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, 2020
Commission
file number: 001-33886
ACORN
ENERGY, INC.
(Exact
name of registrant as specified in 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 [X] 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 [X] 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 [X] |
|
Smaller
reporting company [X] |
|
|
|
|
|
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 [X]
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 9, 2020 |
Common
Stock, $0.01 par value per share |
|
39,687,589 |
ACORN
ENERGY, INC.
Quarterly
Report on Form 10-Q
for
the Quarterly Period Ended September 30, 2020
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.
PART
I
ITEM
1. |
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
ACORN ENERGY, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
|
As
of
September
30, 2020
|
|
|
As
of
December
31, 2019
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
1,966 |
|
|
$ |
1,247 |
|
Accounts
receivable, net |
|
|
732 |
|
|
|
962 |
|
Inventory,
net |
|
|
299 |
|
|
|
291 |
|
Deferred
charges |
|
|
806 |
|
|
|
741 |
|
Other
current assets |
|
|
117 |
|
|
|
189 |
|
Total
current assets |
|
|
3,920 |
|
|
|
3,430 |
|
Property and equipment, net |
|
|
264 |
|
|
|
189 |
|
Right-of-use assets, net |
|
|
518 |
|
|
|
587 |
|
Other
assets |
|
|
670 |
|
|
|
778 |
|
Total
assets |
|
$ |
5,372 |
|
|
$ |
4,984 |
|
LIABILITIES AND DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term
credit |
|
$ |
171 |
|
|
$ |
136 |
|
Loan payable –
current portion |
|
|
256 |
|
|
|
― |
|
Accounts
payable |
|
|
273 |
|
|
|
197 |
|
Accrued
expenses |
|
|
55 |
|
|
|
136 |
|
Deferred
revenue |
|
|
3,289 |
|
|
|
3,004 |
|
Current operating
lease liabilities |
|
|
97 |
|
|
|
53 |
|
Other
current liabilities |
|
|
143 |
|
|
|
68 |
|
Total
current liabilities |
|
|
4,284 |
|
|
|
3,594 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Loan payable |
|
|
207 |
|
|
|
― |
|
Deferred
revenue |
|
|
1,357 |
|
|
|
1,491 |
|
Noncurrent
operating lease liabilities |
|
|
468 |
|
|
|
542 |
|
Other
non-current liabilities |
|
|
5 |
|
|
|
2 |
|
Total
non-current liabilities |
|
|
2,037 |
|
|
|
2,035 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Deficit: |
|
|
|
|
|
|
|
|
Acorn Energy, Inc.
shareholders |
|
|
|
|
|
|
|
|
Common stock - $0.01 par value per share: |
|
|
|
|
|
|
|
|
Authorized – 42,000,000 shares; Issued – 39,687,589 and
39,591,339 shares at September 30, 2020 and December 31, 2019,
respectively |
|
|
397 |
|
|
|
396 |
|
Additional paid-in
capital |
|
|
102,718 |
|
|
|
101,655 |
|
Warrants |
|
|
3 |
|
|
|
1,021 |
|
Accumulated
deficit |
|
|
(101,030 |
) |
|
|
(100,682 |
) |
Treasury
stock, at cost – 801,920 shares at September 30, 2020 and December
31, 2019 |
|
|
(3,036 |
) |
|
|
(3,036 |
) |
Total Acorn
Energy, Inc. shareholders’ deficit |
|
|
(948 |
) |
|
|
(646 |
) |
Non-controlling interests |
|
|
(1 |
) |
|
|
1 |
|
Total
deficit |
|
|
(949 |
) |
|
|
(645 |
) |
Total
liabilities and deficit |
|
$ |
5,372 |
|
|
$ |
4,984 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ACORN ENERGY, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,517 |
|
|
$ |
1,386 |
|
|
$ |
4,323 |
|
|
$ |
4,090 |
|
Cost
of sales – products and services |
|
|
460 |
|
|
|
465 |
|
|
|
1,322 |
|
|
|
1,417 |
|
Cost
of sales – other |
|
|
(20 |
) |
|
|
(1 |
) |
|
|
(20 |
) |
|
|
29 |
|
Gross
profit |
|
|
1,077 |
|
|
|
922 |
|
|
|
3,021 |
|
|
|
2,644 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses |
|
|
160 |
|
|
|
137 |
|
|
|
453 |
|
|
|
420 |
|
Selling,
general and administrative expense |
|
|
940 |
|
|
|
906 |
|
|
|
2,887 |
|
|
|
2,815 |
|
Total
operating expenses |
|
|
1,100 |
|
|
|
1,043 |
|
|
|
3,340 |
|
|
|
3,235 |
|
Operating
loss |
|
|
(23 |
) |
|
|
(121 |
) |
|
|
(319 |
) |
|
|
(591 |
) |
Finance
expense, net |
|
|
(8 |
) |
|
|
― |
|
|
|
(28 |
) |
|
|
5 |
|
Loss
before income taxes |
|
|
(31 |
) |
|
|
(121 |
) |
|
|
(347 |
) |
|
|
(586 |
) |
Income
tax expense |
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
— |
|
Net
loss |
|
|
(31 |
) |
|
|
(121 |
) |
|
|
(347 |
) |
|
|
(586 |
) |
Non-controlling
interest share of net (income) loss |
|
|
(1 |
) |
|
|
― |
|
|
|
(1 |
) |
|
|
29 |
|
Net
loss attributable to Acorn Energy, Inc. shareholders |
|
$ |
(32 |
) |
|
$ |
(121 |
) |
|
$ |
(348 |
) |
|
$ |
(557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share attributable to Acorn Energy, Inc.
shareholders: |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
Weighted
average number of shares outstanding attributable to Acorn Energy,
Inc. shareholders – basic and diluted |
|
|
39,687 |
|
|
|
40,393 |
|
|
|
39,669 |
|
|
|
33,844 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
(UNAUDITED)
(IN
THOUSANDS)
|
|
Three and Nine Months Ended September
30, 2020 |
|
|
|
Number of Shares |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Warrants |
|
|
Accumulated Deficit |
|
|
Number of Treasury Shares |
|
|
Treasury Stock |
|
|
Total
Acorn
Energy,
Inc.
Shareholders’
Deficit
|
|
|
Non-
controlling interests |
|
|
Total Deficit |
|
Balances as of
December 31, 2019 |
|
|
39,591 |
|
|
$ |
396 |
|
|
$ |
101,655 |
|
|
$ |
1,021 |
|
|
$ |
(100,682 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(646 |
) |
|
$ |
1 |
|
|
$ |
(645 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(283 |
) |
|
|
— |
|
|
|
— |
|
|
|
(283 |
) |
|
|
(1 |
) |
|
|
(284 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Proceeds
from stock option exercise |
|
|
96 |
|
|
|
1 |
|
|
|
18 |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
19 |
|
|
|
― |
|
|
|
19 |
|
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Balances as of March 31,
2020 |
|
|
39,687 |
|
|
$ |
397 |
|
|
$ |
101,679 |
|
|
$ |
1,021 |
|
|
$ |
(100,965 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(904 |
) |
|
$ |
(1 |
) |
|
$ |
(905 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
|
|
1 |
|
|
|
(32 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Value of expired
warrants |
|
|
― |
|
|
|
―* |
|
|
|
1,018 |
|
|
|
(1,018 |
) |
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
Balances as of June 30,
2020 |
|
|
39,687 |
|
|
$ |
397 |
|
|
$ |
102,710 |
|
|
$ |
3 |
|
|
$ |
(100,998 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(924 |
) |
|
$ |
(1 |
) |
|
$ |
(925 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
|
|
1 |
|
|
|
(31 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
Balances as of September 30, 2020 |
|
|
39,687 |
|
|
$ |
397 |
|
|
$ |
102,718 |
|
|
$ |
3 |
|
|
$ |
(101,030 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(948 |
) |
|
$ |
(1 |
) |
|
$ |
(949 |
) |
|
|
Three and Nine Months Ended September
30, 2019 |
|
|
|
Number of Shares |
|
|
Common Stock |
|
|
Additional
Paid-
In
Capital
|
|
|
Warrants |
|
|
Accumulated Deficit |
|
|
Number of Treasury Shares |
|
|
Treasury Stock |
|
|
Total
Acorn
Energy,
Inc.
Shareholders’
Equity
(Deficit)
|
|
|
Non-
controlling
interests
|
|
|
Total Deficit |
|
Balances as of
December 31, 2018 |
|
|
29,556 |
|
|
$ |
296 |
|
|
$ |
100,348 |
|
|
$ |
1,118 |
|
|
$ |
(100,064 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(1,338 |
) |
|
$ |
108 |
|
|
$ |
(1,230 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(237 |
) |
|
|
— |
|
|
|
— |
|
|
|
(237 |
) |
|
|
(24 |
) |
|
|
(261 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(20 |
) |
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Balances as of March 31,
2019 |
|
|
29,556 |
|
|
$ |
296 |
|
|
$ |
100,354 |
|
|
$ |
1,118 |
|
|
$ |
(100,301 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(1,569 |
) |
|
$ |
64 |
|
|
$ |
(1,505 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(199 |
) |
|
|
— |
|
|
|
— |
|
|
|
(199 |
) |
|
|
(5 |
) |
|
|
(204 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(20 |
) |
Shares
granted in lieu of professional fees |
|
|
60 |
|
|
|
* |
|
|
|
18 |
|
|
|
― |
|
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
18 |
|
|
|
― |
|
|
|
18 |
|
Rights
offering, proceeds net of expenses |
|
|
9,975 |
|
|
|
100 |
|
|
|
2,106 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,206 |
|
|
|
— |
|
|
|
2,206 |
|
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Balances as of June 30,
2019 |
|
|
39,591 |
|
|
$ |
396 |
|
|
$ |
102,484 |
|
|
$ |
1,118 |
|
|
$ |
(100,500 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
462 |
|
|
$ |
39 |
|
|
$ |
501 |
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(121 |
) |
|
|
|
|
|
|
— |
|
|
|
(121 |
) |
|
|
― |
|
|
|
(121 |
) |
Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Purchase
of non-controlling interest |
|
|
― |
|
|
|
― |
|
|
|
(914 |
) |
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
(914 |
) |
|
|
(36 |
) |
|
|
(950 |
) |
Rights
offering, proceeds net of expenses |
|
|
― |
|
|
|
* |
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
|
(20 |
) |
Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Balances as of September 30,
2019 |
|
|
39,591 |
|
|
$ |
396 |
|
|
$ |
101,557 |
|
|
$ |
1,118 |
|
|
$ |
(100,621 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(586 |
) |
|
$ |
2 |
|
|
$ |
(584 |
) |
*
Less than $1
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ACORN ENERGY, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN
THOUSANDS)
|
|
Nine months ended September 30, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(347 |
) |
|
$ |
(586 |
) |
Depreciation and
amortization |
|
|
22 |
|
|
|
56 |
|
Non-cash lease
expense |
|
|
88 |
|
|
|
— |
|
Stock-based
compensation |
|
|
27 |
|
|
|
19 |
|
Professional fees
paid in common stock |
|
|
— |
|
|
|
18 |
|
Change in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable |
|
|
230 |
|
|
|
(96 |
) |
Increase in
inventory |
|
|
(8 |
) |
|
|
(97 |
) |
Decrease in
deferred charges |
|
|
48 |
|
|
|
113 |
|
Decrease
(increase) in other current assets and other assets |
|
|
66 |
|
|
|
(26 |
) |
Decrease in
accounts payable and accrued expenses |
|
|
(3 |
) |
|
|
(270 |
) |
Increase in
deferred revenue |
|
|
151 |
|
|
|
304 |
|
Decrease in
amounts due to DSIT and directors |
|
|
— |
|
|
|
(323 |
) |
Decrease in
operating lease liability |
|
|
(48 |
) |
|
|
— |
|
Increase (decrease) in other current liabilities and non-current
liabilities |
|
|
74 |
|
|
|
(45 |
) |
Net
cash provided by (used in) operating activities |
|
|
300 |
|
|
|
(933 |
) |
|
|
|
|
|
|
|
|
|
Cash flows used in investing
activities: |
|
|
|
|
|
|
|
|
Purchases of software |
|
|
(90 |
) |
|
|
(60 |
) |
Payments made for
patent filings |
|
|
(7 |
) |
|
|
— |
|
Purchase of non-controlling interest in OmniMetrix |
|
|
— |
|
|
|
(950 |
) |
Net
cash used in investing activities |
|
|
(97 |
) |
|
|
(1,010 |
) |
|
|
|
|
|
|
|
|
|
Cash flows provided by financing
activities: |
|
|
|
|
|
|
|
|
Short-term credit,
net |
|
|
35 |
|
|
|
143 |
|
Proceeds from
rights offering, net of expenses of $0 and $208 |
|
|
— |
|
|
|
2,186 |
|
Loan proceeds |
|
|
462 |
|
|
|
— |
|
Stock
option exercise proceeds |
|
|
19 |
|
|
|
— |
|
Net
cash provided by financing activities |
|
|
516 |
|
|
|
2,329 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents
and restricted cash |
|
|
719 |
|
|
|
386 |
|
Cash, cash
equivalents and restricted cash at the beginning of the year |
|
|
1,247 |
|
|
|
1,263 |
|
Cash, cash
equivalents and restricted cash at the end of the period |
|
$ |
1,966 |
|
|
$ |
1,649 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted
cash consist of the following: |
|
|
|
|
|
|
|
|
End of
period |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
1,966 |
|
|
$ |
1,338 |
|
Restricted cash |
|
|
— |
|
|
|
311 |
|
|
|
$ |
1,966 |
|
|
$ |
1,649 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted
cash consist of the following: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
1,247 |
|
|
$ |
973 |
|
Restricted cash |
|
|
— |
|
|
|
290 |
|
|
|
$ |
1,247 |
|
|
$ |
1,263 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information: |
|
|
|
|
|
|
|
|
Cash paid during
the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
23 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing activities: |
|
|
|
|
|
|
|
|
Purchase of
equipment under installment agreement |
|
$ |
— |
|
|
$ |
7 |
|
Accrued preferred
dividends to former Acorn director and/or former OmniMetrix
CEO |
|
$ |
3 |
|
|
$ |
41 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
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 (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-and-nine-month periods ended September 30, 2020 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2020.
Certain
reclassifications have been made to the Company’s unaudited
condensed consolidated financial statements for the nine-month
period ended September 30, 2019 to conform to the current period’s
unaudited condensed consolidated financial statement presentation.
There was no effect on total assets, equity and net loss. A
reclassification of $6,000 from finance expense to SG&A expense
was recorded to reclass the Intuit processing fees for customer
payments made through the Intuit portal via credit card or bank
draft that was previously included in finance expense as of March
31, 2019 and is included in SG&A as of September 30, 2019.
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, 2019.
NOTE
2—RECENT AUTHORITATIVE GUIDANCE
Recently
Issued Accounting Principles
Other
than the pronouncement noted below, there have been no recent
accounting pronouncements or changes in accounting pronouncements
during the nine-month period ended September 30, 2020, that are of
material significance, or have potential material significance, to
the Company.
In
June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (“ASC 326”), authoritative guidance
amending how entities will measure credit losses for most financial
assets and certain other instruments that are not measured at fair
value through net income. The guidance requires the application of
a current expected credit loss model, which is a new impairment
model based on expected losses. The new guidance is effective for
interim and annual reporting periods beginning after December 15,
2022. The Company is currently evaluating the impact of the new
guidance on its condensed consolidated financial statements and
related disclosures.
Recently
Adopted Accounting Principles
In
June 2018, the FASB issued ASU 2018-07, which simplifies the
accounting for nonemployee share-based payment transactions. The
amendments specify that Topic 718 applies to all share-based
payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The standard was effective in the first
quarter of fiscal year 2020, although early adoption was permitted
(but no sooner than the adoption of Topic 606). The Company
concluded that the adoption of this ASU did not have a material impact on the Company’s
unaudited condensed consolidated financial
statements.
NOTE 3—LIQUIDITY
At September 30, 2020, the Company had negative working capital of
$364,000. The Company’s working capital includes approximately
$1,966,000 of cash, deferred revenue of approximately $3,289,000
and $256,000 representing the current portion of our PPP loans (see
Note 6—Debt and Note 11—Subsequent Events). The deferred revenue
does not require significant cash outlay for the revenue to be
recognized. During the first nine months of 2020, the Company’s
OmniMetrix subsidiary provided $976,000 from operations while the
Company’s corporate headquarters used $676,000 during the same
period.
OmniMetrix
is considered an essential business because it provides
infrastructure support to both government and commercial sectors
and across key industries. The Company has experienced minimal
negative impacts due to the COVID-19 pandemic to date. The Company
has continued to realize new equipment sales (although not at the
anticipated growth rate due to travel restrictions which have
negatively impacted the sales closing timeline), has continued to
collect its monthly recurring monitoring revenues and has retained
its customer base. While the impacts of COVID-19 in the future are
uncertain, the Company believes that due to the need for backup
power and the desirability of remote monitoring services, it should
be positioned for stable financial performance.
As of
November 9, 2020, the Company had cash of approximately $2,006,000.
The Company believes that such cash, plus the cash generated from
operations and borrowing from the OmniMetrix Loan and Security
Agreement, will provide sufficient liquidity to finance the
operating activities of Acorn and OmniMetrix at their current level
of operations for the foreseeable future and for the twelve months
from the issuance of these unaudited condensed consolidated
financial statements in particular.
NOTE
4—INVESTMENT IN OMNIMETRIX
In
2015, one of the Company’s then-current directors (the “Investor”)
acquired a 20% interest in the Company’s OMX Holdings, Inc.
subsidiary (“Holdings”) through the purchase of $1,000,000 of
OmniMetrix Preferred Stock (“Preferred Stock”). Holdings is the
holder of 100% of the membership interests of OmniMetrix, LLC
through which the Company operates its Power Generation and
Cathodic Protection monitoring activities. The $1,000,000
investment by the Investor was recorded as an increase in
non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the
time of the original investment, the Company repurchased from the
Investor the shares of Preferred Stock then held by the Investor
for a purchase price of $1,273,000 in cash (which included $323,000
of unpaid accrued dividends through June 30, 2019). The repurchase
raised the Company’s ownership in Holdings from 80% to 99%, with
the remaining 1% owned by the former CEO of OmniMetrix,
LLC.
NOTE
5—LEASES
OmniMetrix
leases office space and office equipment under operating lease
agreements. The office lease expires on September 30, 2025. The
office equipment lease was entered into in April 2019 and has a
sixty-month term. Operating lease payments for the three months
ended September 30, 2020 and 2019 were $10,000 and $42,000,
respectively. Operating lease payments for the nine months ended
September 30, 2020 and 2019 were $48,000 and $96,000 respectively.
The lease payments were less in the current year periods due to
four months of rent abatement provided for in the new lease
amendment that were in effect during the nine-month period ended
September 30, 2020. The future minimum lease payments on
non-cancellable operating leases as of September 30, 2020 using a
discount rate of 4.5% are $565,000.
Supplemental
cash flow information related to leases consisted of the following
(in thousands):
|
|
September, |
|
|
|
2020 |
|
|
2019 |
|
Cash paid for operating lease liabilities |
|
$ |
48 |
|
|
$ |
96 |
|
Supplemental
balance sheet information related to leases consisted of the
following:
|
|
2020 |
|
Weighted average remaining lease terms for operating leases |
|
|
4.970 |
|
The
table below reconciles the undiscounted future minimum lease
payments under non-cancellable lease agreements having initial
terms in excess of one year to the total operating lease
liabilities recognized on the unaudited condensed consolidated
balance sheet as of September 30, 2020 (in thousands):
|
|
Twelve-month
period
ended
September
30,
|
|
2021 |
|
$ |
120 |
|
2022 |
|
|
124 |
|
2023 |
|
|
127 |
|
2024 |
|
|
129 |
|
2025 |
|
|
132 |
|
Thereafter |
|
|
— |
|
Total
undiscounted cash flows |
|
|
632 |
|
Less: Imputed interest |
|
|
(67 |
) |
Present value of operating lease liabilities (a) |
|
$ |
565 |
|
|
(a) |
Includes
current portion of $97 for operating leases. |
NOTE
6—DEBT
On April 24, 2020, Acorn Energy, Inc. received Paycheck Protection
Program (“PPP”) loan proceeds in the amount of $41,600.
On
April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in the
amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act
(the “Act”), up to the full principal amount of a loan and any
accrued interest can be forgiven if the borrower uses all of the
loan proceeds for forgivable purposes (payroll, benefits,
lease/mortgage payments and/or utilities) required under the Act
and any rule, regulation, or guidance issued by the SBA pursuant to
the Act (collectively, the “Forgiveness Provisions”). The amount of
forgiveness of the PPP loan depends on the borrower’s payroll costs
over either an eight-week or twenty-four-week period beginning on
the date of funding. Any processes or procedures established under
the Forgiveness Provisions must be followed and any requirements of
the Forgiveness Provisions must be fully satisfied to obtain such
loan forgiveness. Pursuant to the provisions of the Act, the first
six monthly payments of principal and interest will be deferred.
Interest will accrue during the deferment period. The borrower must
pay principal and interest payments on the fifth day of each month
beginning seven months from the date of the applicable promissory
note.
Aggregate interest expense on these loans for the three and nine
months ended September 30, 2020 was approximately $1,000 (see Note
11—Subsequent Events).
(b)
Line of credit
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement
providing OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible
receivables or $1,000,000. Debt incurred under this financing
arrangement bears interest at the greater of 6% and prime (3.25% at
September 30, 2020) plus 1.5% per year. In addition, OmniMetrix is
to pay a monthly service charge of 0.75% of the average aggregate
principal amount outstanding for the prior month, for an effective
rate of interest on advances of 15% at September 30, 2020.
OmniMetrix also agreed to maintain a minimum loan balance of
$150,000 in its line-of-credit with the lender for a minimum of two
years beginning March 1, 2019. From time to time, the balance
outstanding may fall below $150,000 based on collections applied
against the loan balance and the timing of loan draws. The monthly
service charge and interest is calculated on the greater of the
outstanding balance or $150,000. Interest expense for the
three-months-ended September 30, 2020 and 2019 was $6,000 and
$6,000 respectively. Interest expense for the nine-months-ended
September 30, 2020 and 2019 was $22,000 and $15,000,
respectively.
OmniMetrix
had an outstanding balance of $171,000 and $136,000 as of September
30, 2020 and December 31, 2019, respectively, pursuant to the Loan
and Security Agreement, and $253,000 was available to borrow at
September 30, 2020.
NOTE
7—COMMITMENTS AND CONTINGENCIES
On
April 28, 2020, the Company entered into a new agreement for data
hosting services, replacing an expiring agreement with the same
vendor, effective May 1, 2020. The agreement has a twelve-month
term and the total payments under this agreement are $148,000 in
the aggregate. This represents an increase of $21,000 from the
prior twelve-month term for additional services including enhanced
business continuity and disaster recovery services.
NOTE
8—EQUITY
(a)
General
At
September 30, 2020, the Company had issued and outstanding
39,687,589 shares of its common stock, par value $0.01 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. Holders of common stock do not have
subscription, redemption, conversion or other preemptive rights.
Holders of the common stock are entitled to elect all the Directors
on the Company’s Board. Holders of the common stock do not have
cumulative voting rights, meaning that the holders of more than 50%
of the common stock can elect all the Company’s Directors. Except
as otherwise required by Delaware General Corporation Law, all
stockholder action is taken by vote of a majority of shares of
common stock present at a meeting of stockholders at which a quorum
(a majority of the issued and outstanding shares of common stock)
is present in person or by proxy or by written consent pursuant to
Delaware law (other than the election of Directors, who are elected
by a plurality vote).
The
Company is not authorized to issue preferred stock. Accordingly, no
preferred stock is issued or outstanding.
(b)
Rights Offering
On
June 28, 2019, the Company completed a rights offering, raising
$2,184,000 in proceeds (net of $210,000 in expenses) of which
$1,628,000 was from related parties. Pursuant to the rights
offering, Acorn securityholders and parties to a backstop agreement
purchased 9,975,553 shares of Acorn common stock for $0.24 per
share.
Under
the terms of the rights offering, each right entitled
securityholders as of June 3, 2019, the record date for the rights
offering, to purchase 0.312 shares of Acorn common stock at a
subscription price of $0.24 per whole share. No fractional shares
were issued. The closing price of Acorn’s common stock on the
record date of the rights offering was $0.2925. Distribution of the
rights commenced on June 6, 2019 and were exercisable through June
24, 2019.
In
connection with the rights offering, Acorn entered into a backstop
agreement with certain of its directors and Leap Tide Capital
Management LLC, the sole manager of which is Acorn’s President and
CEO, pursuant to which they agreed to purchase from Acorn any and
all unsubscribed shares of common stock in the rights offering,
subject to the terms, conditions and limitations of the backstop
agreement. The backstop purchasers did not receive any compensation
or other consideration for entering into or consummating the
backstop agreement.
On
July 1, 2019, the Company utilized a portion of the rights offering
proceeds to complete the planned reacquisition of a 19% interest in
its OMX Holdings, Inc. subsidiary (“Holdings”) for $1,273,000,
including accrued dividends. Holdings owns 100% of the membership
interests of OmniMetrix, LLC. The purchase raised Acorn’s ownership
in Holdings from 80% to 99%, with the remaining 1% owned by the
former CEO of OmniMetrix, LLC. See Note 4 for further
discussion.
The
balance of the rights offering net proceeds provided OmniMetrix
with additional sales and marketing resources to facilitate
expansion into additional geographic markets and new product
applications, to support next-generation product development and
for general working capital purposes.
(c)
Summary Employee Option Information
The
Company’s stock option plans provide for the grant to officers,
directors and other key employees of options to purchase shares of
common stock. The purchase price may be paid in cash or at the end
of the option term, if the option is “in-the-money”, 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 the annual meeting of stockholders on September 11, 2012,
the Company’s stockholders approved an Amendment to the Company’s
2006 Stock Incentive Plan to increase the number of available
shares by 1,000,000 and an Amendment to the Company’s 2006 Stock
Option Plan for Non-Employee Directors to increase the number of
available shares by 200,000. In February 2019, the Company’s Board
extended the expiration date of the Amended and Restated 2006 Stock
Incentive Plan until December 31, 2024.
At
September 30, 2020, 1,628,225 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, 2020, an aggregate of 30,000 options was issued to non-employee
directors, 35,000 options were issued to the Company’s CEO, 50,000
options were issued to the Company’s CFO and 115,000 options were
issued to the Company’s other employees. The fair value of the
options issued was $59,000.
96,250
options were exercised during the nine months ended September 30,
2020. The intrinsic value of options outstanding and of options
exercisable at September 30, 2020 was approximately
$2,000.
A
summary of stock option activity for the nine months ended
September 30, 2020 is as follows:
|
|
Number
of
Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
Weighted
Average
Remaining
Contractual Life |
|
|
Aggregate
Intrinsic
Value |
|
Outstanding at December 31, 2019 |
|
|
1,364,490 |
|
|
$ |
1.87 |
|
|
|
1.81
years |
|
|
$ |
46,000 |
|
Granted |
|
|
230,000 |
|
|
|
0.36 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(96,250 |
) |
|
|
0.19 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(560,936 |
) |
|
|
2.67 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020 |
|
|
937,304 |
|
|
$ |
1.19 |
|
|
|
3.6
years |
|
|
$ |
15,000 |
|
Exercisable at September 30, 2020 |
|
|
628,386 |
|
|
$ |
1.61 |
|
|
|
2.3
years |
|
|
$ |
10,000 |
|
The
fair value of the options granted of $59,000 was estimated on the
grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Risk-free
interest rate |
|
|
.63 |
% |
Expected
term of options |
|
|
4.4
years |
|
Expected
annual volatility |
|
|
115 |
% |
Expected
dividend yield |
|
|
— |
% |
(d)
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 $27,000 and $19,000 for
the nine-month periods and $8,000 and $6,000 for the
three-month-periods ended September 30, 2020 and 2019,
respectively.
The
total compensation cost related to non-vested awards not yet
recognized was $67,000 as of September 30, 2020.
(e)
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, 2019 |
|
|
2,177,857 |
|
|
$ |
1.28 |
|
|
|
4
months |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited or expired |
|
|
(2,142,857 |
) |
|
|
1.30 |
|
|
|
|
|
Outstanding at September 30, 2020 |
|
|
35,000 |
|
|
$ |
.13 |
|
|
|
2.4
years |
|
On
May 5, 2020, 2,142,857 warrants with a fair value of $1,018,000
expired in accordance with their terms.
NOTE
9— SEGMENT REPORTING
As of
September 30, 2020, the Company operates in two reportable
operating segments, both of which are performed through the
Company’s OmniMetrix subsidiary:
|
● |
The
PG (Power Generation) segment provides wireless remote monitoring
and control systems and services for critical assets as well as
Internet of Things applications. The PG segment includes
OmniMetrix’s monitoring device for industrial air compressors and
dryers, and a new line of annuciators. |
|
|
|
|
● |
The
CP (Cathodic Protection) segment provides remote monitoring of
cathodic protection systems on gas pipelines for gas utilities and
pipeline companies. |
The
Company’s reportable segments are strategic business units,
offering different products and services, and are managed
separately as each business requires different technology and
marketing strategies.
The
following tables represent segmented data for the
three-and-nine-month periods ended September 30, 2020 and 2019 (in
thousands):
|
|
PG |
|
|
CP |
|
|
Total |
|
Three
months ended September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers |
|
$ |
1,262 |
|
|
$ |
255 |
|
|
$ |
1,517 |
|
Segment
gross profit |
|
|
936 |
|
|
|
141 |
|
|
|
1,077 |
|
Depreciation
and amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Segment
income (loss) before income taxes |
|
$ |
210 |
|
|
$ |
(7 |
) |
|
$ |
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers |
|
$ |
1,090 |
|
|
$ |
296 |
|
|
$ |
1,386 |
|
Segment
gross profit |
|
|
772 |
|
|
|
150 |
|
|
|
922 |
|
Depreciation
and amortization |
|
|
18 |
|
|
|
4 |
|
|
|
22 |
|
Segment
income (loss) before income taxes |
|
$ |
126 |
|
|
$ |
(26 |
) |
|
$ |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers |
|
$ |
3,633 |
|
|
$ |
690 |
|
|
$ |
4,323 |
|
Segment
gross profit |
|
|
2,656 |
|
|
|
365 |
|
|
|
3,021 |
|
Depreciation
and amortization |
|
|
17 |
|
|
|
4 |
|
|
|
21 |
|
Segment
income (loss) before income taxes |
|
$ |
414 |
|
|
$ |
(79 |
) |
|
$ |
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers |
|
$ |
3,143 |
|
|
$ |
947 |
|
|
$ |
4,090 |
|
Segment
gross profit |
|
|
2,206 |
|
|
|
438 |
|
|
|
2,644 |
|
Depreciation
and amortization |
|
|
43 |
|
|
|
13 |
|
|
|
56 |
|
Segment
income (loss) before income taxes |
|
$ |
231 |
|
|
$ |
(160 |
) |
|
$ |
71 |
|
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 Loss to Consolidated Net Loss Before Income
Taxes
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Total
net income (loss) before income taxes for reportable
segments |
|
$ |
203 |
|
|
$ |
100 |
|
|
$ |
335 |
|
|
$ |
71 |
|
Unallocated
cost of corporate headquarters |
|
|
(234 |
) |
|
|
(221 |
) |
|
|
(682 |
) |
|
|
(657 |
) |
Consolidated
loss before income taxes |
|
$ |
(31 |
) |
|
$ |
(121 |
) |
|
$ |
(347 |
) |
|
$ |
(586 |
) |
NOTE
10—REVENUE
The
following table disaggregates the Company’s revenue for the
three-and-nine-month periods ended September 30, 2020 and 2019 (in
thousands):
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Three months
ended September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment |
|
$ |
354 |
|
|
$ |
908 |
|
|
$ |
1,262 |
|
CP Segment |
|
|
193 |
|
|
|
62 |
|
|
|
255 |
|
Total Revenue |
|
$ |
547 |
|
|
$ |
970 |
|
|
$ |
1,517 |
|
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Three months
ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment |
|
$ |
305 |
|
|
$ |
785 |
|
|
$ |
1,090 |
|
CP Segment |
|
|
234 |
|
|
|
62 |
|
|
|
296 |
|
Total Revenue |
|
$ |
539 |
|
|
$ |
847 |
|
|
$ |
1,386 |
|
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Nine months
ended September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment |
|
$ |
999 |
|
|
$ |
2,634 |
|
|
$ |
3,633 |
|
CP Segment |
|
|
501 |
|
|
|
189 |
|
|
|
690 |
|
Total Revenue |
|
$ |
1,500 |
|
|
$ |
2,823 |
|
|
$ |
4,323 |
|
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Nine months
ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment |
|
$ |
906 |
|
|
$ |
2,237 |
|
|
$ |
3,143 |
|
CP Segment |
|
|
767 |
|
|
|
180 |
|
|
|
947 |
|
Total Revenue |
|
$ |
1,673 |
|
|
$ |
2,417 |
|
|
$ |
4,090 |
|
Deferred
revenue activity for the nine months ended September 30, 2020 can
be seen in the table below (in thousands):
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Balance at December 31, 2019 |
|
$ |
2,663 |
|
|
$ |
1,832 |
|
|
$ |
4,495 |
|
Additions during the period |
|
|
1,195 |
|
|
|
2,977 |
|
|
|
4,172 |
|
Recognized as revenue |
|
|
(1,198 |
) |
|
|
(2,823 |
) |
|
|
(4,021 |
) |
Balance at September 30, 2020 |
|
$ |
2,660 |
|
|
$ |
1,986 |
|
|
$ |
4,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the twelve-month-period
ending: |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
$ |
1,512 |
|
|
$ |
1,777 |
|
|
$ |
3,289 |
|
September 30, 2022 |
|
|
881 |
|
|
|
205 |
|
|
|
1,086 |
|
September 30, 2023 and thereafter |
|
|
267 |
|
|
|
4 |
|
|
|
271 |
|
|
|
$ |
2,660 |
|
|
$ |
1,986 |
|
|
$ |
4,646 |
|
Other
revenue of approximately $302,000, net of certain sales rebates of
$19,000, is related to accessories, repairs, and other
miscellaneous charges that are recognized to revenue when sold and
are not deferred.
Deferred
charges relate only to the sale of equipment. Deferred charges
activity for the nine months ended September 30, 2020 can be seen
in the table below (in thousands):
Balance at December 31, 2019 |
|
$ |
1,433 |
|
Additions, net of adjustments, during the period |
|
|
612 |
|
Recognized as cost of sales |
|
|
(663 |
) |
Balance at
September 30, 2020 |
|
$ |
1,382 |
|
|
|
|
|
|
Amounts to be recognized as cost of sales in the
twelve-month-period ending: |
|
|
|
|
September 30,
2021 |
|
$ |
806 |
|
September 30,
2022 |
|
|
446 |
* |
September 30, 2023 and thereafter |
|
|
130 |
* |
|
|
$ |
1,382 |
|
*Amounts
included in other assets in the Company’s unaudited condensed
consolidated balance sheets at September 30, 2020 and December 31,
2019
Other
cost of goods sold (COGS) recognized of approximately $188,000 is
related to accessories, repairs, and other miscellaneous charges
that are recognized to revenue when sold and are not deferred, in
addition to $451,000 in monitoring COGS which is not
deferred.
The
following table provides a reconciliation of the Company’s sales
commissions contract assets for the nine-month period ended
September 30, 2020 (in thousands):
|
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
Balance at December 31, 2019 |
|
$ |
101 |
|
|
$ |
37 |
|
|
$ |
138 |
|
Additions during the period |
|
|
77 |
|
|
|
15 |
|
|
|
92 |
|
Amortization of sales commissions |
|
|
(49 |
) |
|
|
(14 |
) |
|
|
(63 |
) |
Balance at September 30, 2020 |
|
$ |
129 |
|
|
$ |
38 |
|
|
$ |
167 |
|
The
capitalized sales commissions are included in other current assets
($87,000) and other assets ($80,000) in the Company’s unaudited
condensed consolidated balance sheet at September 30, 2020, and in
other current assets ($60,000) and other assets ($78,000) in the
Company’s consolidated balance sheet at December 31,
2019.
NOTE
11—SUBSEQUENT EVENTS
On October 20, 2020, OmniMetrix, LLC submitted its PPP Loan
Forgiveness Application to the Small Business Administration (SBA).
On November 5, 2020, the SBA confirmed that OmniMetrix’s
application for forgiveness has been approved and that its PPP
loan, in the amount of $419,800, has been forgiven.
The
Company elected not to apply for forgiveness of the PPP loan
proceeds received by its parent entity, Acorn Energy, Inc., in the
amount of $41,600. This loan was repaid to the lender effective
October 22, 2020.
ACORN
ENERGY, INC.
ITEM 2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
This
Form 10-Q contains “forward-looking statements” relating to the
Company which represent the Company’s current expectations or
beliefs including, but not limited to, statements concerning the
Company’s operations, performance, financial condition and growth.
For this purpose, any statements contained in this Form 10-Q that
are not statements of historical fact are forward-looking
statements. Without limiting the generality of the foregoing, words
such as “may”, “anticipate”, “intend”, “could”, “estimate” or
“continue” or the negative or other comparable terminology are
intended to identify forward-looking statements. These statements
by their nature involve substantial risks and uncertainties, such
as credit losses, dependence on management and key personnel,
variability of quarterly results, and the ability of the Company to
continue its growth strategy and the Company’s competition, certain
of which are beyond the Company’s control. Should one or more of
these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, or any of the other risks set out
under the caption “Risk Factors” in the Company’s 10-K report for
the year ended December 31, 2019 occur, actual outcomes and results
could differ materially from those indicated in the forward-looking
statements.
Any
forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to
update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements.
FINANCIAL
RESULTS BY COMPANY
The
following table shows, for the periods indicated, the financial
results (dollar amounts in thousands) attributable to each of our
consolidated companies.
|
|
Three months ended September 30, 2020 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
Revenue |
|
$ |
1,517 |
|
|
$ |
— |
|
|
$ |
1,517 |
|
Cost of Sales |
|
|
440 |
|
|
|
— |
|
|
|
440 |
|
Gross
profit |
|
|
1,077 |
|
|
|
— |
|
|
|
1,077 |
|
Gross
profit margin |
|
|
71 |
% |
|
|
|
|
|
|
71 |
% |
R&D expenses |
|
|
160 |
|
|
|
— |
|
|
|
160 |
|
Selling, general and administrative expenses |
|
|
707 |
|
|
|
233 |
|
|
|
940 |
|
Operating income (loss) |
|
$ |
210 |
|
|
$ |
(233 |
) |
|
$ |
(23 |
) |
|
|
Three months ended September 30, 2019 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
Revenue |
|
$ |
1,386 |
|
|
$ |
— |
|
|
$ |
1,386 |
|
Cost of Sales |
|
|
464 |
|
|
|
— |
|
|
|
464 |
|
Gross
profit |
|
|
922 |
|
|
|
— |
|
|
|
922 |
|
Gross
profit margin |
|
|
67 |
% |
|
|
|
|
|
|
67 |
% |
R&D expenses |
|
|
137 |
|
|
|
— |
|
|
|
137 |
|
Selling, general and administrative expenses |
|
|
679 |
|
|
|
227 |
|
|
|
906 |
|
Operating income (loss) |
|
$ |
106 |
|
|
$ |
(227 |
) |
|
$ |
(121 |
) |
|
|
Nine months ended September 30, 2020 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
Revenue |
|
$ |
4,323 |
|
|
$ |
— |
|
|
$ |
4,323 |
|
Cost of sales |
|
|
1,302 |
|
|
|
— |
|
|
|
1,302 |
|
Gross
profit |
|
|
3,021 |
|
|
|
— |
|
|
|
3,021 |
|
Gross
profit margin |
|
|
70 |
% |
|
|
|
|
|
|
70 |
% |
R&D expenses |
|
|
453 |
|
|
|
— |
|
|
|
453 |
|
Selling, general and administrative expenses |
|
|
2,210 |
|
|
|
677 |
|
|
|
2,887 |
|
Operating income (loss) |
|
$ |
358 |
|
|
$ |
(677 |
) |
|
$ |
(319 |
) |
|
|
Nine months ended September 30, 2019 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
Revenue |
|
$ |
4,090 |
|
|
$ |
— |
|
|
$ |
4,090 |
|
Cost of
sales |
|
|
1,417 |
|
|
|
— |
|
|
|
1,417 |
|
Cost of sales - other |
|
|
29 |
|
|
|
— |
|
|
|
29 |
|
Gross
profit |
|
|
2,644 |
|
|
|
— |
|
|
|
2,644 |
|
Gross
profit margin |
|
|
65 |
% |
|
|
|
|
|
|
65 |
% |
R&D expenses |
|
|
420 |
|
|
|
— |
|
|
|
420 |
|
Selling, general and administrative expenses |
|
|
2,136 |
|
|
|
679 |
|
|
|
2,815 |
|
Operating income (loss) |
|
$ |
88 |
|
|
$ |
(679 |
) |
|
$ |
(591 |
) |
BACKLOG
As of
September 30, 2020, our backlog of work to be completed (primarily
deferred revenue) at our OmniMetrix subsidiary totaled
approximately $4.6 million.
RECENT
DEVELOPMENTS
On April 24, 2020, Acorn Energy, Inc. received Paycheck Protection
Program (“PPP”) loan proceeds in the amount of $41,600.
On April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in
the amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act
(the “Act”), up to the full principal amount of a loan and any
accrued interest can be forgiven if the borrower uses all of the
loan proceeds for forgivable purposes (payroll, benefits,
lease/mortgage payments and/or utilities) required under the Act
and any rule, regulation, or guidance issued by the SBA pursuant to
the Act (collectively, the “Forgiveness Provisions”). The amount of
forgiveness of the PPP loan depends on the borrower’s payroll costs
over either an eight-week or twenty-four-week period beginning on
the date of funding. Any processes or procedures established under
the Forgiveness Provisions must be followed and any requirements of
the Forgiveness Provisions must be fully satisfied to obtain such
loan forgiveness. Pursuant to the provisions of the Act, the first
six monthly payments of principal and interest will be deferred.
Interest will accrue during the deferment period. The borrower must
pay principal and interest payments on the fifth day of each month
beginning seven months from the date of the applicable promissory
note.
On October 20, 2020, OmniMetrix, LLC submitted its PPP Loan
Forgiveness Application to the Small Business Administration (SBA).
On November 5, 2020, the SBA confirmed that OmniMetrix’s
application for forgiveness has been approved and that its PPP
loan, in the amount of $419,800, has been forgiven.
The
Company elected not to apply for forgiveness of the PPP loan
proceeds received by its parent entity, Acorn Energy, Inc., in the
amount of $41,600. This loan was repaid to the lender effective
October 22, 2020.
On
April 28, 2020, we entered into a new agreement for data hosting
services, replacing an expiring agreement with the same vendor,
effective May 1, 2020. The agreement has a twelve-month term and
the total payments under this agreement are $148,000 in the
aggregate. This represents an increase of $21,000 from the prior
twelve-month term for additional services including enhanced
business continuity and disaster recovery services.
On
May 5, 2020, 2,142,857 warrants with a book value of $1,018,000
expired in accordance with their terms.
OVERVIEW
AND TREND INFORMATION
Acorn
Energy, Inc. (“Acorn” or “the Company”) is a holding company
focused on technology driven solutions for energy infrastructure
asset management. We provide the following services and products
through our OmniMetrixTM, LLC (“OmniMetrix”)
subsidiary:
|
● |
Power
Generation (“PG”) monitoring. OmniMetrix’s PG segment provides
wireless remote monitoring and control systems and services for
critical assets as well as Internet of Things applications. The PG
segments includes our monitoring device for industrial air
compressors and dryers, and a new line of annunciators. |
|
|
|
|
● |
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP segment provides
remote monitoring of cathodic protection systems on gas pipelines
for gas utilities and pipeline companies. |
Each
of our PG and CP activities represents a reportable segment. The
following analysis should be read together with the segment
information provided in Note 9 to the interim unaudited condensed
consolidated financial statements included in this quarterly
report.
OmniMetrix
OmniMetrix
LLC 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,
as well as 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 Internet of Things
(IoT) applications whereby companies aggregate multiple sensors and
monitors into a simplified dashboard for customers, OmniMetrix
believes it plays a key role in this new economic ecosystem. In
addition, OmniMetrix sees a rapidly growing need for backup power
infrastructure to secure critical military, government, and private
sector assets against emergency events including terrorist attacks,
natural disasters, and cybersecurity threats. As residential and
industrial standby generators, turbines, compressors, pumps,
pumpjacks, light towers and other industrial equipment are part of
the critical infrastructure increasingly becoming monitored in
Internet of Things applications, and given that OmniMetrix monitors
all major brands of critical equipment, OmniMetrix believes it is
well-positioned as a competitive participant in this new
market.
Sales
of OmniMetrix monitoring systems include the sale of equipment and
of monitoring services. Revenue (and related costs) associated with
sale of equipment are recorded to deferred revenue (and deferred
charges) upon shipment for PG and CP monitoring units. Revenue and
related costs with respect to the sale of equipment are recognized
over the estimated life of the units which are currently estimated
to be three years. Revenues from the prepayment of monitoring fees
(generally paid twelve months in advance) are initially recorded as
deferred revenue upon receipt of payment from the customer and then
amortized to revenue over the monitoring service period.
Results
of Operations
The
following table sets forth certain information with respect to the
consolidated results of operations of the Company for the
three-month periods ended September 30, 2020 and 2019, 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 September 30, |
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
|
($,000) |
|
|
% of revenues |
|
|
($,000) |
|
|
% of revenues |
|
|
from 2019
to 2020 |
|
Revenue |
|
$ |
1,517 |
|
|
|
100 |
% |
|
$ |
1,386 |
|
|
|
100 |
% |
|
|
9 |
% |
Cost of sales |
|
|
440 |
|
|
|
29 |
% |
|
|
464 |
|
|
|
33 |
% |
|
|
(5 |
)% |
Gross profit |
|
|
1,077 |
|
|
|
71 |
% |
|
|
922 |
|
|
|
67 |
% |
|
|
17 |
% |
R&D expenses |
|
|
160 |
|
|
|
11 |
% |
|
|
137 |
|
|
|
10 |
% |
|
|
17 |
% |
SG&A expenses |
|
|
940 |
|
|
|
62 |
% |
|
|
906 |
|
|
|
65 |
% |
|
|
4 |
% |
Operating loss |
|
|
(23 |
) |
|
|
(2 |
)% |
|
|
(121 |
) |
|
|
(9 |
)% |
|
|
(81 |
)% |
Finance expense, net |
|
|
(8 |
) |
|
|
(1 |
)% |
|
|
— |
|
|
|
* |
|
|
|
700 |
% |
Loss before income taxes |
|
|
(31 |
) |
|
|
(2 |
)% |
|
|
(121 |
) |
|
|
(9 |
)% |
|
|
(74 |
)% |
Income tax expense |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
Net loss |
|
|
(31 |
) |
|
|
(2 |
)% |
|
|
(121 |
) |
|
|
(9 |
)% |
|
|
(74 |
)% |
Non-controlling interests share of net loss |
|
|
(1 |
) |
|
|
* |
% |
|
|
— |
|
|
|
* |
|
|
|
(100 |
)% |
Net loss attributable to Acorn Energy, Inc. |
|
$ |
(32 |
) |
|
|
(2 |
)% |
|
$ |
(121 |
) |
|
|
(9 |
)% |
|
|
(74 |
)% |
*result
is less than 1%.
The
following table sets forth certain information with respect to the
consolidated results of operations of the Company for the
nine-month periods ended September 30, 2020 and 2019, 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.
|
|
Nine
months ended September 30, |
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
|
($,000) |
|
|
% of
revenues |
|
|
($,000) |
|
|
% of
revenues |
|
|
from
2019
to 2020 |
|
Revenue |
|
$ |
4,323 |
|
|
|
100 |
% |
|
$ |
4,090 |
|
|
|
100 |
% |
|
|
6 |
% |
Cost
of sales |
|
|
1,302 |
|
|
|
30 |
% |
|
|
1,446 |
|
|
|
35 |
% |
|
|
(10 |
)% |
Gross
profit |
|
|
3,021 |
|
|
|
70 |
% |
|
|
2,644 |
|
|
|
65 |
% |
|
|
14 |
% |
R&D
expense |
|
|
453 |
|
|
|
10 |
% |
|
|
420 |
|
|
|
10 |
% |
|
|
8 |
% |
SG&A
expense |
|
|
2,887 |
|
|
|
67 |
% |
|
|
2,815 |
|
|
|
69 |
% |
|
|
3 |
% |
Operating
loss |
|
|
(319 |
) |
|
|
(7 |
)% |
|
|
(591 |
) |
|
|
(14 |
)% |
|
|
(45 |
)% |
Finance
expense, net |
|
|
(28 |
) |
|
|
(1 |
)% |
|
|
5 |
|
|
|
* |
|
|
|
(2,700 |
)% |
Loss
before income taxes |
|
|
(347 |
) |
|
|
(8 |
)% |
|
|
(586 |
) |
|
|
(14 |
)% |
|
|
(41 |
)% |
Income
tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
Net
loss |
|
|
(347 |
) |
|
|
(8 |
)% |
|
|
(586 |
) |
|
|
(14 |
)% |
|
|
(41 |
)% |
Non-controlling
interests share of net loss |
|
|
(1 |
) |
|
|
— |
% |
|
|
29 |
|
|
|
1 |
% |
|
|
(103 |
)% |
Net
loss attributable to Acorn Energy, Inc. |
|
$ |
(348 |
) |
|
|
(8 |
)% |
|
$ |
(557 |
) |
|
|
(14 |
)% |
|
|
(38 |
)% |
*result is
less than 1%.
Revenue.
Revenue increased by $131,000 or 9%, from $1,386,000 in the third
quarter of 2019 to $1,517,000 in the third quarter of 2020.
OmniMetrix’s increased revenue during the quarter was primarily
attributable to increased monitoring, which increased $123,000, or
15%, from $847,000 in the third quarter of 2019 to $970,000 in the
third quarter of 2020. This increase was offset by a decrease in
hardware revenue of $8,000, or 1%. These fluctuations are
attributed to the same reasons as the increase in the nine-month
period ended September 30, 2020 discussed below. OmniMetrix has two
divisions: PG and CP.
In the nine months ended September 30, 2020, OmniMetrix recorded
revenue of $4,323,000 ($3,633,000 in its PG activities and $690,000
in its CP activities) as compared to revenue of $4,090,000 recorded
in the nine months ended September 30, 2019 ($3,143,000 in its PG
activities and $947,000 in its CP activities). The
period-over-period increase in revenue of $233,000, or 6%, in the
nine months ended September 30, 2020 was due to an increase in
monitoring revenue of $406,000, or 17%, offset by a decrease in
hardware revenue of $173,000, or 10%. The increase in monitoring
revenue from $2,417,000 in the first nine months of 2019 to
$2,823,000 in the first nine months of 2020 is the result of an
increase in the number of units being monitored. The
period-over-period decrease in hardware revenue from $1,673,000 to
$1,500,000 is primarily due to a decrease in the CP segment of
$266,000 as a result of the longer sales and closing cycle of a CP
sale compared to a PG sale and the impact of COVID-19 on our
ability to meet with potential customers and to act timely and
effectively on sales leads. A CP sales cycle can typically take
twelve to eighteen months from customer introduction to
closing.
Gross
Profit. Gross margin on hardware revenue for the three months
ended September 30, 2020 was 44%, which was a 5% improvement as
compared to 39% for the three months ended September 30, 2019.
Gross margin on monitoring revenue remained strong at 84% during
the three months ended September 30, 2020, which was flat as
compared to 84% for the three months ended September 30,
2019.
Gross profit
during the nine months ended September 30, 2020 was $3,021,000,
reflecting a gross margin of 70% on revenue, compared with a gross
profit of $2,644,000, reflecting a 65% gross margin, in the nine
months ended September 30, 2019. The increased gross profit
period-over-period in 2020 was due to a change in the revenue mix,
with a higher percentage of our total revenue being monitoring
revenue which has a higher gross margin. Gross margin on hardware
revenue for the nine months ended September 30, 2020 was 42%,
compared to 39% for the nine months ended September 30, 2019. Gross
margin on monitoring revenue remained strong at 84% during the nine
months ended September 30, 2020 which was flat as compared to 84%
for the nine months ended September 30, 2019. OmniMetrix’s gross
profit increased $155,000, or 17%, from $922,000 in the three
months ended September 30, 2019 to $1,077,000 in the three months
ended September 30, 2020.
Research
and development expenses. During the three months ended
September 30, 2020 and 2019, R&D expense was $160,000 and
$137,000, respectively. During the nine months ended September 30,
2020, OmniMetrix recorded $453,000 of R&D expense, as compared
to $420,000 in the nine months ended September 30, 2019. The
period-over-period increases in R&D expense in 2020 are related
to 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 during the remainder of 2020
as we continue to work on certain initiatives to redesign products
and expand product lines to increase the level of innovation and to
reduce their costs in order to increase our future
margins.
Selling,
general and administrative (“SG&A”) expenses. SG&A
expenses increased $28,000, or 4%, to $707,000 for the three months
ended September 30, 2020, from $679,000 for the three months ended
September 30, 2019, primarily due to an increase in personnel
costs. We gave performance-based salary increases to our employees
effective September 1, 2020, our sales team has resumed travel
where customers and potential customers are open and willing to
receive outside guests, and we continue to make investments in our
IT infrastructure.
During the
nine months ended September 30, 2020, OmniMetrix recorded
$2,209,000 of SG&A costs, compared to SG&A costs of
$2,136,000 in the nine months ended September 30, 2019, an increase
of $73,000 or 3%. This increase was primarily due to increases in
occupancy expense (in 2019 these expenses were primarily applied to
a restructuring accrual), and personnel costs offset by a reduction
in sales tax expenses. We anticipate that our annual SG&A costs
throughout 2020 will increase approximately 10% as a result of
these actions.
Corporate
Corporate SG&A expense for the three months ended September 30,
2020 increased $6,000, or 3%, to $233,000 from $227,000 for the
three months ended September 30, 2019, primarily due to the timing
of certain expenses. Third quarter 2020 SG&A expense was
$233,000, compared to second quarter 2020 SG&A expense of
$222,000. SG&A expense of $678,000 in the first nine months of
2020 was flat as compared to SG&A expense of $679,000 in the
first nine months of 2019. We do not expect the quarterly corporate
overhead to change materially except as may be required to support
the growth of our OmniMetrix subsidiary.
Net
loss attributable to Acorn Energy. We recognized a net loss
attributable to Acorn shareholders of $32,000 in the three months
ended September 30, 2020, compared to a net loss of $121,000 in the
three months ended September 30, 2019. Our loss in the third
quarter 2020 is comprised of net income at OmniMetrix of $203,000
offset by corporate expense of $233,000 and $1,000 attributed to
the non-controlling interest share of our income in
OmniMetrix.
We
recognized a net loss attributable to Acorn shareholders of
$348,000 in the first nine months of 2020, compared to a net loss
of $557,000 in the first nine months of 2019. Our loss in 2020 is
comprised of net income at OmniMetrix of $334,000 plus corporate
expense of $682,000.
Liquidity
and Capital Resources
At
September 30, 2020, we had negative working capital of $364,000.
Our working capital includes approximately $1,966,000 of cash,
deferred revenue of approximately $3,289,000 and $256,000
representing the current portion of our PPP loans which we expect
to be substantially forgiven. The deferred revenue does not require
significant cash outlay for the revenue to be
recognized.
During
the first nine months of 2020, our OmniMetrix subsidiary provided
$976,000 from operations while our corporate headquarters used
$676,000 during the same period.
Also,
during the first nine months of 2020, we invested $90,000 in
software and $7,000 in patent related expenses.
Net
cash of $516,000 was provided by financing activities during the
first nine months of 2020, comprising $19,000 in proceeds from the
exercise of stock options, net proceeds from borrowings on our line
of credit of $35,000 and proceeds from our PPP loans of
$462,000.
See
discussion of the proceeds we received from the PPP loans above
under Recent Developments.
OmniMetrix Line of Credit
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement
providing OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible
receivables or $1 million. Debt incurred under this financing
arrangement bears interest at the greater of 6% and prime (3.25% at
November 9, 2020) plus 1.5% per year. In addition, OmniMetrix is to
pay a monthly service charge of 0.75% of the average aggregate
principal amount outstanding for the prior month, for a current
effective rate of interest on advances of 15%. OmniMetrix also
agreed to maintain a minimum loan balance of $150,000 in its
line-of-credit with the lender for a minimum of two years beginning
March 1, 2019. The monthly service charge and interest is
calculated on the greater of the outstanding balance or $150,000.
From time to time, the balance outstanding may fall below $150,000
based on collections applied against the loan balance and the
timing of loan draws.
OmniMetrix
had an outstanding balance of $171,000 at September 30, 2020,
pursuant to the Loan and Security Agreement.
Rights
Offering
On
June 28, 2019, we completed a rights offering, raising $2,186,000
in proceeds, net of $210,000 in expenses. Pursuant to the rights
offering, our securityholders and parties to a backstop agreement
purchased 9,975,553 shares of our common stock for $0.24 per
share.
Under
the terms of the rights offering, each right entitled
securityholders as of June 3, 2019, the record date for the rights
offering, to purchase 0.312 shares of our common stock at a
subscription price of $0.24 per whole share. No fractional shares
were issued. The closing price of our common stock on the record
date of the rights offering was $0.2925. Distribution of the rights
commenced on June 6, 2019 and were exercisable through June 24,
2019.
In
connection with the rights offering, we entered into a backstop
agreement with certain of our directors and Leap Tide Capital
Management LLC, the sole manager of which is our President and CEO,
pursuant to which they agreed to purchase from us any and all
unsubscribed shares of common stock in the rights offering, subject
to the terms, conditions and limitations of the backstop agreement.
The backstop purchasers did not receive any compensation or other
consideration for entering into or consummating the backstop
agreement.
On
July 1, 2019, we utilized a portion of the rights offering proceeds
to complete the planned reacquisition of a 19% interest in our OMX
Holdings, Inc. subsidiary for $1,273,000 discussed
below.
The
balance of the rights offering net proceeds provided OmniMetrix
with additional sales and marketing resources to facilitate
expansion into additional geographic markets and new product
applications, to support next-generation product development and
for general working capital purposes.
Purchase
of Non-Controlling Interest
In
2015, one of our then-current directors (the “Investor”) acquired a
20% interest in our OMX Holdings, Inc. subsidiary (“Holdings”)
through the purchase of $1,000,000 of OmniMetrix Preferred Stock
(“Preferred Stock”). Holdings is the holder of 100% of the
membership interests of OmniMetrix, LLC through which we operate
our Power Generation and Cathodic Protection monitoring activities.
The $1,000,000 investment by the Investor was recorded as an
increase in non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the
time of the original investment, the Company utilized a portion of
the rights offering proceeds to repurchase from the Investor the
shares of Preferred Stock then held by the Investor for a purchase
price of $1,273,000 (which included $323,000 of unpaid accrued
dividends through June 30, 2019). The repurchase raised the
Company’s ownership in Holdings from 80% to 99%, with the remaining
1% owned by the former CEO of OmniMetrix, LLC.
Other
Liquidity Matters
OmniMetrix
owes Acorn approximately $4,604,000 for loans, accrued interest,
dividends and expenses advanced to it by Acorn. Such amounts will
only be repaid to Acorn when OmniMetrix is generating sufficient
cash to allow such repayment.
We
had approximately $1,966,000 of cash on September 30, 2020, and
approximately $2,006,000 on November 9, 2020. On November 9, 2020,
we had $136,000 outstanding on our line of credit and $165,000
available to borrow. We believe that our current cash plus
the cash expected to be generated from operations and borrowing
from available lines of credit will provide sufficient liquidity to
finance the operating activities of Acorn and the operations of its
operating subsidiaries for at least the next twelve
months.
Contractual
Obligations and Commitments
The
table below provides information concerning obligations under
certain categories of our contractual obligations as of September
30, 2020.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
|
|
Twelve
Month Periods Ending September 30,
(in
thousands)
|
|
|
|
Total |
|
|
2020 |
|
|
2021-2022 |
|
|
2023-2024 |
|
|
2025 and thereafter |
|
Debt * |
|
$ |
634 |
|
|
$ |
427 |
|
|
$ |
207 |
|
|
$ |
— |
|
|
$ |
— |
|
Software agreements |
|
|
128 |
|
|
|
71 |
|
|
|
57 |
|
|
|
— |
|
|
|
— |
|
Operating leases |
|
|
632 |
|
|
|
120 |
|
|
|
251 |
|
|
|
261 |
|
|
|
— |
|
Contractual services |
|
|
110 |
|
|
|
105 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
Total contractual cash obligations |
|
$ |
1,504 |
|
|
$ |
723 |
|
|
$ |
520 |
|
|
$ |
261 |
|
|
$ |
— |
|
* Includes $461,400 in proceeds from the PPP loans of which
$419,800 was formally forgiven by the SBA and $41,600 was repaid
subsequent to September 30, 2020.
ITEM
3. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
COVID-19
Risk
The
COVID-19 pandemic could negatively affect various aspects of our
business, including our workforce and supply chain, could make it
more difficult and expensive to meet our obligations to our
customers, and could result in reduced demand from our
customers.
The
outbreak of the COVID-19 pandemic has caused governments around the
world to implement quarantines of certain geographic areas and
implement significant restrictions on travel. Several governments
have also implemented work restrictions that prohibit many
employees from going to work, both around the world as well as in
certain jurisdictions in the United States. The number of these
quarantines, travel bans, and other restrictions has been
fluctuating at a rapid pace. At this time, it is unclear if foreign
governments or U.S. federal, state or local governments will
further extend any of the current restrictions or if further
restrictions will be put into place. In addition, many countries,
including the United States, have placed significant bans on
international travel. It is possible that restrictions or bans on
domestic travel may be implemented by U.S. federal, state or local
governments. As a result of the pandemic, businesses can be shut
down, supply chains can be interrupted, slowed, or rendered
inoperable, and individuals can become ill, quarantined, or
otherwise unable to work and/or travel due to health reasons or
governmental restrictions.
Although
OmniMetrix is considered an essential business because it provides
infrastructure support to both government and commercial sectors
and across key industries and has not been forced to shut down to
date, governmental mandates may require forced shutdowns of our
facilities for extended or indefinite periods. In addition, the
pandemic could adversely affect our workforce resulting in serious
health issues and absenteeism. The pandemic could also
substantially interfere with general commercial activity related to
our supply chain and customer base, which could have a material
adverse effect on our financial condition, results of operations,
business, or prospects. Although OmniMetrix has continued to
collect its monthly recurring monitoring revenues, has retained its
customer base and has continued to realize new equipment sales, the
rate of such new sales has not met our anticipated growth rate.
Restrictions related to the pandemic have had a negative impact on
our ability to meet with potential customers and to act timely and
effectively on sales leads, which has had a negative impact on the
length of our CP sales cycle. Some of the electronic devices and
hardware we purchase, like antennas, radios, and GPS modules, are
very specific to our application; there are not likely to be
practical alternatives. In some cases, our circuit boards were
designed around specific electronic hardware that met our
specifications. We are working closely with our contract
manufacturers and suppliers to mitigate as much as possible the
risks to our supply chain for these critical devices and hardware,
including identifying any lead-time issues and any potential
alternate sources. We are also examining all currently open
purchase orders to identify whether we need to issue additional
orders to secure product that is critical, already has questionable
lead times and/or is unique to our requirements.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and
trade accounts receivable. The Company’s cash was deposited
primarily with U.S. banks and brokerage firms and amounted to
approximately $1,966,000 at September 30, 2020. The Company does
not believe there is significant risk of non-performance by these
counterparties. Approximately 16% and 10%, respectively, of the
accounts receivable at September 30, 2020 was due from two
customers who both pay their receivables over usual credit periods
(the Company collected 89% of the $188,000 due from these two
customers, in the aggregate, as of November 9, 2020 ). 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.
Interest
Rate Risk
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement
providing OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible
receivables or $1 million. Debt incurred under this financing
arrangement bears interest at the greater of 6% and prime (3.25% at
November 9, 2020) plus 1.5% per year. In addition, OmniMetrix is to
pay a monthly service charge of 0.75% of the average aggregate
principal amount outstanding for the prior month, for a current
effective rate of interest on advances of 15%. OmniMetrix also
agreed to maintain a minimum loan balance of $150,000 in its
line-of-credit with the lender for a minimum of two years beginning
March 1, 2019.
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, 2019, 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, 2019, 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 it operates.
The
material weaknesses management identified were caused by an
insufficient complement of resources at our OmniMetrix subsidiary
and limited IT system capabilities, such that individual control
policies and procedures at the subsidiary could not be implemented,
maintained, or remediated when and where necessary. As a result, a
majority of the significant process areas management identified for
our OmniMetrix subsidiary had one or more material weaknesses
present.
Changes
in Internal Control Over Financial Reporting
There
was no change in our internal control over financial reporting (as
such term is defined in Rule 13a-15(f) under the Exchange Act)
during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II
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.
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ACORN
ENERGY, INC. |
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Dated:
November 12, 2020 |
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By: |
/s/
TRACY S. CLIFFORD |
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Tracy
S. Clifford |
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Chief
Financial Officer |