UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~September 30, 2017~~March 31, 2021

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ~~from to~~from________ to__________

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 or organization)

(I.R.S. Employer

~~incorporation or organization)~~

Identification No.)

~~860 Conger Street~~1865 West 2100 South

~~Eugene, OR 97402~~Salt Lake City, UT 84119

(Address of principal executive offices) (Zip Code)

~~(714) 899-4800~~(801) 244-9577

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

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~~Yes [X] NONo [ ]

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, 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~~Yes [X] NONo [ ]

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,” “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	[ ]		Smaller reporting company	[X]
(Do not check if a smaller reporting company)	~~[ ]~~	~~Smaller reporting company~~	~~[X]~~

Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~Yes [ ] NONo [X]

~~APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:~~

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [ ] NO [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: ~~36,778,579~~4,886,923 shares of common stock, $0.001 par value, as of ~~November 16, 2017~~.May 13, 2021.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	F-1
CONDENSED CONSOLIDATED BALANCE SHEETS AT ~~SEPTEMBER 30, 2017~~MARCH 31, 2021 AND DECEMBER 31, ~~2016,~~2020, (UNAUDITED)	F-1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2021 AND ~~2016,~~2020, (UNAUDITED)	F-2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AT MARCH 31, 2021 AND DECEMBER 31, 2020, (UNAUDITED)	F-3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2021 AND ~~2016,~~2020, (UNAUDITED)	~~F-3~~F-4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	~~F-4~~F-5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7
ITEM 4. CONTROLS AND PROCEDURES	7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.	8
ITEM 1A. RISK FACTORS.	8
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~PROCEEDS.	8
ITEM 3. DEFAULTS UPON SENIOR ~~SECURITIES.~~SECURITIES.	89
ITEM 4. MINE SAFETY DISCLOSURES.	89
ITEM 5. OTHER INFORMATION.	89
ITEM 6. EXHIBITS.	89
SIGNATURES	910

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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.

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 Quarterly Report on Form 10-Q, those 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 limited to, the 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;

	●	competitive pressures;

	●	general economic 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 “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~QUEST SOLUTION, INC.~~OMNIQ CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

As of
September30, 2017 December 31, 2016
ASSETS
Current assets
Cash $ 260,642 $ 289,480
Restricted Cash 684,610 665,220
Accounts receivable, net (Note 5) 8,271,965 10,589,677
Inventory, net (Note 6) 746,894 531,593
Prepaid expenses 281,215 272,926
Other current assets 183,347 772,966
Total current assets 10,428,673 13,121,862

Fixed assets, net (Note 7) 98,918 136,835
Goodwill 10,114,164 10,114,164
Trade name, net 2,503,731 2,936,481
Customer Relationships, net 5,592,116 6,435,652
Other assets 41,613 47,563

Total assets $ 28,779,215 $ 32,792,557

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 13,558,337 $ 10,566,066
Accrued interest on note payable 33,428 -
Line of credit (Note 10) 3,677,661 5,059,292
Advances, related party 100,000 100,000
Accrued payroll and sales tax 1,571,821 1,829,934
Deferred revenue, net (Note 9) 830,903 879,026
Current portion of note payable (Note 11) 5,229,496 9,782,925
Other current liabilities (Note 8) 238,700 227,932
Total current liabilities 25,240,346 28,445,175

Long term liabilities
Note payable, related party (Note 12) 17,515,345 17,515,345
Accrued interest, related party 1,121,818 629,238
Long term portion of note payable (Note 11) 130,294 130,294
Deferred revenue, net (Note 9) 418,128 565,423
Other long term liabilities (Note 8) 415,397 332,270
Total liabilities 44,841,328 47,617,745

Stockholders’ (deficit)
Series A Preferred stock; $0.001 par value; 1,000,000 shares designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively. - -
Series B Preferred stock; $0.001 par value; 1 share designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively. - -
Series C Preferred stock; $0.001 par value; 15,000,000 shares designated, 3,143,530 shares outstanding as of September 30, 2017 and December 31, 2016, respectively, liquidation preference of $1.00 per share and a cumulative dividend of $0.06 per share. 3,144 3,144
Common stock; $0.001 par value; 100,000,000 shares designated, 36,157,422 and 35,095,763 shares outstanding of September 30, 2017 and December 31, 2016, respectively. 36,157 35,095
Common stock to be repurchased by the Company (230,490 ) (230,490 )
Additional paid-in capital 18,887,852 18,302,262
Accumulated (deficit) (34,758,776 ) (32,935,199 )
Total stockholders’ (deficit) (16,062,113 ) (14,825,188 )
Total liabilities and stockholders’ (deficit) $ 28,779,215 $ 32,792,557

(In thousands, except share and per share data)	As of
	31-Mar-21			31-Dec-20

ASSETS
Current assets
Cash and cash equivalents	$	2,669		$	4,594
Accounts receivable, net		11,428			9,661
Inventory		2,347			1,507
Prepaid expenses		634			670
Other current assets		12			10
Total current assets		17,090		$	16,442

Property and equipment, net of accumulated depreciation of $642 and $600, respectively		248			289
Goodwill		14,695			14,695
Trade name, net of accumulated amortization of $3,464 and $3,362, respectively		927			1,028
Customer relationships, net of accumulated amortization of $8,456 and $8,111, respectively		4,133			4,479
Other intangibles, net of accumulated amortization of $415 and $382, respectively		1,008			1,042
Restricted Cash		-			533
Right of use lease asset		69			76
Other assets		42			74
Total assets	$	38,212		$	38,658

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	34,074		$	26,811
Line of credit		-			4,914
Accrued payroll and sales tax		1,364			1,717
Notes payable, related parties – current portion		390			433
Notes payable – current portion		6,449			6,449
Lease liability – current portion		32			31
Other current liabilities		1,380			1,412
Total current liabilities		43,689			41,767

Long term liabilities
Notes payable, related party, less current portion		585			683
Accrued interest and accrued liabilities, related party		59			56
Notes payable, less current portion		-			1
Lease liability		40			48
Other long-term liabilities		1,178			1,146
Total liabilities		45,551			43,701

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 shares issued and outstanding, respectively		2			2
Common stock; $0.001 par value; 15,000,000 shares authorized; 4,716,218 and 4,684,736 shares issued and outstanding, respectively.		5			5
Additional paid-in capital		52,819			51,842
Accumulated (deficit)		(60,104	)		(56,726	)
Accumulated other comprehensive loss		(61	)		(166	)
Total stockholders’ equity (deficit)		(7,339	)		(5,043	)
Total liabilities and stockholders’ equity (deficit)	$	38,212		$	38,658

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

F-1

~~QUEST SOLUTION, INC.~~OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

For the three months For the nine months
ending September 30, ending September 30,
2017 2016 2017 2016
Revenues
Gross Sales $ 13,311,109 $ 13,841,279 $ 41,594,938 $ 44,288,975
Less sales returns, discounts, & allowances (347,055 ) (277,128 ) (708,184 ) (849,256 )
Total Revenues 12,964,054 13,564,151 40,886,754 43,439,719

Cost of goods sold
Cost of goods sold 10,132,067 10,910,089 32,263,124 34,648,909
Total costs of goods sold 10,132,067 10,910,089 32,263,124 34,648,909

Gross profit 2,831,987 2,654,062 8,623,630 8,790,810

Operating expenses
General and administrative 481,287 505,903 1,308,395 1,571,102
Salary and employee benefits 2,258,873 1,871,610 6,045,564 6,471,563
Depreciation and amortization 440,433 442,428 1,324,345 1,347,077
Professional fees 209,086 192,814 450,509 603,190
Total operating expenses 3,389,679 3,012,755 9,128,813 9,992,932

Income (loss) from operations (557,692 ) (358,693 ) (505,183 ) (1,202,122 )

Other income (expenses):
Restructuring expenses - (84,317 ) (26,880 ) (544,941 )
Gain on foreign currency - (90,215 ) - 129,589
Write-off of other assets (450,000 ) (450,000 )
Interest expense (343,092 ) (1,110,804 ) (1,075,147 ) (2,802,980 )
Other (expenses) income 13,202 3,065 16,122 6,871
Total other expenses (329,890 ) (1,732,271 ) (1,085,905 ) (3,661,461 )

Net Loss Before Income Taxes (887,582 ) (2,090,964 ) (1,591,088 ) (4,863,583 )

Provision for Income Taxes
Deferred - - - -
Current (15,300 ) (376,326 ) (91,409 ) (491,254 )
Total Provision for Income Taxes (15,300 ) (376,326 ) (91,409 ) (491,254 )

Net loss from continuing operations $ (902,882 ) $ (2,467,290 ) $ (1,682,497 ) $ (5,354,837 )

Net loss from discontinued operations - (3,919,175 ) - (6,851,875 )

Net Loss attributable to Quest Solution Inc. $ (902,882 ) $ (6,386,465 ) $ (1,682,497 ) $ (12,206,712

Other Comprehensive Loss
Foreign Currency Adjustments 120,333 (361,744 )

Net Loss attributable to Quest Solution Inc. $ (902,882 ) $ (6,266,132 ) $ (1,682,497 ) $ (12,568,456 )
Less: Preferred stock – Series C dividend (47,540 ) (43,968 ) (141,071 ) (62,707 )

Net loss attributable to the common stockholders $ (950,422 ) $ (6,310,100 ) $ (1,823,568 ) $ (12,631,163 )

Net income (loss) per share - basic $ (0.03 ) $ (0.18 ) $ (0.05 ) $ (0.34 )
Net income (loss) per share - diluted $ (0.03 ) $ (0.18 ) $ (0.05 ) $ (0.34 )

Net loss per share from continuing operations - basic $ (0.03 ) $ (0.07 ) $ (0.05 ) $ (0.15 )
Net loss per share from continuing operations - diluted $ (0.03 ) $ (0.07 ) $ (0.05 ) $ (0.15 )

Net loss per share from discontinued operations - basic $ - $ (0.11 ) $ - $ (0.19 )
Net loss per share from discontinued operations - diluted $ - $ (0.11 ) $ - $ (0.19 )

Weighted average number of common shares outstanding - basic 35,812,210 35,762,326 35,587,238 36,506,733
Weighted average number of common shares outstanding - diluted 35,812,210 35,762,326 35,587,238 36,506,733

	For the three months ended
	31-Mar
(In thousands, except share and per share data)	2021			2020
Revenues
Total Revenues	$	19,751		$	13,799

Cost of goods sold
Cost of goods sold		17,115			10,763

Gross profit		2,636			3,036

Operating expenses
Research and development		494			386
Selling, general and administrative		4,438			4,137
Depreciation		43			47
Amortization		525			502
Total operating expenses		5,500			5,072

Income (loss) from operations		(2,864	)		(2,036	)

Other income (expenses):
Interest expense		(589	)		(795	)
Other (expenses) income		110			(42	)
Total other expenses		(479	)		(837	)

Net loss before Income Taxes		(3,343	)		(2,873	)

Provision for Income Taxes
Current		-			-
Total Provision for Income Taxes		-			-

Net loss attributable to OMNIQ Corp.	$	(3,343	)	$	(2,873	)
Less: Preferred stock – Series C dividend		(31	)		(72	)
Net loss attributable to the common stockholders	$	(3,374	)	$	(2,945	)
Foreign currency translation adjustment		105			-
Other comprehensive income (loss)		(3,269	)		(2,945	)

Net loss per share - basic	$	(0.70	)	$	(0.74	)

Net loss per share from continuing operations - basic	$	(0.70	)	$	(0.74	)
Weighted average number of common shares outstanding - basic		4,700,737			3,984,006

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

F-2

OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

	Series C								Additional							Other			Total Stockholders’
	Preferred Stock				Common Stock				Paid-in		Shares		Accumulated			Comprehensive			Equity
(In thousands)	Shares		Amount		Shares		Amount		Capital		Repurchased		Deficit			Income (Loss)			(Deficit)

Balance, December 31, 2019		4,829	$	5		3,960	$	4	$	46,861	$	-	$	(45,063	)	$	1		$	1,808
Dividend on Class C Shares		-		-		-		-		-		-		(72	)		-			(72	)
Accumulated other comprehensive loss		-		-		-		-		-		-		-			(17	)		(17	)
Stock-based compensation – options and warrants		-		-		-		-		190		-		-			-			190
Subscribed common stock						-				440		-		-			-			440
Professional fees – restricted shares		-		-		65		-		354		-		-			-			354
Other misc. items		-		-		-		-		-		-		14			-			14
Net (loss)		-		-		-		-		-		-		(2,873	)		-			(2,873	)
Balance, March 31, 2020		4,829	$	5		4,025	$	4	$	47,845	$	-	$	(47,994	)	$	(16	)	$	(156	)
Balance, December 31, 2020		2,145	$	2		4,685	$	5		51,842	$	-	$	(56,726	)	$	(166	)	$	(5,043	)
Dividend on Class C Shares		-		-		-		-		-		-		(31	)		-			(31	)
ESPP Stock Issuance		-		-		-		-		1		-		-			-			1
Stock-based compensation – options, warrants, issuances		-		-		-		-		786		-		-			-			786
Stock and Warrant issued for services		-		-		25		-		188		-		-			-			188
Exercise of stock options and warrants		-		-		6		-		2		-		-			-			2
Cumulative Translation Adjustment		-		-		-		-		-		-		-			105			105
Other		-		-		-		-		-		-		(4	)		-			(4	)
Net (loss) income		-		-		-		-		-		-		(3,343	)		-			(3,343	)
Balance, March 31, 2021		2,145		2		4,716		5		52,819		0		(60,104	)		(61	)		(7,339	)

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

~~F-2~~ F-3

~~QUEST SOLUTION, INC.~~OMNIQ CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

For the nine months
ending September 30,
2017 2016
Cash flows from continuing operating activities:
Net loss $ (1,682,497 ) $ (5,354,837 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based compensation 565,593 308,079
Debt discount accretion - 860,824
Depreciation and amortization 1,324,345 1,347,077
Interest expense unpaid 105,060
Restructuring expenses 26,880 544,941
Loss on write off of other assets 450,000
Unrealized Foreign Exchange Loss - 42,875
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,317,712 273,516
(Increase) / decrease in prepaid expenses (8,289 ) 10,714
Increase in inventory (215,301) (124,434 )
Increase in accounts payable and accrued liabilities 2,992,271 5,763,282
Increase in accounts payable and accrued liabilities, related party 517,425 297,447
Increase / (decrease) in deferred revenues, net (195,418 ) 89,213
Increase / (decrease) in accrued payroll and sales taxes payable (284,992 ) 264,664
Decrease in other assets 595,569 475,670
Increase / (decrease) in other liabilities (47,186 ) 34,04 1
Net cash provided by operating activities 5,906,112 5,388,132

Cash flows from investing activities:
Decrease in restricted Cash (19,390 ) (76,838 )
Purchase of property and equipment (10,142 ) (16,513 )
Net cash provided by investing activities (29,532 ) (93,351 )

Cash flows from financing activities:
Proceeds (payment) on line of credit (1,381,631 ) 1,234,377
Proceeds (payment) from notes/loans payable (4,629,846 ) (1,971,627 )
Proceeds from shares sold 21,059 -
Share issuance expenses - (41,259 )
Increase in Insurance Note 85,000 -
Net cash (used in) financing activities (5,905,418 ) (778,509 )

Cash used in discontinued operations - (5,017,775 )

Net (decrease) in cash (28,838 ) (501,503 )
Cash, beginning of period 289,480 823,391
Cash, end of period $ 260,642 $ 321,888

Cash paid for interest $ 496,976 $ 1,273,044
Cash paid for taxes $ 34,932 $ 123,581
Supplementary cash flow information:
Stock issued for services $ 65,901 $ 33,675
Stock options issued $ 499,692 $ 274,404

	For the three months ended
	March 31,
(In thousands)	2021			2020
Cash flows from continuing operating activities:
Net loss	$	(3,343	)	$	(2,873	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock based compensation		974			544
Amortization of ROU lease asset		7			13
Depreciation and amortization		568			548
Changes in operating assets and liabilities:
Accounts receivable		(1,767	)		(6,006	)
Prepaid expenses		36			(310	)
Inventory		(840	)		121
Accounts payable and accrued liabilities		7,266			6,186
Accrued interest and accrued liabilities, related party		-			3
Accrued payroll and sales taxes payable		(353	)		731
Other assets		-			54
Lease liability		(7	)		(12	)
Other liabilities		(32	)		(531	)
Net cash (used in) provided by operating activities		2,509			(1,532	)

Cash flows from investing activities:

Other assets		565			24
Purchase of property and equipment		(2	)		(1	)
Net cash provided by investing activities		563			15

Cash flows from financing activities:
Proceeds from ESPP stock issuance		1			-
Proceeds from / (payments on) line of credit		(4,914	)		3,613
Payment on notes/loans payable		(142	)		(390	)
Net cash provided by (used in) financing activities		(5,055	)		3,223

Net increase (decrease) in cash		(1,983	)		1,706
Foreign currency translation adjustment		58
Cash, beginning of period		4,594			1,615
Cash, end of period	$	2,669		$	3,321

Cash paid for interest	$	585		$	601
Cash paid for taxes	$	-		$	-
Supplementary for non-cash flow information:
Stock issued for services	$	188		$	354
Intangible assets acquired in non-cash exchange		-			885
Stock options and warrants issued	$	-		$	190

The accompanying unaudited notes ~~to the financials should be read in conjunction with~~are an integral part of these unaudited condensed consolidated financial statements.

~~QUEST SOLUTION, INC~~

F-4

~~NOTES TO FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~OMNIQ CORP.

~~NOTE 1 – BASIS OF PRESENTATION~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-~~(Unaudited)

~~BASIS~~NOTE 1 – NATURE OF ~~PRESENTATION AND PRINCIPLES OF CONSOLIDATION~~OPERATIONS

~~The interim consolidated financial statements of~~OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc. ~~include~~, together with its wholly owned subsidiaries, referred to herein as “we,” “us,” and “our” (“OMNIQ” or the ~~combined accounts of Quest Marketing, Inc.~~“Company”), ~~an Oregon Corporation, and Quest Exchange Ltd., a Canadian based holding company.~~

~~Divesture of Canadian Operations~~

~~Effective September 30, 2016, the Company sold all of the outstanding shares of Quest Solution Canada Inc., and the consideration received~~ was ~~$1.0 million~~incorporated in ~~cash, which was all collected at June 30, 2017. In addition,~~1973. Since its incorporation, the Company has ~~redeemed 1 share~~been involved in various lines of Preferred Class B Stock and 1,839,030 shares of Preferred Class C Stock of the Company, as well as the accrued dividend of $31,742 thereon. Lastly, Quest Exchange Ltd., a wholly owned subsidiary of the Company, redeemed 5,200,000 exchangeable shares as part of the divestiture.business.

~~Additionally, as part~~From 2008 and to 2013, we were in the business of developing oil and gas reserves. In January 2014, we determined it was in the ~~transaction, Viascan Group Inc.,~~best interest of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue bases. Our strategy developed into leveraging management’s relationships in the ~~acquirer, assumed $1.0 million~~business world for investments for the Company.

Since 2014, we have made the following acquisitions resulting in us becoming a leading provider of ~~liabilities which the Company had at September 30, 2016. Other consideration that is part of the transaction included:~~

computerized and machine vision image processing solutions:

	●	~~Full release from five employment contracts, inclusive of the former CEO, Gilles Gaudreault. This release included cancelation of~~ ~~the contracts as well as the deferred salary and signing bonus provisions which would have inured to the employee.~~
		Quest Solutions, Inc. (January 2014)
	●	~~The Company canceled the intercompany debts of approximately $7.0 million as well. The Company will also receive a contingent~~ ~~consideration of 15% of the net value proceeds, up to a maximum of $2.3 million, receivable upon a liquidity event or a change of~~ ~~control of Quest Solution Canada~~Bar Code Specialties, Inc. ~~for a period of 7 years subsequent to the transaction.~~
		(November 2014)
	●	~~The Company also has a right of first refusal for any offer to purchase Quest Solution Canada Inc. for a 7 year period.~~
		ViascanQdata, Inc (October 2015 – later sold in September 2016)
	●	~~The assets sold consisted primarily of accounts receivable, inventories, property and equipment, and other assets. The buyer also assumed certain accounts payable and accrued liabilities.~~ HTS Image Processing, Inc. (October 2018)
	●	EyepaxIT Consulting LLC. (February 2021)

We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management and access control applications. The ~~operations of Quest Solution Canada Inc. have been classified as a discontinued operation~~technology and ~~the~~services we provide helps our clients move people, assets and ~~liabilities of Quest Solution Canada Inc. have been classified as held for disposal.~~data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments.

~~On December 31, 2016,~~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 merged BCS in Quest Marketing~~knowledge and expertise to ~~form one US legal entity as part~~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 ~~its streamlining efforts.~~best-in-class mobile and wireless equipment.

Our customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage, manufacturing, retail, distribution, transportation and logistics, and oil, gas, and chemicals.

COVID-19

The outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions we operate. Many State Governors issued temporary Executive Orders in 2020, that, among other stipulations, effectively limited in-person work activities for most industries and businesses having the effect of suspending or severely curtailing operations. Many of these orders are in the process of being lifted. To date, we have not incurred any significant interruptions to our day-to-day operations or supply chain, except some of our employees have or are working remotely. In response to the COVID-19 pandemic, we proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety. These measures included the reduction of payroll costs, a reduction in capital expenditures and other discretionary spending, the elimination of most business travel and restriction of visitors to our corporate office, enhanced cleaning and disinfection procedures at our corporate office and branch locations, promotion of social distancing and the wearing of face coverings (masks) at our corporate office and branch locations, and requirements for employees to work from home where possible.

The extent of the ultimate impact of the pandemic on our operational and financial performance will depend on various developments, including the duration and spread of the outbreak, the impact on capital and financial markets, governmental limitations on business operations generally, and its and their impact on potential customers, employees, vendors and distribution partners, all of which cannot be reasonably predicted at this time.

F-5

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. During the three-month period ended March 31, 2021, there were no significant changes to those accounting policies.

Principles of Consolidation and Basis of Presentation

Our unaudited condensed consolidated financial statements include the financial position and results of operations of OMNIQ Corp. and its wholly owned subsidiaries Quest Marketing, Inc., Quest Exchange Ltd., and HTS Image Processing, Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”

All significant intercompany accounts and transactions have been eliminated in these unaudited condensed consolidated financial statements. Business combinations are included in the unaudited condensed consolidated financial statements from their respective dates of acquisition.

We have prepared the interim unaudited condensed consolidated financial statements included herein, ~~presented~~ in accordance with accounting principles generally accepted in the United States ~~generally accepted accounting principles and stated in US dollars, have been prepared by the Company,~~of America, without audit, pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted ~~accounting principles~~in the United States of America have been condensed or omitted pursuant to such rules and regulations, although ~~the Company believes that~~we believe the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with ~~the~~our financial statements ~~of the Company~~ for the year ended December 31, ~~2016~~2020, and notes thereto included in ~~the Company’s~~our Form 10-K filed with the SEC on ~~April 17, 2017.~~March 31, 2021. The Company ~~follows the same accounting policies~~operates in ~~the preparation of interim reports.~~one segment.

Operating results for the three months ended ~~September 30, 2017~~March 31, 2021, are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2017.~~2021.

~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~Use of Estimates

This summary of significant accounting policies of Quest Solution, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who is responsible for the integrity and objectivity of the financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

~~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 September 30, 2017 and December 31, 2016.

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

The Company has restricted cash on deposit with a federally insured bank in the amount of $684,610 at September 30, 2017. This cash is security and collateral for a corporate credit card agreement with a bank and for deposit against a letter of credit issued for executive life insurance policies owned by the Company.

~~F-4~~

~~USE OF ESTIMATES~~

~~The preparation of~~We prepare our unaudited condensed consolidated financial statements in ~~conformity~~accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the ~~reporting~~reported period. ~~Certain accounting policies involve judgments~~These assumptions and ~~uncertainties to such an extent that there is reasonable likelihood that materially different amounts~~estimates could have ~~been reported under different conditions,~~a material effect on our unaudited condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Goodwill and Intangibles

We have made acquisitions in the past that resulted in the recognition of goodwill. Goodwill is the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. We evaluate goodwill for impairment annually or more frequently, if ~~different assumptions had been used.~~triggering events occur or other impairment indicators arise which might impair recoverability.

F-6

Application of the goodwill impairment test requires judgment. We performed a Step 1 quantitative assessment of goodwill impairment as of December 31, 2020, our annual impairment test date. We compared the carrying value inclusive of goodwill and definite-lived intangible assets, to its fair value. We estimated the fair value of these reporting units by weighting results from the income approach and the market approach, as further described in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2020. Based on this quantitative test, we determined there was no impairment as of the December 31, 2020.

For the interim impairment test as of March 31, 2021, we compared the carrying value inclusive of goodwill and definite-lived intangible assets, to its fair value as of the December 31, 2020. The respective fair values exceeded their respective carrying values. 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.

Foreign Currency Translation

Our unaudited condensed consolidated financial statements are presented in U.S. dollars. The functional currency for the Company ~~evaluates~~is U.S. dollars. Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of the transaction. All of our continuing operations are conducted in U.S. dollars except its ~~estimates~~subsidiary located in Israel. The records of the Israeli operation were maintained in the local currency and ~~assumptions on a regular basis. The Company uses historical experience and various other assumptions that are believed~~re-measured to ~~be reasonable under~~ the ~~circumstances to form the basis for making judgments about carrying values of~~functional currency as follows: monetary assets and liabilities ~~that~~ are ~~not readily apparent~~converted using the balance sheet period-end date exchange rate, while the non-monetary assets and liabilities are converted using the historical exchange rate. Expenses and income items are converted using the weighted average exchange rates for the reporting period. Foreign transaction gains and losses are reported on the unaudited condensed consolidated statement of operations and were included in the amount of loss from ~~other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements.~~comprehensive income.

~~PURCHASE ACCOUNTING AND BUSINESS COMBINATIONS~~Net Loss Per Common Share

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the three-months ended March 31, 2021 and 2020 were 4,700,737 and 3,984,006, 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 ~~Company accounts~~following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share because such securities have an anti-dilutive impact due to losses reported as of:

In thousands	March 31, 2021		December 31, 2020
Options to purchase common stock		1,648		1,553
Convertible preferred stock		-		-
Warrants to purchase common stock		1,227		75
Potential shares excluded from diluted net loss per share		2,875		1,628

Purchase Accounting and Business Combinations

We account for ~~its~~our business combinations using the purchase method of accounting which requires that intangible assets be recognized apart from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill.

F-7

The valuation and allocation ~~process relies~~processes rely on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when ~~the Company receives~~we receive updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date.

~~ACCOUNTS RECEIVABLE~~Revenue Recognition.

~~Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to~~When entering into contracts with our customers, we review follow the ~~estimated collection losses that will be incurred~~five steps outline in ~~collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history~~Accounting Standards Codification Topic 606, Revenue from Contracts with customers and their current financial condition. The Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable.

~~PROPERTY AND EQUIPMENT~~Customers (Topic 606):

Property and equipment are stated at purchased cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 15 years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred.

~~INTANGIBLE ASSETS~~

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 10 years. Amortization expense for the period ending September 30, 2017 and December 31, 2016 was $1,276,286 and $1,701,700, respectively.

September 30, 2017 December 31,2016
Goodwill $ 10,114,164 $ 10,114,164
Trade Names 4,390,000 4,390,000
Customer Relationships 9,190,000 9,190,000
Accumulated amortization (5,484,153 ) (4,207,867 )
Intangibles, net $ 18,210,011 $ 19,486,297

~~The future amortization expense on the Trade Names and Customer Relationships are as follows:~~

Years ending December 31,
2017 $ 425,429
2018 1,679,599
2019 1,471,714
2020 1,471,714
2021 1,405,791
Thereafter 1,641,600
Total $ 8,095,847

Goodwill is not amortized, but is evaluated for impairment annually or when indicators of a potential impairment are present. Our 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.

Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives 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 September 30, 2017 and December 31, 2016.

~~ADVERTISING~~

The Company generally expenses advertising costs as incurred. During the nine month periods ending September 30, 2017 and 2016, the Company spent $183,301 and $77,205 on advertising (marketing, trade show and store front expense), net of co-operative rebates, respectively. 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 in the periods they are received.

~~INVENTORY~~

Substantially all inventory consists of raw materials and finished goods and are valued based upon first-in first-out (“FIFO”) cost, not in excess of market. 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 conditions for the specific inventory items.

~~DEPRECIATION AND AMORTIZATION~~

Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions.

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

Fair value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants 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:

	●i.	~~Level 1 - Quoted prices in active markets for identical assets or liabilities.~~Identify the contract with our customer.

	●ii.	~~Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices~~Identify the performance obligations 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.the contract.

	●iii.	~~Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by~~Determine the ~~Company.~~transaction price.

	iv.	Allocate the transaction price to the performance obligations. And

	v.	Evaluate the satisfaction of the performance obligations,

~~Assets~~We account for contracts, with our customers, when we have approval and ~~liabilities~~commitment from both parties, the rights of the parties are ~~classified based~~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 ~~lowest level of input~~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 ~~significant~~a right to a good or service is provided by a manufacturer or supplier, we evaluate whether we control the right to the ~~fair value measurements. The Company reviews~~goods or services before that right is transferred to the ~~fair value hierarchy classification~~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.

F-8

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 ~~quarterly~~net basis. ~~Changes~~

As principal, when (or as) we satisfy a performance obligation, we recognize revenue in the ~~observable inputs may result~~gross amount of consideration which we expect to be entitled in ~~a reclassification of assets and liabilities within~~exchange for the ~~three levels~~specified good or service transferred. We are an agent if our performance obligation is to arrange for the provision of the ~~hierarchy outlined above.~~specified good or service by another party. As an agent, we do not control the specified good or service provided by another party before that good or service is transferred to our customer. As an agent, when (or as) we satisfy a performance obligation, we recognize revenue in the amount of any fee or commission which we expect to be entitled in exchange for arranging for the specified goods or services to be provided by another party to our customer.

Under Topic 606, we recognize revenue (on either a gross or net basis previously discussed) only when we satisfy a performance obligation by transferring a promised good or service to our customer. A good or service is considered to be transferred when the customer obtains control. The standard defines control as an entity’s ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. We recognize revenue (either gross or net) once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer:

	i.	We have a right to payment for the product or service,
	ii.	The customer has legal title to the product,
	iii.	We have transferred physical possession of the product to the customer,
	iv.	The customer has the risk and rewards of ownership of the product, and
	v.	The customer has accepted the product.

Revenue Recognition for Hardware. Revenues from sales of hardware products are recognized on a gross basis as we are acting as a principal in these transactions, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. We recognize revenue from these transactions when control has passed to the customer.

Manufacturers and suppliers, from whom we purchase hardware, often provide their warranties only providing assurance the products and services will conform to their specifications. These assurance type warranties are not sold separately and are not considered separate performance obligations. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. We consider these warranties to be separate performance obligations from the underlying product. For warranties, where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of sale.

Revenue Recognition for Software. Sales of software licenses are generally considered a single performance obligation. When we are considered to be the principal, we recognize revenues on a gross basis at the point the software is delivered to and accepted by our customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect.

~~F-6~~ F-9

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.

~~Liabilities Measured~~Revenue Recognition for Services. We provide professional services, which include project managers and ~~Recorded at Fair Value~~consultants recommending, designing and implementing IT solutions. Revenue from professional services is recognized either on a ~~Recurring Basis~~time and materials basis or proportionally, as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and we transfer those services.

~~The Company measures certain liabilities at fair value~~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 ~~recurring~~gross basis ~~such~~ as ~~our contingent consideration related~~we are acting as a principal in the transaction. Additionally, we manage services team provides project support to ~~business combinations~~customers that are billed on a fixed fee basis. We are acting as the principal in the transaction and ~~recognizes transfers within~~recognize revenue on a gross basis based on the ~~fair value hierarchy at~~total number of hours incurred for the ~~end~~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 ~~fiscal quarter in which~~service to 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 period ending September 30, 2017 or fiscal year ending December 31, 2016.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 ~~has classified its contingent consideration related~~considers shipping to be a fulfillment activity and not a separate performance obligation.

Stock-Based Compensation

We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period.

We record stock-based compensation expense according to the ~~acquisitions as a Level 3 liability. Revenue and other assumptions used~~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 ~~calculation require significant management judgment.~~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 ~~Company reassesses~~fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

We account for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the ~~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 the quarter ending September 30, 2017 and in the fiscal year ended December 31, 2016.

~~As of September 30, 2017 and December 31, 2016, the Company does not have any unrecorded contingent liabilities.~~

~~NET LOSS PER COMMON SHARE~~

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the nine months ended September 30, 2017 and 2016 were 35,587,238 and 36,506,733, 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.

~~Dilutive securities are excluded from the computation of diluted net loss per share because such securities have no anti-dilutive impact due to losses reported.~~

~~GOODWILL~~

~~Goodwill is the excess of the purchase price paid over~~received or 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 itequity instrument issued, whichever 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.~~reliably measurable. The ~~first step of a quantitative goodwill impairment test compares~~measurement date used to determine the fair value of the ~~reporting unit to its carrying amount including goodwill. If~~equity instrument issued is the ~~carrying amount~~earlier of the ~~reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss~~date on which the performance is ~~determined by comparing~~complete or 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.

We test 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 Solution, Inc.~~

~~FOREIGN CURRENCY TRANSLATION~~

The consolidated financial statements of the Company are presented in U.S. dollars. The functional currency for the Company is U.S. dollars. Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of the transaction. All of the Company’s continuing operations are conducted in U.S. dollars. The Company owns a non-operating subsidiary in Canada, fromon which it has received no revenue since October 1, 2016. Canadian records of the divested Canadian operation were maintained in the local currency and re-measured to the functional currency as follows: monetary assets and liabilities are converted using the balance sheet period-end date exchange rate, while the non-monetary assets and liabilities are converted using the historical exchange rate. Expenses and income items are converted using the weighted average exchange rates for the reporting period. Foreign transaction gains and losses are reported on the consolidated statement of operations and were included in the amount of loss from discontinued operations.is probable that performance will occur.

~~F-7~~ F-10

~~RECENT ACCOUNTING PRONOUNCEMENTS~~Recent Accounting Pronouncements

~~In August 2014,~~We have evaluated the FASB issued ASU 2014-15 requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern, which is currently performed by the external auditors. Managementrecent pronouncements and believe their adoption will be required to perform this assessment for both interim and annual reporting periods and must make certain disclosures if it concludes that substantial doubt exists. This ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2016. The adoption of this guidance is not ~~expected to~~ have a material effect on our financial statements.

In May 2014, the FASB issued new revenue recognition guidance under ASU 2014-09 that will supersede the existing revenue recognition guidance under U.S. Generally Accepted Accounting Principles (“GAAP”). The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date by one year (ASU 2015-14). This ASU will now be effective for annual periods,Reclassifications and interim periods within those annual periods, beginning on or after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal versus agent considerations (ASU 2016-08); 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance (ASU 2016-10); 3) rescission of several SEC Staff Announcements that are codified in Topic 605 (ASU 2016-11); and 4) additional guidance and practical expedients in response to identified implementation issues (ASU 2016-12). The new standard will be effective for us beginning January 1, 2018 and we expect to implement the standard with the modified retrospective approach, which recognizes the cumulative effect of application recognized on that date. We are evaluating the impact of adoption on our consolidated results of operations, consolidated financial position and cash flows.

~~In July 2015, the Financial Accounting Standard Board (“FASB”) issued ASU 2015-11 (ASC 330)~~~~, Simplifying the Measurement of Inventory~~. This guidance requires companies to measure inventory using the lower of cost and net realizable value. It is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt ASU 2015-11 as of January 1, 2017 on a prospective basis and there is expected to be no impact of this guidance on its consolidated financial statements.Comparability

~~In November 2015,~~Certain amounts in the ~~FASB issued ASU 2015-17,~~~~Balance Sheet Classification~~financial statements of ~~Deferred Taxes~~, which simplifies the presentation of deferred income taxes. The ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position, thereby simplifyingprior years have been reclassified to conform to the current guidance that requires an entity to separate deferred assets and liabilities into current and noncurrent amounts. The Company early adopted ASU 2015-17 as of January 31, 2016 on a prospective basis. The statement of financial position as of January 31, 2016 reflects the classification of deferred tax assets and liabilities as noncurrent.

~~In February 2016, the FASB issued ASU 2016-02 amending the existing accounting standards~~year presentation for lease accounting and requiring lessees to recognize lease assets and lease liabilities for all leases with lease terms of more than 12 months, including those classified as operating leases. Both the asset and liability will initially be measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S GAAP, the presentation of expenses and cash flows will depend primarily on the classification of the lease as either a finance or an operating lease. The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities.comparative purposes. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and requires modified retrospective application. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 amending several aspects of share-based payment accounting. This guidance requires all excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled, with prospective application required. The guidance also changes the classification of such tax benefits or tax deficiencies on the statement of cash flows from a financing activity to an operating activity, with retrospective or prospective application allowed. Additionally, the guidance requires the classification of employee taxes paid when an employer withholds shares for tax-withholding purposes as a financing activity on the statement of cash flows, with retrospective application required. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

~~In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606):~~~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~(“ASU 2016-08”). ASU 2016-08 does not change the core principle of Topic 606 but clarifies the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for the annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-08 on our consolidated financial statements and results of operations.

~~In June 2016, the FASB issued ASU 2016-13,~~~~Financial Instruments - Credit Losses~~ (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the potential impact of ASU 2016-13 on our consolidated financial statements and results of operations.

~~In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):~~~~Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”). ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in ASU 2016-15 provide guidance on specific cash flow issues including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-15 on our consolidated financial statements and results of operations.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction.

~~In January 2017, the FASB issued ASU 2017-04,~~~~Intangibles – Goodwill and Other (Topic 350)~~ that will eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for the Company in the first quarter of fiscal 2023. Early adoption is permitted. The Company does not anticipate the adoption of this guidance to have a material impact on its consolidated financial statements, absent any goodwill impairment.

~~The Company has evaluated other recent pronouncements and believes that none of them will have a material~~had no effect on ~~the company’s financial statements.~~total assets or net income.

NOTE 23 – GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that ~~the Company~~we 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 acquisitions.~~ As of ~~September 30, 2017, the Company~~March 31, 2021, we had a working capital deficit of ~~$14,811,674~~$26.6 million and an accumulated deficit of ~~$34,758,766.~~$60.1 million. These facts and others raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis to obtain additional debt or equity financing for working capital (i.e., vendor trade credit extensions) or refinancing (restructuring of subordinated debt) as may be required and, ultimately, to attain profitable operations. Management is focused on reducing operating expenses. basis.

Management’s ~~plans~~plan to eliminate the going concern situation ~~include,~~includes, but ~~are~~is not limited to, the raise of additional capital through the issuance of debt and equity, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines. One initiative to reduce operating expense and start the path to attaining profitability was the sale of Quest Solution Canada Inc. primarily because it had incurred significant operating losses and negative cash flow. In order to mitigate the risk related with this uncertainty, the Company may issue additional shares of common and preferred stock for cash and services during the next 12 months.following:

	●	The continuation of improving cash flow by maintaining moderate cost reductions (subsequent to aggressive cost reduction actions implemented in previous years);

	●	Increasing the accounts receivable factoring line of credit;

	●	Negotiating lower interest rates on outstanding debt;

	●	Potential issuances of additional common stock;

	●	The creation of additional sales and profits across its product lines, and the obtaining of sufficient financing to restructure current debt in a manner more in line with the Company’s improving cash flow and cost reduction successes;

	●	In our portfolio of products, we have a computer vision technology that is based on AI and machine learning concepts. These solutions have a higher gross profit that will provide an increase in cashflow on a consolidated basis going forward. The Company has an operating facility with the ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit margins;

NOTE 34 – CONCENTRATIONS

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, accounts receivable, and accounts payable. Beginning January 1, 2015, all of our cash balances were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor at each financial institution. This coverage is available at all FDIC member institutions. The Company uses Wells Fargo Bank, which is an FDIC insured institution. The restricted cash in the amount of $684,610 at September 30, 2017 is in excess of the FDIC limit.

For the ~~nine months~~three-months ended March 31, 2021 and the year ~~ending September 30, 2017 and~~ended December 31, ~~2016,~~2020, one customer accounted for ~~16.0%~~35.8% and ~~17.3%~~37.2%, respectively, of the Company’s ~~revenues, respectively.~~consolidated revenues.

Accounts receivable at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 are made up of trade receivables due from customers in the ordinary course of business. ~~One customer~~Two customers made up ~~21.6% and another customer 33.1%~~57.6% of the ~~trade~~ accounts receivable ~~balances~~balance at ~~September 30, 2017~~March 31, 2021 and one customer represented 46% of the balance of accounts receivable at December 31, ~~2016, respectively.~~2020.

F-11

Accounts payable are made up of ~~payables~~amounts due to ~~vendors~~suppliers in the ordinary course of business at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020. One vendor made up ~~86.4%~~89% and ~~76.4%, respectively~~92.4% of ~~the outstanding balance, which represented greater than 10% of~~our accounts payable ~~at September 30, 2017~~on March 31, 2021 and December 31, ~~2016,~~2020, respectively.

NOTE 5 – BUSINESS ACQUISITION

In February 2020, OMNIQ entered in an asset purchase agreement with Eyepax IT Consulting LLC, a California limited liability company, (“Eyepax”) and its principal owners (collectively the “Sellers”), pursuant to which we purchased certain assets from the Sellers at a cash purchase price of $245,000. As additional consideration, the Company issued to the Sellers 80,000 shares of the Company’s common stock and an option to purchase 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share, subject to adjustment, which shall vest quarterly in four (4) equal installments and expire on February 28, 2023. The Company entered into an employment agreement with Mr. Lalith Caldera, a principal owner of Eyepax, agreeing to pay Mr. Caldera an annual salary of $100,000.

NOTE ~~4 –DISCONTINUED OPERATIONS~~6 – ~~DIVESTURE~~CREDIT FACILITIES AND LINE OF ~~QUEST SOLUTION CANADA, INC.~~CREDIT

~~Effective September 30,~~We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us working capital.

In July 2016, we entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation (“Action”) to establish a sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable accounts receivable to Action. Pursuant to the ~~Company sold all~~FASA, the outstanding principal amount of advances made by Action at any time shall not exceed $5.0 million. Action reserves and withholds to 5% of the face amount of each account purchased in a reserve account. As of March 31, 2021 and December 31, 2020, the balance outstanding ~~shares of Quest Solution Canada Inc. The Company decided to sell this division primarily because it has incurred significant operating losses.~~was zero and $4.9 million, respectively.

The ~~consideration received~~annual interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a monthly basis) is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 2.0%, plus a monthly fee equal to 0.75% of the average outstanding balance. we also pay all other costs incurred by Action under the FASA, including all bank fees. The FASA continues in full force and effect unless terminated by either party upon 30 days’ prior written notice. The FASA credit facility is collateralized with a security interest in certain assets of the Company. The FASA includes customary representations and warranties and default provisions for transactions of this type.

NOTE 7 – RELATED PARTY NOTES PAYABLE

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

	March 31, 2021			December 31, 2020
In thousands
Note payable –Marin	$	600		$	660
Note payable –Thomet		375			413

Note payable–Shareholder Convertible Note		-			43
Total notes payable		975			1,116
Less current portion		(390	)		(433	)
Long-term portion	$	585		$	683

Note Payable -Marin

In December 2017, we entered into a $660 thousand, 1.89% annual interest rate note payable (the “Marin Note”) with two individuals from whom we previously acquired their company (in 2014). The Marin Note is payable in 60 monthly principal payments of $20 thousand beginning in October 2018. Accrued interest payable as of March 31, 2021, was ~~$1.0 million~~$56 thousand. Accrued interest is payable at maturity.

F-12

Note Payable – Thomet

In December 2017, we entered into a $750 thousand, zero percent annual interest rate note payable (the “Thomet Note”) with an individual from whom we previously acquired his company (in 2014). The Thomet Note is payable in ~~cash, which~~60 monthly principal payments of $13 thousand beginning in October 2018.

Note Payable – Shareholder Convertible Note

In October 2018, we entered into a $700 thousand, 6% annual interest rate convertible note payable (the “Shareholder Convertible Note”) with Walefar and Campbeltown (collectively the “Holders”), in connection with the HTS Image Processing, Inc. Mr Shai Lustgarten, our Chief executive Officer and Director is the principal shareholder in Walefar. Mr. Carlos J. Nissensohn, a consultant and significant shareholder in OMNIQ, is the principal shareholder in Campbeltown. The Shareholder Convertible Note was ~~all collected~~retired in 2021.

Future maturities of related party notes payable as of March 31, 2021, are as follows:

In thousands

2021		292
2022		390
2023		293
2024		-
Thereafter		-
Total	$	975

F-13

NOTE 8 – OTHER NOTES PAYABLE

Other notes payable at ~~June 30, 2017. In addition,~~March 31, 2021 and December 31, 2020, consists of the following:

(In thousands)	March 31, 2021			December 31, 2020
Note Payable- Supplier	$	6,443		$	6,443

All Other		6			7
Total		6,449			6,450
Less current portion		(6,449	)		(6,449	)
Long Term Notes Payable	$	-		$	1

Note Payable - Supplier

On July 18, 2016, the Company ~~has redeemed~~and the Supplier entered into a certain secured promissory note, with an effective date of July 1, ~~share~~2016, in the principal amount of ~~Preferred Class B Stock~~$12.5 million (the “Secured Promissory Note”). The USD Note accrues interest at 18% per annum and ~~1,839,030 shares~~is payable in six consecutive monthly installments of ~~Preferred Class C Stock~~principal and accrued interest in a minimum principal amount of ~~the Company, as well as the~~$250 thousand each, with any remaining principal and accrued ~~dividend of $31,742 thereon. Lastly, Quest Exchange Ltd., a wholly owned subsidiary of the Company, redeemed 5,200,000 exchangeable shares as part of the divestiture.~~

~~Additionally, as part of the transaction, Viascan Group Inc., the acquirer, assumed $1.0 million of liabilities which the Company had at September 30,~~interest due and payable on December 31, 2016. ~~Other consideration that was part of the transaction included:~~

	●	~~Full release from five employment contracts, inclusive of~~On September 7, 2018, the ~~former CEO, Gilles Gaudreault. This release included cancelation of the contracts as well as the deferred salary and signing bonus provisions which would have inured~~Company entered into a Sixth Amendment to the ~~employee.~~Secured Promissory Note (the “Sixth Amendment”) extending the maturity date to January 31, 2019. The Sixth Amendment also increases the principal amount to $8.7 million, an increase of $6.8 million, by rolling the Company’s then existing and outstanding accounts payable into the note by the previously mentioned amount of increase. The Company will continue to make monthly payments in the amount of $300 thousand for the first three monthly payments, and also in the amount of $500 thousand for the last two monthly payments prior to the note’s maturity.

	●	On April 30, 2019, the Company entered into a Seventh Amendment to the Secured Promissory Note (the “Seventh Amendment”) extending the maturity date to July 31, 2019. The Seventh Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest in a minimum principal amount of $350 thousand each. The Company ~~canceled~~has made partial payments towards the ~~intercompany debts of approximately $7.0 million as well. The Company will also receive a contingent consideration of 15%~~required monthly installments under the terms of the ~~net value proceeds, up~~Seventh Amendment. As has been the case with each previous amendment, the Company is in continual negotiations with the holder of the Secured Promissory Note to extend the maturity date and establish a ~~maximum~~new schedule of ~~$2.3 million, receivable upon a liquidity event or a change of control of Quest Solution Canada Inc. for a period of 7 years subsequent to the transaction.~~

	●	~~The Company also has a right of first refusal for any offer to purchase Quest Solution Canada Inc. for a 7 year period.~~

	●	~~The assets sold consisted primarily of accounts receivable, inventories, property and equipment, and other assets. The buyer also assumed certain accounts payable and accrued liabilities.~~payments.

On September 30, 2016, the Company divested its Canadian operations, Quest Solution Canada, Inc., in order to focus its efforts and resources on its US operations. This represented a strategic shift that had a major effect on the Company’s operations and financial results.

F-14

Accordingly, the assets and liabilities, operating results, and operating and investing activities cash flows for the former Canadian operations are presented as a discontinued operation separate from the Company’s continuing operations, for all periods presented in these consolidated financial statements and footnotes, unless indicated otherwise.

The following is a reconciliation of the major line items constituting pretax loss of discontinued operations to the after-tax loss of discontinued operations that are presented in the condensed consolidated statements of operations as indicated below:

For the three months For the nine months
ending
September 30, 2016 Ending
September 30, 2016

Revenues $ 3,911,501 $ 11,326,849
Cost of goods sold (3,988,733 ) (9,751,651 )
Gross profit (77,232 ) 1,575,198

Operating expenses
General and administrative (315,088 ) (874,506 )
Salary and employee benefits (689,118 ) (2,074,977 )
Depreciation and amortization (61,076 ) (178,069 )
Professional fees (21,387 ) (58,138 )
Goodwill impairment (2,500,000 ) (4,800,000 )
Total operating expenses (3,586,669 ) (7,985,690 )

Operating loss (3,663,901 ) (6,410,492 )

Other income (expenses):
Restructuring expenses - (108,640 )
Gain (loss) on foreign currency (155,548 ) 117,138
Interest expense (86,617 ) (443,019 )
Other (expenses) income 23 129
Total other income (expenses) (242,142 ) (434,392 )

Net Loss Before Income Taxes (3,906,043 ) (6,844,884 )

Provision for Current Income Taxes (13,132 ) (6,991 )

Net Loss from discontinued operations $ (3,919,175 ) $ (6,851,875 )

~~The major classes of assets and liabilities of Quest Solution Canada Inc. were classified as held for disposal as at September 30, 2016, as follows:~~

As at
September30, 2016
ASSETS
Current assets
Cash $ (42,013 )
Accounts receivable, net 2,302,399
Inventory, net 1,832,631
Prepaid expenses 97,990
Other current assets 24,858
Total current assets 4,215,865

Fixed assets 1,097,248
Goodwill 6,337,860

Total assets $ 11,650,973

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 3,205,449
Line of credit -
Accrued payroll and sales tax 329,874
Deferred revenue, net 99,905
Notes payable, related parties, current portion 1,841,297
Other current liabilities 114,265
Total current liabilities 5,590,790

Long term liabilities
Other long term liabilities 7,553
Total liabilities $ 5,598,343

Net Assets held for disposal $ 6,052,630

~~The net cash flows incurred by Quest Solution Canada Inc. for the nine months ended September 30, 2016 are presented below:~~

For the nine months
ending
September 30, 2016

Net cash provided by operating activities $ (1,743,606 )

Net cash provided in investing activities 16,097

Net cash used in financing activities (3,290,266 )

Net Cash Outflow from discontinued operations $ (5,017,775 )

~~NOTE 5 – ACCOUNTS RECEIVABLE~~

~~At September 30, 2017 and December 31, 2016, accounts receivable consisted of the following:~~

September30, 2017 December 31, 2016
Trade Accounts Receivable $ 8,284,466 $ 10,607,378
Less Allowance for doubtful accounts (12,501 ) (17,701 )
Total Accounts Receivable (net) $ 8,271,965 $ 10,589,677

~~NOTE 6 – INVENTORY~~

~~At September 30, 2017 and December 31, 2016, inventories consisted of the following:~~

September30, 2017 December 31, 2016
Equipment and clearing service $ 595,115 $ 375,863
Raw Materials 40,179 119,922
Finished Goods 111,600 35,808
Total inventories $ 746,894 $ 531,593

~~NOTE 7 – FIXED ASSETS~~

~~Fixed assets are stated at cost, net of accumulated depreciation. Depreciation expense for period ending September 30, 2017 and December 31, 2016 was $48,059 and $90,626, respectively~~

September30, 2017 December 31, 2016
Equipment $ 2,902,594 2,892,512
Furniture and Fixtures 316,852 316,792
Leasehold improvements 151,553 151,553
Accumulated depreciation (3,272,081 ) (3,224,022 )
Fixed Assets, net $ 98,918 136,835

~~NOTE 8 – OTHER LIABILITIES~~

~~At September 30, 2017 and December 31, 2016, other liabilities consisted of the following:~~

September30, 2017 December 31, 2016
Unearned Incentive from credit cards $ 123,105 $ 123,105
Key Man life Insurance liability 150,146 208,091
Dividend payable 242,146 101,075
Others 138,700 127,931
654,097 560,202
Less Current Portion (238,700 ) (227,932 )
Total long term other liabilities $ 415,397 $ 332,270

The Company has purchased key man life insurance policies for some of its executives to insure the Company against risk 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.

On June 10, 2016, the Company entered into an assignment whereby the insured individuals would assume the key man insurance policies. The agreement stated that the Company assign the policy over to the insured and the insured would assume all the obligations under the premium financed note in place. At September 30, 2017, the three life insurance policies and premium financed notes have been transferred to the insureds.

At September 30, 2017, the balance of amount of the remaining premium financed note is $1,482,850 and the cash value of the policy as of this date is $1,425,537, with a net positive cash value of the policy of $57,313.

The value of the policies is recorded at the new value per the right of offset noted in Topics 210-220. To have a 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 is 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 the loan. The Company also intends to settle out the loans in the future with the cash value of the policy.

~~NOTE 9 – DEFERRED REVENUE~~

Deferred revenue consists 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 recorded as a deferred revenue liability is being recognized 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.

September30, 2017 December 31, 2016
Deferred Revenue $ 8,027,935 $ 8,721,725
Less Deferred Costs & Expenses (6,778,904 ) (7,277,276 )
Net Deferred Revenue 1,249,031 1,444,449
Less Current Portion (830,903 ) (879,026 )
Total Long Term net Deferred Revenue $ 418,128 $ 565,423

~~Expected future recognition of net deferred revenue as of September 30, 2017, is as follows;~~

2017 $ 418,128
2018 228,499
2019 220,189
2020 195,262
2021 186,953
Total $ 1,249,031

NOTE 9 – OTHER LIABILITIES

At March 31, 2021 and December 31, 2020, other liabilities consisted of the following:

(In thousands)	March 31, 2021			December 31, 2020
Other vendor payable	$	801		$	801
Dividend payable		284			253
Bonus payable		-			27
Others		1,473			1,477
Total other liabilities		2,558			2,558
Less Current Portion		(1,380	)		(1,412	)
Total long term other liabilities	$	1,178		$	1,146

NOTE 10 – ~~CREDIT FACILITIES AND LINE OF CREDIT~~

On July 1, 2016, the Company entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation (“Action”) to establish a sale of accounts facility, whereby the Company may obtain short-term financing by selling and assigning to Action acceptable accounts receivable. Pursuant to the FASA, the outstanding principal amount of advances made by Action to the Company at any time shall not exceed $5,000,000. Action will reserve and withhold an amount in a reserve account equal to 10% of the face amount of each account purchased under the FASA. The balance at September 30, 2017 was $3,677,661 and at December 31, 2016 $5,059,292 which includes accrued interest.

The per annum interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a monthly basis) will be equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 2%, plus a monthly fee equal to 0.75% of such average outstanding balance. The Company shall also pay all other costs incurred by Action under the FASA, including all bank fees. The FASA will continue in full force and effect unless terminated by either party upon 30 days’ prior written notice. Performance of the Company’s obligations under the FASA is secured by a security interest in certain collateral of the Company. The FASA includes customary representations and warranties and default provisions for transactions of this type.

~~F-13~~

~~NOTE 11 - NOTES PAYABLE~~

~~Notes payable at September 30, 2017 and December 31, 2016, consists of the following:~~

September30, 2017 December 31, 2016
Supplier Note Payable $ 5,009,007 $ 9,414,352
Insurance Note - 19,502
All Other 350,783 479,365
Total 5,359,790 9,913,219
Less current portion (5,229,496 ) (9,782,925 )
Long Term Notes Payable $ 130,294 $ 130,294

~~Future maturities of notes payable as of September 30, 2017 are as follows;~~

2017 $ 5,229,496
2018 -
2019 -
2020 -
2021 -
Thereafter 130,294
Total $ 5,359,790

The Company finances its Property and Casualty as well as its Directors and Officers Liability Insurance with First Insurance Funding. The Insurance period is for 12 months and the premium is financed over 9 months. The Property and Casualty Insurance is paid in equal monthly installments of $3,940 at 3.25% interest. The outstanding balance at September 30, 2017 was $0 and the monthly payments are current. The Directors and Officers Liability Insurance is renewed annually and is paid in four equal installments of $17,121 at 3.25% interest. The outstanding balance at September 30, 2017 was $0 and the monthly payments are current.

~~In September 2017 the Property & Casualty policy were extended for a period of 60 days.~~

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 September 30, 2017 was $130,294 of which all of it was classified as long term. In July 2016, the holder of the note signed a subordination agreement with the Supplier of the Secured Promissory Note and Action, whereby the noteholder agrees to subordinate its right to payment of capital and interest until the Supplier with the Secured Promissory Note is reimbursed in full.

In January 2016, the Company entered into a Stock Redemption Agreement whereby the Company would repurchase 507,079 shares of common stock for $230,490 on an installment basis which was recorded as a note on the transaction date carrying interest at 9%. As at September 30, 2017, the Company did not complete the redemption of 507,079 shares of common stock and the remaining balance of the note is $220,490.

On July 18, 2016, the Company and the supplier entered into that certain Secured Promissory Note, with an effective date of July 1, 2016, in the principal amount of $12,492,137. The USD Note accrues interest at 12% per annum and is payable in six consecutive monthly installments of principal and accrued interest in a minimum principal amount of $250,000 each, with any remaining principal and accrued interest due and payable on December 31, 2016. On November 30, 2016, the Company entered into an Amendment Agreement to the secured Promissory Note whereby the maturity date was extended to March 31, 2017 and the monthly installments of principal and accrued interest were increased to $400,000 commencing December 15, 2016 with any remaining principal and accrued interest due and payable on March 31, 2017. The Amendment also provides that the Company will make an additional principal payment of $300,000 by December 15, 2016. On March 31, 2017, the Company entered into a Second Amendment Agreement to the secured Promissory Note whereby the maturity date was extended to September 30, 2017 whereby any remaining principal and accrued interest is due and payable on September 30, 2017. The Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest in a minimum principal amount of $400,000 each. On September 30, 2017, the Company entered into a Third Amendment Agreement to the secured Promissory Note whereby the maturity date was extended to October 31, 2017. The Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest in a minimum principal amount of $600,000 each. On November 15^th~~, the Company entered into a Fourth Amendment extending the maturity date to December 31~~^st~~, and this Fourth Amendment is effective on October 31~~^st, whereby any remaining principal and accrued interest is due and payable on December 31, 2017. The Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest in a minimum principal amount of $600,000 each.

On July 31, 2016 as part of the Separation Agreement with Mr. Ross, the Company issued a promissory note in the amount of $59,500 in connection with the redemption by the Company of 350,000 shares of restricted common stock. The promissory was paid off in 12 monthly installments commencing October 1, 2016 and this transaction was recorded as a restructuring charge in the amount of $84,317 in the third quarter of 2016. In addition, the Company restated a promissory note in favor of Mr. Ross which was paid at the balance of the $102,000 over 12 monthly installments commencing October 1, 2016. The balance on these two notes at September 30, 2017 was $0.

~~F-14~~

~~NOTE 12 – SUBORDINATED NOTES PAYABLE~~

~~Notes and loans payable consisted of the following:~~

September30, 2017 December 31, 2016

Note payable - acquisition of Quest $ 5,967,137 $ 5,967,137
Note payable – acquisition of BCS 10,348,808 10,348,808
Quest Preferred Stock note payable 1,199,400 1,199,400
Total notes payable 17,515,345 17,515,345

~~For the nine months ended September 30, 2017 and 2016, the Company recorded interest expense in connection with these notes in the amount of $496,850 and $523,586, respectively.~~

The note payable for acquisition of Quest was issued on January 9, 2014 in conjunction with the acquisition of Quest Marketing, Inc. The initial interest rate was 1.89%, subsequent to December 31, 2015; the interest was increased to 6% and is due in 2018. Principal and interest payments have been postponed. In addition, on June 17, 2016, the Company entered into Promissory Note Conversion Agreement with one of the Noteholders whereby $684,000 of the promissory note was converted into 684,000 shares of Series C Preferred Stock. As part of the transaction, the related debt discount of $171,000 was recorded against Additional paid in capital. As part of the acquisition of Quest Marketing, the Company engaged an independent valuation analysis to do a valuation of the purchase accounting. In July 2016, the holders of the notes signed subordination agreements with the Supplier who holds the Secured Promissory Note and Action, whereby the noteholders agree to subordinate their rights and payments until the Secured Promissory Note with the Supplier is reimbursed in full. As a result, the balance on this loan and related accrued interest at September 30, 2017 were all classified as long term.

The note payable for acquisition of BCS was issued on November 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, subject to board approval such that no debt holder can own more than 5% of the outstanding shares. Principal and interest payments have been postponed. In July 2016, the holders of the notes signed subordination agreements with the holder of the Secured Promissory Note and Action, whereby the noteholder agree to subordinate its right and payment of capital and interest until the Supplier who holds the Secured Promissory Note is reimbursed in full. As a result, the balance on this loan and related accrued interest at September 30, 2017 were all classified as long term.

The Quest preferred stock 6% note payable is 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 a now former employee. The principal payments have been postponed. In June 2016, the holder of the note granted the Company a forgiveness of debt in the amount of $75,000 which was recorded as an increase in the additional paid in capital because it was a related party transaction. In addition, on June 17, 2016, the Company entered into Promissory Note Conversion Agreement with the Noteholder whereby $1,800,000 of the promissory note was converted into 1,800,000 shares of Series C Preferred Stock. In July 2016, the holders of the notes signed subordination agreements with the Supplier of the Secured Promissory Note and Action, whereby the noteholder agree to subordinate its right and payment of capital and interest until the Supplier with the Secured Promissory Note is reimbursed in full. As a result, the balance on this loan and related accrued interest at September 30, 2017 were all classified as long term.

The repayment of the subordinated notes payable is contingent on the complete reimbursement of the Supplier Secured Promissory Note and other conditions and as such based on these factors management has estimated that the future maturities of subordinated notes payable at September 30, 2017 is as follows:

2017 -
2018 -
2019 -
2020 -
2021 -
Thereafter 17,515,345
Total $ 17,515,345

~~F-15~~

~~NOTE 13 –~~ STOCKHOLDERS’ ~~DEFICIT~~EQUITY

PREFERRED STOCK

Series A

As of ~~September 30, 2017,~~March 31, 2021, there were 1,000,000 Series A preferred shares designated and 0no Series A preferred shares outstanding. The board of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share of preferred to 250 common shares.

Series B

As of ~~September 30, 2017~~March 31, 2021, there was 1 preferred share designated and 0no preferred shares outstanding. ~~Effective on September 30, 2016, with the divestiture of Quest Solution Canada Inc., the one share was redeemed by the Company and retired.~~

Series C

As of ~~September 30, 2017,~~March 31, 2021, there were ~~15,000,000~~5,000,000 Series C ~~preferred shares~~Preferred Shares (“Series C”) authorized with 2,145,030 issued and ~~3,143,530~~outstanding. The Series C ~~preferred~~ shares ~~outstanding. It has~~have preferential rights above common shares and the Series B ~~preferred shares~~Preferred Shares and is entitled to receive a quarterly dividend at a rate of $0.06 per share per ~~annum. Each~~annum and have a liquidation preference of $1 per share. Series C ~~preferred share~~shares outstanding isare convertible into common stock at the rate of 20 preferred shares to one ~~(1)~~ share of common stock. As of March 31, 2021, the accrued dividends on the Series C Preferred Stock was $284 thousand.

The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of ~~Quest Solution, Inc.~~common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price of $30 per share for 20 consecutive trading days.

COMMON STOCK

In August 2020, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain existing employees and attract new employees, directors, officers, consultants, and advisors to the Company. Pursuant to the Plan, one million (1,000,000) shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for issuance. As of March 31, 2021, we had issued 361,146 shares or $1.8 million to consultants and advisors for services rendered.

In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the ~~nine month period ended September 30, 2017,~~three months ending March 31, 2021 employees purchased 317 or $1 thousand shares of commons stock.

On February 15, 2021 the Company issued ~~87,500~~25,000 shares to ~~board members in relation to the vesting schedule agreed to during~~Orion 4,^th ~~quarter 2015, which is based on an annual grant~~ LLC as part of ~~100,000 restricted shares every October and vesting over 8 quarters per independent board member as compensation.~~a consulting agreement. The shares were valued at ~~$9,501.~~$188 thousand.

For the three months ending March 31, 2021, 10,000 in stock options and stock warrants were exercised in exchange for 6,160 shares of OMNIQ common stock.

For the three months ended March 31, 2021 we did not grant or issue any options or warrants.

F-15

Warrants

~~In addition, pursuant to the Employee Stock Purchase Program (“ESPP”) for which the Company filed an S-8 registration statement, 264,423 shares of Common Stock were issued for proceeds of $21,060.~~

In April 2017, the Company issued 640,000 shares to the Chief Executive Officer as a signing bonus under his Employment Agreement. The shares were valued at $48,000. In addition, the Company issued 70,000 shares to the Chief Financial Officer as additional fees pursuant to his Contractor Agreement. The shares were valued at $8,400

~~As of September 30, 2017 the Company had 36,157,422 common shares outstanding.~~

~~Warrants and Stock Options~~

~~Warrants~~- The following table summarizes information about warrants granted during the ~~nine month~~nine-month periods ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:

	September 30, 2017					September 30, 2016				March 31, 2021				March 31, 2020
	Number of warrants			Weighted Average Exercise Price		Number of warrants		Weighted Average Exercise Price		Number of warrants		Weighted Average Exercise Price		Number of warrants		Weighted Average Exercise Price

Balance, beginning of period		1,410,000			0.31		1,410,000		0.31		1,366,667	$	7.19		1,166,667	$	6.42

Warrants granted		1,500,000			0.31		-		-		-				25,000		11.60
Warrants expired		(5,000	)		0.31		-		-		15,000				-		-
Warrants cancelled, forfeited		-			-		-		-		-				-		-
Warrants exercised		-			-		-		-		-				-		-

Balance, end of period		2,905,000			0.31		1,410,000		0.31		1,351,667	$	7.11		1,191,667	$	6.53

Exercisable warrants		1,405,000			0.31		1,410,000		0.31		1,185,001	$	6.94		1,191,667	$	6.53

Outstanding warrants as of ~~September 30, 2017~~March 31, 2021 are as follows:

Range of
Exercise Prices Weighted
Average
residual life
span
(in years) Outstanding
Warrants Weighted
Average
Exercise Price Exercisable
Warrants Weighted
Average
Exercise Price

0.25 0.50 900,000 0.25 900,000 0.25

1.00 0.58 505,000 1.00 505,000 1.00
0.11 3.84 1.500,000 0.11 - -

0.11 to 1.00 2.24 2,905,000 0.31 1,405,000 0.52

	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		0.34		75,000	$	2.20		75,000	$	2.20
7.00		3.52		891,667		7.00		891,667		7.00
7.50		5.43		250,000		7.50		83,334		7.50
8.00		0.91		10,000		8.00		10,000		8.00
10.00		1.97		125,000		10.00		125,000		10.00

2.20 to 10.00		3.54		1,351,667	$	6.94		1,185,001	$	6.94

Warrants outstanding at ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 have the following expiry date and exercise prices:

Expiry Date Exercise Prices September 30, 2017 September 30, 2016

March 22, 2018 1.00 300,000 300,000
April 1, 2018 0.25 900,000 900,000
April 30, 2018 1.00 5,000 5,000
July 10, 2018 1.00 200,000 200,000
August 2, 2021 .11 1,500,000 -

2,905,000 1,405,000

	Exercise
Expiry Date	Prices		2021		2020
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		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		-

				1,351,667		1,191,667

~~Share Purchase Option Plan~~

F-16

Stock Options

~~The Company has a stock option plan whereby the Board of Directors, may grant to directors, officers, employees, or consultants of~~the Company options to acquire common shares. The Board of Directors of the Company has the authority to determine 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 that may be reserved for issuance was set at 10,000,000.

The option exercise price is established by the Board of Directors 0and may not be lower than the market price of the common shares at the time of grant. The options may be exercised during the option period determined by the Board of Directors, which may vary, but will not exceed ten years from the date of the grant. There are 10,000,000 of the Company’s common shares which may be issued pursuant to the exercise of share options granted under the Plan. As at September 30, 2017, the Company had issued options, allowing for the subscription of 9,125,000 common shares of its share capital.

~~Stock Options~~ - The following table summarizes information about stock options granted during the three months ended March 31, 2021 and 2020:

	March 31, 2021				March 31, 2020
	Number of stock options		Weighted Average Exercise Price		Number of stock options		Weighted Average Exercise Price

Balance, beginning of period		1,811,550	$	4.32		1,133,550	$	4.00

Stock options granted		-				20,000		5.00
Stock options expired		-				30,250		3.98
Stock options cancelled, forfeited		28,750				-		-
Stock options exercised		10,000				-		-

Balance, end of period		1,772,800	$	4.33		1,230,300	$	4.01

Exercisable stock options		995,925	$	4.09		986,925	$	3.88

On September 30, ~~2017 and 2016:~~

September 30, 2017 September 30, 2016
Number of
stock options Weighted
Average
Exercise Price Number of
stock options Weighted
Average
Exercise Price

Balance, beginning of period 5,625,000 0.49 6,044,000 0.50

Stock options granted 3,500,000 0.11 - -
Stock options expired - - - -
Stock options cancelled, forfeited - - - -
Stock options exercised - - - -

Balance, end of period 9,125,000 0.21 6,044,000 0.50

Exercisable stock options 3,339,750 0.34 2,237,750 0.49

~~For the nine months ended September 30, 2017,~~2020, the Company granted ~~a total of 6,481,000~~775,000 stock ~~options, 2,200,000 stock~~options. These options were granted as part of the asset acquisition described in Note 4, and to ~~five Board members~~a member of the board of advisors, and ~~3,781,000 stock options were granted~~ to certain employees as part of the ~~Chief Executive Officer pursuant to his Employment Contract and 500,000 to~~ Company’s ~~legal counsel.~~Equity Incentive Plan.

Outstanding stock options as of ~~September 30, 2017~~March 31, 2021 are as follows:

Range of
Exercise Prices Weighted
Average
residual life
span
(in years) Outstanding
Stock Options Weighted
Average
Exercise Price Exercisable
Stock Options Weighted
Average
Exercise Price

0.075 to 0.09 4.66 2,981,000 0.09 1,227,000 0.08
0.11 3.84 3,500,000 0.11 - -

0.33 to 0.38 0.79 144,000 0.36 144,000 0.36

0.50 7.45 2,500,000 0.50 1,968,750 0.50

0.075 to 0.50 4.88 9,125,000 0.21 3,339,750 0.34

Range of Exercise Prices		Weighted Average residual life span (in years)		Outstanding Stock Options		Weighted Average Exercise Price		Exercisable Stock Options		Weighted Average Exercise Price

$	1.50		.88		38,017	$	1.50		38,017	$	1.50
$	1.80		.88		76,033	$	1.80		76,033	$	1.80
$	2.20		.34		175,000	$	2.20		175,000	$	2.20
$	2.40		1.93		257,000	$	2.40		257,000	$	2.40
$	4.20		4.06		10,000	$	4.20		5,000	$	4.20
$	4.40		8.21		430,500	$	4.40		80,500	$	4.40
$	4.84		9.51		380,000	$	4.84		-	$	4.84
$	5.00		2.28		147,500	$	5.00		105,625	$	5.00
$	5.40		2.67		133,750	$	5.40		133,750	$	5.40
$	10.00		3.64		125,000	$	10.00		125,000	$	10.00

$	1.50 to 10.00		5.07		1,772,800	$	4.33		995,925	$	4.09

Stock options outstanding at ~~September 30, 2017~~March 31, 2021, and ~~2016~~2020 have the following ~~expiry~~expiration date and exercise prices:

Expiry Date Exercise Prices September30, 2017 September30, 2016
February 26, 2018 0.37 72,000 72,000
April 27, 2018 0.38 36,000 36,000
July 9, 2018 0.33 36,000 36,000
August 2, 2021 0.11 3,500,000 -
February 17, 2022 0.075 760,333 -

February 17, 2022 0.09 1,520,667 -
March 30, 2022 0.09 700,000 -
November 20, 2024 0.50 2,500,000 2,500,000

9,125,000 2,644,000

Expiration Date	Exercise Prices		March 31, 2021		March 31, 2020
August 2, 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		20,000
March 5, 2023	$	2.40		257,000		335,000
July 31, 2023	$	5.00		127,500		127,500
October 31, 2023	$	4.40		80,500		93,000
November 30, 2023	$	5.40		133,750		133,750
November 20, 2024	$	10.00		125,000		125,000
April 20, 2025	$	4.20		10,000		-
September 30, 2030	$	4.40		350,000		-
September 30, 2030	$	4.84		380,000		-

				1,772,800		1,123,300

F-17

~~Stock compensation expense is $565,539 for the nine months ending September 30, 2017 and $308,078 for the nine monthly ended September 30,2016.~~

NOTE 1411 – 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 three months ending March 31, 2021, we elected to forgo the match.

Operating Leases

As of March 31, 2021, we had two operating leases as follows:

	●	Office space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of 14.55%. As of March 31, 2021, we had 26 months remaining on the lease.
	●	A vehicle with monthly payments of less than $1 thousand. As of March 31, 2021, the Company had 10 months remaining on the lease.

NOTE 12 – LITIGATION

AsThe Company 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 Rankin County, Mississippi on September ~~30, 2017,~~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 apparent factual basis and appear to be designed to force a quick “nuisance value” settlement. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020.

The Company is not a party to any other pending material legal proceeding. 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.

~~F-18~~

NOTE 1513 – RELATED PARTY TRANSACTIONS

~~The Company leases a building from the former owner of BCS for $9,000 per month, which is believed to be the current fair market value of similar buildings~~Related party transactions are discussed in ~~the area.~~Note 7.

In addition, on August 2, 2017, the Company entered into a Consulting agreement with Carlos J. Nissensohn, a family member of a Director of the Company. The terms and condition of the contract are as follows:

	●	~~24 month term with 90 day termination notice by the Company~~

	●	~~A monthly fee of $15,000 and a one-time signatory fee of 600,000 restricted shares~~

	●	~~1,500,000 warrants to buy shares at $0.11 having a four year life and a vesting period of12 months in 4 quarterly and equal installments, subject toMr. Nissensohn’scontinuous service to the Company~~

	●	In case the Company procures debt financing during the term of this agreement, without any equity component, Mr. Nissensohn shall be entitled to 3% of the gross funds raised, however if the Company is 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 $3,000,000 to the Company within 24 months of the date the contract, Mr. Nissensohn shall further be entitled to certain warrants to be granted by the Company which upon their exercise pursuant to their terms, Mr. Nissensohn shall be entitled to receive QUEST shares which represent 3% of the QUEST 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 QUEST are subject to the approval of the Board of Directors of QUEST. 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~~$~~50,000 onetime payment which shall be paid on the 1~~^st~~day that the QUEST 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 Company shall close any M&A transaction with a third party target, Mr. Nissensohn shall be entitled to a success fee in the amount equal to 3% of the total transaction price, in any combination of cash and shares that will be determined by QUEST

In addition, on September 8, 2017, Quest Solution, Inc.(the “Company”) approved the Company entering into a consulting agreement (the “Consulting Agreement”) with YES IF(the “Consultant”), an entity controlled by Jason Griffith, the Company’s former Chief Executive Officer and a principal stockholder. The Consultant shall provide the Company and its controlled entities with certain business development, managerial, measures to improve efficiency and cost savings and financial services in accordance with the terms and conditions of the Consulting Agreement. In exchange for its consulting services, the Consultant will receive a monthly fee of $10,000 for the months of September through December 2017, $15,000 per month for the months of January through June 2018 and $20,000 per month for the months of July 2018 through August 2019. As the former CEO of the Company, the Company believes that the Consultant will be extremely beneficial to the Company in connection with its recently announced business restructuring efforts.

On September 8, 2017, the Company entered into a voting agreement with Jason Griffith pursuant to which Mr. Griffith agreed to vote any shares beneficially owned by him in accordance with the instructions of Shai Lustgarten, the Company’s Chief Executive Officer. The voting proxy does not include any matters involving the creation of a new or cancellation of an existing class of stock, a reverse split (except in connection with an uplisting of the Company’s common stock on a National Exchange), dividend of stock or any change of control to the Company.

The foregoing description of the terms of the Consulting Agreement and the Voting Agreement are not complete and are qualified in their entirety by reference to the full text of the Consulting Agreement, which are filed as Exhibits 10.1 and 10.2, respectively to this Current Report on Form 8-K and are incorporated by reference herein.

On September 8, 2017, the Company entered into a voting agreement with Jason Griffith, whereby he committed to vote any shares beneficially owned by him in accordance with the instructions of Shai Lustgarten, the Company’s CEO. The Voting Agreement could result in a change of control of the Company.

NOTE 1614 – SUBSEQUENT EVENTS

On ~~October 02, 2017,~~May 6, 2021, the Company announced it entered into ~~an employment~~a definitive acquisition agreement ~~with Mr. Benjamin Kemper as Chief Financial Officer~~pursuant to which OMNIQ will acquire 51% of Dangot Computers Ltd. (“Dangot”), a leader in providing state of the ~~Company.~~art technology enabling frictionless automated order processing & digital payment processing products for retail, fast food and parking, integrated working stations for physicians, drug delivery and blood tests, robotics for smart warehouses, point of sales and other innovative solutions.

Upon the effectiveness of the acquisition, OMNIQ will pay the shareholder of Dangot a total of approximately $7.6 million (depending upon exchange rate to the Israeli Shekel) comprised of approximately $5.6 million to be paid in cash and $2 million in restricted shares based on average closing share price over the 30 trading days prior to signing. OMNIQ will have a one-year option to acquire the remaining 49% at the same valuation. Closing is expected shortly, upon receipt of approval by the Israeli Competition Authority.

The ~~term~~Company assessed other potential subsequent events and there were none as of the agreement is effective on October 02, 2017 and shall continue for twelve (12) months, unless earlier terminated in accordance with the employment agreement entered into between the Company and Mr. Kemper. The term of Mr. Kemper’s employment shall be automatically renewed for successive one (1)-year periods until Mr. Kemper or the Company delivers to the other party a written notice of their intent not to renew the employment term. The Company shall pay Mr. Kemper a base salary at the annual rate of $130,000, a $20,000 signing bonus, as well as grant Mr. Kemper 500,000 options to purchase common stock of the Company at the closing stock price on the trading date prior to the date hereof.filing date.

~~WHERE YOU CAN FIND ADDITIONAL INFORMATION~~

F-18

We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at SEC’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. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov.

We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements.

~~Quest’s website is located athttp://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.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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. ~~The reader should understand~~Forward-looking statements include statements preceded by, followed by or that ~~several factors govern whether any~~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 ~~statement contained herein will be~~statements involve risks and uncertainties because they relate to events and depend on circumstances that may or ~~can be achieved. Any one~~may not occur in the future.

Forward-looking statements are only predictions and are not guarantees of ~~those factors~~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 ~~projected herein. These~~contained in any forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company. Assumptions relating to the foregoing involve judgmentsstatement. In addition, even if our actual results are consistent with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained ~~herein are reasonable, any~~in this Quarterly Report on Form 10-Q, those results may not be indicative of ~~those assumptions could prove inaccurate and, therefore, there can be no assurance that~~results or developments in subsequent periods.

Except as required by applicable law, including the ~~results contemplated in any~~securities laws of the ~~forward-looking statements contained herein will be realized. Based on actual experience~~United States and ~~business development,~~ the ~~Company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the Company’s results~~rules and regulations of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.

~~A complete discussion of these risks and uncertainties are contained in our Annual Financial Statements included in the Form 10-K for the fiscal year ended December 31, 2016, as filed with~~ the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on ~~April 17, 2017.~~Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

Introduction

~~Quest Solution, Inc., a Delaware corporation (“Quest” or the “Company”), was incorporated in 1973. Prior~~We use patented and proprietary artificial intelligence (AI) technology to ~~2008, the Company was involved in various unrelated business activities. From 2008-2014, the Company was involved in multiple businesses inclusive of an oil~~deliver data collection, real time surveillance and ~~gas investment company. Due to changes in market conditions,~~monitoring for supply chain management, ~~determined to look for acquisitions which were positive cash flow~~homeland security, public safety, traffic & parking management and ~~would~~access control applications. The technology and services we provide ~~immediate shareholder value. In January 2014, the first such acquisition was completed of Quest Marketing Inc. (dba Quest Solution, Inc.) (“Quest Marketing”).~~helps our clients move people, assets and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments.

Quest is a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to endWe offer end-to-end solutions that include hardware, software, communications, and full lifecycle management services. ~~The~~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 ~~deliver the~~our team delivers proven problem-solving solutions ~~to our customers. Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI~~backed by numerous customer references. We offer comprehensive packaged and ~~Zebra~~configurable software and we are ~~major suppliers which Quest Solution uses in the solutions we provide to our customers.~~a leading provider of best-in-class mobile and wireless equipment.

In May 2014, the 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 were assigned our new trading symbol “QUES”.

The Company’s business 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

Our customers include government agencies and leading Fortune 500 companies ~~with revenues~~from diverse sectors, including healthcare, food and ~~positive cash flow.~~

~~In November 2014, the Company acquired 100% of the shares of Bar Code Specialties, Inc. (“BCS”) located in Southern California. BCS is a national mobility systems integrator~~beverage, manufacturing, retail, distribution, transportation and ~~label manufacturer with a focus on warehouse~~logistics, and ~~distribution industries. Since the combination of the two companies, the Company has been exploring efficiencies in all facets of the businesses~~oil, gas, and ~~learning best practices from both executive teams.~~

Effective October 1, 2015, the Company acquired their 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. During the 2016 fiscal year, Viascan changed its corporate name to Quest Solution Canada Inc.

~~Divesture of Canadian Operations~~

Effective September 30, 2016, the Company sold all of the outstanding shares of Quest Solution Canada Inc., and the consideration received was $1.0 million in cash, which was all collected at September 30, 2017. In addition, the Company has redeemed 1 share of Preferred Class B Stock and 1,839,030 shares of Preferred Class C Stock of the Company, as well as the accrued dividend of $31,742 thereon. Lastly, Quest Exchange Ltd., a wholly owned subsidiary of the Company, redeemed 5,200,000 exchangeable shares as part of the divestiture.

Additionally, as part of the transaction, Viascan Group Inc., the acquirer, assumed $1.0 million of liabilities which the Company had at September 30, 2016. Other consideration that is part of the transaction included:

	●	Full release from five employment contracts, inclusive of the former CEO, Gilles Gaudreault. This release included cancelation of the contracts as well as the deferred salary and signing bonus provisions which would have inured to the employee.

	●	The Company canceled the intercompany debts of approximately $7.0 million as well. The Company will also receive a contingent consideration of 15% of the net value proceeds, up to a maximum of $2.3 million, receivable upon a liquidity event or a change of control of Quest Solution Canada Inc. for a period of 7 years subsequent to the transaction.

	●	~~The Company also has a right of first refusal for any offer to purchase Quest Solution Canada Inc. for a 7 year period.~~

	●	~~The assets sold consisted primarily of accounts receivable, inventories, property and equipment, and other assets. The buyer also assumed certain accounts payable and accrued liabilities.~~

~~The operations of Quest Solution Canada Inc. have been classified as a discontinued operation and the assets and liabilities of Quest Solution Canada Inc. have been classified as held for disposal.~~

~~On December 31, 2016, the Company merged BCS in Quest Marketing to form one US legal entity as part of its streamlining efforts.~~chemicals.

The following is a discussion of ~~the Company’s~~our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with ~~the Company’s~~our unaudited condensed consolidated financial statements contained in this Form 10-Q.

OVERVIEW

In 2016, the Company announced strategic actions to streamline its operations by reducing expenses, drive future growth and accelerate value creation for shareholders. These repositioning actions resulted in agreements to sell the Canadian operations. The ~~operations of the Canadian subsidiary have been reported within discontinued operations for all periods presented.~~

The Company’s sales from continuing operations for the three months ended ~~September 30, 2017~~March 31, 2021 were ~~$13.0~~$19.7 million, ~~a slight decrease~~an increase of ~~$0.6~~approximately $6 million, or ~~4.4%~~43.1%, over the ~~same quarter in 2016.~~

three months ended March 31, 2020.

The loss from continuing operations for ~~common stockholders for~~ the three months ended ~~September 30, 2017~~March 31, 2021 was ~~$0.9~~$3.3 million, ~~a decrease~~an increase of ~~$1.6~~$.4 million compared with the loss in the three months ended March 31, 2020 of ~~the comparative prior year of $2.5 million~~.$2.9 million. Basic ~~and Diluted~~ loss per share from continuing operations ~~in Q3-2017 were ($0.03) versus ($0.07) per share in Q3-2016.~~

~~Loss from discontinued operations~~ for the three months ended ~~September~~March 31, 2021 was ($0.70) versus ($0.74) per share for the same time period in 2020.

SUBSEQUENT EVENT

On May 6, 2021, the Company announced it entered into a definitive acquisition agreement pursuant to which OMNIQ will acquire 51% of Dangot Computers Ltd. (“Dangot”), a leader in providing state of the art technology enabling frictionless automated order processing & digital payment processing products for retail, fast food and parking, integrated working stations for physicians, drug delivery and blood tests, robotics for smart warehouses, point of sales and other innovative solutions.

Upon the effectiveness of the acquisition, OMNIQ will pay the shareholder of Dangot a total of approximately $7.6 million (depending upon exchange rate to the Israeli Shekel) comprised of approximately $5.6 million to be paid in cash and $2 million in restricted shares based on average closing share price over the 30 ~~2016 was $3.9 million ($0.11 per share). There~~trading days prior to signing. OMNIQ will have a one-year option to acquire the remaining 49% at the same valuation. Closing is ~~no comparative amount for Q3-2017 as~~expected shortly, upon receipt of approval by the ~~divestiture had an effective date of September 30, 2016.~~Israeli Competition Authority.

GOING CONCERN

The accompanying unaudited condensed 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 acquisitions.~~ As of ~~September 30, 2017, the Company~~March 31, 2021, we had a working capital deficit of ~~$14,811,674~~$26.6 million. These facts and ~~an accumulated deficit of $34,578,776.~~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 to obtain additional debt or equity financing for working capital (i.e., vendor trade credit extensions) or refinancing (restructuring of subordinated debt) as may be required and, ultimately, to attain profitable operations. Management is focused on reducing operating expenses. basis.

Management’s plan to eliminate the going concern situation ~~include,~~includes, but ~~are~~is not limited to, the raising of additional capital through the issuance of debt and equity, improved cash flow management, aggressive cost reductions, and the creation of additional sales and profits across its product lines. One initiative to reduce operating expense and start the path to attaining profitability was the sale of Quest Solution Canada Inc. primarily because it had incurred significant operating losses and negative cash flow. In order to mitigate the risk related with this uncertainty, the Company may issue additional shares of common and preferred stock for cash and services during the next 12 months.following:

~~These matters raise substantial doubt about the Company’s ability to continue as a going concern.~~

	●	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;

The unaudited condensed 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 be necessary should ~~the Company~~we be unable to continue as a going concern.

Results of Operations

The following ~~table sets~~tables set forth certain selected unaudited condensed consolidated 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.

Three months ended September 30 Variation
2017 2016 $ %
Revenue $ 12,964,054 $ 13,564,151 (600,097 ) (4.4 )
Cost of Goods sold 10,132,067 10,910,089 (778,022 ) (7.1 )
Gross Profit 2,831,987 2,654,062 177,925 6.7
Operating Expenses 3,389,679 3,012,755 376,924 12.5
Income (loss) from operations (557,692 ) (358,693 ) 198,999 55.5
Net loss from continuing operations (902,882 ) (2,467,290 ) 1,564,408 63.4
Net loss from discontinued operations - (3,919,175 ) (3,919,175 ) 100.0
Net loss $ (902,882 ) $ (6,386,465 ) (5,483,583 ) (85.9 )
Net Loss per common Share $ (0.03 ) $ (0.18 ) (0.15 ) 83.3
Net Loss per common Share from continuing operations $ (0.03 ) $ (0.07 ) (0.04 ) 57.1
Net Loss per common Share from discontinued operations $ - $ (0.11 ) (0.11 ) n/m

Nine months ended September 30 Variation
2017 2016 $ %
Revenue $ 40,886,754 $ 43,439,719 (2,552,965 ) (5.8 )
Cost of Goods sold 32,263,124 34,648,909 (2,385,785 ) (6.9 )
Gross Profit 8,623,630 8,790,810 (167,180 ) (1.9 )
Operating Expenses 9,128,813 9,992,932 (864,119 ) (8.6 )
Income (loss) from operations (505,183 ) (1,202,122 ) 696,939 58.0
Net loss from continuing operations (1,682,497 ) (5,354,837 ) (3,672,340 ) 68.6
Net loss from discontinued operations - (6,851,875 ) (6,851,875 ) 100.0
Net loss $ (1,682,497 ) $ (12,206,712 ) (10,524,215 ) 86.2
Net Loss per common Share $ (0.05 ) $ (0.34 ) (0.29 ) 85.3
Net Loss per common Share from continuing operations $ (0.05 ) $ (0.15 ) (0.10 ) 66.7
Net Loss per common Share from discontinued operations $ - $ (0.19 ) (0.19 ) n/m

~~n/m; not meaningful~~

(In thousands, except per share data)	Three months ended March 31						Variation
	2021			2020			$			%
Revenue	$	19,751		$	13,799			5,952			43.1	%
Cost of Goods sold		17,115			10,763			6,352			59.0	%
Gross Profit		2,636			3,036			(400	)		-13.2	%
Operating Expenses		5,500			5,072			428			8.4	%
Income (loss) from operations		(2,864	)		(2,036	)		(828	)		40.7	%
Net loss from continuing operations		(3,343	)		(2,873	)		(470	)		16.4	%
Net Loss per common Share	$	(0.70	)	$	(0.74	)		0.04			-5.4	%

Revenues

For the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, the Company generated net revenues in the amount of ~~$12,964,054~~$19.7 million and ~~$13,564,151,~~$13.8 million, respectively. The ~~2017 slight decrease~~increase between the three-month periods was attributable to ~~unavailability of inventory at the manufacturer which delayed shipments into Q4-2017.~~

~~For the nine months ended September 30, 2017~~stronger fulfillment and ~~2016,~~deliveries by the Company ~~generated net revenues~~and demand by certain customers in connection with the amount of $40,886,754 and $43,439,719, respectively. The 2017 slight decrease was attributable to unavailability of inventory at the manufacturer which delayed shipments into Q4-2017 and timing of orders.COVID-19 pandemic.

Cost of Goods Sold

For the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, the Company recognized a total of ~~$10,132,067~~$17.1 million and ~~$10,910,089,~~$10.7 million, respectively, of cost of goods sold. ~~Cost~~For the three months ended March 31, 2021 and 2020, cost of goods sold were ~~78.2%~~86.7% and 78% of net revenues, ~~at September 30, 2017 and 80.4% of revenues at September 30, 2016.~~respectively. The ~~variation is due to the change~~2021 increase in ~~the customer and product mix and efforts to improve margins in 2017.~~

~~For the nine months ended September 30, 2017 and 2016, the Company recognized a total of $32,263,124 and $34,648,909, respectively, of~~ cost of goods ~~sold. Cost of goods~~ sold ~~were 78.9%~~as a percentage of net ~~revenues at September 30, 2017 and 79.8% of revenues at September 30, 2016. The variation is due~~revenue was attributable to certain lower-margin deals reached by the ~~change in~~Company with certain large customers during the ~~customer and product mix and efforts to improve margins in 2017.~~COVID-19 pandemic.

Operating expenses

Total operating expense for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 recognized was ~~$3,389,679~~$5.5 million and ~~$3,012,755, respectively representing a 12.5% increase. The increase is attributable to changes in management with related initial costs including stock compensation.~~

~~Total operating expense for the nine months ended September 30, 2017 and 2016 recognized was $9,128,813 and $9,992,932,~~$5.1 million, respectively, representing an ~~8.6% decrease due~~8.4% increase. The increases are primarily attributable to ~~cost reductions.~~an increase in non-cash stock-based compensation awarded to professional service providers.

~~General~~Research and Development – Research and development expenses for the three months ended March 31, 2021 and 2020 totaled $494 thousand and $386 thousand, respectively, representing a 22% increase. The increases are primarily attributed to expanding our range of solutions offered and development of the AI proprietary products.

Selling, general and Administrative – ~~General~~Selling, general and administrative expenses for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 totaled ~~$481,287~~$4.4 million and ~~$505,903,~~$4.1 million, respectively, representing a ~~4.9% decrease attributable~~6.8% increase. The increase was due primarily to ~~management’s continued focus on expense reduction.~~

~~General~~the inclusion of HTS general and administrative ~~expenses for the nine months ended September 30, 2017 and 2016 totaled $1,308,395 and $1,571,102, respectively representing a decrease of $262,707 or 16.7%.~~expenses.

~~Salary and benefits~~Depreciation – ~~Salary and employee benefits~~Depreciation expenses for the three months ended ~~September 30, 2017~~March 31, 2021 and 2020 totaled ~~$2,258,873, including $416,548 from non-cash stock based compensation, as compared to $1,871,610, including $103,636 from non-cash stock based compensation,~~$43 thousand and $47 thousand, respectively, representing an 8.5% decrease.

Intangible amortization – Intangible amortization expenses for the three months ended ~~September 30, 2016. The increase is $387,263, representing an increase of 20.7% mostly attributed to termination costs related to headcount reductions~~March 31, 2021 and ~~the non-cash costs related to the appointment of the new board members.~~

~~Salary~~2020 totaled $525 thousand and employee benefits for the nine months ended September 30, 2017 totaled $6,045,564 as compared to $6,471,563 for the nine months ended September 30, 2016. The decrease is $425,999 representing a 6.6% improvement is a result of a lower headcount and lower commissions due to the decrease in sales. Included in salaries and benefits is the stock compensation expense which was $565,593 for the nine months ended September 30, 2017 compared to $308,078 for the nine months ended September 30, 2016. The increases was related to the Company issuing stock for services and stock options during the period.

~~Professional Fees~~ – Professional fees for the three months ended September 30, 2017 were $209,086 as compared to $192,814 for the three months ended September 30, 2016. The increase was $16,272 or 8.4% is attributable to a CFO settlement with the management’s continued focus on expense reduction.$502 thousand, respectively.

Professional fees for the nine months ended September 30, 2017 were $450,509 as compared to $603,190 for the nine months ended September 30, 2016. The decrease was $152,681 or 25.3% is attributable to management’s continued focus on expense reduction.

Other income and expenses

Interest Expense - Interest expense for the three months ended ~~September 30, 2017~~March 31, 2021 totaled ~~$343,092,~~$589 thousand, as compared to ~~$1,110,804~~$795 thousand for the three months ended ~~September 30, 2016 of which $200,000 was an OID discount on~~March 31, 2020. The decrease is primarily attributable to interest expense incurred in connection with vendor interest agreements as well as interest incurred in connection with the ~~Quest subordinated debt. The remaining variance of $567,712 is directly related the 2016 termination and facility fees on~~decreased average daily balance in the line of ~~credit with FGI.~~credit.

Interest expense for the nine months ended September 30, 2017 totaled $1,075,147, as compared to $2,802,980 for the nine months ended September 30, 2016 of which $860,824 was an OID discount on the Quest subordinated debt. The remaining variance of $867,009 is directly related to the 2016 termination and facility fees on the line of credit with FGI, the decrease in the outstanding balance of the line of credit amount and the improved profitability.

~~Restructuring Expense~~ – The Company streamlined operations in early 2017, but has no additional restructuring charges in the third quarter. The restructuring expense recorded for the nine months ended September 30, 2016 was $544,941.

Net loss from ~~continuing~~ operations

The Company realized a net loss from continuing operations of $902,882 for the three months ended September 30, 2017, compared to a net loss of $2,467,290 for the three months ended September 30, 2016, a decrease of $1,564,408. The improvement in net loss is 63.4%.

The Company realized a net loss from continuing operations of ~~$1,682,497~~$3.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to a net loss of ~~$5,354,837~~$2.9 million for the ~~nine~~three months ended ~~September 30, 2016, a decrease~~March 31, 2020, an increase of ~~$3,672,340.~~ $0.4 million.

The ~~improvement~~increase in net loss between the three-month periods is ~~68.6%.~~

~~Net loss from discontinued operations~~

~~The Company realized a net loss from discontinued operations of $6,851,875 for~~mainly attributable to the ~~nine months ended September 30, 2016. There were no comparative amounts~~Company’s lower margin in ~~2017 because effective September 30, 2016,~~2021 compared with the ~~Company sold the shares of its wholly owned subsidiary, Quest Solution Canada Inc. to Viascan Group Inc.~~same periods in 2020.

Liquidity and capital resources

As of ~~September 30, 2017,~~March 31, 2021, the Company had cash in the amount of ~~$945,252~~$2.7 million of which ~~$684,610~~$100 thousand is on deposit ~~and restricted as collateral for a letter of credit and a corporate purchasing card,~~ and a working capital deficit of ~~$14,811,673,~~$26.6 million, compared to cash in the amount of ~~$954,700,~~$5.1 million, of which ~~$665,220 is~~$.5 million was restricted, and a working capital deficit of ~~$15,323,313~~$25.3 million as atof December 31, ~~2016.~~2020. In addition, the Company had a ~~stockholder’s~~stockholders’ deficit of ~~$16,062,113 at September 30, 2017~~$7.3 million as of March 31, 2021 and ~~$14,825,188~~stockholders’ deficit of $5 million as of December 31, ~~2016.~~2020.

The Company’s accumulated deficit was $60.1 million and $56.7 million on March 31, 2021, and December 31, 2020, respectively.

The Company’s operations resulted in net cash provided of ~~$5,906,112~~$2.5 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to net cash ~~provided~~used of ~~$5,388,132~~$1.5 million during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2020, an increase of ~~$517,980.~~$4 million. The changes in the non-cash working capital accounts are primarily attributable ~~to an decrease~~the large increases in accounts receivable ~~of $2,317,712~~and accounts payable during the ~~nine~~first three months ~~ended September 30, 2017 and a $2,992,271 increase in accounts payable.~~of 2021.

Net cash ~~used~~provided by investing activities was ~~$29,532~~$563 thousand for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to net cash ~~used~~provided of ~~$93,351~~$15 thousand for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2020, an increase of $548 thousand, primarily attributable to a decrease ~~of $63,819.~~in restricted cash.

The Company’s financing activities used net cash of ~~$5,905,418~~$5 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to net cash ~~used~~provided of ~~$778,509~~$3.2 million during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2020. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, the Company ~~decreased~~paid on the line of credit ~~by $1,381,631 and decreased the notes payable by $4,544,846. Proceeds for shares sold were $21,059.~~with Action Capital of approximately $4.9 million.

Inflation

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

Off- Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of ~~September 30, 2017,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

Based onupon that evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of March 31, 2021, our disclosure controls and procedures ~~are~~were ineffective as of the end of the period covered to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weaknesses which are indicative of many small companies with limited staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure.

During 2019, we identified material weaknesses in our internal control over financial reporting, which were disclosed in our annual report on Form 10-K filed with the SEC on March 31, 2021.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that occurred during the ~~last fiscal quarter, i.e., the~~ three months ended ~~September 30, 2017,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 apparent factual basis and appear to be designed to force a quick “nuisance value” settlement. This case was filed in the Superior Court of the ~~date~~State of California, County of San Diego on October 21, 2020.

The Company is not a party to any other pending material legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the ~~report there are no~~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 ~~legal proceedings~~interest adverse to ~~which we are a party.~~the Company in any proceeding.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~For the nine month period ended September 30, 2017, the Company issued 87,500 shares to board members in relation to the vesting schedule agreed to during 4~~^th ~~quarter 2015, which is based on an annual grant of 100,000 restricted shares every October and vesting over 8 quarters per independent board member as compensation.~~None.

In April 2017, the Company issued 640,000 shares to the Chief Executive Officer as a signing bonus under his Employment Agreement. In addition, the Company issued 70,000 shares to the Chief Financial Officer as additional fees pursuant to his Contractor Agreement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

Our website is located at http://www.omniq.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.

ITEM 6. EXHIBITS

(a)		Exhibits.

10.1		Share purchase Agreement dated May 3, 2021, by and between OMNIQ Corp, OMNIQ Technologies Ltd. and Haim dangot. (incorporated by reference to the Current Report on Form 8-k filed with the SEC on May 6, 2021)

10.2		Conversion Agreement dated May 3, 2021 by and between OMNIQ Corp. and Jason Griffith (incorporated by reference to the current Report on Form 8-k filed with the SEC on May 6, 2021)

31.1		Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.2		Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

SIGNATURES

Pursuant to the requirements 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: May 13, 2021

OMNIQ CORP.

By:	/s/ Shai Lustgarten
	Shai Lustgarten
	President and Chief Executive Officer

EXHIBIT INDEX

10.1		Share purchase Agreement dated May 3, 2021, by and between OMNIQ Corp, OMNIQ Technologies Ltd. and Haim dangot. (incorporated by reference to the Current Report on Form 8-k filed with the SEC on May 6, 2021)

10.2		Conversion Agreement dated May 3, 2021 by and between OMNIQ Corp. and Jason Griffith (incorporated by reference to the current Report on Form 8-k filed with the SEC on May 6, 2021)

31.1		Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.2		Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

~~SIGNATURES~~

~~Pursuant to the requirements 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: November 17, 2017~~

~~QUEST SOLUTION, INC.~~

~~By:~~	~~/s/ Shai Lustgarten~~
	~~Shai Lustgarten~~
	~~President and Chief Executive Officer~~

~~EXHIBIT INDEX~~

~~31.1~~		~~Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~		~~Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~		~~Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)~~

~~32.2~~		~~Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)~~

	As of
	September30, 2017			December 31, 2016
ASSETS
Current assets
Cash	$	260,642		$	289,480
Restricted Cash		684,610			665,220
Accounts receivable, net (Note 5)		8,271,965			10,589,677
Inventory, net (Note 6)		746,894			531,593
Prepaid expenses		281,215			272,926
Other current assets		183,347			772,966
Total current assets		10,428,673			13,121,862

Fixed assets, net (Note 7)		98,918			136,835
Goodwill		10,114,164			10,114,164
Trade name, net		2,503,731			2,936,481
Customer Relationships, net		5,592,116			6,435,652
Other assets		41,613			47,563

Total assets	$	28,779,215		$	32,792,557

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities	$	13,558,337		$	10,566,066
Accrued interest on note payable		33,428			-
Line of credit (Note 10)		3,677,661			5,059,292
Advances, related party		100,000			100,000
Accrued payroll and sales tax		1,571,821			1,829,934
Deferred revenue, net (Note 9)		830,903			879,026
Current portion of note payable (Note 11)		5,229,496			9,782,925
Other current liabilities (Note 8)		238,700			227,932
Total current liabilities		25,240,346			28,445,175

Long term liabilities
Note payable, related party (Note 12)		17,515,345			17,515,345
Accrued interest, related party		1,121,818			629,238
Long term portion of note payable (Note 11)		130,294			130,294
Deferred revenue, net (Note 9)		418,128			565,423
Other long term liabilities (Note 8)		415,397			332,270
Total liabilities		44,841,328			47,617,745

Stockholders’ (deficit)
Series A Preferred stock; $0.001 par value; 1,000,000 shares designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.	-			-
Series B Preferred stock; $0.001 par value; 1 share designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.	-			-
Series C Preferred stock; $0.001 par value; 15,000,000 shares designated, 3,143,530 shares outstanding as of September 30, 2017 and December 31, 2016, respectively, liquidation preference of $1.00 per share and a cumulative dividend of $0.06 per share.		3,144			3,144
Common stock; $0.001 par value; 100,000,000 shares designated, 36,157,422 and 35,095,763 shares outstanding of September 30, 2017 and December 31, 2016, respectively.		36,157			35,095
Common stock to be repurchased by the Company		(230,490	)		(230,490	)
Additional paid-in capital		18,887,852			18,302,262
Accumulated (deficit)		(34,758,776	)		(32,935,199	)
Total stockholders’ (deficit)		(16,062,113	)		(14,825,188	)
Total liabilities and stockholders’ (deficit)	$	28,779,215		$	32,792,557

	For the three months						For the nine months
	ending September 30,						ending September 30,
	2017			2016			2017			2016
Revenues
Gross Sales	$	13,311,109		$	13,841,279		$	41,594,938		$	44,288,975
Less sales returns, discounts, & allowances		(347,055	)		(277,128	)		(708,184	)		(849,256	)
Total Revenues		12,964,054			13,564,151			40,886,754			43,439,719

Cost of goods sold
Cost of goods sold		10,132,067			10,910,089			32,263,124			34,648,909
Total costs of goods sold		10,132,067			10,910,089			32,263,124			34,648,909

Gross profit		2,831,987			2,654,062			8,623,630			8,790,810

Operating expenses
General and administrative		481,287			505,903			1,308,395			1,571,102
Salary and employee benefits		2,258,873			1,871,610			6,045,564			6,471,563
Depreciation and amortization		440,433			442,428			1,324,345			1,347,077
Professional fees		209,086			192,814			450,509			603,190
Total operating expenses		3,389,679			3,012,755			9,128,813			9,992,932

Income (loss) from operations		(557,692	)		(358,693	)		(505,183	)		(1,202,122	)

Other income (expenses):
Restructuring expenses		-			(84,317	)		(26,880	)		(544,941	)
Gain on foreign currency		-			(90,215	)		-			129,589
Write-off of other assets					(450,000	)					(450,000	)
Interest expense		(343,092	)		(1,110,804	)		(1,075,147	)		(2,802,980	)
Other (expenses) income		13,202			3,065			16,122			6,871
Total other expenses		(329,890	)		(1,732,271	)		(1,085,905	)		(3,661,461	)

Net Loss Before Income Taxes		(887,582	)		(2,090,964	)		(1,591,088	)		(4,863,583	)

Provision for Income Taxes
Deferred		-			-			-			-
Current		(15,300	)		(376,326	)		(91,409	)		(491,254	)
Total Provision for Income Taxes		(15,300	)		(376,326	)		(91,409	)		(491,254	)

Net loss from continuing operations	$	(902,882	)	$	(2,467,290	)	$	(1,682,497	)	$	(5,354,837	)

Net loss from discontinued operations		-			(3,919,175	)		-			(6,851,875	)

Net Loss attributable to Quest Solution Inc.	$	(902,882	)	$	(6,386,465	)	$	(1,682,497	)	$	(12,206,712

Other Comprehensive Loss
Foreign Currency Adjustments					120,333						(361,744	)

Net Loss attributable to Quest Solution Inc.	$	(902,882	)	$	(6,266,132	)	$	(1,682,497	)	$	(12,568,456	)
Less: Preferred stock – Series C dividend		(47,540	)		(43,968	)		(141,071	)		(62,707	)

Net loss attributable to the common stockholders	$	(950,422	)	$	(6,310,100	)	$	(1,823,568	)	$	(12,631,163	)

Net income (loss) per share - basic	$	(0.03	)	$	(0.18	)	$	(0.05	)	$	(0.34	)
Net income (loss) per share - diluted	$	(0.03	)	$	(0.18	)	$	(0.05	)	$	(0.34	)

Net loss per share from continuing operations - basic	$	(0.03	)	$	(0.07	)	$	(0.05	)	$	(0.15	)
Net loss per share from continuing operations - diluted	$	(0.03	)	$	(0.07	)	$	(0.05	)	$	(0.15	)

Net loss per share from discontinued operations - basic	$	-		$	(0.11	)	$	-		$	(0.19	)
Net loss per share from discontinued operations - diluted	$	-		$	(0.11	)	$	-		$	(0.19	)

Weighted average number of common shares outstanding - basic		35,812,210			35,762,326			35,587,238			36,506,733
Weighted average number of common shares outstanding - diluted		35,812,210			35,762,326			35,587,238			36,506,733

	September 30, 2017			December 31,2016
Goodwill	$	10,114,164		$	10,114,164
Trade Names		4,390,000			4,390,000
Customer Relationships		9,190,000			9,190,000
Accumulated amortization		(5,484,153	)		(4,207,867	)
Intangibles, net	$	18,210,011		$	19,486,297

Years ending December 31,
2017	$	425,429
2018		1,679,599
2019		1,471,714
2020		1,471,714
2021		1,405,791
Thereafter		1,641,600
Total	$	8,095,847

	For the three months			For the nine months
	ending September 30, 2016			Ending September 30, 2016

Revenues	$	3,911,501		$	11,326,849
Cost of goods sold		(3,988,733	)		(9,751,651	)
Gross profit		(77,232	)		1,575,198

Operating expenses
General and administrative		(315,088	)		(874,506	)
Salary and employee benefits		(689,118	)		(2,074,977	)
Depreciation and amortization		(61,076	)		(178,069	)
Professional fees		(21,387	)		(58,138	)
Goodwill impairment		(2,500,000	)		(4,800,000	)
Total operating expenses		(3,586,669	)		(7,985,690	)

Operating loss		(3,663,901	)		(6,410,492	)

Other income (expenses):
Restructuring expenses		-			(108,640	)
Gain (loss) on foreign currency		(155,548	)		117,138
Interest expense		(86,617	)		(443,019	)
Other (expenses) income		23			129
Total other income (expenses)		(242,142	)		(434,392	)

Net Loss Before Income Taxes		(3,906,043	)		(6,844,884	)

Provision for Current Income Taxes		(13,132	)		(6,991	)

Net Loss from discontinued operations	$	(3,919,175	)	$	(6,851,875	)

	As at
	September30, 2016
ASSETS
Current assets
Cash	$	(42,013	)
Accounts receivable, net		2,302,399
Inventory, net		1,832,631
Prepaid expenses		97,990
Other current assets		24,858
Total current assets		4,215,865

Fixed assets		1,097,248
Goodwill		6,337,860

Total assets	$	11,650,973

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	$	3,205,449
Line of credit		-
Accrued payroll and sales tax		329,874
Deferred revenue, net		99,905
Notes payable, related parties, current portion		1,841,297
Other current liabilities		114,265
Total current liabilities		5,590,790

Long term liabilities
Other long term liabilities		7,553
Total liabilities	$	5,598,343

Net Assets held for disposal	$	6,052,630

	For the nine months
	ending September 30, 2016

Net cash provided by operating activities	$	(1,743,606	)

Net cash provided in investing activities		16,097

Net cash used in financing activities		(3,290,266	)

Net Cash Outflow from discontinued operations	$	(5,017,775	)

	September30, 2017			December 31, 2016
Trade Accounts Receivable	$	8,284,466		$	10,607,378
Less Allowance for doubtful accounts		(12,501	)		(17,701	)
Total Accounts Receivable (net)	$	8,271,965		$	10,589,677

	September30, 2017		December 31, 2016
Equipment and clearing service	$	595,115	$	375,863
Raw Materials		40,179		119,922
Finished Goods		111,600		35,808
Total inventories	$	746,894	$	531,593

	September30, 2017			December 31, 2016
Equipment	$	2,902,594			2,892,512
Furniture and Fixtures		316,852			316,792
Leasehold improvements		151,553			151,553
Accumulated depreciation		(3,272,081	)		(3,224,022	)
Fixed Assets, net	$	98,918			136,835

	September30, 2017			December 31, 2016
Unearned Incentive from credit cards	$	123,105		$	123,105
Key Man life Insurance liability		150,146			208,091
Dividend payable		242,146			101,075
Others		138,700			127,931
		654,097			560,202
Less Current Portion		(238,700	)		(227,932	)
Total long term other liabilities	$	415,397		$	332,270

	September30, 2017			December 31, 2016
Deferred Revenue	$	8,027,935		$	8,721,725
Less Deferred Costs & Expenses		(6,778,904	)		(7,277,276	)
Net Deferred Revenue		1,249,031			1,444,449
Less Current Portion		(830,903	)		(879,026	)
Total Long Term net Deferred Revenue	$	418,128		$	565,423

	September30, 2017			December 31, 2016
Supplier Note Payable	$	5,009,007		$	9,414,352
Insurance Note		-			19,502
All Other		350,783			479,365
Total		5,359,790			9,913,219
Less current portion		(5,229,496	)		(9,782,925	)
Long Term Notes Payable	$	130,294		$	130,294

	September30, 2017		December 31, 2016

Note payable - acquisition of Quest	$	5,967,137	$	5,967,137
Note payable – acquisition of BCS		10,348,808		10,348,808
Quest Preferred Stock note payable		1,199,400		1,199,400
Total notes payable		17,515,345		17,515,345

Range of Exercise Prices		Weighted Average residual life span (in years)		Outstanding Warrants		Weighted Average Exercise Price		Exercisable Warrants		Weighted Average Exercise Price

	0.25		0.50		900,000		0.25		900,000		0.25

	1.00		0.58		505,000		1.00		505,000		1.00
	0.11		3.84		1.500,000		0.11		-		-

	0.11 to 1.00		2.24		2,905,000		0.31		1,405,000		0.52

	Three months ended September 30						Variation
	2017			2016			$			%
Revenue	$	12,964,054		$	13,564,151			(600,097	)		(4.4	)
Cost of Goods sold		10,132,067			10,910,089			(778,022	)		(7.1	)
Gross Profit		2,831,987			2,654,062			177,925			6.7
Operating Expenses		3,389,679			3,012,755			376,924			12.5
Income (loss) from operations		(557,692	)		(358,693	)		198,999			55.5
Net loss from continuing operations		(902,882	)		(2,467,290	)		1,564,408			63.4
Net loss from discontinued operations		-			(3,919,175	)		(3,919,175	)		100.0
Net loss	$	(902,882	)	$	(6,386,465	)		(5,483,583	)		(85.9	)
Net Loss per common Share	$	(0.03	)	$	(0.18	)		(0.15	)		83.3
Net Loss per common Share from continuing operations	$	(0.03	)	$	(0.07	)		(0.04	)		57.1
Net Loss per common Share from discontinued operations	$	-		$	(0.11	)		(0.11	)		n/m

	Nine months ended September 30						Variation
	2017			2016			$			%
Revenue	$	40,886,754		$	43,439,719			(2,552,965	)		(5.8	)
Cost of Goods sold		32,263,124			34,648,909			(2,385,785	)		(6.9	)
Gross Profit		8,623,630			8,790,810			(167,180	)		(1.9	)
Operating Expenses		9,128,813			9,992,932			(864,119	)		(8.6	)
Income (loss) from operations		(505,183	)		(1,202,122	)		696,939			58.0
Net loss from continuing operations		(1,682,497	)		(5,354,837	)		(3,672,340	)		68.6
Net loss from discontinued operations		-			(6,851,875	)		(6,851,875	)		100.0
Net loss	$	(1,682,497	)	$	(12,206,712	)		(10,524,215	)		86.2
Net Loss per common Share	$	(0.05	)	$	(0.34	)		(0.29	)		85.3
Net Loss per common Share from continuing operations	$	(0.05	)	$	(0.15	)		(0.10	)		66.7
Net Loss per common Share from discontinued operations	$	-		$	(0.19	)		(0.19	)		n/m