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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 May 11, 2022 | |
| Common Stock, $0.01 par value per share |
ACORN ENERGY, INC.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 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 March 31, 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 | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Deficit: | ||||||||
| Acorn Energy, Inc. shareholders | ||||||||
| Common stock - $ par value per share: Authorized – shares; Issued – shares at March 31, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost – shares at March 31, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Total Acorn Energy, Inc. shareholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interests | ||||||||
| 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)
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development expense | ||||||||
| Selling, general and administrative expense | ||||||||
| 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: | ||||||||
| Total 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 Months Ended March 31, 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Three Months Ended March 31, 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
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)
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | ( | ) | ||||||
| Increase in inventory | ( | ) | ( | ) | ||||
| (Increase) decrease in deferred cost of goods sold | ( | ) | ||||||
| Decrease (increase) in other current assets and other assets | ( | ) | ||||||
| Increase (decrease) in deferred revenue | ( | ) | ||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Increase in accounts payable, accrued expenses, other current liabilities and non-current liabilities | ||||||||
| Net cash 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 increase (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 CEO of OmniMetrix | $ | $ | ||||||
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 and consequently have been condensed. 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 three-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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 approximately $
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 per share if doing so would be antidilutive. The weighted average number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately (which have a weighted average exercise price of $) and approximately (which have a weighted average exercise price of $), respectively, for the three-month period ending March 31, 2022. The weighted average number of options and warrants, in the aggregate, that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately (which have a weighted average exercise price of $) and approximately (which have a weighted average exercise price of $) for the three-month periods ending March 31, 2022 and 2021, respectively.
| 7 |
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net (loss) income available to common stockholders | $ | ( | ) | $ | ||||
| Weighted average shares 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 three-month period ended March 31, 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 unaudited condensed consolidated financial statements and related disclosures.
| 8 |
NOTE 3—LIQUIDITY
As
of March 31, 2022, the Company had approximately $
At
March 31, 2022, the Company had a negative working capital of approximately $
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 has 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.
As
of May 11, 2022, the Company had cash of approximately $
NOTE 4—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of September 30, 2025.
| 9 |
Supplemental cash flow information related to leases consisted of the following (in thousands):
For the three months ending March 31, | ||||||||
| 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 in excess of one year to the total operating lease liabilities recognized on the unaudited condensed balance sheet as of March 31, 2022 (in thousands):
| Twelve-month period ended March 31, | ||||
| 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
| Twelve-month period ended March 31, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted cash flows | $ | |||
| 10 |
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 approximately $
NOTE 6—EQUITY
(a) General
At March 31, 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, as 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.
| 11 |
(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 three-year period from the date of the grant.
At March 31, 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 March 31, 2022, options were issued to directors, options were issued to the Company’s CEO and options were issued to the Company’s vice president of sales. In the three months ended March 31, 2022, there were grants to non-employees (other than the non-employee directors and CEO). The fair value of the options issued was approximately $.
options were exercised in the three months ended March 31, 2022. The intrinsic value of options outstanding and of options exercisable at March 31, 2022 was approximately $ and $, respectively.
Number of Options (in shares) | Weighted Average Exercise Price
Per | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| Outstanding at December 31, 2021 | $ | years | $ | |||||||||||
| Granted | ||||||||||||||
| Exercised | ||||||||||||||
| Forfeited or expired | ||||||||||||||
| Outstanding at March 31, 2022 | $ | years | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | years | $ | |||||||||||
| Risk-free interest rate | % | |||
| Expected term of options | years | |||
| Expected annual volatility | % | |||
| Expected dividend yield | % |
| 12 |
(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 approximately $ and $ for the three-month periods ended March 31, 2022 and 2021, respectively.
The total compensation cost related to non-vested awards not yet recognized was approximately $ as of March 31, 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 March 31, 2022 | $ | months | ||||||||||
NOTE 7— SEGMENT REPORTING
As
of March 31, 2022, the Company operates in
| ● | The Power Generation (“PG”) segment provides wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. | |
| ● | The 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 three-month periods ended March 31, 2022 and 2021 (in thousands):
| PG | CP | Total | ||||||||||
| Three months ended March 31, 2022: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| Three months ended March 31, 2021: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| 13 |
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.
Reconciliation of Segment Net Income (Loss) to Consolidated Net (Loss) Income Before Income Taxes
Three months ended March 31, | ||||||||
| 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 three-month periods ended March 31, 2022 and 2021 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Three months ended March 31, 2022: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended March 31, 2021: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
Deferred revenue activity for the three months ended March 31, 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 March 31, 2022 | $ | $ | $ | |||||||||
| Amounts to be recognized as revenue in the twelve-month-period ending: | ||||||||||||
| March 31, 2022 | $ | $ | $ | |||||||||
| March 31, 2023 | ||||||||||||
| March 31, 2024 and thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
| 14 |
Other
revenue of approximately $
Deferred charges relate only to the sale of equipment. Deferred charges activity for the three months ended March 31, 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 March 31, 2022 | $ | |||
| Amounts to be recognized as cost of sales in the twelve-month-period ending: | ||||
| March 31, 2022 | $ | |||
| March 31, 2023 | * | |||
| March 31, 2024 and thereafter | * | |||
| $ |
Other
COGS recognized of approximately $
| * |
The following table provides a reconciliation of the Company’s sales commissions contract assets for the three-month period ended March 31, 2022 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at March 31, 2022 | $ | $ | $ | |||||||||
The
capitalized sales commissions are included in other current assets (approximately $
| 15 |
| 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 of 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.
FINANCIAL RESULTS BY COMPANY
The following tables show, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.
| Three months ended March 31, 2022 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,751 | $ | — | $ | 1,751 | ||||||
| Cost of sales | 493 | — | 493 | |||||||||
| Gross profit | 1,258 | — | 1,258 | |||||||||
| Gross profit margin | 72 | % | 72 | % | ||||||||
| RD expenses | 198 | — | 198 | |||||||||
| Selling, general and administrative expenses | 892 | 290 | 1,182 | |||||||||
| Operating income (loss) | $ | 168 | $ | (290 | ) | $ | (122 | ) | ||||
| Three months ended March 31, 2021 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,705 | $ | — | $ | 1,705 | ||||||
| Cost of sales | 495 | — | 495 | |||||||||
| Gross profit | 1,210 | — | 1,210 | |||||||||
| Gross profit margin | 71 | % | 71 | % | ||||||||
| RD expenses | 178 | — | 178 | |||||||||
| Selling, general and administrative expenses | 765 | 241 | 1,006 | |||||||||
| Operating income (loss) | $ | 267 | $ | (241 | ) | $ | 26 | |||||
| 16 |
BACKLOG
As of March 31, 2022, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled approximately $5.7 million.
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 approximately $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 approximately $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 approximately $11,400.
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 but will automatically renew for one-year periods unless either party delivers a written notice of termination to the other party sixty days prior to the end of the respective term.
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 second quarter of 2022. Under the applicable data hosting services agreements, we paid approximately $41,000 and $37,000 for the three-month periods ended March 31, 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 approximately $119,000 in design and development services ($14,000 was paid at the commencement of this project and three equal installments of approximately $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 in the second quarter of 2022.
The cost of this project is capitalized and amortization will begin once the new interface is completed and ready to deploy.
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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 will replace our existing Peak 10 datacenter hosting environment. The new infrastructure will provide a more modern, agile and cost-effective environment in which to grow our IoT connections and services. We invested approximately $166,000 in this initiative during the year ended December 31, 2021 and approximately $144,000 in the three months ended March 31, 2022. The new Microsoft Azure cloud infrastructure environment was completed and launched on May 1, 2022. The estimated additional investment subsequent to the end of the quarter and up to the launch date is approximately $70,000.
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 interim 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, and cybersecurity threats. 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.
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.
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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 three-month periods ended March 31, 2022 and March 31, 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.
| Three months ended March 31, | ||||||||||||||||||||
| 2022 | 2021 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | from
2021 to 2022 | ||||||||||||||||
| Revenue | $ | 1,751 | 100 | % | $ | 1,705 | 100 | % | 3 | % | ||||||||||
| Cost of sales | 493 | 28 | % | 495 | 29 | % | * | % | ||||||||||||
| Gross profit | 1,258 | 72 | % | 1,210 | 71 | % | 4 | % | ||||||||||||
| RD expenses | 198 | 11 | % | 178 | 10 | % | 11 | % | ||||||||||||
| SGA expenses | 1,182 | 68 | % | 1,006 | 59 | % | 17 | % | ||||||||||||
| Operating (loss) income | (122 | ) | (7 | )% | 26 | 2 | % | (569 | )% | |||||||||||
| Finance expense, net | — | * | % | (4 | ) | * | % | 100 | % | |||||||||||
| (Loss) income before income taxes | (122 | ) | (7 | )% | 22 | 1 | % | (655 | )% | |||||||||||
| Income tax expense | — | — | % | — | — | % | — | % | ||||||||||||
| Net (loss) income | (122 | ) | (7 | )% | 22 | 1 | % | (655 | )% | |||||||||||
| Non-controlling interests share of net loss (income) | 1 | * | % | (2 | ) | * | % | (150 | )% | |||||||||||
| Net (loss) income attributable to Acorn Energy, Inc. | $ | (123 | ) | (7 | )% | $ | 20 | 1 | % | (715 | )% | |||||||||
*result is less than 1%.
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Revenue. Revenue increased by approximately $46,000, or 3%, from approximately $1,705,000 in the first quarter of 2021 to approximately $1,751,000 in the first quarter of 2022. OmniMetrix’s increased revenue during the quarter was primarily attributable to increased hardware and accessories sales, which increased approximately $64,000, or 9%, from approximately $697,000 in the first quarter of 2021 to approximately $761,000 in the first quarter of 2022. During the three months ended March 31, 2021, we recorded approximately $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 three months ended March 31, 2022. The hardware revenue during the three months ended March 31, 2021, excluding the revenue from the sale of the custom units, was approximately $585,000; thus, the increase in hardware revenue excluding the custom units was approximately 30%. This increase was due to an increase in the number of TG-2 and Hero-2 units sold during the first quarter of 2022. Monitoring revenue decreased by approximately $18,000, or 2%, from approximately $1,008,000 in the first quarter of 2021 to approximately $990,000 in the first quarter of 2022. The decrease in monitoring revenue was due to the impact of the connections that dropped off as a result of the sunsetting 3G technology.
As discussed above, OmniMetrix has two reportable segments, PG and CP. Approximately $1,445,000 of $1,751,000 in revenue recognized in the three months ended March 31, 2022, was generated by PG activities and approximately $306,000 was generated by CP activities. This represents a decrease in revenue from PG activities of approximately $13,000, or 1%, from approximately $1,458,000 in the three months ended March 31, 2021, and an increase in revenue from CP activities of approximately $59,000, or 24%, from approximately $247,000 in the three months ended March 31, 2021. As noted above, the decrease in PG revenue was due to approximately $112,000 in revenue from the sale of custom designed units in the first quarter of 2021 that did not recur in the first quarter of 2022, in addition to the impact of the PG connections that dropped off in the first quarter of 2022 as a result of sunsetting 3G technology.
Gross Profit. Gross profit during the three months ended March 31, 2022 was approximately $1,258,000, reflecting a gross margin of 72% on revenue, compared with a gross profit during the three months ended March 31, 2021 of $1,210,000, reflecting a gross margin of 72%. Due to the increase in manufacturing component costs as a result of supply chain constraints, gross margin on hardware revenue for the three months ended March 31, 2022 was 45% compared to 49% for the three months ended March 31, 2021. This was offset by an increase in the gross margin on monitoring revenue which was 92% for the three months ended March 31, 2022 compared to 86% during the three months ended March 31, 2021.
RD expense. During the three months ended March 31, 2022 and 2021, RD expense was $198,000 and $178,000, respectively. The increase in RD expense in the three months ended March 31, 2022 of approximately $20,000 is 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.
Selling, general and administrative expense. SGA expense in the first three months of 2022 reflected an increase of approximately $176,000, or 17%, as compared to the first three months of 2021. OmniMetrix’s SGA expense increased approximately $127,000, or 17%, from approximately $765,000 in the first three months of 2021 to approximately $892,000 in the first three months of 2022. This increase was primarily due to an increase of approximately (i) $73,000 in personnel expenses, (ii) $26,000 in travel and trade show expenses, (iii) $15,000 in technology consulting fees, and (iv) $13,000 in amortization of sales commissions. Corporate SGA expense increased approximately $49,000, or 20%, from approximately $241,000 in the first three months of 2021 to approximately $290,000 in the first three months of 2022. This increase was due to an increase of approximately (i) $26,000 in audit fees, (ii) $14,000 in stock compensation expense and (iii) $9,000 in other public company expenses.
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Net income (loss) attributable to Acorn Energy. We recognized a net loss attributable to Acorn shareholders of approximately $123,000 in the first three months of 2022 compared to net income attributable to Acorn shareholders of approximately $20,000 in the first three months of 2021. Our loss in the three months ended March 31, 2022 is comprised of net income at OmniMetrix of approximately $168,000, less corporate expense of approximately $290,000, offset by approximately $1,000 representing the non-controlling interest share of our income in OmniMetrix. Our net income during the three months ended March 31, 2021 is comprised of net income at OmniMetrix of approximately $263,000 less corporate expenses of approximately $241,000 offset by approximately $2,000 representing the non-controlling interest share of our income from OmniMetrix.
Liquidity and Capital Resources
At March 31, 2022, we had a negative working capital of approximately $202,000. Our working capital includes approximately $1,784,000 of cash and deferred revenue of approximately $3,652,000. Such deferred revenue does not require significant cash outlay for the revenue to be recognized.
During the three months ended March 31, 2022, our OmniMetrix subsidiary provided approximately $511,000 from its operations, while our corporate headquarters used approximately $290,000 during the same period.
During the three months ended March 31, 2022, we invested approximately $157,000 in technology including user-interface development and design of a cloud server environment as well as investments in new hardware and software upgrades. In addition, we had other capital expenditures of approximately $2,000 related to minor leasehold improvements.
Other Liquidity Matters
OmniMetrix owes Acorn approximately $4,054,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of $275,000 in the first quarter of 2022 offset by interest, dividends and other advances of approximately $113,000 in the aggregate.
As of May 11, 2022, we had cash of approximately $1,335,000. 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.
Contractual Obligations and Commitments
The table below provides information concerning obligations under certain categories of our contractual obligations as of March 31, 2022.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Twelve Month Periods Ending March 31, (in thousands) | ||||||||||||||||||||
| Total | 2023 | 2024-2025 | 2026-2027 | 2028 and thereafter | ||||||||||||||||
| Software agreements | $ | 28 | $ | 28 | $ | — | $ | — | $ | — | ||||||||||
| Operating leases | 450 | 125 | 259 | 66 | — | |||||||||||||||
| Contractual services | 28 | 20 | 8 | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 506 | $ | 173 | $ | 267 | $ | 66 | $ | — | ||||||||||
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| 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 approximately $1,784,000 at March 31, 2022. We do not believe there is significant risk of non-performance by these counterparties. For the three months ended March 31, 2022, we did not have any customers that represented more than 10% of the total invoiced sales. For the three months ended March 31, 2021, one customer represented approximately 11% of total invoiced sales. Approximately 10% of the accounts receivable at March 31, 2022 was due from one customer who pays its receivables over usual credit periods. As of May 11, 2022, we have collected the full outstanding amount of approximately $84,000 due from this customer as of March 31, 2022. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising our customer base.
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.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure 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* | Consulting Agreement, dated as of January 1, 2022, by and between Acorn Energy, Inc. and Jan H. Loeb (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021). |
| #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 March 31, 2022, filed on May 13, 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: May 13, 2022 | ||
| By: | /s/ TRACY S. CLIFFORD | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
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