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ACORN ENERGY, INC. - Quarter Report: 2023 September (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number: 001-33886

 

ACORN ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   22-2786081

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1000 N West Street, Suite 1200, Wilmington,

Delaware

  19801
(Address of principal executive offices)   (Zip Code)

 

410-654-3315

(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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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 ☐
  Non-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 ☐ No

 

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   2,484,791

 

 

 

 
 

 

ACORN ENERGY, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2023

 

TABLE OF CONTENTS

 

  PAGE
PART I Financial Information  
   
Item 1. Unaudited Condensed Consolidated Financial Statements: 3
   
Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 3
   
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 4
   
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2023 and 2022 5
   
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 6
   
Notes to Condensed Consolidated Financial Statements 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
   
Item 4. Controls and Procedures 25
   
PART II Other Information  
   
Item 6. Exhibits 26
   
Signatures 27

 

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  $1,749   $1,450 
Accounts receivable, net   583    597 
Inventory, net   909    789 
Deferred cost of goods sold (COGS)   890    887 
Other current assets   343    288 
Total current assets   4,474    4,011 
Property and equipment, net   610    653 
Operating right-of-use assets, net   220    298 
Deferred COGS   642    807 
Other assets   209    215 
Total assets  $6,155   $5,984 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $444   $243 
Accrued expenses   127    171 
Deferred revenue   4,270    3,984 
Operating lease liabilities   121    116 
Other current liabilities   25    58 
Total current liabilities   4,987    4,572 
Long-term liabilities:          
Deferred revenue   1,941    2,187 
Operating lease liabilities   129    220 
Other long-term liabilities   19    16 
Total long-term liabilities   2,089    2,423 
Commitments and contingencies (Note 7)   -     -  
Stockholders’ deficit:          
Acorn Energy, Inc. stockholders          
Common stock - $0.01 par value per share: Authorized – 42,000,000 shares; issued and outstanding – 2,484,791 and 2,482,604 shares at September 30, 2023 and December 31, 2022, respectively*   25    25 
Additional paid-in capital*   103,312    103,261 
Accumulated stockholders’ deficit   (101,232)   (101,267)
Treasury stock, at cost – 50,178 and 50,178 shares at September 30, 2023 and December 31, 2022*   (3,036)   (3,036)
Total Acorn Energy, Inc. stockholders’ deficit   (931)   (1,017)
Non-controlling interest   10    6 
Total stockholders’ deficit   (921)   (1,011)
Total liabilities and stockholders’ deficit  $6,155   $5,984 

 

*Includes effects of a 1-for-16 reverse stock split.

 

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)

 

   2023   2022   2023   2022 
  

Nine months ended

September 30,

  

Three months ended

September 30,

 
   2023   2022   2023   2022 
                 
Revenue  $5,809   $5,155   $2,087   $1,783 
COGS   1,453    1,436    537    568 
Gross profit   4,356    3,719    1,550    1,215 
Operating expenses:                    
Research and development (R&D) expense   614    637    212    227 
Selling, general and administrative (SG&A) expense   3,746    3,585    1,330    1,198 
Impairment of software       51         
Total operating expenses   4,360    4,273    1,542    1,425 
Operating (loss) income   (4)   (554)   8    (210)
Interest income (expense), net   46    (1)   19     
Income (loss) before income taxes   42    (555)   27    (210)
Income tax expense                
Net income (loss)   42    (555)   27    (210)
Non-controlling interest share of net income   (7)   (1)   (3)    
Net income (loss) attributable to Acorn Energy, Inc. stockholders  $35   $(556)  $24   $(210)
                     
Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. stockholders*:  $0.01   $(0.22)  $0.01   $(0.08)
Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic and diluted                    
Basic*   2,484    2,481    2,485    2,481 
Diluted*   2,506    2,481    2,532    2,481 

 

*Includes effects of a 1-for-16 reverse stock split.

 

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)

 

   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 
   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   2,483   $25   $103,261   $(101,267)   50   $(3,036)  $(1,017)  $6   $(1,011)
Net loss               (85)           (85)   1    (84)
Proceeds from warrant exercise   2    -**    5                5        5 
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Stock option compensation           17                17        17 
Balances as of March 31, 2023   2,485   $25   $103,283   $(101,352)   50   $(3,036)  $(1,080)  $6   $(1,074)
Net income               96            96    3    99 
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Stock option compensation           13                13        13 
Balances as of June 30, 2023   2,485   $25   $103,296   $(101,256)   50   $(3,036)  $(971)  $8   $(963)
Net income               24            24    3    27 
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Stock option compensation           16                16        16 
Balances as of September 30, 2023   2,485   $25   $103,312   $(101,232)   50   $(3,036)  $(931)  $10   $(921)

 

   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   2,480   $25   $103,176   $(100,634)   50   $(3,036)  $(469)  $8   $(461)
Net loss               (123)           (123)   1    (122)
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Stock option compensation           31                31        31 
Balances as of March 31, 2022   2,480   $25   $103,207   $(100,757)   50   $(3,036)  $(561)  $8   $(553)
Net loss               (223)           (223)   -**    (223)
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Stock option compensation           22                22        22 
Balances as of June 30, 2022   2,480   $25   $103,229   $(100,980)   50   $(3,036)  $(762)  $7   $(755)
                                              
Net loss               (210)           (210)       (210)
                                              
Accrued dividend on OmniMetrix preferred shares                               (1)   (1)
Proceeds from stock option exercise   2    -**    5                5        5 
Stock option compensation           16                16        16 
Balances as of September 30, 2022   2,482   $25   $103,250   $(101,190)   50   $(3,036)  $(951)  $6   $(945)

 

*Includes effects of a 1-for-16 reverse stock split.

 

**Less than $1.

 

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)

 

   2023   2022 
  

Nine months ended

September 30,

 
   2023   2022 
Cash flows provided by (used in) operating activities:          
Net income (loss)  $42   $(555)
Depreciation and amortization   115    83 
Impairment of inventory   9    31 
Impairment of software       51 
Non-cash lease expense   96    93 
Stock-based compensation   46    69 
Change in operating assets and liabilities:          
Decrease (increase) in accounts receivable   14    (41)
Increase in inventory   (129)   (317)
Decrease (increase) in deferred COGS   162    (158)
Increase in other current assets and other assets   (49)   (62)
Increase (decrease) in accounts payable and accrued expenses   157    (91)
Increase in deferred revenue   40    660 
Decrease in operating lease liability   (104)   (97)
(Decrease) increase in other current liabilities and non-current liabilities   (33)   23 
Net cash provided by (used in) operating activities   366    (311)
           
Cash flows used in investing activities:          
Investments in technology   (70)   (286)
Other capital investments   (2)   (6)
Net cash used in investing activities   (72)   (292)
           
Cash flows provided by financing activities:          
Stock option exercise proceeds       5 
Warrant exercise proceeds   5     
Net cash provided by financing activities   5    5 
           
Net increase (decrease) in cash   299    (598)
Cash at the beginning of the year   1,450    1,722 
Cash at the end of the period  $1,749   $1,124 
           
Supplemental cash flow information:          
Cash paid during the period for:          
Interest  $2   $1 
           
Non-cash investing and financing activities:          
Accrued preferred dividends to former CEO of OmniMetrix  $3   $3 

 

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 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. 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 Quarterly Report on Form 10-Q and the accompanying unaudited condensed consolidated financial statements and related footnotes 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. Accordingly, the unaudited Condensed Consolidated Statement of Stockholders’ Deficit reflects the impact of the Reverse Stock Split by reclassifying from “Common Stock” to “Additional paid in capital” an amount equal to the aggregate par value of the number of shares by which the total number of shares outstanding decreased as a result of the Reverse Stock Split.

 

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 $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.

 

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 $9,000 for the nine months ended September 30, 2023, of which $1,000 was written off in the three months ended September 30, 2023.

 

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 and Diluted Net Income (Loss) Per Share

 

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 6,000 (which have a weighted average exercise price of $8.49). 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 60,000 (which have a weighted average exercise price of $6.72) and the number of warrants that were excluded from the computation of diluted net loss, as they had an antidilutive effect, was 2,187 (which had a weighted average exercise price of $2.08).

 

8
 

 

The following data represents the amounts used in computing EPS and the effect on net income (loss) and the weighted average number of shares of dilutive potential common stock (in thousands):

 

   2023   2022   2023   2022 
  

Nine months ended

September 30,

  

Three months ended

September 30,

 
   2023   2022   2023   2022 
Net income (loss) available to common stockholders  $35   $(556)  $24   $(210)
                     
Weighted average share outstanding:                    
Basic   2,484    2,481    2,485    2,481 
Add: Stock options   22        47     
Diluted   2,506    2,481    2,532    2,481 
                     
Basic and diluted net income (loss) per share  $0.01   $(0.22)  $0.01   $(0.08)

 

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 $1,749,000.

 

At September 30, 2023, the Company had negative working capital of $513,000. The Company’s working capital includes $1,749,000 of cash and deferred revenue of $4,270,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Net cash increased during the nine months ended September 30, 2023 by $299,000, of which $366,000 was provided by operating activities, $72,000 was used in investing activities and $5,000 was provided by financing activities.

 

As of November 7, 2023, the Company had cash of $1,684,000. The Company believes that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of the Company at its current level of operations for the twelve months from the issuance of these unaudited condensed consolidated financial statements. The Company may, at some point, elect to obtain a new line of credit or other source of financing to fund additional investments in the business.

 

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 $590,000 and an allowance for credit losses of $7,000.

 

The following is a tabular reconciliation of the Company’s allowance for credit losses:

 

   September 30, 2023   December 31, 2022 
   As of 
   September 30, 2023   December 31, 2022 
   (in thousands) 
Balance at beginning of period  $10   $6 
Provision for credit losses   3    3 
Net (charge-offs) credits   (6)   1 
Balance at end of period  $7   $10 

 

NOTE 5—INVENTORY

 

   September 30, 2023   December 31, 2022 
   As of 
   September 30, 2023   December 31, 2022 
   (in thousands) 
Raw materials  $859   $684 
Finished goods   50    105 
Inventory net   $909   $789 

 

At September 30, 2023 and December 31, 2022, the Company’s inventory reserve was $9,000 and $4,000, respectively.

 

All inventories are periodically reviewed to identify slow-moving and obsolete inventory. Management conducted an assessment and wrote-off inventory carried at $9,000 for the nine months ended September 30, 2023, of which $1,000 was written off in the three months ended September 30, 2023.

 

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. The office equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for the nine months ended September 30, 2023 and 2022 were $96,000 and $93,000, respectively. Operating lease payments for the three months ended September 30, 2023 and 2022 were $33,000 and $31,000, respectively. The future minimum lease payments on non-cancellable operating leases as of September 30, 2023 using a discount rate of 4.5% are $250,000. The 4.5% discount rate used is the incremental borrowing rate which, as defined in ASC 842, is the rate of interest that a lessee would have to pay to borrow, on a collateralized basis, over a similar term and in a similar economic environment, an amount equal to the lease payments.

 

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  $96   $93 
           

 

Supplemental balance sheet information related to leases consisted of the following:

 

    2023 
Weighted average remaining lease terms for operating leases   1.99 years  
      

 

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  $129 
2025   132 
Total undiscounted cash flows   261 
Less: Imputed interest   (11)
Present value of operating lease liabilities (a)  $250 

 

  (a) Includes current portion of $121,000 for operating leases.

 

On July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company 1,900 square feet of office space of the Company’s 21,000 square feet of office and production space in the Hamilton Mill Business Park located in Buford, Georgia, for a monthly sublease payment of $2,375 (plus an annual escalator each year of 3%) which includes the base rent plus a pro-rata share of utilities, property taxes and insurance. Fifty percent of any excess rent received above the per square foot amount that the Company pays will be remitted to the Company’s landlord less the allocation of any shared expenses and leasehold improvements specific to the sublease. The estimated amount the Company expects to remit to the landlord each future year of the sublease is $6,100 per year. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is the end of the Company’s lease term with its landlord. Below are the future payments (in thousands) expected under the sublease net of the estimated annual service cost of $2,220:

 

  

Year ended

September 30,

 
2024  $28 
2025   29 
Total undiscounted cash flows  $57 

 

11
 

 

NOTE 7—COMMITMENTS AND CONTINGENCIES

 

The Company has $250,000 in operating lease obligations payable through 2025 and $15,000 in other contractual obligations. The Company also had $603,000 in open purchase order commitments payable through October 2023.

 

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 1-for-16 reverse stock split of Acorn’s Common Stock. See Note 1 for related details. At September 30, 2023, Acorn had issued and outstanding 2,484,791 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.

 

The Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.

 

(b) Summary Employee Option Information

 

The Company’s stock option plans provide for the grant to officers, directors and employees of options to purchase shares of common stock. The purchase price may be paid in cash or, if the option is “in-the-money” at the end of the option term, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable for one share of the Company’s common stock. Most options expire within five to ten years from the date of the grant, and generally vest over a three-year period from the date of the grant.

 

At September 30, 2023, 77,540 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, 13,436 options were issued. No options were issued in the three months ended September 30, 2023. The options were issued as follows: an aggregate of 3,437 to directors (excluding the CEO), 2,187 to the CEO, 6,250 to the CFO and an aggregate of 1,562 to employees. In the nine and three months ended September 30, 2023, there were no 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 $38,000. 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   58,966   $6.71    4.3 years   $16,000 
Granted   13,436    5.24           
Exercised                  
Forfeited or expired   (1,280)   6.48           
Outstanding at September 30, 2023   71,122   $6.44    4.2 years   $46,000 
Exercisable at September 30, 2023   61,786   $6.49    3.9 years   $38,000 

 

12
 

 

The fair value of the options granted of $46,000 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

Risk-free interest rate   3.9%
Expected term of options   4.1 years 
Expected annual volatility   94.5%
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 $46,000 and $69,000 for the nine-month periods ended September 30, 2023 and 2022, respectively, and $16,000 and $16,000 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 $17,000 and $43,000 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   2,187   $2.08    2.5 months 
Granted             
Exercised   (2,187)   2.08      
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 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.

 

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  $4,994   $815   $5,809 
Segment gross profit   3,876    480    4,356 
Depreciation and amortization   99    16    115 
Segment income (loss) before income taxes  $891   $(35)  $856 
                
Nine months ended September 30, 2022:               
Revenues from external customers  $4,335   $820   $5,155 
Segment gross profit   3,256    463    3,719 
Depreciation and amortization   72    13    85 
Segment income (loss) before income taxes*  $340   $(103)  $237 
                
Three months ended September 30, 2023:               
Revenues from external customers  $1,798   $289   $2,087 
Segment gross profit   1,381    169    1,550 
Depreciation and amortization   36    5    41 
Segment income before income taxes  $361   $5   $366 
                
Three months ended September 30, 2022:               
Revenues from external customers  $1,510   $273   $1,783 
Segment gross profit   1,092    123    1,215 
Depreciation and amortization   31    5    36 
Segment income (loss) before income taxes  $78   $(58)  $20 

 

*Software impairment of $51,000 is not related to a specific segment and, thus, is not included in the “Total net income before income taxes for reportable segments” for the nine months ended September 30, 2022

 

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

 

   2023   2022   2023   2022 
  

Nine months ended

September 30,

  

Three months ended

September 30,

 
   2023   2022   2023   2022 
Total net income before income taxes for reportable segments  $856   $237   $366   $20 
Unallocated software impairment        (51)   

 

      
Unallocated cost of corporate headquarters   (814)   (741)   (339)   (230)
Consolidated net income (loss) before income taxes  $42   $(555)  $27   $(210)

 

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  $2,017   $2,977   $4,994 
CP Segment   620    195    815 
Total Revenue  $2,637   $3,172   $5,809 

 

   Hardware   Monitoring   Total 
Nine months ended September 30, 2022:               
PG Segment  $1,610   $2,725   $4,335 
CP Segment   631    189    820 
Total Revenue  $2,241   $2,914   $5,155 

 

   Hardware   Monitoring   Total 
Three months ended September 30, 2023:               
PG Segment  $780   $1,018   $1,798 
CP Segment   224    65    289 
Total Revenue  $1,004   $1,083   $2,087 

 

   Hardware   Monitoring   Total 
Three months ended September 30, 2022:               
PG Segment  $608   $902   $1,510 
CP Segment   217    56    273 
Total Revenue  $825   $958   $1,783 

 

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   $ 3,751     $ 2,420     $ 6,171  
Additions during the period     1,597       3,436       5,033  
Recognized as revenue     (1,821 )     (3,172 )     (4,993 )
Balance at September 30, 2023   $ 3,527     $ 2,684     $ 6,211  
                         
Amounts to be recognized as revenue in the twelve-month-period ending:                        
September 30, 2024   $ 2,023      $ 2,247     $ 4,270  
September 30, 2025     1,179       433       1,612  
September 30, 2026 and thereafter     325       4       329  
    $ 3,527      $ 2,684      $ 6,211  

 

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 $1,469,000. The amount of monitoring revenue during the nine months ended September 30, 2023 that was included in deferred revenue at the beginning of the fiscal year was $1,890,000.

 

Reconciliation of Hardware Revenue  2023   2022   2023   2022 
  

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 

 

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  $1,694 
Additions, net of adjustments, during the period   655 
Recognized as COGS   (817)
Balance at September 30, 2023  $1,532 
      
Amounts to be recognized as COGS in the twelve-month-period ending:     
September 30, 2024  $890 
September 30, 2025   507 
September 30, 2026 and thereafter   135 
   $1,532 

 

 

Reconciliation of COGS Expense  2023   2022   2023   2022 
  

Nine months ended

September 30,

  

Three months ended

September 30,

 
Reconciliation of COGS Expense  2023   2022   2023   2022 
Amortization of deferred COGS  $817   $793   $277   $309 
COGS of custom designed units and related accessories   34        11     
COGS of hardware sales (new product versions)   66        66     
Data costs for monitoring   224    250    76    93 
Other COGS of accessories, services, shipping and miscellaneous charges   312    393    107    166 
Total COGS expense  $1,453   $1,436   $537   $568 

 

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  $319   $80   $399 
Additions during the period   148    43    191 
Amortization of sales commissions   (149)   (27)   (176)
Balance at September 30, 2023  $318    96    414 

 

The capitalized sales commissions are included in other current assets ($218,000) and other assets ($196,000) in the Company’s unaudited condensed consolidated balance sheets as of September 30, 2023. The capitalized sales commissions are included in other current assets ($196,000) and other assets ($203,000) in the Company’s condensed consolidated balance sheet at December 31, 2022.

 

Amounts to be recognized as sales commission expense in the twelve-month-period ending:

 

         
September 30, 2024   $ 218  
September 30, 2025     138  
September 30, 2026 and thereafter     58  
Total   $ 414  

 

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 $391,000 and $391,000 for the nine months ended September 30, 2023 and 2022, respectively, and $131,000 and $130,000 for the three months ended September 30, 2023 and 2022, respectively, which are included in SG&A expenses.

 

The Company recorded fees to directors of $52,000 and $44,000 for the nine months ended September 30, 2023 and 2022, respectively, and $18,000 and $15,000 for the three months ended September 30, 2023 and 2022, respectively, which are included in SG&A expenses.

Intercompany

 

The intercompany balance due to Acorn from OmniMetrix for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s behalf was $2,928,000 as of September 30, 2023 as compared to $3,677,000 as of December 31, 2022. During the nine months ended September 30, 2023, the intercompany amount due to Acorn from OmniMetrix decreased by $749,000. This included repayments of $961,000 offset by interest of $134,000 and dividends of $57,000 due to Acorn and $21,000 in shared expenses paid by Acorn. During the nine months ended September 30, 2022, the intercompany amount due to Acorn from OmniMetrix decreased by $447,000. This included repayments of $780,000 offset by interest of $134,000, dividends of $57,000 due to Acorn and $142,000 in shared expenses paid by Acorn. The intercompany balances are eliminated in consolidation.

 

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 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 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 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.

 

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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.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by its principal financial officer thereunto duly authorized.

 

  ACORN ENERGY, INC.
     
Dated: November 9, 2023    
     
  By: /s/ TRACY S. CLIFFORD
    Tracy S. Clifford
    Chief Financial Officer

 

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