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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
or
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
|
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|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
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|
| (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 November 7, 2023 | |
| Common Stock, $0.01 par value per share |
ACORN ENERGY, INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2023
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
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
As
of
September 30, 2023 |
As
of
December 31, 2022 |
|||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ |
|
$ |
|
||||
| Accounts receivable, net |
|
|
||||||
| Inventory, net |
|
|
||||||
| Deferred cost of goods sold (COGS) |
|
|
||||||
| Other current assets |
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|
||||||
| Total current assets |
|
|
||||||
| Property and equipment, net |
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|
||||||
| Operating right-of-use assets, net |
|
|
||||||
| Deferred COGS |
|
|
||||||
| Other assets |
|
|
||||||
| Total assets | $ |
|
$ |
|
||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ |
|
$ |
|
||||
| Accrued expenses |
|
|
||||||
| Deferred revenue |
|
|
||||||
| Operating lease liabilities |
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||||||
| Other current liabilities |
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||||||
| Total current liabilities |
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||||||
| Long-term liabilities: | ||||||||
| Deferred revenue |
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||||||
| Operating lease liabilities |
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||||||
| Other long-term liabilities |
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|
||||||
| Total long-term liabilities |
|
|
||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ deficit: | ||||||||
| Acorn Energy, Inc. stockholders | ||||||||
| Common stock - $ par value per share: Authorized – shares; issued and outstanding – and shares at September 30, 2023 and December 31, 2022, respectively * |
|
|
||||||
| Additional paid-in capital * |
|
|
||||||
| Accumulated stockholders’ deficit |
(
|
) |
(
|
) | ||||
| Treasury stock, at cost – and shares at September 30, 2023 and December 31, 2022 * |
(
|
) |
(
|
) | ||||
| Total Acorn Energy, Inc. stockholders’ deficit |
(
|
) |
(
|
) | ||||
| Non-controlling interest |
|
|
||||||
| Total stockholders’ deficit |
(
|
) |
(
|
) | ||||
| Total liabilities and stockholders’ 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)
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| COGS |
|
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|
||||||||||||
| Gross profit |
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|
||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development (R&D) expense |
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|
||||||||||||
| Selling, general and administrative (SG&A) expense |
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||||||||||||
| Impairment of software |
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|||||||||||||||
| Total operating expenses |
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|
||||||||||||
| Operating (loss) income |
(
|
) |
(
|
) |
|
(
|
) | |||||||||
| Interest income (expense), net |
|
(
|
) |
|
||||||||||||
| Income (loss) before income taxes |
|
(
|
) |
|
(
|
) | ||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) |
|
(
|
) |
|
(
|
) | ||||||||||
| Non-controlling interest share of net income |
(
|
) |
(
|
) |
(
|
) | ||||||||||
| Net income (loss) attributable to Acorn Energy, Inc. stockholders | $ |
|
$ |
(
|
) | $ |
|
$ |
(
|
) | ||||||
| Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. stockholders*: | $ | $ | ) | $ | $ | ) | ||||||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic and diluted | ||||||||||||||||
| Basic * |
|
|
|
|
||||||||||||
| Diluted * |
|
|
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|
||||||||||||
| * |
|
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 STOCKHOLDERS’ DEFICIT
(UNAUDITED) (IN THOUSANDS)
| Three and Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Number of Shares* | Common Stock* |
Additional
Paid-In Capital* |
Accumulated Deficit |
Number
of Treasury
Shares* |
Treasury
Stock* |
Total
Acorn
Energy, Inc. Stockholders’ Deficit |
Non-
controlling interests |
Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2022 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net loss | — |
(
|
) | — |
(
|
) |
|
(
|
) | |||||||||||||||||||||||||||
| Proceeds from warrant exercise |
|
** |
|
— |
|
|
||||||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of March 31, 2023 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net income | — |
|
— |
|
|
|
||||||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of June 30, 2023 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net income | — |
|
— |
|
|
|
||||||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of September 30, 2023 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Three and Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Number of Shares* | Common Stock* | Additional Paid-In Capital* | Accumulated Deficit | Number of Treasury Shares* | Treasury Stock* |
Total
Acorn
Energy, Inc. Stockholders’ Deficit |
Non-
controlling interests |
Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2021 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net loss | — |
(
|
) | — |
(
|
) |
|
(
|
) | |||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of March 31, 2022 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net loss | — |
(
|
) | — |
(
|
) | ** |
(
|
) | |||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of June 30, 2022 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| Net loss | — |
(
|
) | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||
| Accrued dividend on OmniMetrix preferred shares | — | — |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||
| Proceeds from stock option exercise |
|
** |
|
— |
|
|
||||||||||||||||||||||||||||||
| Stock option compensation | — |
|
— |
|
|
|||||||||||||||||||||||||||||||
| Balances as of September 30, 2022 |
|
$ |
|
$ |
|
$ |
(
|
) |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||||||||||
| * |
|
| ** |
|
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)
|
Nine months ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash flows provided by (used in) operating activities: | ||||||||
| Net income (loss) | $ |
|
$ |
(
|
) | |||
| Depreciation and amortization |
|
|
||||||
| Impairment of inventory |
|
|
||||||
| Impairment of software |
|
|||||||
| Non-cash lease expense |
|
|
||||||
| Stock-based compensation |
|
|
||||||
| Change in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable |
|
(
|
) | |||||
| Increase in inventory |
(
|
) |
(
|
) | ||||
| Decrease (increase) in deferred COGS |
|
(
|
) | |||||
| Increase in other current assets and other assets |
(
|
) |
(
|
) | ||||
| Increase (decrease) in accounts payable and accrued expenses |
|
(
|
) | |||||
| Increase in deferred revenue |
|
|
||||||
| Decrease in operating lease liability |
(
|
) |
(
|
) | ||||
| (Decrease) increase in other current liabilities and non-current liabilities |
(
|
) |
|
|||||
| Net cash provided by (used in) operating activities |
|
(
|
) | |||||
| Cash flows used in investing activities: | ||||||||
| Investments in technology |
(
|
) |
(
|
) | ||||
| Other capital investments |
(
|
) |
(
|
) | ||||
| Net cash used in investing activities |
(
|
) |
(
|
) | ||||
| Cash flows provided by financing activities: | ||||||||
| Stock option exercise proceeds |
|
|||||||
| Warrant exercise proceeds |
|
|||||||
| Net cash provided by financing activities |
|
|
||||||
| 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 period 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. (“Acorn”) and its subsidiaries, OmniMetrix, LLC (“OmniMetrix”) and OMX Holdings, Inc. (collectively, with Acorn and OmniMetrix, “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 nine- and three-month periods ended September 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022, filed with the Securities and Exchange Commission on March 16, 2023.
Reverse Stock Split
On
September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation
(the “Certificate of Amendment”) that provided for a
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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
As applicable to these unaudited condensed consolidated financial statements, the most significant estimates and assumptions relate to uncertainties with respect to revenue recognition and management’s projections related to the going concern analysis .
| 7 |
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 $
Inventory
Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at the lower of cost or net realizable value.
Raw materials inventory is generally comprised of radios, cables, antennas, and electrical components. Finished goods inventory consists of fully assembled systems ready for final shipment to the customer. Costs are determined at cost of acquisition on a weighted average basis and include all outside production and applicable shipping costs.
All
inventories are periodically reviewed to identify slow-moving and obsolete inventory. Management conducted an assessment and wrote-off
inventory carried at $
Revenue Recognition
On September 1, 2023, OmniMetrix launched an updated version of its products that includes new functionality in its TrueGuard, AIRGuard, Patriot and Hero products that allows its customers to have options as it relates to obtaining and utilizing the data that is provided by its hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to OmniMetrix’s over-the-air data protocol. This product update allows customers to have the option to purchase OmniMetrix’s monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire. OmniMetrix’s prior hardware product version could not function as a distinct product from its monitoring services. This new version’s functionality results in OmniMetrix’s hardware and monitoring services being capable of being two distinct products and services. OmniMetrix recognizes revenue, COGS and commissions from the sale of the new version of its hardware products sold when the product is shipped rather than over the estimated time that the unit is in service for the customer. Monitoring revenue continues to be deferred and amortized over the period that the monitoring services are rendered. The remaining balance of deferred revenue from the prior version of these products will continue to be amortized each period until it is fully amortized. The modification to the circuit boards and embedded firmware of hardware enclosures in inventory as of August 31, 2023 were made such that only the new version of these products was sold subsequent to this date.
Basic net income (loss) per share is computed by dividing the net income (loss) attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options. The dilutive effects of stock options are excluded from the computation of diluted net income (loss) per share if doing so would be antidilutive. For the nine-month period ending September 30, 2023, the weighted average 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 $ ). For the three-month period ending September 30, 2023, there were no options that were excluded from the computation of diluted net loss due to having an antidilutive effect. For both the nine- and three-month periods ending September 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 $ ).
| 8 |
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income (loss) available to common stockholders | $ |
|
$ |
(
|
) | $ |
|
$ |
(
|
) | ||||||
| Weighted average share outstanding: | ||||||||||||||||
| Basic |
|
|
|
|
||||||||||||
| Add: Stock options |
|
|
|
|
||||||||||||
| Diluted |
|
|
|
|
||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ) | $ | $ | ) | ||||||||||
Recently Adopted Accounting Standards
Other than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting standards during the nine-month period ended September 30, 2023 that would affect the Company’s condensed consolidated financial statements.
On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This guidance was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade and other receivables. The adoption of the standard impacts the way the Company estimates the allowance for doubtful accounts on its trade and other receivables. Refer to Note 4, “Allowance for Credit Losses,” for further information regarding the Company’s allowance for expected credit losses.
NOTE 3— LIQUIDITY
As
of September 30, 2023, the Company had cash of $
At
September 30, 2023, the Company had negative working capital of $
As
of November 7, 2023, the Company had cash of $
| 9 |
NOTE 4— ALLOWANCE FOR CREDIT LOSSES
For the Company, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” applies to its contract assets (deferred COGS and deferred sales commissions), lease receivables (sublease, see Note 6) and trade receivables. There are no expected or estimated credit losses on the Company’s contract assets or its lease receivable based on the Company’s implementation of ASU 2016-13.
The Company’s trade receivables primarily arise from the sale of our products to independent residential dealers, industrial distributors and dealers, national and regional retailers, equipment distributors, and certain end users with payment terms generally ranging from 30 to 60 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customer’s ability to pay. These factors include the customer’s financial condition and past payment experience.
The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on an entity-by-entity basis. The estimate of expected credit losses considers a historical loss experience rate that is adjusted for delinquency trends, collection experience, and/or economic risk where appropriate. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss.
The
Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. As of September 30,
2023, the Company had gross receivables of $
The following is a tabular reconciliation of the Company’s allowance for credit losses:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| (in thousands) | ||||||||
| Balance at beginning of period | $ |
|
$ |
|
||||
| Provision for credit losses |
|
|
||||||
| Net (charge-offs) credits |
(
|
) |
|
|||||
| Balance at end of period | $ |
|
$ |
|
||||
NOTE 5— INVENTORY
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| (in thousands) | ||||||||
| Raw materials | $ |
|
$ |
|
||||
| Finished goods |
|
|
||||||
| $ |
|
$ |
|
|||||
At
September 30, 2023 and December 31, 2022, the Company’s inventory reserve was $
All
inventories are periodically reviewed to identify slow-moving and obsolete inventory. Management conducted an assessment and wrote-off
inventory carried at $
| 10 |
NOTE 6— LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of September 30, 2025.
Supplemental cash flow information related to leases consisted of the following (in thousands):
|
For the Nine Months Ending September 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash paid for operating lease liabilities | $ |
|
$ |
|
||||
Supplemental balance sheet information related to leases consisted of the following:
| 2023 | ||||
| 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 September 30, 2023 (in thousands):
|
Year ended September 30, |
||||
| 2024 | $ |
|
||
| 2025 |
|
|||
| 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
|
Year ended September 30, |
||||
| 2024 | $ |
|
||
| 2025 |
|
|||
| Total undiscounted cash flows | $ |
|
||
| 11 |
NOTE 7— COMMITMENTS AND CONTINGENCIES
The
Company has $
NOTE 8— EQUITY
(a) General
Reverse Stock Split
On
September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation
that provided for a
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 September 30, 2023, 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 nine months ended September 30, 2023, options were issued. options were issued in the three months ended September 30, 2023. The options were issued as follows: an aggregate of to directors (excluding the CEO), to the CEO, to the CFO and an aggregate of to employees. In the nine and three months ended September 30, 2023, there were grants to non-employees (other than the directors, CEO and CFO).
No options were exercised in the nine and three months ended September 30, 2023. The intrinsic value of options outstanding and of options exercisable at September 30, 2023 was $ . 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, 2022 |
|
$ |
|
years | $ |
|
||||||||||
| Granted |
|
|
||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited or expired |
(
|
) |
|
|||||||||||||
| Outstanding at September 30, 2023 |
|
$ |
|
years | $ |
|
||||||||||
| Exercisable at September 30, 2023 |
|
$ |
|
years | $ |
|
||||||||||
| 12 |
| 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 SG&A expenses in the Company’s unaudited condensed consolidated statements of operations was $ and $ for the nine-month periods ended September 30, 2023 and 2022, respectively, and $ and $ for the three-month periods ended September 30, 2023 and 2022, respectively.
The total compensation cost related to non-vested awards not yet recognized was $ and $ as of September 30, 2023 and 2022, respectively.
(d) Warrants
The Company previously issued warrants at exercise prices equal to or greater than the 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, 2022 |
|
$ |
|
months | ||||||||
| Granted | ||||||||||||
| Exercised |
(
|
) |
|
|||||||||
| Forfeited or expired | ||||||||||||
| Outstanding at September 30, 2023 | $ | — | ||||||||||
NOTE 9— SEGMENT REPORTING
As of September 30, 2023, the Company operates in two reportable operating segments, both of which are performed through the Company’s OmniMetrix subsidiary:
| ● | Power Generation (“PG”). OmniMetrix’s PG services provide wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial power generation equipment. This includes OmniMetrix’s AIRGuard product, which remotely monitors and controls industrial air compressors, and its Smart Annunciator product, which is typically sold to commercial customers that require a visual representation of the generator’s status and has a touchscreen display that indicates the current state of that generator. | |
| ● | Cathodic Protection (“CP”). OmniMetrix’s CP services provide remote monitoring and control products for cathodic protection systems on oil and gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. OmniMetrix also offers the industry’s first RAD TM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools, which can drastically reduce a company’s expense while increasing employee safety. |
| 13 |
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 nine-month and three-month periods ended September 30, 2023 and 2022 (in thousands):
| PG | CP | Total | ||||||||||
| Nine months ended September 30, 2023: | ||||||||||||
| Revenues from external customers | $ |
|
$ |
|
$ |
|
||||||
| Segment gross profit |
|
|
|
|||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Segment income (loss) before income taxes | $ |
|
$ |
(
|
) | $ |
|
|||||
| Nine months ended September 30, 2022: | ||||||||||||
| Revenues from external customers | $ |
|
$ |
|
$ |
|
||||||
| Segment gross profit |
|
|
|
|||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Segment income (loss) before income taxes* | $ |
|
$ |
(
|
) | $ |
|
|||||
| Three months ended September 30, 2023: | ||||||||||||
| Revenues from external customers | $ |
|
$ |
|
$ |
|
||||||
| Segment gross profit |
|
|
|
|||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Segment income before income taxes | $ |
|
$ |
|
$ |
|
||||||
| Three months ended September 30, 2022: | ||||||||||||
| 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.
Reconciliation of Segment Income (Loss) to Consolidated Net Income (Loss) Before Income Taxes
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Total net income before income taxes for reportable segments | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Unallocated software impairment |
(
|
) |
|
|||||||||||||
| Unallocated cost of corporate headquarters |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Consolidated net income (loss) before income taxes | $ |
|
$ |
(
|
) | $ |
|
$ |
(
|
) | ||||||
| 14 |
NOTE 10— REVENUE
The following table disaggregates the Company’s revenue for the nine-month and three-month periods ended September 30, 2023 and 2022 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Nine months ended September 30, 2023: | ||||||||||||
| PG Segment | $ |
|
$ |
|
$ |
|
||||||
| CP Segment |
|
|
|
|||||||||
| Total Revenue | $ |
|
$ |
|
$ |
|
||||||
| Hardware | Monitoring | Total | ||||||||||
| Nine months ended September 30, 2022: | ||||||||||||
| PG Segment | $ |
|
$ |
|
$ |
|
||||||
| CP Segment |
|
|
|
|||||||||
| Total Revenue | $ |
|
$ |
|
$ |
|
||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended September 30, 2023: | ||||||||||||
| PG Segment | $ |
|
$ |
|
$ |
|
||||||
| CP Segment |
|
|
|
|||||||||
| Total Revenue | $ |
|
$ |
|
$ |
|
||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended September 30, 2022: | ||||||||||||
| PG Segment | $ |
|
$ |
|
$ |
|
||||||
| CP Segment |
|
|
|
|||||||||
| Total Revenue | $ |
|
$ |
|
$ |
|
||||||
Deferred revenue activity for the nine months ended September 30, 2023 can be seen in the table below (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2022 | $ |
|
$ |
|
$ |
|
||||||
| Additions during the period |
|
|
|
|||||||||
| Recognized as revenue |
(
|
) |
(
|
) |
(
|
) | ||||||
| Balance at September 30, 2023 | $ |
|
$ |
|
$ |
|
||||||
| Amounts to be recognized as revenue in the twelve-month-period ending: | ||||||||||||
| September 30, 2024 | $ |
|
$ |
|
$ |
|
||||||
| September 30, 2025 |
|
|
|
|||||||||
| September 30, 2026 and thereafter |
|
|
|
|||||||||
| $ |
|
$ |
|
$ |
|
|||||||
| 15 |
The
amount of hardware revenue recognized during the nine months ended September 30, 2023 that was included in deferred revenue at the beginning
of the fiscal year was $
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| Reconciliation of Hardware Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Amortization of deferred revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Sales of custom designed units and related accessories |
|
|
||||||||||||||
| Hardware sales (new product versions) |
|
|
||||||||||||||
| Other accessories, services, shipping and miscellaneous charges |
|
|
|
|
||||||||||||
| Total hardware revenue | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
Deferred charges relate only to the sale of equipment. Deferred charges activity for the nine months ended September 30, 2023 can be seen in the table below (in thousands):
| Balance at December 31, 2022 | $ |
|
||
| Additions, net of adjustments, during the period |
|
|||
| Recognized as COGS |
(
|
) | ||
| Balance at September 30, 2023 | $ |
|
||
| Amounts to be recognized as COGS in the twelve-month-period ending: | ||||
| September 30, 2024 | $ |
|
||
| September 30, 2025 |
|
|||
| September 30, 2026 and thereafter |
|
|||
| $ |
|
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| Reconciliation of COGS Expense | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Amortization of deferred COGS | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| COGS of custom designed units and related accessories |
|
|
||||||||||||||
| COGS of hardware sales (new product versions) |
|
|
||||||||||||||
| Data costs for monitoring |
|
|
|
|
||||||||||||
| Other COGS of accessories, services, shipping and miscellaneous charges |
|
|
|
|
||||||||||||
| Total COGS expense | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following table provides a reconciliation of the Company’s sales commissions contract assets for the nine-month period ended September 30, 2023 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2022 | $ |
|
$ |
|
$ |
|
||||||
| Additions during the period |
|
|
|
|||||||||
| Amortization of sales commissions |
(
|
) |
(
|
) |
(
|
) | ||||||
| Balance at September 30, 2023 | $ |
|
|
|
||||||||
The
capitalized sales commissions are included in other current assets ($
Amounts to be recognized as sales commission expense in the twelve-month-period ending:
| September 30, 2024 | $ |
|
||
| September 30, 2025 |
|
|||
| September 30, 2026 and thereafter |
|
|||
| $ |
|
| 16 |
The contract assets of deferred COGS and deferred sales commissions are subject to review under ASU 2016-13, see Notes 2 and 4; however, no credit losses on contract assets are expected based on the Company’s implementation of ASU 2016-13.
Commissions earned from the sales of the new hardware products will be recognized when the product is shipped.
NOTE 11— 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
intercompany balance due to Acorn from OmniMetrix for amounts loaned, accrued interest and expenses paid by Acorn on
OmniMetrix’s behalf was $
| 17 |
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 Annual Report on Form 10-K for the year ended December 31, 2022 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.
| Nine months ended September 30, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 5,809 | $ | — | $ | 5,809 | ||||||
| COGS | 1,453 | — | 1,453 | |||||||||
| Gross profit | 4,356 | — | 4,356 | |||||||||
| Gross profit margin | 75 | % | 75 | % | ||||||||
| R&D expense | 614 | — | 614 | |||||||||
| SG&A expense | 2,932 | 814 | 3,746 | |||||||||
| Operating income (loss) | $ | 810 | $ | (814 | ) | $ | (4 | ) | ||||
| Nine months ended September 30, 2022 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 5,155 | $ | — | $ | 5,155 | ||||||
| COGS | 1,436 | — | 1,436 | |||||||||
| Gross profit | 3,719 | — | 3,719 | |||||||||
| Gross profit margin | 72 | % | 72 | % | ||||||||
| R&D expense | 637 | — | 637 | |||||||||
| SG&A expense | 2,845 | 740 | 3,585 | |||||||||
| Impairment of software | 51 | — | 51 | |||||||||
| Operating income (loss) | $ | 186 | $ | (740 | ) | $ | (554 | ) | ||||
| 18 |
| Three months ended September 30, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 2,087 | $ | — | $ | 2,087 | ||||||
| COGS | 537 | — | 537 | |||||||||
| Gross profit | 1,550 | — | 1,550 | |||||||||
| Gross profit margin | 74 | % | 74 | % | ||||||||
| R&D expense | 212 | — | 212 | |||||||||
| SG&A expense | 990 | 340 | 1,330 | |||||||||
| Operating income (loss) | $ | 348 | $ | (340 | ) | $ | 8 | |||||
| Three months ended September 30, 2022 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,783 | $ | — | $ | 1,783 | ||||||
| COGS | 568 | — | 568 | |||||||||
| Gross profit | 1,215 | — | 1,215 | |||||||||
| Gross profit margin | 68 | % | 68 | % | ||||||||
| R&D expense | 227 | — | 227 | |||||||||
| SG&A expense | 968 | 230 | 1,198 | |||||||||
| Operating loss | $ | 20 | $ | (230 | ) | $ | (210 | ) | ||||
BACKLOG
As of September 30, 2023, OmniMetrix had a backlog of $6,211,000, primarily comprised of deferred revenue, of which $4,270,000 is expected to be recognized as revenue in the next twelve months. This compares to a backlog of $6,053,000 at September 30, 2022. Now that we are selling hardware units that are capable of being distinct, the hardware backlog will no longer continue to grow and will be fully amortized by August 31, 2026, while the monitoring backlog will continue to be deferred and amortized over the period of service.
RECENT DEVELOPMENTS
On March 17, 2021, we entered into a master services agreement for the development of a new user interface for our customer data portal. As of September 30, 2023, we have invested $178,000 in design, development and quality assurance services of the new user interface. We deployed the new interface and made it available to our customers on October 1, 2023. Our customers have the option to continue to use the “classic view” of our user interface, which is our original user interface, or our new user interface known as “OV2” until December 31, 2023 when we will officially terminate our original user interface. The cost of this project was capitalized, and amortization began on October 1, 2023 when it was deployed.
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 are currently assisting PSS to market the demand response program to generator owners and will incentivize existing generator owners who sign up and satisfy certain terms and conditions by offering a one-time rebate of $200 to anyone who signs up before March 31, 2024.
On September 1, 2023, we launched an updated version of our products that includes new functionality in our TrueGuard, AIRGuard, Patriot and Hero products that allows our customers to have options as it relates to obtaining and utilizing the data that is provided by our hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to our over-the-air data protocol. This product update allows customers to have the option to purchase our monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire, whereas, historically, our standard products only functioned with our monitoring services. The modification to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023 were made such that only the new version of these products was sold subsequent to this date.
| 19 |
On September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation (the “Certificate of Amendment”) that provided for a 1-for-16 reverse stock split of Acorn’s Common Stock (the “Reverse Stock Split”). Acorn filed the Certificate of Amendment with the Secretary of State of the State of Delaware on September 6, 2023, and the Reverse Stock Split became effective at 5:00 p.m. EDT on September 7, 2023. The Reverse Stock Split increased the market price of Acorn’s Common Stock and makes Acorn’s shares accessible to a broader range of investors, including institutions and those unable to purchase or recommend low-priced stocks. At the effective time of the Reverse Stock Split, every sixteen issued and outstanding shares of Acorn’s Common Stock were automatically combined into one issued and outstanding share of Common Stock, without any change in the par value per share. Stockholders who would have otherwise been entitled to fractional shares of Common Stock as a result of the Reverse Stock Split received a cash payment in lieu of receiving fractional shares. The value of the fractional shares repurchased was $347 and equated to fifty-eight shares. All share and per-share amounts of common stock, options and warrants contained in this Management’s Discussion and Analysis have been restated for all periods to give retroactive effect to the Reverse Stock Split and the related fractional share repurchase for all prior periods presented.
On November 7, 2023, we entered into a non-exclusive reseller agreement with one of the nation’s largest commercial generator dealers with regional dealerships throughout the United States. We believe this agreement could yield 2,500 to 3,000 new monitoring connections per year for OmniMetrix, which could represent hardware sales, start-up fees and monitoring revenue of $1 million to $2 million per year in the aggregate. Importantly, endpoints added from this relationship are expected to make a meaningful contribution to the growth of our base of recurring monitoring revenue. We expect initial revenue from this relationship to start in the first quarter of 2024 and to build as the program is rolled out across their dealer network.
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 OmniMetrix TM , LLC (“OmniMetrix”) subsidiary:
| ● | Power Generation (“PG”). OmniMetrix’s PG services provide wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial power generation equipment. This includes our AIRGuard product, which remotely monitors and controls industrial air compressors, and our Smart Annunciator product, which is typically sold to commercial customers that require a visual representation of the generator’s status and has a touchscreen display that indicates the current state of that generator. | |
| ● | Cathodic Protection (“CP”). OmniMetrix’s CP services provide remote monitoring and control products for cathodic protection systems on oil and gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. OmniMetrix also offers the industry’s first RAD TM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools, which can drastically reduce a company’s expense while increasing employee safety. |
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 9 and 10 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.
| 20 |
OmniMetrix sells monitoring hardware devices and data monitoring services. Prior to the product modification discussed above under Recent Developments, revenue (and related costs) associated with sale of equipment was recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. This deferred revenue and the deferred cost of the hardware with respect to the sale of new equipment was recognized over the life of the units, which was estimated to be three years. Revenue from hardware sales subsequent to August 31, 2023 is recognized upon shipment, instead of being deferred, as discussed above under Recent Developments. Revenues from the prepayment of monitoring fees (generally paid 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 (typically twelve-month, renewable periods).
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 nine-month periods ended September 30, 2023 and 2022, including the percentage of total revenues during each period attributable to selected components of the Statements of Operations data and for the period-to-period percentage changes in such components. For segment data, see Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
| Nine months ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues |
From
2022 to 2023 |
||||||||||||||||
| Revenue | $ | 5,809 | 100 | % | $ | 5,155 | 100 | % | 13 | % | ||||||||||
| COGS | 1,453 | 25 | % | 1,436 | 28 | % | 1 | % | ||||||||||||
| Gross profit | 4,356 | 75 | % | 3,719 | 72 | % | 17 | % | ||||||||||||
| R&D expense | 614 | 11 | % | 637 | 12 | % | (4 | )% | ||||||||||||
| SG&A expense | 3,746 | 64 | % | 3,585 | 70 | % | 4 | % | ||||||||||||
| Impairment of software | — | — | % | 51 | 1 | % | (100 | )% | ||||||||||||
| Operating loss | (4 | ) | (* | )% | (554 | ) | (11 | )% | (99 | )% | ||||||||||
| Interest income (expense), net | 46 | 1 | % | (1 | ) | * | % | (4700 | )% | |||||||||||
| Income (loss) before income taxes | 42 | 1 | % | (555 | ) | (11 | )% | (108 | )% | |||||||||||
| Income tax expense | — | — | — | — | % | — | ||||||||||||||
| Net income (loss) | 42 | 1 | % | (555 | ) | (11 | )% | (108 | )% | |||||||||||
| Less: Non-controlling interest share of net income | 7 | * | % | 1 | * | % | 600 | % | ||||||||||||
| Net income (loss) attributable to Acorn Energy, Inc. | $ | 35 | 1 | % | $ | (556 | ) | (11 | )% | (106 | )% | |||||||||
*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 September 30, 2023 and 2022, 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 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
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| Three months ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues |
from
2022 to 2023 |
||||||||||||||||
| Revenue | $ | 2,087 | 100 | % | $ | 1,783 | 100 | % | 17 | % | ||||||||||
| COGS | 537 | 26 | % | 568 | 32 | % | (5 | )% | ||||||||||||
| Gross profit | 1,550 | 74 | % | 1,215 | 68 | % | 28 | % | ||||||||||||
| R&D expense | 212 | 10 | % | 227 | 13 | % | (7 | )% | ||||||||||||
| SG&A expense | 1,330 | 64 | % | 1,198 | 67 | % | 11 | % | ||||||||||||
| Operating income (loss) | 8 | * | % | (210 | ) | (12 | )% | 104 | % | |||||||||||
| Interest income, net | 19 | 1 | % | — | — | % | 100 | % | ||||||||||||
| Income (loss) before income taxes | 27 | 1 | % | (210 | ) | (12 | )% | (113 | )% | |||||||||||
| Income tax expense | — | — | % | — | — | % | — | % | ||||||||||||
| Net income (loss) | 27 | 1 | % | (210 | ) | (12 | )% | (113 | )% | |||||||||||
| Less: Non-controlling interest share of net income | 3 | * | % | ** | * | % | * | % | ||||||||||||
| Net income (loss) attributable to Acorn Energy, Inc. | $ | 24 | 1 | % | $ | (210 | ) | (12 | )% | (111 | )% | |||||||||
*result is less than 1%.
**less than $1
Revenue for the nine and three months ended September 30, 2023 and 2022
In the nine months ended September 30, 2023, revenue increased by $654,000, or 13%, from $5,155,000 in the nine months ended September 30, 2022 to $5,809,000 in the nine months ended September 30, 2023. Hardware revenue increased by $396,000 from $2,241,000 in the nine months ended September 30, 2022 to $2,637,000 in the nine months ended September 30, 2023. During the nine months ended September 30, 2023, we recorded $136,000 in revenue from the sale of custom TG Pro units and related accessories that are designed to large customer specifications and monitored by the customer. We did not have any custom unit orders in the first nine months ended September 30, 2022. The hardware revenue during the nine months ended September 30, 2023 is further detailed in the table below:
|
Nine months ended September 30, |
Three months ended September 30, |
|||||||||||||||
| Reconciliation of Hardware Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Amortization of deferred revenue | $ | 1,821 | $ | 1,658 | $ | 629 | $ | 631 | ||||||||
| Sales of custom designed units and related accessories | 135 | — | 43 | — | ||||||||||||
| Hardware sales (new product versions) | 150 | — | 150 | — | ||||||||||||
| Other accessories, services, shipping and miscellaneous charges | 531 | 583 | 182 | 194 | ||||||||||||
| Total hardware revenue | $ | 2,637 | $ | 2,241 | $ | 1,004 | $ | 825 | ||||||||
The increase in hardware revenue was due to the sale of custom PG units (as noted above) and increased sales of other PG products as well as from installation income realized, offset by a decrease in revenue from Hero products as sales of CP products were down period over period. Monitoring revenue increased by $258,000, or 9%, from $2,914,000 in the nine months ended September 30, 2022 to $3,172,000 in the nine months ended September 30, 2023. The increase in monitoring revenue was due to an increase in the number of connections being monitored and growth in our customer base.
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As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the $5,809,000 in revenue recognized in the nine months ended September 30, 2023, $4,994,000 was generated by PG activities and $815,000 was generated by CP activities. This represents an increase in revenue from PG activities of $659,000, or 15%, from $4,435,000 in the nine months ended September 30, 2022, and a decrease in revenue from CP activities of $5,000, or 1%, from $820,000 in the nine months ended September 30, 2022. As noted above, the increase in PG revenue was due to the sale of custom units, an increase in the sale of other PG products and growth in our customer base. Revenue increased by $304,000, or 17%, from $1,783,000 in the three months ended September 30, 2022 to $2,087,000 in the three months ended September 30, 2023. The increase is due to the same drivers in the nine-month period as previously discussed.
Of the $2,087,000 in revenue recognized in the three months ended September 30, 2023, $1,798,000 was generated by PG activities and $289,000 was generated by CP activities. As compared to the three months ended September 30, 2022, revenue from PG activities increased $288,000, or 19%, and revenue from CP activities increased $16,000, or 6%.
Gross profit for the nine and three months ended September 30, 2023 and 2022
Gross profit for the nine months ended September 30, 2023 was $4,356,000, reflecting a gross margin of 75%, compared with a gross profit of $3,719,000, reflecting a gross margin of 72%, for the nine months ended September 30, 2022.
Gross margin on hardware revenue for the nine months ended September 30, 2023 was 53% compared to 47% for the nine months ended September 30, 2022. Gross margin on monitoring revenue for the nine months ended September 30, 2023 was 93% compared to 91% for the nine months ended September 30, 2022.
Gross profit for the three months ended September 30, 2023 was $1,550,000, reflecting a gross margin of 74%, compared with a gross profit for the three months ended September 30, 2022 of $1,215,000, reflecting a gross margin of 68%. Gross margin on hardware revenue for the three months ended September 30, 2023 was 54% compared to 43% for the three months ended September 30, 2022. Cost of sales in the three and nine months ended September 30, 2022 included a write-off of $31,000 in obsolete CP parts inventory which was the primary reason for lower gross margin during these prior year periods. Gross margin on monitoring revenue for the three months ended September 30, 2023 was 93% compared to 90% for the three months ended September 30, 2022. The lower monitoring gross margin in the prior year periods was due to monitoring rebates that were given to two large customers during the three months ended September 30, 2022.
Operating expenses for the nine and three months ended September 30, 2023 and 2022
OmniMetrix R&D expense. During the nine months ended September 30, 2023 and 2022, R&D expense was $614,000 and $637,000, respectively. During the three months ended September 30, 2023, OmniMetrix recorded $212,000 of R&D expense as compared to $227,000 in the three months ended September 30, 2022. The decrease in R&D expense in the nine months ended September 30, 2023 of $23,000 is due to a reduction of R&D hours related to the phased retirement of one of our engineers partially offset by increased engineering consulting expenses.
OmniMetrix SG&A expense. During the nine months ended September 30, 2023, OmniMetrix recorded SG&A expense of $2,932,000, compared to SG&A expense of $2,845,000 in the nine months ended September 30, 2022, an increase of $87,000, or 3%. During the three months ended September 30, 2023, OmniMetrix recorded SG&A expense of $990,000, compared to SG&A expense of $968,000 in the three months ended September 30, 2022, an increase of $22,000, or 2%. The increase in the nine-month period was primarily due to an increase of (i) $45,000 in sales commission amortization, (ii) $30,000 in amortization primarily related to IT assets, (iii) $83,000 in personnel costs, (iv) $5,000 in net aggregate increases in other expense categories, offset by decreases of (v) $66,000 in technology consulting and software license fees and (vi) $10,000 in travel and trade show expenses.
During September 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 September 30, 2022 and recorded an impairment against the capitalized investment in this project of $51,000.
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Corporate SG&A expense . Corporate SG&A expense was $814,000 in the nine months ended September 30, 2023, an increase of $74,000, or 10%, from the $740,000 of corporate SG&A expense reported in the nine months ended September 30, 2022. This increase was due to $102,000 in expenses related to the execution of the reverse stock split offset by a decrease of (i) $15,000 in audit fees due to the timing of when the services were performed as some were performed in the fourth quarter of 2022 versus first quarter of 2023, (ii) $20,000 in stock compensation expense, (iii) $9,000 in insurance expenses offset by a net increase of (iv) $16,000 in other public company expenses.
Corporate SG&A expense for the three months ended September 30, 2023 increased $110,000, or 48%, to $340,000 from $230,000 in the three months ended September 30, 2022 primarily due to $102,000 in expenses related to the execution of the reverse stock split. Third quarter 2023 corporate SG&A expense of $340,000 was higher by $100,000 than second quarter 2023 corporate SG&A expense of $240,000 due to the expenses related to the execution of the reverse stock split which were incurred in the third quarter of 2023. We expect the quarterly corporate overhead to increase in future quarters due to increased audit fees and board fees in addition to costs that may be required to support the growth of our OmniMetrix subsidiary.
Net income (loss) attributable to Acorn Energy. We recognized net income attributable to Acorn stockholders of $35,000 in the nine months ended September 30, 2023, compared to net loss attributable to Acorn stockholders of $556,000 in the nine months ended September 30, 2022. Our net income during the nine months ended September 30, 2023 is comprised of net income at OmniMetrix of $856,000 offset by corporate expenses of $814,000 and the non-controlling interest share of our income from OmniMetrix of $7,000. Our net loss during the nine months ended September 30, 2022 is comprised of net income at OmniMetrix of $52,000 offset by corporate expenses, including net interest expense, of $607,000 and the non-controlling interest share of our income from OmniMetrix of $1,000.
For the three months ended September 30, 2023, we recognized net income attributable to Acorn stockholders of $24,000, compared to a net loss attributable to Acorn stockholders of $210,000 for the three months ended September 30, 2022. Our net income during the three months ended September 30, 2023 is comprised of net income at OmniMetrix of $366,000 offset by corporate expenses of $339,000 and the non-controlling interest share of our income from OmniMetrix of $3,000. Our net loss in the three months ended September 30, 2022 is comprised of net income at OmniMetrix of $19,000 offset by corporate expenses of $229,000. The non-controlling interest share of OmniMetrix during this period was less than $1,000 and rounded to zero.
Liquidity and Capital Resources
At September 30, 2023, we had negative working capital of $513,000. Our working capital includes $1,749,000 of cash and deferred revenue of $4,270,000. The deferred revenue does not require a significant cash outlay for the revenue to be recognized.
During the nine months ended September 30, 2023, our OmniMetrix subsidiary provided $1,098,000 from operations while our corporate headquarters used $732,000 during the same period.
During the nine months ended September 30, 2023, we invested $72,000 in technology and other capital projects and received proceeds of $5,000 from financing activities related to the exercise of warrants.
Other Liquidity Matters
OmniMetrix owes Acorn $2,928,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of $961,000 in the nine months ended September 30, 2023 offset by interest, dividends and other advances of $212,000 in the aggregate. The intercompany balances are eliminated in consolidation.
As of November 7, 2023, we had cash of $1,684,000. 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 twelve months from the issuance of these unaudited condensed consolidated financial statements. 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.
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Contractual Obligations and Commitments
The table below provides information concerning obligations under certain categories of our contractual obligations as of September 30, 2023.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Twelve Month Periods Ending September 30, (in thousands) | ||||||||||||||||||||
| Total | 2024 | 2025-2026 | 2027-2028 | 2029 and thereafter | ||||||||||||||||
| Software agreements | $ | 8 | $ | 8 | $ | — | $ | — | $ | — | ||||||||||
| Operating leases* | 261 | 130 | 131 | — | — | |||||||||||||||
| Contractual services | 7 | 7 | — | — | — | |||||||||||||||
| Purchase commitments** | 603 | 603 | — | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 879 | $ | 748 | $ | 131 | $ | — | $ | — | ||||||||||
*Reflects the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease and it is gross of the imputed interest of $11,000.
**Reflects open purchase orders for components/parts to be delivered over the next twelve months as sales forecast requires.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
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 $1,749,000 at September 30, 2023. The Company does not believe there is a significant risk of non-performance by its counterparties. For the three-month period ended September 30, 2023, there were no customers that represented greater than 10% of the Company’s total invoiced sales. For the nine-month period ended September 30, 2023, there was one customer that represented 11% of the Company’s total invoiced sales. At September 30, 2023, the Company did not have any customers that represented greater than 10% of our total accounts receivable. Approximately 12% of the accounts receivable at December 31, 2022 was due from one customer which was subsequently collected in full. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising the Company’s customer base. Although we do not believe there is significant risk of non-performance by these counterparties, any failures or defaults on their part could negatively impact the value of our financial instruments and could have a material adverse effect on our business, operations or financial condition.
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, 2022, 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, 2022, 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 ERP 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. This condition was further exacerbated as the Company could not demonstrate that each of the principles described within the Committee of Sponsoring Organizations of the Treadway Commission’s document entitled “Internal Control - Integrated Framework (2013)” were present and functioning.
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. |
| #3.1 | Amended and Restated Certificate of Incorporation of the Registrant |
| #3.2 | Amended By-laws of the Registrant |
| #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 September 30, 2023, filed on November 9, 2023, 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 Deficit, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
| #104.1 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| # | This exhibit is filed or furnished herewith. |
| 26 |
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: November 9, 2023 | ||
| By: | /s/ TRACY S. CLIFFORD | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
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