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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
Commission
file number:
(Exact name of registrant as specified in charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| 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 ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at August 9, 2022 | |
| Common Stock, $0.01 par value per share |
ACORN ENERGY, INC.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 2022
TABLE OF CONTENTS
Certain statements contained in this report are forward-looking in nature. These statements are generally identified by the inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of similar meaning. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Many of these factors are described in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
| 2 |
PART I
| ITEM 1. | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Deferred cost of goods sold | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred cost of goods sold | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Current operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred revenue | ||||||||
| Long-term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Commitments and contingencies (Note 5) | ||||||||
| Deficit: | ||||||||
| Acorn Energy, Inc. shareholders | ||||||||
| Common stock - $ par value per share: Authorized – shares; Issued – shares at June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost – shares at June 30, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Total Acorn Energy, Inc. shareholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total deficit | ( | ) | ( | ) | ||||
| Total liabilities and deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Six months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expense | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Impairment of software | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Finance expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| Non-controlling interest share of net income | ( | ) | ( | ) | * | ( | ) | |||||||||
| Net (loss) income attributable to Acorn Energy, Inc. shareholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Basic and diluted net (loss) income per share attributable to Acorn Energy, Inc. shareholders: | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT (UNAUDITED)
(IN THOUSANDS)
| Three and Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Number of Treasury Shares | Treasury Stock | Total Acorn Energy, Inc. Shareholders’ Deficit | Non- controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net loss | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net loss | — | ( | ) | — | ( | ) | * | ( | ) | |||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Three and Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Number of Treasury Shares | Treasury Stock | Total Acorn Energy, Inc. Shareholders’ Deficit | Non-controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows (used in) provided by operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Depreciation and amortization | ||||||||
| Impairment of software | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | ( | ) | ||||||
| Increase in inventory | ( | ) | ( | ) | ||||
| Increase in deferred cost of goods sold | ( | ) | ( | ) | ||||
| Increase in other current assets and other assets | ( | ) | ( | ) | ||||
| Decrease in accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Increase in deferred revenue | ||||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Increase in other current liabilities and non-current liabilities | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows used in investing activities: | ||||||||
| Investments in technology | ( | ) | ( | ) | ||||
| Other capital investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows used in financing activities: | ||||||||
| Short-term credit, net | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at the beginning of the year | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued preferred dividends to former Acorn director and/or former OmniMetrix CEO | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
ACORN ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 1— BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries, OmniMetrix, LLC and OMX Holdings, Inc. (collectively, “Acorn” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six- and three-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. All dollar amounts are rounded to the nearest thousand and, thus, are approximate.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 31, 2022.
NOTE 2—ACCOUNTING POLICIES
Use of Estimates in Preparation of Financial Statements
The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.
As applicable to these unaudited condensed consolidated financial statements, the most significant estimates and assumptions relate to uncertainties with respect to income taxes, inventories, account receivable allowances, contingencies, revenue recognition, management’s projections and analyses of the possible impairments.
Concentrations of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable.
The Company’s cash was deposited with a U.S. bank and amounted to $
Basic net (loss) income per share is computed by dividing the net (loss) income attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net (loss) income per share is computed by dividing the net (loss) income by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net (loss) income per share if doing so would be antidilutive. For both the six- and three-month periods ending June 30, 2022, the number of options that were excluded from the computation of diluted net loss, as they had an antidilutive effect, was (which have a weighted average exercise price of $) and the number of warrants that were excluded from the computation of diluted net loss, as they had an antidilutive effect, was (which had a weighted average exercise price of $). For the six- and three-month periods ending June 30, 2021, respectively, the number of options that were excluded from the computation of diluted net income per share, as they had an antidilutive effect, was (which had a weighted average exercise price of $) and (which had a weighted average exercise price of $); there were no antidilutive warrants.
| 7 |
Six months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net (loss) income available to common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average share outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Add: Warrants | ||||||||||||||||
| Add: Stock options | ||||||||||||||||
| Diluted | ||||||||||||||||
| Basic and diluted net (loss) income per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Recently Issued Accounting Principles
Other than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six- and three-month periods ended June 30, 2022, that are of material significance, or have potential material significance, to the Company.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.
NOTE 3—LIQUIDITY
At
June 30, 2022, the Company had negative working capital of $
During
the first six months of 2022, the Company’s OmniMetrix, LLC subsidiary provided $
OmniMetrix is considered an essential business because it provides infrastructure support to both government and commercial sectors and across key industries. The Company has experienced minimal negative impacts due to the COVID-19 pandemic to date. Throughout the pandemic, the Company continued to realize new equipment sales (although not at the anticipated growth rate due to travel and meeting restrictions which have negatively impacted the sales closing timeline), has continued to collect its monthly recurring monitoring revenues and has retained its customer base. While the impacts of COVID-19 in the future are uncertain, the Company believes that due to the need for backup power and the desirability of remote monitoring services, it should continue to be positioned for stable financial performance. Business travel has now started to resume and sales are returning to projected levels.
As
of August 9, 2022, the Company had cash of $
| 8 |
NOTE 4—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of
Supplemental cash flow information related to leases consisted of the following (in thousands):
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
Supplemental balance sheet information related to leases consisted of the following:
| 2022 | ||||
| Weighted average remaining lease terms for operating leases | ||||
The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms of more than one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2022 (in thousands):
Twelve-month period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted cash flows | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities (a) | $ | |||
| (a) |
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company
| 9 |
| Twelve-month period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted cash flows | $ | |||
NOTE 5—COMMITMENTS AND CONTINGENCIES
On
August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix a new software
platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over the first seven months
of the term of the agreement equal to $
In
addition to the above, the Company has $
NOTE 6—EQUITY
(a) General
At June 30, 2022 the Company had issued and outstanding shares of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
The Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.
(b) Summary Employee Option Information
The Company’s stock option plans provide for the grant to officers, directors and employees of options to purchase shares of common stock. The purchase price may be paid in cash or, if the option is “in-the-money” at the end of the option term, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee, but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable for one share of the Company’s common stock. Most options expire within five to ten years from the date of the grant, and generally vest over a three-year period from the date of the grant.
At June 30, 2022, options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the three months ended June 30, 2022, options were issued to the Company’s CFO. During the six months ended June 30, 2022, options were issued to directors, options were issued to the Company’s CEO, options were issued to the Company’s CFO and options were issued to other employees. In the six and three months ended June 30, 2022, there were grants to non-employees (other than the directors, CEO and CFO).
| 10 |
options were exercised in the six and three months ended June 30, 2022. The intrinsic value of options outstanding and of options exercisable at June 30, 2022 was $ and $, respectively. The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years (all in weighted averages):
Number of Options (in shares) | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| Outstanding at December 31, 2021 | $ | years | $ | |||||||||||
| Granted | ||||||||||||||
| Exercised | ||||||||||||||
| Forfeited or expired | ||||||||||||||
| Outstanding at June 30, 2022 | $ | years | $ | |||||||||||
| Exercisable at June 30, 2022 | $ | years | $ | |||||||||||
| Risk-free interest rate | % | |||
| Expected term of options | years | |||
| Expected annual volatility | % | |||
| Expected dividend yield | % | |||
(c) Stock-based Compensation Expense
Stock-based compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations was $ and $ for the six-month periods ended June 30, 2022 and 2021, respectively and $ and $ for the three-month periods ended June 30, 2022 and 2021, respectively.
The total compensation cost related to non-vested awards not yet recognized was $ as of June 30, 2022.
(d) Warrants
The Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:
Number of Warrants (in shares) | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life | ||||||||
| Outstanding at December 31, 2021 | $ | months | ||||||||
| Granted | ||||||||||
| Exercised | ||||||||||
| Forfeited or expired | ||||||||||
| Outstanding at June 30, 2022 | $ | months | ||||||||
| 11 |
NOTE 7— SEGMENT REPORTING
As
of June 30, 2022, the Company operates in
| ● | The PG (Power Generation) (“PG”) segment provides wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. The PG segment includes OmniMetrix’s monitoring device for industrial air compressors and dryers, and a line of annunciators. | |
| ● | The CP (Cathodic Protection) (“CP”) segment provides remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. |
The Company’s reportable segments are strategic business units, offering different products and services, and are managed separately as each business requires different technology and marketing strategies.
The following tables represent segmented data for the six-month and three-month periods ended June 30, 2022 and 2021 (in thousands):
| PG | CP | Total | ||||||||||
| Six months ended June 30, 2022: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes* | $ | $ | ( | ) | $ | |||||||
| Six months ended June 30, 2021: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| Three months ended June 30, 2022: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes* | $ | $ | ( | ) | $ | |||||||
| Three months ended June 30, 2021: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| * |
The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments. Further, the Chief Decision Maker does not review the assets by segment.
| 12 |
Reconciliation of Segment (Loss) Income to Consolidated Net (Loss) Income Before Income Taxes
Six months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Total net income before income taxes for reportable segments* | $ | $ | $ | $ | ||||||||||||
| Unallocated cost of corporate headquarters | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consolidated net (loss) income before income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| * |
NOTE 8—REVENUE
The following table disaggregates the Company’s revenue for the six-month and three-month periods ended June 30, 2022 and 2021 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Six months ended June 30, 2022: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Six months ended June 30, 2021: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended June 30, 2022: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended June 30, 2021: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| 13 |
Deferred revenue activity for the six months ended June 30, 2022 can be seen in the table below (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Recognized as revenue | ( | ) | ( | ) | ( | ) | ||||||
| Balance at June 30, 2022 | $ | $ | $ | |||||||||
| Amounts to be recognized as revenue in the twelve-month-period ending: | ||||||||||||
| June 30, 2023 | $ | $ | $ | |||||||||
| June 30, 2024 | ||||||||||||
| June 30, 2025 and thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
Other
revenue of $
Deferred charges relate only to the sale of equipment. Deferred charges activity for the six months ended June 30, 2022 can be seen in the table below (in thousands):
| Balance at December 31, 2021 | $ | |||
| Additions, net of adjustments, during the period | ||||
| Recognized as cost of sales | ( | ) | ||
| Balance at June 30, 2022 | $ | |||
| Amounts to be recognized as cost of sales in the twelve-month-period ending: | ||||
| June 30, 2023 | $ | |||
| June 30, 2024 | * | |||
| June 30, 2025 and thereafter | * | |||
| $ |
Other
cost of goods sold (COGS) recognized of $
The following table provides a reconciliation of the Company’s sales commissions contract assets for the six-month period ended June 30, 2022 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at June 30, 2022 | $ | $ | $ | |||||||||
The
capitalized sales commissions are included in other current assets ($
| 14 |
NOTE 9—RELATED PARTY BALANCES AND TRANSACTIONS
Officer and Director Fees
The
Company recorded fees to officers of $
The
Company recorded fees to directors of $
Intercompany
The
related party balance due to Acorn from OmniMetrix for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s
behalf was $
| 15 |
ACORN ENERGY, INC.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”, “intend”, “could”, “estimate” or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in the Company’s 10-K report for the year ended December 31, 2021 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
All dollar amounts in the discussion below are rounded to the nearest thousand and, thus, are approximate.
FINANCIAL RESULTS BY COMPANY
The following table shows, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies. In the tables and discussion below, research and development expense is referred to as “RD expense,” and selling, general and administrative expense is referred to as “SGA expense.”
| Six months ended June 30, 2022 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 3,372 | $ | — | $ | 3,372 | ||||||
| Cost of sales | 868 | — | 868 | |||||||||
| Gross profit | 2,504 | — | 2,504 | |||||||||
| Gross profit margin | 74 | % | 74 | % | ||||||||
| RD expense | 410 | — | 410 | |||||||||
| SGA expense | 1,877 | 510 | 2,387 | |||||||||
| Impairment of software | 51 | — | 51 | |||||||||
| Operating income (loss) | $ | 166 | $ | (510 | ) | $ | (344 | ) | ||||
| Six months ended June 30, 2021 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 3,316 | $ | — | $ | 3,316 | ||||||
| Cost of sales | 884 | — | 884 | |||||||||
| Gross profit | 2,432 | — | 2,432 | |||||||||
| Gross profit margin | 73 | % | 73 | % | ||||||||
| RD expense | 353 | — | 353 | |||||||||
| SGA expense | 1,581 | 467 | 2,048 | |||||||||
| Operating income (loss) | $ | 498 | $ | (467 | ) | $ | 31 | |||||
| 16 |
| Three months ended June 30, 2022 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,621 | $ | — | $ | 1,621 | ||||||
| Cost of Sales | 375 | — | 375 | |||||||||
| Gross profit | 1,246 | — | 1,246 | |||||||||
| Gross profit margin | 77 | % | 77 | % | ||||||||
| RD expense | 212 | — | 212 | |||||||||
| SGA expense | 985 | 220 | 1,205 | |||||||||
| Impairment of software | 51 | — | 51 | |||||||||
| Operating loss | $ | (2 | ) | $ | (220 | ) | $ | (222 | ) | |||
| Three months ended June 30, 2021 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,611 | $ | — | $ | 1,611 | ||||||
| Cost of Sales | 389 | — | 389 | |||||||||
| Gross profit | 1,222 | — | 1,222 | |||||||||
| Gross profit margin | 76 | % | 76 | % | ||||||||
| RD expense | 175 | — | 175 | |||||||||
| SGA expense | 816 | 226 | 1,042 | |||||||||
| Operating income (loss) | $ | 231 | $ | (226 | ) | $ | 5 | |||||
BACKLOG
As of June 30, 2022, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled $5,635,000.
RECENT DEVELOPMENTS
On January 1, 2022, 30,000 options in the aggregate were issued to directors with an exercise price of $0.63 and that vest in equal increments on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at $12,100 in the aggregate.
On January 1, 2022, 35,000 options were issued to the CEO with an exercise price of $0.63 and that vest in equal increments on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at $14,100.
On March 4, 2022, 30,770 options were issued to the Vice President of Sales with an exercise price of $0.55 and that vest in equal increments over three years on the anniversary date of the grant. These options are valued at $11,400.
On June 1, 2022, 50,000 options were issued to the CFO with an exercise price of $0.44 and that vest in equal increments on June 1, 2022, September 1, 2022, December 1, 2022 and March 1, 2023, valued at $16,000.
During June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment against the capitalized investment in this project of $51,000.
In July 2022, we announced a partnership between OmniMetrix, CPower Energy Management (“CPower”), and Power Solutions Specialists TX (“PSS”) designed to help homeowners that install next-generation standby generators to earn compensation for offering grid relief, known as “demand response,” to the Electric Reliability Council of Texas (“ERCOT”). CPower’s demand response solutions, combined with OmniMetrix’s remote control capabilities, allow the shifting of electricity production to PSS’s best-in-class residential standby generators for a few hours each year when the grid is stressed or ERCOT energy pricing is high, without the homeowner needing to take any action. Homeowners are compensated for signing up and possibly supplying grid offload by running their generators for up to 12 hours per year. We do not expect this partnership to begin generating revenue until 2023.
| 17 |
On August 19, 2019, we entered into an agreement with a software development partner to create and license to us a new software platform and application. Pursuant to this agreement, we paid this partner equal monthly payments over the first seven months of the term of the agreement equal to $200,000 in the aggregate. We will also pay the partner (i) a per-sensor monitoring fee for each sensor connected to the developed technology, or (ii) a percentage of any revenue received above a specified amount per sensor monitored per month, in gas applications only. Commencing on January 1, 2021, we paid the partner a quarterly licensing fee of $12,500 which was renegotiated to $4,450 effective October 1, 2021. The annual licensing fee moving forward will be $17,800, which will be paid in quarterly increments of $4,450. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 and would have automatically renewed for one-year periods but we delivered a written notice of termination to the other party sixty days prior to the end of the respective term. We are currently working with the software development partner to negotiate more favorable terms.
We entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The agreement had a twelve-month term. In January 2021, we elected to renew this agreement for an additional twelve months under the same terms, extending the agreement to April 30, 2022. We did not extend this agreement for an additional one-year term beyond the expiration of the previous term on April 30, 2022 and are currently under a month-to-month arrangement which we intend to terminate by the end of the third quarter of 2022. Under the applicable data hosting services agreements, we paid $38,000 and $42,000 for the three-month periods ended June 30, 2022 and 2021, respectively, and $80,000 and $79,000 for the six-month periods ended June 30, 2022 and 2021, respectively.
On March 17, 2021, we entered into a master services agreement for the development of a new user interface for our customer data portal. The cost of this project is $119,000 in design and development services ($14,000 was paid at the commencement of this project and three equal installments of $23,000 were paid monthly starting in July 2021 with the fourth and final installment to be paid upon completion and launch of the new interface). This project is substantially completed and the launch of the new customer portal is expected to occur by the end of 2022. The cost of this project is capitalized, and amortization will begin once the new interface is completed and ready to deploy.
The master services agreement also covers the design, set-up and deployment of a new Microsoft Azure cloud infrastructure to host our OmniView data servers which replaces our existing Peak 10 datacenter hosting environment. The new infrastructure provides a more modern, agile and cost-effective environment in which to grow our IoT connections and services. We invested $166,000 in this initiative during the year ended December 31, 2021 and $260,000 in the six months ended June 30, 2022, of which $116,000 was invested in the three months ended June 30, 2022. The new Microsoft Azure cloud infrastructure environment was completed and launched on May 1, 2022. The cost of this project is capitalized, and amortization over an estimated useful life of seven years began on May 1, 2022.
OVERVIEW AND TREND INFORMATION
Acorn Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology-driven solutions for energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC (“OmniMetrix”) subsidiary:
| ● | Power Generation (“PG”) monitoring. OmniMetrix’s PG activities provide wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. The PG segment includes our monitoring device for industrial air compressors and dryers, and a line of annunciators. | |
| ● | Cathodic Protection (“CP”) monitoring. OmniMetrix’s CP segment provides remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. |
Each of our PG and CP activities represents a reportable segment. The following analysis should be read together with the segment and revenue information provided in Notes 7 and 8 to the unaudited condensed consolidated financial statements included in this quarterly report.
OmniMetrix
OmniMetrix is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, and other industrial equipment) as well as cathodic protection for the pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix with 1% owned by the former CEO of OmniMetrix.
Following the emergence of machine-to-machine (M2M) and IoT applications, whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, cybersecurity threats, and other issues related to the reliability of the electric power grid. As residential and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly becoming monitored in IoT applications, and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this market.
| 18 |
Sales of OmniMetrix monitoring systems include the sale of equipment and of monitoring services. Revenue (and related costs) associated with sale of equipment are recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. Revenue and related costs with respect to the sale of equipment are recognized over the estimated life of the units which are currently estimated to be three years. Revenues from the prepayment of monitoring fees (generally paid twelve months in advance) are initially recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period.
Results of Operations
The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the six-month periods ended June 30, 2022 and 2021, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components. For segment data, see Notes 7 and 8 to the unaudited condensed consolidated financial statements included in this quarterly report. The fluctuation discussion that follows the tables contain dollar amounts that are rounded to the nearest thousand, thus, they are approximate.
| Six months ended June 30, | ||||||||||||||||||||
| 2022 | 2021 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | from 2021 to 2022 | ||||||||||||||||
| Revenue | $ | 3,372 | 100 | % | $ | 3,316 | 100 | % | 2 | % | ||||||||||
| Cost of sales | 868 | 26 | % | 884 | 27 | % | (2 | )% | ||||||||||||
| Gross profit | 2,504 | 74 | % | 2,432 | 73 | % | 3 | % | ||||||||||||
| RD expense | 410 | 12 | % | 353 | 11 | % | 16 | % | ||||||||||||
| SGA expense | 2,387 | 71 | % | 2,048 | 62 | % | 17 | % | ||||||||||||
| Impairment of software | 51 | 2 | % | — | — | % | 100 | % | ||||||||||||
| Operating (loss) income | (344 | ) | (10 | )% | 31 | 1 | % | (1210 | )% | |||||||||||
| Finance expense, net | (1 | ) | * | % | (5 | ) | * | % | (80 | )% | ||||||||||
| (Loss) income before income taxes | (345 | ) | (10 | )% | 26 | 1 | % | (1,427 | )% | |||||||||||
| Income tax expense | — | — | — | — | % | — | ||||||||||||||
| Net (loss) income | (345 | ) | (10 | )% | 26 | 1 | % | (1,427 | )% | |||||||||||
| Non-controlling interest share of net income | (1 | ) | * | % | (4 | ) | * | % | (125 | )% | ||||||||||
| Net (loss) income attributable to Acorn Energy, Inc. | $ | (346 | ) | (10 | )% | $ | 22 | 1 | % | (1,673 | )% | |||||||||
*result is less than 1%.
The following table sets forth certain information with respect to the unaudited consolidated results of operations of the Company for the three-month periods ended June 30, 2022 and 2021, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components. For segment data, see Notes 7 and 8 to the unaudited condensed consolidated financial statements included in this quarterly report.
| 19 |
| Three months ended June 30, | ||||||||||||||||||||
| 2022 | 2021 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | from
2021 to 2022 | ||||||||||||||||
| Revenue | $ | 1,621 | 100 | % | $ | 1,611 | 100 | % | 1 | % | ||||||||||
| Cost of sales | 375 | 23 | % | 389 | 24 | % | (4 | )% | ||||||||||||
| Gross profit | 1,246 | 77 | % | 1,222 | 76 | % | 2 | % | ||||||||||||
| RD expense | 212 | 13 | % | 175 | 11 | % | 21 | % | ||||||||||||
| SGA expense | 1,205 | 74 | % | 1,042 | 65 | % | 16 | % | ||||||||||||
| Impairment of software | 51 | 3 | % | — | — | % | 100 | % | ||||||||||||
| Operating (loss) income | (222 | ) | (14 | )% | 5 | * | % | (4,540 | )% | |||||||||||
| Finance expense, net | (1 | ) | — | % | (1 | ) | * | % | — | % | ||||||||||
| (Loss) Income before income taxes | (223 | ) | (14 | )% | 4 | * | % | (5,675 | )% | |||||||||||
| Income tax expense | — | — | % | — | — | % | — | % | ||||||||||||
| Net (loss) income | (223 | ) | (14 | )% | 4 | * | % | (5,675 | )% | |||||||||||
| Non-controlling interest share of net (loss) income | ** | * | % | (2 | ) | * | % | (100 | )% | |||||||||||
| Net (loss) income attributable to Acorn Energy, Inc. | $ | (223 | ) | (14 | )% | $ | 2 | * | % | (11,450 | )% | |||||||||
*result is less than 1%.
**less than $1
Revenue for the six and three months ended June 30, 2022 and 2021
In the six months ended June 30, 2022, revenue increased by $56,000, or 2%, from $3,316,000 in the six months ended June 30, 2021 to $3,372,000 in the six months ended June 30, 2022. Hardware revenue increased by $125,000 from $1,291,000 in the six months ended June 30, 2021 to $1,416,000 in the six months ended June 30, 2022. During the six months ended June 30, 2021, we recorded $112,000 in revenue from the sale of custom TG Pro units that are designed to large customer specifications and monitored by the customer and thus the revenue was not deferred. We did not have any custom unit orders in the first six months ended June 30, 2022. The hardware revenue during the six months ended June 30, 2021, excluding the revenue from the sale of the custom units, was $1,179,000; thus, the increase in hardware revenue excluding the custom units was 20%. This increase was attributed to Hero-2 and TG Pro revenue increases as well as from service income realized offset by a decrease in revenue from the TG-2 product. Monitoring revenue decreased by $69,000, or 3%, from $2,025,000 in the six months ended June 30, 2021 to $1,956,000 in the six months ended June 30, 2022. The decrease in monitoring revenue was due to the impact of the connections for which monitoring was discontinued as a result of the sunsetting 3G technology.
As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the $3,372,000 in revenue recognized in the six months ended June 30, 2022, $2,825,000 was generated by PG activities and $547,000 was generated by CP activities. This represents a decrease in revenue from PG activities of $12,000, or 0.4%, from $2,837,000 in the six months ended June 30, 2021, and an increase in revenue from CP activities of $68,000, or 14%, from $479,000 in the six months ended June 30, 2021. As noted above, the decrease in PG revenue was due to the impact of the PG connections for which monitoring was discontinued in the six months ended June 30, 2022 as a result of sunsetting 3G technology.
Revenue increased by $10,000, or 1%, from $1,611,000 in the three months ended June 30, 2021 to $1,621,000 in the three months ended June 30, 2022. Revenue was essentially flat period over period which we attribute to sales timing with significantly higher sales in first quarter 2022 that contributed to a slow down in purchasing in the second quarter 2022 in addition to concerns related to inflation and related to rising interest rates and gas prices.
| 20 |
Monitoring revenue decreased by $51,000, or 5%, from $1,017,000 in the three months ended June 30, 2021 to $966,000 in the three months ended June 30, 2022. The decrease is due to the same drivers in the six-month period as previously discussed.
Of the $1,621,000 in revenue recognized in the three months ended June 30, 2022, $1,380,000 was generated by PG activities and $241,000 was generated by CP activities. Revenue from PG activities was relatively flat period-over-period, only increasing $1,000 from $1,379,000 in the three months ended June 30, 2021. Revenue from CP activities increased $9,000, or 9%, from $232,000 in the three months ended June 30, 2021.
Gross profit for the six and three months ended June 30, 2022 and 2021
Gross profit for the six months ended June 30, 2022 was $2,504,000, reflecting a gross margin of 74%, compared with a gross profit of $2,432,000, reflecting a 73% gross margin, for the six months ended June 30, 2021. Gross margin on hardware revenue for the six months ended June 30, 2022 was 50% compared to 46% for the six months ended June 30, 2021. Gross margin on monitoring revenue for the six months ended June 30, 2022 was 92% compared to 91% for the six months ended June 30, 2021.
Gross profit for the three months ended June 30, 2022 was $1,246,000, reflecting a gross margin of 77% on revenue, compared with a gross profit for the three months ended June 30, 2021 of $1,222,000, reflecting a gross margin of 76% on revenue. Gross margin on hardware revenue for the three months ended June 30, 2022 was 55% compared to 43% for the three months ended June 30, 2021. This was attributed to revenue from custom engineering fees, accessory sales, product mix and certain price increases during the period. Gross margin on monitoring revenue for the three months ended June 30, 2022 was 92% compared to 95% for the three months ended June 30, 2021.
Operating expenses for the six and three months ended June 30, 2022 and 2021
OmniMetrix RD expense. During the six months ended June 30, 2022 and 2021, RD expense was $410,000 and $353,000, respectively. During the three months ended June 30, 2022, OmniMetrix recorded $212,000 of RD expense as compared to $175,000 in the three months ended June 30, 2021. The increase in RD expense in the six months ended June 30, 2022 of $57,000 and the increase of $37,000 for the three months ended June 30, 2022 are both related to salary increases of our engineering team effective September 1, 2021, the continued development of next generation PG and CP products and exploration into new possible product lines. We expect a moderate increase in RD expense for the remainder of 2022 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level of innovation.
OmniMetrix SGA expense. During the six months ended June 30, 2022, OmniMetrix recorded SGA expense of $1,877,000 compared to SGA costs of $1,581,000 in the six months ended June 30, 2021, an increase of $296,000, or 19%. During the three months ended June 30, 2022, OmniMetrix recorded SGA expense of $985,000 compared to SGA costs of $816,000 in the three months ended June 30, 2021, an increase of $169,000, or 21%. The increase in the six-month period was primarily due to an increase of (i) $109,000 in personnel expenses which included partial year bonuses of $16,000 which were not paid in 2021, (ii) $23,000 in travel and trade show expenses, (iii) $94,000 in technology consulting fees and software license fees, (iv) $24,000 in contractor expenses, (v) $26,000 in amortization of sales commissions and (vi) $20,000 in aggregate increases across other expense categories. The increase in the three-month period was primarily due to an increase of (i) $50,000 in personnel expenses which included the partial year bonuses noted above of $16,000 that were not paid in the second quarter of 2021, (ii) $78,000 in technology consulting fees and software license fees, and (iii) $41,000 in aggregate increases across other expense categories.
During June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment against the capitalized investment in this project of $51,000.
Corporate SGA expense. Corporate SGA expense was $510,000 in the six months ended June 30, 2022, an increase of $43,000, or 9%, from the $467,000 of corporate SGA expense reported in the six months ended June 30, 2021. This increase is primarily due to increased stock compensation expense, audit fees and insurance costs. Corporate SGA expense for the three months ended June 30, 2022 decreased $6,000, or 3%, to $220,000 from $226,000 in the three months ended June 30, 2021. Second quarter 2022 corporate SGA expense of $220,000 was lower by $70,000 than first quarter 2022 corporate SGA expense of $290,000, primarily due to expenses related to our annual audit which were incurred in the first quarter 2022. We do not expect the quarterly corporate overhead to change materially except as may be required to support the growth of our OmniMetrix subsidiary and typical annual increases in professional fees and insurance premiums.
| 21 |
Net (loss) income attributable to Acorn Energy. We recognized net loss attributable to Acorn shareholders of $346,000 in the six months ended June 30, 2022 compared to net income attributable to Acorn shareholders of $22,000 in the six months ended June 30, 2021. Our net income during the six months ended June 30, 2022 is comprised of net income at OmniMetrix of $167,000 offset by corporate expenses, including net interest expense, of $512,000 and the non-controlling interest share of our income from OmniMetrix of $1,000. Our net income in the six months ended June 30, 2021 was comprised of net income at OmniMetrix of $493,000 offset by corporate expenses of $467,000 and the non-controlling interest share of our income from OmniMetrix of $4,000.
For the three months ended June 30, 2022, we recognized net loss attributable to Acorn shareholders of $223,000 compared to net income attributable to Acorn shareholders of $2,000 for the three months ended June 30, 2021. Our net loss in the three months ended June 30, 2022 is comprised of net loss at OmniMetrix of $1,000 plus corporate expenses of $222,000. The non-controlling interest share of OmniMetrix during this period rounded to zero. Our net income in the three months ended June 30, 2021 was comprised of net income at OmniMetrix of $230,000 offset by corporate expenses of $226,000 and less the $2,000 attributed to the non-controlling interest share of our income in OmniMetrix.
Liquidity and Capital Resources
At June 30, 2022, we had negative working capital of $455,000. Our working capital includes $1,259,000 of cash and deferred revenue of $3,642,000. The deferred revenue does not require significant cash outlay for the revenue to be recognized.
During the six months ended June 30, 2022, our OmniMetrix subsidiary provided $371,000 from operations while our corporate headquarters used $565,000 during the same period.
During the six months ended June 30, 2022, we invested $266,000 in technology, primarily in the design of our new cloud server environment as well as investments in new hardware and software upgrades. In addition, we had other capital expenditures of $3,000 related to patent filings and minor leasehold improvements.
Other Liquidity Matters
OmniMetrix owes Acorn $3,660,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of $780,000 in the first half of 2022 offset by interest, dividends and other advances of $224,000 in the aggregate.
As of August 9, 2022, we had cash of $1,143,000. We believe that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for the twelve months from the issuance of these unaudited condensed consolidated financial statements in particular. We may, at some point, elect to obtain a new line of credit or other source of financing to fund additional investments in the business.
| 22 |
Contractual Obligations and Commitments
The table below provides information concerning obligations under certain categories of our contractual obligations as of June 30, 2022.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Twelve Month Periods Ending June 30, (in thousands) | ||||||||||||||||||||
| Total | 2023 | 2024-2025 | 2026-2027 | 2028 and thereafter | ||||||||||||||||
| Software agreements | $ | 17 | $ | 17 | $ | — | $ | — | $ | — | ||||||||||
| Operating leases | 419 | 126 | 260 | 33 | — | |||||||||||||||
| Contractual services | 13 | 8 | 5 | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 449 | $ | 151 | $ | 265 | $ | 33 | $ | — | ||||||||||
The Company also has $920,000 in open purchase order commitments payable through 2022.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
COVID-19 Risk
The COVID-19 pandemic could negatively affect various aspects of our business, including our workforce and supply chain, and make it more difficult and expensive to meet our obligations to our customers, and could result in reduced demand from our customers.
The outbreak of the COVID-19 pandemic caused governments around the world to implement quarantines of certain geographic areas and implement significant restrictions on travel. Several governments also implemented work restrictions that prohibit many employees from going to work, both around the world as well as in certain jurisdictions in the United States. At this time, it is unclear if foreign governments or U.S. federal, state or local governments will further extend any of the current restrictions or if further restrictions will be put into place. In addition, many countries, including the United States, have placed significant bans on international travel. It is possible that restrictions or bans on domestic travel may be implemented by U.S. federal, state or local governments. As a result of the pandemic, businesses can be shut down, supply chains can be interrupted, slowed, or rendered inoperable, and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. OmniMetrix is considered an essential business due to the fact that it provides infrastructure support to both government and commercial sectors and across key industries, so it has not been forced to shut down to date.
Governmental mandates may require forced shutdowns of our facilities for extended or indefinite periods. In addition, the pandemic could adversely affect our workforce resulting in serious health issues and absenteeism. The pandemic could also substantially interfere with general commercial activity related to our supply chain and customer base, which could have a material adverse effect on our financial condition, results of operations, business, or prospects. Some of the electronic devices and hardware we purchase, like antennas, radios, and GPS modules are very specific to our application; there are not likely to be practical alternatives. In some cases, our circuit boards were designed around specific electronic hardware that met our specifications. We are working closely with our contract manufacturers and suppliers in order to mitigate as much as possible the risks to our supply chain for these critical devices and hardware, including identifying any lead-time issues and any potential alternate sources. We are also examining all currently open purchase orders in an effort to identify whether we need to issue additional orders to secure product that is critical, already has questionable lead times and/or is unique to our requirements.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade accounts receivable. Our cash was deposited with a U.S. bank and amounted to $1,259,000 at June 30, 2022. We do not believe there is significant risk of non-performance by these counterparties. For the six- and three-month periods ended June 30, 2022, there were no customers that represented greater than 10% of our total invoiced sales or of our accounts receivable at June 30, 2022. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising our customer base.
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Fair Value of Financial Instruments
Fair values of financial instruments included in current assets and current liabilities are estimated to approximate their book values due to the short maturity of such investments.
| ITEM 4. | CONTROLS AND PROCEDURES |
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses noted in our Annual Report on Form 10-K for the year ended December 31, 2021, to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
As noted in our Annual Report on Form 10-K for the year ended December 31, 2021, we employ a decentralized internal control methodology, coupled with management’s oversight, whereby our OmniMetrix subsidiary is responsible for mitigating its risks to financial reporting by implementing and maintaining effective control policies and procedures and subsequently translating that respective risk mitigation up and through to the parent level and to our external financial statements. In addition, as our operating subsidiary is not large enough to effectively mitigate certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout our company in a manner that is feasible within the constraints in which it operates.
The material weaknesses management identified were caused by an insufficient complement of resources at our OmniMetrix subsidiary and limited IT system capabilities, such that individual control policies and procedures at the subsidiary could not be implemented, maintained, or remediated when and where necessary. As a result, a majority of the significant process areas management identified for our OmniMetrix subsidiary had one or more material weaknesses present.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
| ITEM 6. | EXHIBITS. |
| 10.1* | Amended and Restated Consulting Agreement, dated June 1, 2022, by and between the Registrant and Tracy Clifford Consulting, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 10-Q, filed June 1, 2022). |
| #31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #101.1 | The following financial statements from Acorn Energy’s Form 10-Q for the quarter ended June 30, 2022, filed on August 12, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
| * | This exhibit includes a management contract, compensatory plan or arrangement in which one or more directors or executive officers of the Registrant participate.
|
| # | This exhibit is filed or furnished herewith. |
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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 its principal financial officer thereunto duly authorized.
| ACORN ENERGY, INC. | ||
| Dated: August 12, 2022 | ||
| By: | /s/ TRACY S. CLIFFORD | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
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