on April 9, 2019 (the “Closing Date”), the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”) resulting in gross proceeds of $5.0 million, before deducting placement agent fees and offering expenses (the “Offering”). The individual Unit purchase price was $6.00. Each Unit is comprised of one share of the Company’s common stock, $0.001 par value per share (the “Common Stock”), and a warrant to purchase one share of Common Stock, and, as a result of the Offering, the Company issued 833,333 shares of Common Stock (the “Shares”) and warrants (the “Warrants”) to purchase 833,333 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $7.00 per Warrant Share, which Warrants are exercisable for a period of five and one-half years from the issuance date. Both Shai Lustgarten, the Company’s Chief Executive Officer, and Carlos J. Nissensohn, a consultant to and principal stockholder of the Company, participated in the Offering by converting $200 thousand each of unpaid principal owed to them from the HTS acquisition (the “Conversions”), by the Company in exchange for Shares and Warrants on the same terms as all other Purchasers. With the Conversions included, the Offering resulted in gross proceeds of $5.0 million. As a result of the Conversions, a principal amount of $150 thousand is owed to each Walefar and Campbeltown respectively under the note issued to them as partial consideration in the sale of HTS Image Processing to the Company on October 5, 2018.

 

F-20F-29
 

 

COMMON STOCKWarrants and Stock Options

 

In January 2014, concurrentconnection with the cancellationApril 2019 Securities Purchase Agreement previously described, we issued warrants to purchase 891,667 shares of our common stock at an exercise price equal to $7.00 per Warrant Share, which warrants are exercisable for a period of five and one-half years from the issuance date. The warrants were valued at $2.9 million. Also during 2019, we issued options to purchase 128,000 valued at $564 thousand.

These options and warrants were valued at the grant date using the Black-Scholes valuation methodology. The Company determines the assumptions used in the valuation of warrants and option awards as of the license agreement,date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company cancelled two consulting agreements previously entered into during April 2013,may use different assumptions for options and warrants granted throughout the year. The valuation assumptions used to determine the fair value of each option/warrants award on the date of grant were: expected stock price volatility 156.0% - 157.0%; expected term in which shares previously issued were returned in full to the Company. A total of 1,765,000 shares valued at $205,255 were returnedyears 4.0-5.5; and canceled in full settlement.risk-free interest rate 1.40% - 2.31%.

 

On March 1, 2014,The following table summarizes information about warrants granted during the Company issued a total of 100,000 shares valued at $41,000 to the then Chief Operating Officer for services. During 2014, those shares were returned and canceled in exchange for agreement to compensate the individual with $30,000, deferred until successful completion of an equity fundraising.years ended December 31,:

 

  2020  2019 
  Number of
warrants		  Weighted
Average
Exercise Price		  Number of
warrants		  Weighted
Average
Exercise Price		 
             
Balance, beginning of year  1,166,667  $6.42   275,000  $4.55 
                 
Warrants granted  375,000   -   891,667   7.00 
Warrants expired  25,000   -   -   - 
Warrants cancelled, forfeited  -   -   -   - 
Warrants exercised  150,000   -   -   - 
                 
Balance, end of year  1,366,667  $7.19   1,166,667  $6.42 
                 
Exercisable warrants  1,200,001  $7.14   1,166,667  $6.42 

On May 9, 2014, the Company issued a total

Outstanding warrants as of 240,000 shares valued at $124,800 for marketing services.December 31, 2020 are as follows:

 

   Weighted Average     Weighted     Weighted 
Range of  residual life     Average     Average 
Exercise  span  Outstanding  Exercise  Exercisable  Exercise 
Prices  (in years)  Warrants  Price  Warrants  Price 
                 
 2.20   0.59   75,000  $2.20   75,000  $2.20 
 7.00   3.77   891,667   7.00   891,667   7.00 
 7.50   5.68   250,000   7.50   83,334   7.50 
 8.00   1.16   10,000   8.00   10,000   8.00 
 10.00   2.22   125,000   10.00   125,000   10.00 
 14.00   0.16   15,000   14.00   15,000   14.00 
                       
 2.20 to 14.00   3.93   1,366,667  $8.12   1,200,001  $8.12 

On August 8, 2014,

Warrants outstanding have the Company issued 250,000 sharesfollowing expiry date and exercise prices as of stock related to warrants which were exercised, valued at $2,500.the year ended December 31, 2020:

 

On September 25, 2014, the Company sold 50,000 shares valued at $25,000.

 Exercise       
Expiry Date Prices  2020  2019 
June 26, 2020 $5.60   -   10,000 
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   75,000 
October 10, 2021  10.00   25,000   25,000 
February 27, 2022  8.00   10,000   

-

 
May 18, 2023  10.00   50,000   

-

 
October 14, 2023  10.00   50,000   

-

 
October 06, 2024  7.00   891,667   

891,667

 
September 01, 2025  7.50   83,334   

-

 
June 04, 2026  7.50   83,333   

-

 
December 04, 2027  7.50   83,333   

-

 
             
  $8.37   1,366,667   1,166,667 

 

On November 10, 2014,We have a stock option plan whereby the Company issued 900,000 shares valued at $387,000Board of Directors, may grant to settled $450,000 debt due to a related party.

In December 2014, the Company issued a total of 419,079 shares valued at $159,250 to settle various debts to officers.

On May 19, 2015, Quest entered into a Security Purchase Agreement (the “SPA”) with an accredited investor, who is also a subordinated debt holder and an employee of Quest, pursuant to which Quest issued 667,000 shares of Common Stock in exchange for $200,000.

On June 24, 2015, Quest issued subordinated promissory notes (the “Promissory Notes”) to three investors (who are also Quest employees) in the aggregate principal amount of $400,000 in exchange for an aggregate 170,000 shares of Quest’s restricted common stock, par value $0.001 per share. This amount is treated as a related party advance on the balance sheet. The Company recorded an interest expense of $62,731 relative to this issuance.

During the quarter ended June 30, 2015, the Company issued 650,000 shares of restricted common stock todirectors, officers, employees, or consultants of the Company relativeoptions to a 12 month contract.acquire common shares. The Board of Directors of the Company has the optionauthority to repurchase 550,000determine the terms, limits, restrictions and conditions of the grant of options, to interpret the plan and make all decisions relating thereto. The plan was adopted by the Company’s Board of Directors on November 17, 2014 in order to provide an inducement and serve as a long-term incentive program. The maximum number of common shares issued within the 12 month period. The Company also issued 100,000 shares to the Chief Executive Officer in connection with his employment contract on May 1, 2015, the Company recorded a $219,853 expense related to the consulting contracts tothat may be amortized over the period of these contracts and has $69,027 remaining to expense in fiscal 2016.reserved for issuance was set at 500,000.

 

DuringThe option exercise price is established by the quarter ended September 30, 2015, a stockholderBoard of Directors and may not be lower than the market price of the Company voluntarily returned 2,517 shares of Common Stock, which were canceled from the Company’s issued and outstanding shares.

During the quarter ended December 31, 2015, the Compensation Committee of the board of directors agreed to quarterly issuance / vesting of 12,500 common shares per independent board member as compensation. Duringat the 4th quarter, 37,500 shares were issued in conjunction with this agreement at a valuetime of $15,375.

During the quarter ended December 31, 2015, the Company issued 100,000 common shares to a consultant for services valued at $22,000 and 20,000 common shares to an employee valued at $4,600.

Related Party

Quest Solution agreed to redeem 900,000 shares of common stock from Thomet pursuant to the Settlement Agreement which was redeemed before December 31, 2015.

F-21

Quest Solution issued 1,000,000 shares of restricted common stock to a note holder pursuant to the Settlement Agreement valued at $357,000grant. The options may be exercised during the third quarteroption period determined by the Board of 2015.

As of December 31, 2015, the company had 36,871,478 common shares outstanding.

Warrants and Options

During the first quarter of 2014, the Company issued warrants to executives of Quest Marketing with the following milestones:

●When the Company reaches $35,000,000 in sales from the Quest Marketing subsidiary, 5,000,000 warrants at $1.00 per share vest and become exercisable. These warrants expire on January 9, 2016.
●When the Company makes it to the NASDAQ or AMEX or larger exchange, 2,000,000 warrants at $3.00 per share vest and become exercisable. These warrants expire on January 9, 2017.
●Additionally, when the combined Company reaches $40,000,000 in sales, a 2,000,000 share bonus is given to the executives. This expires January 8, 2017.

All three of the above agreements were subsequently canceled in 2015.

On July 1, 2014, the Company issued a consultant a total of 200,000 warrants valued at $113,548 for services to be performed. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $1.50, term of 2 years; risk free interest rate of 0.47%; dividend yield of 0% and expected volatility of 283%. As of December 31, 2014, the agreement with this consultant had been canceled and a total of $14,194 had been recognized as expense.

On July 1, 2014, the Company issued an advisory board member a total of 200,000 warrants valued at $109,999 for services to be performed. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $1.00, term of 4 years; risk free interest rate of 1.70%; dividend yield of 0% and expected volatility of 441%. As of December 31, 2014 a total of $13,750 had been recognized as expense.

During November 2014, with the acquisition of BCS, the Company granted two stock options to purchase an aggregate of 2,500,000 shares of common stock: (i) a time-vested options to purchase 1,500,000 shares based on the duration of the BCS stockholder’s service with the Company to that Executive with an exercise price of $0.50 per share,Directors, which expire on November 20, 2024. The options vest in over the next four (4)may vary, but will not exceed ten years with the first vesting of 12.5% of the balance at six (6) months from the date of issuance. (ii) a performance stock optionthe grant. There are 500,000 of the Company’s common shares which may be issued pursuant to purchase 1,000,000 shares based on the achievementexercise of specified revenue and net income milestones to an Executive with an exercise price of $0.50 per share which expire on November 20, 2024. The options vest after completion of nine (9) years of service withgranted under the Company or on having consolidated revenues greater than $45 million.Plan..

 

During November 2014, with the acquisition of BCS, the Company issued two service-based stock options to purchase 1,200,000 shares of Common Stock each. These Options vests with respect to 200,000 shares on November 20, 2014, and the balance will vest in a series of twenty (20) equal installments on the last day of each complete calendar quarter over the five (5)-year period commencing on December 31, 2014, subject to their continuous service with the Company. On November 20, 2014, the Company vested a total of 400,000 warrants valued at $183,662. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.50, term of 5 years; risk free interest rate of 1.64%; dividend yield of 0% and expected volatility of 154%. As of December 31, 2014 a total value of these 400,000 had been recognized as expense.

F-22

During November 2014, with the acquisition of BCS, the Company issued two performance-based stock option to purchase 2,200,000 shares of common stock each. These options will vest and become exercisable for all of the shares on November 21, 2023, provided that the Executives remains in continuous service with the Company on such date. The shares subject to the option will vest as follows: (a) if the Company achieves annual net revenues between $100 million and $150 million in any given year, an additional 200,000 shares shall immediately vest; (b) if the Company achieves net revenues between $150 million and $200 million in any given year, an additional 400,000 shares shall immediately vest; (c) if the Company achieves annual net revenues between $200 million and $300 million in any given year, an additional 600,000 shares shall immediately vest; and (d) if the Company achieves annual net revenues in excess of $300 million in any given year, an additional 1,000,000 shares shall immediately vest (until, in each case, the option is fully vested). In the event of any vesting event in (a) through (d) above where net income as a percentage of net revenues exceeds 10%, then the shares vesting on such event shall be increased by 50%. In the event net income as a percentage of net revenues for such year is less than 5%, then the shares vesting on such event shall be decreased by 50%. During 2015, half of these stock options were canceled.

In 2015 there were 1,869,000 stock options / warrants vested for consulting, Board service and employees. The value was calculated using the Black-Scholes pricing model using the following weighted average variables-Stock price at Grant of $.32; exercise price at grant of $.36; Term of 3.7 years; Volatility of 113%; Discount rate of 1.03%. The calculated value of the grants was $429,617. The amount expensed in 2015 totaled $429,617.

Stock options/warrantsOptions - The following table summarizes information about stock options and warrants granted during the years ended December 31, 20152020 and 2014:2019:

 

  Number of
Shares		  Weighted
Average
Exercise Price		 
       
Balance, December 31, 2013  3,460,000   0.73 
         
Options/warrants granted  16,700,000   1.08
Options/warrants expired        
Options/warrants cancelled, forfeited  (2,200,000)  1.00 
Options/warrants exercised  (250,000)  0.01 
         
Balance, December 31, 2014  17,710,000   0.94 
         
Options/warrants granted  

144,000

  0.36
Options/warrants expired  -   - 
Options/warrants cancelled, forfeited  (10,400,000)  1.22 
Options/warrants exercised  -   - 
         
Balance, December 31, 2015  

7,454,000

   0.50 
  2020  2019 
  Number of
stock
options		  Weighted
Average
Exercise Price		  Number of
stock
options		  Weighted
Average
Exercise Price		 
             
Balance, beginning of year  1,133,550  $4.00   1,006,050  $3.80 
                 
Stock options granted  775,000   -   127,500   5.00 
Stock options expired  -   -   -   - 
Stock options cancelled, forfeited  30,250   -   -   - 
Stock options exercised  66,750   -   -   - 
                 
Balance, end of year  1,811,550   4.32   1,133,550   4.00 
                 
Exercisable stock options  999,988  $4.05   952,425  $3.94 

During 2015, the company canceled a total of 10,400,000Outstanding stock options/warrants that were issued in connection with the acquisition of Quest Marketing, Inc. (7,000,000) and 3,400,000 options cancelled in connection with the redemption and cancellation of the Series A preferred stock from the former CEO.

Asas of December 31, 20152020, are as follows:

   Weighted             
   Average     Weighted       
Range of  residual life     Average     Weighted 
Exercise  span  Outstanding  Exercise  Exercisable  Average 
Prices  (in years)  Stock Options  Price  Stock Options  Exercise Price 
                       
 1.70   1.13   114,050  $1.70   114,050  $1.70 
 2.20   0.59   175,000   2.20   175,000   2.20 
 2.40   2.18   272,000   2.40   272,000   2.40 
 4.20   4.30   10,000   4.20   5,000   4.20 
 4.40   8.39   454,250   4.40   88,000   4.40 
 4.84   9.75   380,000   4.84   -   4.84 
 5.00   2.52   147,500   5.00   87,188   5.00 
 5.40   2.92   133,750   5.40   133,750   5.40 
 10.00   3.89   125,000   10.00   125,000   10.00 
                       
 1.7 to 10   5.32   1,811,550  $4.05   999,988  $5.32 

Stock options outstanding at the company had 7,454,000 stock options and warrants outstanding. A total of 3,029,000end of the optionsyear have the following expiry date and warrants have vested, the balance of unvested options are held by 2 employees and will vest at approximately 143,750 per quarter until fully vested in 2019. These options have an exercise price of $.50 per share.prices:

 

  Exercise       
Expiry Date Prices  31-Dec-20  31-Dec-19 
             
August 02, 2021 $2.20   175,000   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   - 
March 05, 2023  2.40   272,000   340,000 
July 31, 2023  5.00   127,500   127,500 
October 31, 2023  4.40   89,250   108,250 
November 30, 2023  5.40   133,750   143,750 
November 20, 2024  10.00   125,000   125,000 
April 20, 2025  4.20   10,000   - 
September 30, 2030  4.40   365,000   

-

 
September 30, 2030  4.84   380,000   

-

 
             
  $4.26   1,811,550   1,133,550 

For the year ending December 31, 2015 the companyWe recorded stock compensation expense relating to the vesting of stock options and warrants as follows;follows for the years ended December 31, 2020 and 2019;

 

Board compensation expense $15,375 
Stock compensation  315,480 
Stock Option vesting  420,197 
Total $751,034 

F-23

NOTE 18 – LITIGATION

As of December 31, 2015, the Company is not a party to any 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.

  2020  2019 
In thousands        
Stock compensation $-  $388 
Stock Option vesting  709   879 
Total $709  $1,267 

 

NOTE 1915 – RELATED PARTY TRANSACTIONS

 

The Company leasesIn February 2020 we amended the consulting agreement with Mr. Carlos J. Nissensohn, a building from the former ownerprincipal shareholder of BCS for $9,000 per month, which is believed to be the current fair market value of similar buildings in the area. These amounts are included in the lease disclosure schedule, Footnote 9.

In connection with the BCS acquisition the Company has an earn out/royalty receivable from the new ownersand a family member of the BCS RFID business that was sold on November 19, 2014, prior to the acquisition bya Director of the Company. The maximum amount to be paid during the 4 year earn out period ending December 31, 2018 is $700,000. Payments to the company are due within 30 daysterms and condition of the closing of each calendar quarter and the first royalty calculation and payment is due to the company on April 30, 2015. The company recorded the fair market value of this earn out receivable at $350,000contract are as of the acquisition date by the Company. No royalties have been earned and no payments made to or received by the company as of December 31, 2015 and 2014, respectively.follows:

 

As of December 31, 2014, the Company owes $67,000 to an entity controlled by the now CFO for services provided to BCS prior to its acquisition in November 2014. As of December 31, 2015, this amount was $0.

On November 10, 2014, the Company issued 900,000 shares valued at $387,000 to settle $450,000 debt due to a related party. During 2015, these shares were redeemed by the Company.

In December 2014, the Company issued a total of 419,079 shares valued at $159,250 to settle various debts to officers.

During 2015, the Company issued 1,000,000 shares of restricted Common Stock to a note holder, who is also an employee of the Company, pursuant to the Settlement Agreement valued at $357,000 during the third quarter of 2015.

During 2015, the Company redeemed the Series A preferred stock and 3,400,000 common stock options from an employee of the Company, pursuant to the Redemption Agreement valued at $3,120,000, during the fourth quarter of 2015.

●48-month term with 90 day termination notice by the Company
●A monthly fee of $30 thousand.
●If we procure debt financing during the term of Mr. Nissensohn’s agreement, without any equity component, Mr. Nissensohn shall be entitled to 3% of the gross funds raised, however if we are required to pay a success fee to another external entity, then Mr. Nissensohn shall be entitled to only 2% of the gross funds raised.
●In addition to the above, in the event of an equity financing resulting in gross proceeds of at least $3 million to us within 24 months of the date the contract, Mr. Nissensohn shall further be entitled to certain warrants to be granted by us which upon their exercise pursuant to their terms, Mr. Nissensohn shall be entitled to receive OMNIQ shares which represent 3% of the OMNIQ issued share capital immediately prior to the consummation of such investment. The warrants will carry an exercise price per warrant/share representing 100% of the closing price per share as closed in the equity financing. This section and the issue of the warrant by OMNIQ are subject to the approval of the Board of Directors of OMNIQ. However, if the Board does not approve the issuance of warrants; then Mr. Nissensohn will be entitled to a fee with the equivalent value based on a Black Scholes valuation
●In addition to the above, Mr. Nissensohn will be entitled to a $80 thousand one-time payment which shall be paid on the 1st day that the OMNIQ shares become traded on the NASDAQ or NYSE Stock Market within 24 months of the date of the contract
●In addition to the aforementioned, in the event that we close any M&A transaction with a third party target, Mr. Nissensohn shall be entitled to a success fee in the amount equal to 5% of the total transaction price, in any combination of cash and shares that will be determined by OMNIQ

 

Additional related party transactions are discussed in Notes 15 and 17.10.

F-24

 

NOTE 2016 – INCOME TAX

 

Included inFor the current tax provision of $12,454 is state income taxes of $18,037 and included in the deferred benefit for income tax is state income taxes of $122,457.

During the twelve monthsyear ended December 31, 2015,2020, the Company recognized ahas $5 thousand of current income tax benefit of $1,797,977 related to theprovision (US State & Local and Foreign) and no deferred income tax asset true up for items allocated from acquisitions that were not deductible for tax purposes, mainly intangible assets.provision.

 

The tax effect of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows atas of December 31, 2015:

 

Deferred tax assets Current  Long-Term 
Reserves and deferred revenue $160,545  $- 
Stock options and other  -   82,152 
Net operating loss      986,999 
Total gross deferred tax assets  160,545   1,069,151 
         
Deferred tax liabilities  -   - 
Amortization of intangible assets and depreciation  -   (653,156)
         
Net deferred tax assets $160,545  $433,995 

In thousands      
Deferred tax assets 2020  2019 
Reserves and deferred revenue $258  $238 
163(J) Limitation  1,446   664 
Stock options  -   - 
Net operating loss  7,240   5,319 
Total gross deferred tax assets  8,944   6,221 
Less: Valuation Allowance  (8,325)  (5,414)
Net deferred tax assets  619   807 
         
Deferred tax liabilities        
Amortization of intangible assets and depreciation  (619)  (807)
Total deferred tax liabilities  (619)  (807)
         
Net deferred tax assets $-  $- 

Components of net deferred tax assets, including a valuation allowance, are as follows atas of December 31:

 

 December 31, 
 2015 2014  2020 2019 
Deferred tax assets $2,440,391  $3,937,627  $8,325  $5,414 
Valuation allowance  (1,845,851)  (2,638,210)  (8,325)  (5,414)
Total deferred tax assets $594,542  $1,299,417  $-  $- 

 

The valuation allowance for deferred tax assets as of December 31, 20152020 and 20142019 was $1,845,850$8.3 million and $2,638,210,$5.4 million, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.. Asassessment. Management has recorded a 100% Valuation Allowance, against its Net Deferred Tax Assets, since Management believes it is more likely than not that it will not be realized at the Company continues its integration processdate of Quest Marketing and BCS, thethis statement. The Company will continue to monitor the potential utilization of this asset. Should factors and evidence change to aid in this assessment, a potential adjustment to the valuation allowance in future periods may occur. The Company records any penalties and interest as a component of operating expenses.

 

Reconciliation between the statutory rate and the effective tax rate in 2014 was an effective rate of 130% vs 34% statutory rate for recognition of NOL benefits. The reconciliation between statutory rate and effective rate is as follows atas of December 31, 2015:2020 and 2019:

 

Federal statutory tax rate(34.0)%
State taxes4.81%
Nondeductible items(1.53)%
Change in valuation allowance25.24%
Return to provision adjustments(5.65)%
Effective tax rate56.87%
  2020  2019 
Federal statutory tax rate  21%  21.0%
State taxes  4.42%  1.41%
Foreign income taxes  -%  -%
Nondeductible items  (1.89)%  (11.52)%
Acquisition accounting adjustments  -%  -%
Change in valuation allowance  (29.71)%  13.48%
Return to provision adjustments  1.66%  (25.33)%
Rate Change  4.03%  -%
Other  .44%  0.56%
         
Effective tax rate  (.06)%  (0.40)%

 

The Company reported no uncertain tax liability as of December 31, 20152020 and expects no significant change to the uncertain tax liability over the next twelve months. The Company’s 2012, 20132014, 2015, 2016, 2017, and 20142018 federal and state income tax returns are open for examination by the applicable governmental authorities.

As  of December 31, 2015,2019, the Company had a net operating loss (NOL) carryforward of approximately $15,151,000.$22.1 million. The NOL carryforward begins to expire in 2024. Under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC Section 382”), a corporation that undergoes an “ownership change” is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules and aggregation rules which combine unrelated shareholders that do not individually own 5% or more of the corporation’s stock into one or more “public groups” that may be treated as 5-percent shareholder) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). In general, the annual use limitation equals the aggregate value of common stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The Company has not completed a study as to whether there is a 382 limitation on its NOLs that will limit or possibly eliminate the use of its NOLs in the future. Company’s Management has recorded a 100% valuation allowance on the entire NOL as it believes that it is more likely than not that the deferred tax asset associated with the NOLs will not be realized regardless of whether or not an “ownership change” has occurred.

F-25

 

NOTE 2117 – SUBSEQUENT EVENTS

 

The board of directors has approved the creation of a Series C Preferred Stock which will carry a $1.00 per share value and convertible into common stock at $1.00 per share. The Company intends to workIn accordance with debt holders for them to convert their debt into the Series C Preferred Stock. The Series C Preferred stock will be redeemable at the option of the Board and will carry a 6% dividend. The Company intends to have at least $4,000,000 of debt converted into the Series C Preferred during the second quarter of fiscal 2016.

The Company plans to repurchase at least 4,500,000 shares of common stock (including the 900,000 shares acquired on December 31, 2015 with the Thomet settlement) through the end of 2016. It is anticipated that the completion of this will be completed before the end of Q3 2016. The company is repurchasing these shares to create the Company’s Employee Stock Purchase Plan (“ESPP”) and to reduce the issued and outstanding shares of the Company. The ESPP will allow all employees to purchase shares of stock directly from the Company and eventually directly from the market. The Company has begun the launch of this program in the United States and will be launching soon with its Canada operations. The Company intends for this process to be non-dilutive to shareholders.

On March 24, 2016 ASC 855, “Subsequent Events”, the Company converted by negotiated settlement a $1,598,423 CDN ($1,150,864 USD) past due and outstanding trade payable into a 14 month commercial promissory note due May 31, 2017. Monthly payments are structuredhas evaluated all subsequent events through the date of this filing. No other significant events have occurred besides the events disclosed in the Notes to the cash flow cycles ofFinancial Statements.

EXHIBIT INDEX—we will update the business ranging from $56,667 CDN to $130,000 CDN per month ($40,800 USD to $93,600 USD per month.) The monthly installments under this note total $1,568,422 CDN and the final $30,000 balance will be forgiven if all monthly payments have been timely made under this commercial note agreement.exhibit index

The company has reviewed all relevant data and other than above, no material subsequent items have occurred.

F-26

EXHIBIT INDEX

 

Exhibit No. Description
   
(a)Exhibits.
3.1 Series A Preferred StockForm of Certificate of Designation,Amendment to the Certificate of Incorporation, as amended, dated November 18, 2019 incorporated by reference to Exhibit 43.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on May 6, 2004, Commission File No. 000-09047November 18, 2019.
   
3.2 Certificate of Amendment of theto Certificate of Designation of Series AC Preferred Stock of Quest Solution, Inc.,on June 17, 2016, incorporated by reference to Exhibit 3.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on February 27, 2015, Commission File No. 000-09047June 21, 2016.
   
3.3 Form of Certificate of DesignationAmendment to the Certificate of Series B Preferred StockIncorporation, as amended, of Quest Solution, Inc.OMNIQ Corp., dated September 30, 2020, incorporated by reference to Exhibit 3.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on November 10, 2015, Commission File No. 000-09047October 2, 2020.
   
4.1 Zicman$12,492,136.51 Secured Promissory Note, dated January 18, 2014, incorporated by referencefrom Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to Exhibit 16.3 to the Registrant’s Current Report on Form 8-K, filed on January 14, 2014, Commission File No. 000-09047
4.2Marin Secured Subordinated Convertible Promissory Note, dated November 21, 2014,ScanSource, Inc., incorporated by reference to Exhibit 4.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on November 28, 2014, Commission File No. 000-09047July 22, 2016.
4.2*Description of Securities
   
4.3 Amendment to$483,173.60 CAD Secured Subordinated Convertible Promissory Note, dated as of December 31, 2014 entered into byfrom Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and between Questtheir subsidiaries and/or affiliates, jointly and David Marin,severally, to ScanSource, Inc., incorporated by reference to Exhibit 99.64.2 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on January 7, 2015, Commission File No. 000-09047July 22, 2016.
   
4.4 Second Amendment to Secured Subordinated Convertible Promissory Note, by and between Quest Solution, Inc. and David Marin,Form of Warrant, incorporated by referencereferenced to Exhibit 4.44.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on November 10, 2015, Commission File No. 000-09047April 9, 2019.
   
4.5 Thomet Amended and Restated Secured Subordinated Convertible Promissory Note, dated November 21, 2014,Form of Placement Agent Warrant, incorporated by reference to Exhibit 4.2 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on November 28, 2014, Commission File No. 000-09047
4.6Thomet Amended and Restated Secured Subordinated Promissory Note, dated November 21, 2014, incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
4.7Amendment to Amended and Restated Secured Subordinated Convertible Promissory Note dated as of December 31, 2014 entered into by and between Quest Solution, Inc. and Kurt Thomet, incorporated by reference to Exhibit 99.5 to the Registrant’s Current Report on Form 8-K, filed on January 7, 2015, Commission File No. 000-09047
4.8Zicman Amended and Restated Secured Subordinated Convertible Promissory Note, dated November 21, 2014, incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
4.9Zicman Amended and Restated Secured Subordinated Promissory Note, dated November 21, 2014, incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
4.10Amendment to Amended and Restated Secured Subordinated Convertible Promissory Note dated as of December 31, 2014 entered into by and between Quest Solution, Inc. and George Zicman, incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K, filed on January 7, 2015, Commission File No. 000-09047

19

4.11$1,000,000 Subordinated Promissory Note, dated October 1, 2015, from Quest Solution, Inc. to Viascan Group, Inc., incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
4.12$500,000 Subordinated Promissory Note, dated October 1, 2015, from Quest Solution, Inc. to Viascan Group, Inc., incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
4.13$3,120,000 Secured Subordinated Convertible Promissory Note, from Quest Solution, Inc. to Jason F. Griffith, incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047April 9, 2019.
   
10.1 Share Purchase Agreement, dated January 1, 2014, byFactoring and among Amerigo Energy, Inc., Quest Solution, Inc. and Quest Solution, Inc. shareholders, incorporated by reference to Exhibit 16.2 to the Registrant’s Current Report on Form 8-K, filed on January 14, 2014, Commission File No. 000-09047
10.2Stock Purchase Agreement, dated November 17, 2014, by and among Quest Solution, Inc., Bar Code Specialties, Inc., and David Marin, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
10.3*Ross Employment Contract, dated November 20, 2014, incorporated by reference to Exhibit 4.6 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
10.4*First Amendment to Employment Agreement of Scot Ross, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 1, 2015, Commission File No. 000-09047
10.5*Griffith Employment Contract, dated November 20, 2014, incorporated by reference to Exhibit 4.7 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
10.6*First Amendment to Employment Agreement of Jason Griffith, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 1, 2015, Commission File No. 000-09047
10.7*Miller Employment Agreement, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on May 1, 2015, Commission File No. 000-09047
10.8*First Amendment to Employment Agreement, by and between Quest Solution, Inc. and Thomas O. Miller, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on September 3, 2015, Commission File No. 000-09047
10.9*Second Amendment to Employment Agreement, by and between Question Solution, Inc. and Thomas O. Miller, incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
10.10*Employment Agreement, by and between Quest Solution, Inc. and Gilles Gaudreault, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
10.11*Employment Agreement, by and between Quest Solution, Inc. and Jean-Paul Chartier, incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047

20

10.12*Employment Agreement, by and between Quest Solution, Inc. and Denis Kurdi, incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
10.13*Employment Agreement, by and between Quest Solution, Inc. and Bertrand Martelle, incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
10.14Omnibus Settlement Agreement, by and between Quest Solution, Inc. and Kurt Thomet, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on September 3, 2015, Commission File No. 000-09047
10.15First Amendment to Omnibus Settlement Agreement, by and between Quest Solution, Inc. and Kurt Thomet, incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047
10.16Security Agreement, dated November 21, 2014, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
10.17Security Agreement, dated November 21, 2014, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on November 28, 2014, Commission File No. 000-09047
10.18Credit Agreement dated December 31, 2014 by and among Quest Solution, Inc., Quest Marketing, Inc., Bar Code Specialties, Inc., and Wells Fargo Bank,Action Capital Corporation, incorporated by reference to Exhibit 99.110.1 to the Registrant’sCompany’s Current Report on Form 8-K, filed with the SEC on JanuaryJuly 8, 2016.
10.2Pledge and Security Agreement, by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 8, 2016.
10.3Security Agreement, by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc., incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on July 8, 2016.
10.4Warrant issued to David and Kathy Marin dated February 28, 2018, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed with the SEC on March 1, 2018.
10.5Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2016.
10.6Universal Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2016.
10.7Separation Agreement and General Release by and between Quest Solution, Inc. and Jason Griffith, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 26, 2016.
10.8Separation Agreement and General Release by and between Quest Solution, Inc. and Scot Ross, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2016.
10.9Redemption Agreement by and among Quest Solution, Inc., Danis Kurdi and 3587967 Canada, Inc. dated November 30, 2016, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 6, 2016.
10.10Exchange and Transfer Agreement, by and among Viascan Group. Inc., Quest Solution, Inc. and Quest Exchange Ltd. dated November 30, 2016, incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 6, 2016.
10.11Employment Agreement by and between the Company and Shai Lustgarten dated February 17, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 6, 2017.
10.12Modification Agreement by and between the Company and Shai Lustgarten dated February 17, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 6, 2017.
10.13Resignation Agreement by and between the Company and Tom Miller dated July 7, 2015, Commission File No. 000-090472017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 12, 2017.
10.14Consulting Agreement by and between the Company and Carlos J Nissensohn dated August 2, 2017 incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2017.
10.15Consulting Agreement by and between the Company and YES-IF dated September 8, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2017.
10.16Termination Agreement by and between the Company and Joey Trombino dated September 29, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2017.
10.17Employment Agreement by and between the Company and Benjamin Kemper dated October 2, 2017, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2017.
10.18Settlement Agreement dated February 28, 2018 by and between the Company and David and Kathy Marin (the “Marin Settlement Agreement I”), incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2018.
   
10.19 First Amendment to Credit

Settlement Agreement dated June 24, 2015,February 28, 2018 by and among Quest Solution, Inc.,between the BorrowersCompany and the Lender,Kurt Thomet, incorporated by reference to Exhibit 10.110.3 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on June 30, 2015, Commission File No. 000-09047March 1, 2018.

   
10.20 Continuing GuarantySettlement Agreement dated December 31, 2014February 28, 2018 by Quest Solution, Inc. in favor of Wells Fargo Bank,and between the Company and George Zicman., incorporated by reference to Exhibit 99.210.4 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on January 7, 2015, Commission File No. 000-09047March 1, 2018.
   
10.21 SecurityVoting Agreement dated December 31, 2014February 28, 2018 by and among Quest Solution Inc., Quest Marketing, Inc., Bar Code Specialties, Inc.between the Company and Wells Fargo Bank,David and Kathy Marin, incorporated by reference to Exhibit 99.310.5 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on January 7, 2015, Commission File No. 000-09047March 1, 2018.
   
10.22 Sale of Accounts and SecurityVoting Agreement dated February 28, 2018 by and among Quest Marketing, Inc., Bar Code Specialties, Inc.between the Company and Faunus Group International, Inc.,Kurt Thomet, incorporated by reference to Exhibit 10.110.6 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047March 1, 2018.
   
10.23 AcquisitionVoting Agreement dated February 28, 2018 by and amongbetween the Quest Solution, Inc., Quest Exchange, Ltd., Viascan Group, Inc.Company and ViascanQData,George Zicman, incorporated by reference to Exhibit 10.210.7 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047March 1, 2018.
 10.24Employment Agreement by and between the Company and David Marin dated February 28, 2018. 2018 Equity Incentive Plan incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2018.
   
2131
 

 

10.2410.25 Exchangeable Share SupportSettlement Agreement between Quest Solution, Inc. and Quest Exchange, Ltd. ,with Jason Griffith, dated June 7, 2018, incorporated by reference to Exhibit 10.310.1 to the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047
10.25Voting Exchange Agreement, by and among the Quest Solution, Inc., Quest Exchange, Ltd., Viascan Group, Inc. and ViascanQData, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed on November 10, 2015, Commission File No. 000-09047June 7, 2018.
   
10.26 Notice and Offer of Settlement under Amended and Restated Secured Subordinated Convertible Promissory Note, by and between Quest Solution,Amendment to Security Agreement with ScanSource, Inc. and George Zicman,dated September 7, 2018, incorporated by reference to Exhibit 10.10 to10.1 of the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047September 20, 2018.
   
10.27 Stock RedemptionAmendment to Pledge and Security Agreement by and between Quest Solution,with ScanSource, Inc. and Jason F. Griffith,dated September 7, 2018, incorporated by reference to Exhibit 10.11 to10.2 of the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047September 20, 2018.
   
10.28 SecurityPrepayment Agreement by and between Quest Solution,with ScanSource, Inc. and Jason F. Griffith,dated September 7, 2018, incorporated by reference to Exhibit 10.12 to10.3 of the Registrant’sCompany’s Current Report on Form 8-K filed with the SEC on November 10, 2015, Commission File No. 000-09047September 20, 2018.
   
21.110.29Amendment #9 to Trade Credit Extension Letter with ScanSource, Inc. dated September 7, 2018, incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on September 20, 2018.
10.30Amendment #6 to Secured Promissory Note with ScanSource, Inc. dated September 7, 2018 (the “Modified Note”), incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on September 20, 2018.
10.31HTS Purchase Agreement, dated October 5, 2018, by and between the Company, Walefar Investments, Ltd. and Campbeltown Consulting, Ltd. incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2018.
10.32Convertible Promissory Note issued to Walefar Investments, Ltd. and Campbeltown Consulting, Ltd., incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2018.
10.33Form of Securities Purchase Agreement, dated April 4, 2019, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2019.
10.34Letter Agreement with Shai Lustgarten, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.
10.35Letter Agreement with Carlos J. Nissensohn, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.
10.36Neev Nissenson Employment Agreement, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.
10.37Asset Purchase Agreement, dated February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.
10.38Shai Lustgarten Employment Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

10.39

 

SubsidiariesConsulting Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.3 to the RegistrantCompany’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

   
23.110.40 Consent of RBSM LLP, Independent Registered Public Accounting FirmAsset Purchase Agreement on February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.
10.41Employment Agreement with Shai Lustgarten on September, 2019, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.
   
31.110.42 Consulting Agreement with Carlos J. Nissensohn on September, 2019, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.
10.432020 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 4, 2020.
21.1*Subsidiaries of the Registrant
23.1*Consent of Independent Registered Public Accounting Firm
31.1*Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.231.2* Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.132.1* Certification of Principalour Chief Executive Officer and PrincipalChief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (18 U.S.C. Section 1350)

 

* Indicates management compensatory plan, contract or arrangement.Filed herewith.

ITEM 16. NONE.

 

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