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
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| None |
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| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
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| Emerging
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| Class | Outstanding at May 9, 2023 | |
| Common Stock, $0.01 par value per share |
ACORN ENERGY, INC.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 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 PER SHARE DATA)
| As of March 31, 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 | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating right-of-use assets, net | ||||||||
| Deferred COGS | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ 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 (Note 7) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Acorn Energy, Inc. stockholders | ||||||||
| Common stock - $ par value per share: Authorized – shares; issued and outstanding – and shares at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated stockholders’ deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost – shares at March 31, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Total Acorn Energy, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interests | ||||||||
| 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)
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| COGS | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development expense | ||||||||
| Selling, general and administrative expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Non-controlling interest share of net income | ( | ) | ( | ) | ||||
| Net loss attributable to Acorn Energy, Inc. stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share attributable to Acorn Energy, Inc. stockholders: | ||||||||
| Total attributable to Acorn Energy, Inc. stockholders | $ | $ | ||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic and diluted: | ||||||||
| Basic and 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 STOCKHOLDERS’ DEFICIT (UNAUDITED) (IN THOUSANDS)
| Three Months Ended March 31, 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 in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| * |
| 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. Stockholders’ Deficit | Non- controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net loss | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 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)
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ||||||||
| Impairment of inventory | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | ( | ) | ||||||
| Increase in inventory | ( | ) | ( | ) | ||||
| Decrease (increase) in deferred COGS | ( | ) | ||||||
| (Increase) decrease in other current assets and other assets | ( | ) | ||||||
| Increase in deferred revenue | ||||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Increase in accounts payable, accrued expenses, other current liabilities and non-current liabilities | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows used in investing activities: | ||||||||
| Investments in technology | ( | ) | ( | ) | ||||
| Other capital investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows provided by financing activities: | ||||||||
| Warrant exercise proceeds | ||||||||
| Net cash provided by financing activities | ̶̶̶̶̶ | |||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash at the beginning of the period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| 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. 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 periods ended March 31, 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.
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 $
Inventory
Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at net realizable value.
| 7 |
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 $
Basic net loss per share is computed by dividing the net loss attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net loss per share is computed by dividing the net 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 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
combined number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive
effect, was (which had a weighted average exercise price of $
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding: | ||||||||
| -Basic | ||||||||
| Add: Warrants | ||||||||
| Add: Stock options | ||||||||
| -Diluted | ||||||||
| Basic and diluted net 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 three-month period ended March 31, 2023.
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.
| 8 |
Recently Issued Accounting Standards
In March 2023, the FASB issued Accounting standards update No. 2016-13 (“ASU 2016-13”), which amends the application of ASU 2016-02, Leases (Topic 842), related to leases with entities under common control, also referred to as common control leases. The amendments to this update require an entity to consider the useful life of leasehold improvements associated with common control leases from the perspective of the common control group and amortize the leasehold improvements over the useful life of the assets to the common control group, instead of the term of the lease. Any remaining value for the leasehold improvement at the end of the lease would be adjusted through equity. The standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3—LIQUIDITY
As
of March 31, 2023, the Company had $
At
March 31, 2023, the Company had a negative working capital of $
As
of May 9, 2023, the Company had cash of $
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, solar installers, 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 customers’ ability to pay. These factors include the customers’ 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 March 31, 2023,
the Company had gross receivables of $
| 9 |
The following is a tabular reconciliation of the Company’s allowance for credit losses:
| As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
| (in thousands) | ||||||||
| Balance at beginning of period | $ | $ | ||||||
| Provision for credit losses | ||||||||
| Charge-offs, net of credits | ( | ) | ||||||
| Balance at end of period | $ | $ | ||||||
NOTE 5—INVENTORY
| As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
| (in thousands) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| $ | $ | |||||||
At
March 31, 2023 and December 31, 2022, the Company’s inventory reserve was $
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 three months ending March 31, | ||||||||
| 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 in excess of one year to the total operating lease liabilities recognized on the unaudited condensed balance sheet as of March 31, 2023 (in thousands):
| Year ended March 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted cash flows | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities (a) | $ | |||
| 10 |
| (a) |
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company
| Year ended March 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted cash flows | $ | |||
This sublease receivable is subject to review under ASU 2016-13, (see Notes 2 and 4); however, no credit losses are expected based on the Company’s implementation of ASU 2016-13.
NOTE 7—COMMITMENTS AND CONTINGENCIES
The
Company has $
NOTE 8—EQUITY
(a) General
At March 31, 2023 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.
(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.
| 11 |
At March 31, 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 three months ended March 31, 2023, options were issued to directors, options were issued to the Company’s CEO and options were issued to employees of the Company. In the three months ended March 31, 2023, there were grants to non-employees (other than the non-employee directors and CEO). The fair value of the options issued was $.
On May 1, 2023, options in the aggregate were issued to the Director of Software Development and Technology with an exercise price of $ vesting in equal increments over three years on the anniversary date of the grant, valued at $ in the aggregate.
No options were exercised in the three months ended March 31, 2023. The intrinsic value of options outstanding and of options exercisable at March 31, 2023 was $ and $, respectively.
Number of Options (in shares) | Weighted Average Exercise Price Per | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | $ | years | $ | |||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||||
| Outstanding at March 31, 2023 | $ | years | $ | |||||||||||||
| Exercisable at March 31, 2023 | $ | years | $ | |||||||||||||
| Risk-free interest rate | % | |||
| Expected term of options | years | |||
| Expected annual volatility | % | |||
| Expected dividend yield | % |
(c) Stock-based Compensation Expense
Stock-based compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations was $ and $ for the three-month periods ended March 31, 2023 and 2022, respectively.
The total compensation cost related to non-vested awards not yet recognized was $ as of March 31, 2023.
| 12 |
(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, 2022 | $ | months | ||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited or expired | ||||||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
NOTE 9— SEGMENT REPORTING
As of March 31, 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 touch-screen 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 RADTM (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. |
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, 2023 and 2022 (in thousands):
| PG | CP | Total | ||||||||||
| Three months ended March 31, 2023: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| Three months ended March 31, 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.
| 13 |
Reconciliation of Segment Net Income (Loss) to Consolidated Net Loss Before Income Taxes
Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Total net income before income taxes for reportable segments | $ | $ | ||||||
| Unallocated cost of corporate headquarters | ( | ) | ( | ) | ||||
| Consolidated net loss before income taxes | $ | ( | ) | $ | ( | ) | ||
NOTE 10—REVENUE
The following table disaggregates the Company’s revenue for the three-month periods ended March 31, 2023 and 2022 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Three months ended March 31, 2023: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended March 31, 2022: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
Deferred revenue activity for the three months ended March 31, 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 March 31, 2023 | $ | $ | $ | |||||||||
| Amounts to be recognized as revenue in the twelve-month-period ending: | ||||||||||||
| March 31, 2024 | $ | $ | $ | |||||||||
| March 31, 2025 | ||||||||||||
| March 31, 2026 and thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
Other
revenue of $
Deferred COGS relate only to the sale of equipment. Deferred COGS activity for the three months ended March 31, 2023 can be seen in the table below (in thousands):
| Balance at December 31, 2022 | $ | |||
| Additions, net of adjustments, during the period | ||||
| Recognized as cost of sales | ( | ) | ||
| Balance at March 31, 2023 | $ | |||
| Amounts to be recognized as COGS in the twelve-month-period ending: | ||||
| March 31, 2024 | $ | |||
| March 31, 2025 | ||||
| March 31, 2026 and thereafter | ||||
| $ |
| 14 |
Data
costs paid to AT&T and the COGS related to sales of upgrade kits, accessories and repairs of $
The following table provides a reconciliation of the Company’s sales commissions contract assets for the three-month period ended March 31, 2023 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at March 31, 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:
| March 31, 2024 | $ | |||
| March 31, 2025 | ||||
| March 31, 2026 and thereafter | ||||
| $ |
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.
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
related party balance due to Acorn from OmniMetrix for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s
behalf was $ as of March 31, 2023 as compared to $ as of December 31, 2022. This balance is eliminated in consolidation.
During the three months ended March 31, 2023, the intercompany amount due to Acorn from OmniMetrix decreased by $
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| 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, 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 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, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 1,749 | $ | — | $ | 1,749 | ||||||
| Cost of sales | 433 | — | 433 | |||||||||
| Gross profit | 1,316 | — | 1,316 | |||||||||
| Gross profit margin | 75 | % | 75 | % | ||||||||
| R&D expenses | 214 | — | 214 | |||||||||
| Selling, general and administrative expenses | 963 | 234 | 1,197 | |||||||||
| Operating income (loss) | $ | 139 | $ | (234 | ) | $ | (95 | ) | ||||
| 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 | % | ||||||||
| R&D expenses | 198 | — | 198 | |||||||||
| Selling, general and administrative expenses | 892 | 290 | 1,182 | |||||||||
| Operating income (loss) | $ | 168 | $ | (290 | ) | $ | (122 | ) | ||||
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BACKLOG
As of March 31, 2023, OmniMetrix had a backlog of $6.2 million, primarily comprised of deferred revenue, of which $4.0 million is expected to be recognized as revenue in 2023. This compares to a backlog of $5.7 million at March 31, 2022.
RECENT DEVELOPMENTS
On March 2, 2023, 35,000 warrants that were set to expire on March 16, 2023 were exercised at an exercise price of $0.13 per share by our Chief Executive Officer.
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”). 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 touch-screen 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 RADTM (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.
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 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).
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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, 2023 and March 31, 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.
| Three months ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | from 2022 to 2023 | ||||||||||||||||
| Revenue | $ | 1,749 | 100 | % | $ | 1,751 | 100 | % | ** % | |||||||||||
| Cost of sales | 433 | 25 | % | 493 | 28 | % | (12 | )% | ||||||||||||
| Gross profit | 1,316 | 75 | % | 1,258 | 72 | % | 5 | % | ||||||||||||
| R&D expenses | 214 | 12 | % | 198 | 11 | % | 8 | % | ||||||||||||
| SG&A expenses | 1,197 | 68 | % | 1,182 | 68 | % | 1 | % | ||||||||||||
| Operating loss | (95 | ) | (5 | )% | (122 | ) | (7 | )% | (22 | )% | ||||||||||
| Interest income (expense) | 11 | 1 | % | * | ** | % | 100 | % | ||||||||||||
| Loss before income taxes | (84 | ) | (5 | )% | (122 | ) | (7 | )% | (31 | )% | ||||||||||
| Income tax expense | — | — | % | — | — | % | — | % | ||||||||||||
| Net loss | (84 | ) | (5 | )% | (122 | ) | (7 | )% | (31 | )% | ||||||||||
| Non-controlling interests share of net income | (1 | ) | (** | )% | (1 | ) | (** | )% | — | % | ||||||||||
| Net loss attributable to Acorn Energy, Inc. | $ | (85 | ) | (5 | )% | $ | (123 | ) | (7 | )% | (31 | )% | ||||||||
*result is less than $1
**result is less than 1%
Revenue. Revenue in the first quarter of 2023 was $1,749,000 compared to $1,751,000 in the first quarter of 2022 which was essentially flat period over period. Monitoring revenue increased $34,000, or 3.4%, which was offset by a decrease in hardware and accessories revenue of $36,000, or 4.7%. Total revenue in the PG segment increased $62,000, or 4.3%, while total revenue in the CP segment decreased $64,000 or 20.9%.
Gross Profit. Gross profit during the three months ended March 31, 2023 was $1,316,000, reflecting a gross margin of 75% on revenue, compared with a gross profit during the three months ended March 31, 2022 of $1,258,000, reflecting a gross margin of 72%. The increase in profit margin was driven by an increase in monitoring revenue, which has a higher margin than product revenue, in addition to a change in the product mix concentration as the True Guard Pro, which is our product for Commercial and Industrial customers, has a higher profit margin than our True Guard 2 residential product.
R&D expense. During the three months ended March 31, 2023 and 2022, R&D expense was $214,000 and $198,000, respectively. The increase in R&D expense in the three months ended March 31, 2023 of approximately $16,000 is related to salary increases of our engineering team effective October 1, 2022, the continued development of next-generation PG and CP products, and exploration into new possible product lines. We expect a moderate increase in R&D expense in 2023 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level of innovation.
| 18 |
Selling, general and administrative expense. SG&A expense in the first three months of 2023 reflected an increase of $15,000, or 1%, as compared to the first three months of 2022. OmniMetrix’s SG&A expense increased $71,000, or 8%, from $892,000 in the first three months of 2022 to $963,000 in the first three months of 2023. This increase was primarily due to an increase of (i) $19,000 in data hosting and software license expenses, (ii) $15,000 in travel and trade show expenses, (iii) $10,000 in technology consulting fees, (iv) $14,000 in amortization of sales commissions, (v) $18,000 in depreciation and amortization costs primarily of IT technology investments and (vi) $6,000 in other expenses offset by $11,000 decrease in personnel expenses. Corporate SG&A expense decreased $56,000, or 19%, from $290,000 in the first three months of 2022 to $234,000 in the first three months of 2023. This decrease was due to a decrease of (i) $36,000 in audit fees due to the timing of when the services were performed as some were performed in the fourth quarter of 2022, (ii) $12,000 in stock compensation expense and (iii) $8,000 in other public company expenses.
Net loss attributable to Acorn Energy. We recognized a net loss attributable to Acorn stockholders of $85,000 in the first three months of 2023 compared to a net loss attributable to Acorn stockholders of $123,000 in the first three months of 2022. Our net loss during the three months ended March 31, 2023 is comprised of net income at OmniMetrix of $151,000 less corporate expenses of $235,000 offset by $1,000 representing the non-controlling interest share of our income from OmniMetrix. Our loss in the three months ended March 31, 2022 is comprised of net income at OmniMetrix of $168,000, less corporate expense of $290,000, offset by $1,000 representing the non-controlling interest share of our income in OmniMetrix.
Liquidity and Capital Resources
At March 31, 2023, we had a negative working capital of $580,000. Our working capital includes $1,346,000 of cash and deferred revenue of $4,047,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized.
During the three months ended March 31, 2023, our OmniMetrix subsidiary provided $164,000 from its operations, while our corporate headquarters used $247,000 during the same period.
During the three months ended March 31, 2023, we invested $26,000 in technology and received proceeds of $5,000 from financing activities related to the exercise of warrants.
Other Liquidity Matters
OmniMetrix owes Acorn $3,487,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of $253,000 in the first quarter of 2023 offset by interest, dividends and other advances of $64,000 in the aggregate.
As of May 9, 2023, we had cash of $1,543,000. 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 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, 2023.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Twelve Month Periods Ending March 31, (in thousands) | ||||||||||||||||||||
| Total | 2024 | 2025-2026 | 2027-2028 | 2029 and thereafter | ||||||||||||||||
| Software agreements | $ | 25 | $ | 25 | $ | — | $ | — | $ | — | ||||||||||
| Operating leases* | 325 | 128 | 197 | — | — | |||||||||||||||
| Contractual services | 16 | 16 | — | — | — | |||||||||||||||
| Purchase commitments** | 731 | 731 | — | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 1,097 | $ | 900 | $ | 197 | $ | — | $ | — | ||||||||||
*Reflects the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease.
**Reflects open purchase orders for components/parts to be delivered over the next twelve months as sales forecast requires.
| 19 |
| 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 $1,346,000 at March 31, 2023. The Company does not believe there is a significant risk of non-performance by these counterparties. For the three-month periods ended March 31, 2023 and 2022, there were no customers that represented greater than 10% of the Company’s total invoiced sales. Approximately 21% of the accounts receivable at March 31, 2023 was due from one customer who pays its receivables over usual credit periods. Approximately 12% of the accounts receivable at December 31, 2022 was due from one customer who pays its receivables over usual credit periods. As of May 9, 2023, we have collected 100% of the full outstanding amount of $160,000, in the aggregate, due from the one customer as of March 31, 2023. 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.
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 |
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, 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 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. This condition was further exacerbated as the Company could not demonstrate that each of the principles described within COSO’s document “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.
| 20 |
PART II
| ITEM 6. | EXHIBITS. |
| 10.1* | Consulting Agreement, dated as of January 1, 2023, 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, 2022). |
| #31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #101.1 | The following financial statements from Acorn Energy’s Form 10-Q for the quarter ended March 31, 2023, filed on May 11, 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 Equity, (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 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. |
| 21 |
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 11, 2023 | ||
| By: | /s/ TRACY S. CLIFFORD | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
| 22 |