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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 June 30, 2021

 

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 ☒ 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 August 5, 2021
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 June 30, 2021

 

TABLE OF CONTENTS

 

  PAGE
PART I Financial Information  
   
Item 1. Unaudited Condensed Consolidated Financial Statements: 3
   
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 3
   
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 4
   
Condensed Consolidated Statements of Changes in Deficit for the three and six months ended June 30, 2021 and 2020 5
   
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 6
   
Notes to Condensed Consolidated Financial Statements 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
   
Item 4. Controls and Procedures 23
   
PART II Other Information  
   
Item 6. Exhibits 24
   
Signatures 25

 

Certain statements contained in this report are forward-looking in nature. These statements are generally identified by the inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of similar meaning. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Many of these factors are described in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

 

  2  

 

 

PART I

 

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

 

    As of
June 30, 2021 		    As of
December 31, 2020 		 
ASSETS                
Current assets:                
Cash   $ 1,955     $ 2,063  
Accounts receivable, net     706       608  
Inventory, net     363       236  
Deferred charges     738       764  
Other current assets     144       126  
Total current assets     3,906       3,797  
Property and equipment, net     273       268  
Right-of-use assets, net     447       494  
Other assets     701       642  
Total assets   $ 5,327     $ 5,201  
LIABILITIES AND DEFICIT                
Current liabilities:                
Short-term credit   $ -     $ 149  
Accounts payable     277       229  
Accrued expenses     215       168  
Deferred revenue     3,239       3,214  
Current operating lease liabilities     103       99  
Other current liabilities     32       33  
Total current liabilities     3,866       3,892  
Long-term liabilities:                
Deferred revenue     1,480       1,340  
Long-term operating lease liabilities     391       443  
Other long-term liabilities     49       45  
Total long-term liabilities     1,920       1,828  
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 shares at June 30, 2021 and December 31, 2020     397       397  
Additional paid-in capital     102,762       102,726  
Warrants     3       3  
Accumulated deficit     (100,591 )     (100,613 )
Treasury stock, at cost – 801,920 shares at June 30, 2021 and December 31, 2020     (3,036 )     (3,036 )
Total Acorn Energy, Inc. shareholders’ deficit     (465 )     (523 )
Non-controlling interests     6       4  
Total deficit     (459 )     (519 )
Total liabilities and deficit   $ 5,327     $ 5,201  

 

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)

 

    2021     2020     2021     2020  
    Six months ended
June 30, 		    Three months ended
June 30, 		 
    2021     2020     2021     2020  
                         
Revenue   $ 3,316     $ 2,806     $ 1,611     $ 1,468  
Cost of sales     884       862       389       446  
Gross profit     2,432       1,944       1,222       1,022  
Operating expenses:                                
Research and development expense     353       293       175       138  
Selling, general and administrative expense     2,048       1,947       1,042       906  
Total operating expenses     2,401       2,240       1,217       1,044  
Operating income (loss)     31       (296 )     5       (22 )
Finance expense, net     (5 )     (20 )     (1 )     (10 )
Income (loss) before income taxes     26       (316 )     4       (32 )
Income tax expense     —       —       —       —  
Net income (loss)     26       (316 )     4       (32 )
Non-controlling interest share of net income     (4 )     —       (2 )     (1 )
Net income (loss) attributable to Acorn Energy, Inc. shareholders   $ 22     $ (316 )   $ 2     $ (33 )
                                 
Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. shareholders:   $ 0.00     $ (0.01 )   $ 0.00     $ (0.00 )
Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted                                
Basic     39,687       39,659       39,687       39,687  
Diluted     39,913       39,659       39,935       39,687  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  4  

 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

(UNAUDITED)

(IN THOUSANDS)

 

    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  
    Three and Six Months Ended June 30, 2021  
    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, 2020     39,687     $ 397     $ 102,726     $ 3     $ (100,613 )     802     $ (3,036 )   $ (523 )   $ 4     $ (519 )
Net income     —       —       —       —       20       —       —       20       2       22  
Accrued dividend in OmniMetrix preferred shares     —       —       —       —       —       —       —       —       (1 )     (1 )
Stock option compensation     —       —       15       —       —       —       —       15       —       15  
Balances as of March 31, 2021     39,687     $ 397     $ 102,741     $ 3     $ (100,593 )     802     $ (3,036 )   $ (488 )   $ 5     $ (483 )
Net income     —       —       —       —       2       —       —       2       2       4  
Accrued dividend in OmniMetrix preferred shares     —       —       —       —       —       —       —       —       (1 )     (1 )
Stock option compensation     —       —       21       —       —       —       —       21       —       21  
Balances as of June 30, 2021     39,687     $ 397     $ 102,762     $ 3     $ (100,591 )     802     $ (3,036 )   $ (465 )   $ 6     $ (459 )

 

    Three and Six Months Ended June 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 )

 

* 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)

 

    2021     2020  
    Six months ended June 30,  
    2021     2020  
Cash flows provided by operating activities:                
Net income (loss)   $ 26     $ (316 )
Depreciation and amortization     37       21  
Non-cash lease expense     59       59  
Stock-based compensation     36       19  
Change in operating assets and liabilities:                
Decrease (increase) in accounts receivable     (98 )     256  
Increase in inventory     (127 )     (10 )
Increase in deferred charges     (33 )     (5 )
Decrease (increase) in other current assets and other assets     (18 )     63  
Increase (decrease) in accounts payable and accrued expenses     95       (4 )
Increase (decrease) in deferred revenue     165       (10 )
Decrease in operating lease liability     (60 )     (38 )
Increase in other current liabilities and non-current liabilities     1       43  
Net cash provided by operating activities     83       78  
                 
Cash flows used in investing activities:                
Investments in technology     (42 )     (88 )
Payments made for patent filings     —       (3 )
Net cash used in investing activities     (42 )     (91 )
                 
Cash flows provided by financing activities:                
Short-term credit, net     (149 )     45  
Loan proceeds     —       462  
Stock option exercise proceeds     —       19  
Net cash (used in) provided by financing activities     (149 )     526  
                 
Net (decrease) increase in cash     (108 )     513  
Cash at the beginning of the year     2,063       1,247  
Cash at the end of the period   $ 1,955     $ 1,760  
                 
Supplemental cash flow information:                
Cash paid during the year for:                
Interest   $ 4     $ 16  
                 
Non-cash investing and financing activities:                
Accrued preferred dividends to former Acorn director and/or former OmniMetrix CEO   $ 2     $ 2  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  6  

 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

 

NOTE 1— BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries, OmniMetrix, LLC and OMX Holdings, Inc. (collectively, “Acorn” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six- and three-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

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, 2020.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $1,955,000 at June 30, 2021. The Company does not believe there is significant risk of non-performance by these counterparties. For the six-month period ended June 30, 2021, one customer represented approximately 10% of total invoiced sales. Approximately 18% and 11% of the accounts receivable at June 30, 2021 was due from two different customers both of whom pay their receivables over usual credit periods. As of August 5, 2021, the Company had collected 90% of the outstanding amount of approximately $207,000 due from these customers as of June 30, 2021. 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.

 

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 year, 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 and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net loss per share if doing so would be antidilutive. The number of options that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately 286,000 (which have a weighted average exercise price of $0.79) and approximately 321,000 (which have a weighted average exercise price of $0.76) for the six- and three-month periods ending June 30, 2021, respectively. There were no anti-dilutive warrants. For both the six- and three-month periods ending June 30, 2020, the number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately 858,000 options (which had a weighted average exercise price of $1.51) and approximately 35,000 warrants (which had a weighted average exercise price of $0.13).

 

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):

 

    2021     2020     2021     2020  
   

Six months ended

June 30,

   

Three months ended

June 30,

 
    2021     2020     2021     2020  
Net income (loss) available to common stockholders   $ 22     $ (316 )   $ 2     $ (33 )
                                 
Weighted average share outstanding:                                
Basic     39,687       39,659       39,687       39,687  
Add: Warrants     27       —       27       —  
Add: Stock options     199       —       221       —  
Diluted     39,913       39,659       39,935       39,687  
                                 
Basic and diluted net income (loss) per share   $ 0.00     $ (0.01 )   $ 0.00     $ (0.00 )

 

  7  

 

 

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 six- and three-month periods ended June 30, 2021, 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.

 

NOTE 3—LIQUIDITY

 

At June 30, 2021, the Company had working capital of approximately $40,000. The Company’s working capital includes approximately $1,955,000 of cash and deferred revenue of approximately $3,239,000. The deferred revenue does not require significant cash outlay for the revenue to be recognized. During the first six months of 2021, the Company’s OmniMetrix, LLC subsidiary provided approximately $529,000 from operations while the Company’s corporate headquarters used approximately $446,000 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. Throughout the pandemic, the Company 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. Business travel has now started to resume and sales are returning to projected levels.

 

As of August 5, 2021, the Company had cash of approximately $2,039,000. The Company believes that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for the twelve months from the issuance of these unaudited condensed consolidated financial statements in particular. The Company may, at some point, elect to obtain a new line of credit to fund additional investments in the business.

 

NOTE 4—LEASES

 

OmniMetrix leases office space and office equipment under operating lease agreements. The office lease expires on September 30, 2025. The office equipment lease commenced in April 2019 and has a sixty-month term. Operating lease payments for the six months ended June 30, 2021 and 2020 were approximately $60,000 and $38,000, respectively. Operating lease payments for the three months ended June 30, 2021 and 2020 were approximately $30,000 and $10,000, respectively. The future minimum lease payments on non-cancellable operating leases as of June 30, 2021 using a discount rate of 4.5% are $494,000. Supplemental balance sheet information related to leases consisted of the following:

 

Supplemental cash flow information related to leases consisted of the following (in thousands):

 

    2021     2020  
    June 30,  
    2021     2020  
Cash paid for operating lease liabilities   $ 60     $ 38  

 

  8  

 

 

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

 

    2021  
Weighted average remaining lease terms for operating leases     4.23  

 

The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2021 (in thousands):

 

   

Twelve-month

period ended

June 30,

 
2022   $ 123  
2023     126  
2024     129  
2025     131  
2026     33  
Total undiscounted cash flows     542  
Less: Imputed interest     (48 )
Present value of operating lease liabilities (a)   $ 494  

 

  (a) Includes current portion of $103,000 for operating leases.

 

NOTE 5—DEBT

 

In March 2019, OmniMetrix reinstated its loan and security agreement which provided 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 bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was 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 February 28, 2021. OmniMetrix also agreed to continue 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 fell below $150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly service charge and interest was calculated on the greater of the outstanding balance or $150,000. Interest expense for the period January 1, 2021 to February 28, 2021, when the line expired, was approximately $4,000 compared to approximately $16,000 and approximately $9,000 for the six months and three months ended June 30, 2020, respectively.

 

OmniMetrix paid off the outstanding balance of approximately $149,000 in February 2021 and decided not to renew this line of credit, which expired in accordance with its terms on February 28, 2021.

 

NOTE 6—COMMITMENTS AND CONTINGENCIES

 

On August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix a new software platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over the first seven months of the term of the agreement equal to $200,000 in the aggregate. In addition, OmniMetrix will pay the partner (i) a per-sensor monitoring fee for each sensor connected to the developed technology, or (ii) a percentage of any revenue received above a specified amount per sensor monitored per month in oil and gas applications only. Commencing on January 1, 2021, OmniMetrix pays the partner an annual licensing fee of $50,000 which is paid in quarterly increments of $12,500. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but will automatically renew for one-year periods unless either party delivers a written notice of termination to the other party sixty days prior to the end of the respective term.

 

  9  

 

 

The Company entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The agreement has a twelve-month term and the total payments under this agreement are approximately $148,000 in the aggregate. In January 2021, the Company elected to renew this agreement for an additional twelve months under the same terms extending the agreement to April 30, 2022. Under the data hosting services agreement applicable during the respective periods, the Company paid approximately $79,000 and $66,000 in the six months ended June 30, 2021 and 2020, respectively, and approximately $42,000 and $30,000 in the three months ended June 30, 2021 and 2020, respectively.

 

On March 17, 2021, the Company entered into a master services agreement for the development of a new user interface for its customer data portal. The cost of this project will be approximately $106,000 ($14,000 was paid at the commencement of this project and four equal installments of approximately $23,000 are due monthly starting in July 2021 and ending in October 2021). This project is expected to be completed by the end of 2021. This master services agreement also covers strategic enhancements to the Company’s technology infrastructure for an investment in the initial phase of approximately $21,000. These enhancements are expected to be completed by year-end. These costs are capitalized and amortization will begin once the new interface and the new infrastructure environment are launched.

 

In addition to the above, the Company has approximately $563,000 in other contractual obligations related to software agreements, operating leases and contractual services, payable through 2026.

 

NOTE 7—EQUITY

 

(a) General

 

At June 30, 2021 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 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 June 30, 2021, 1,576,394 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the three months ended June 30, 2021, 100,000 options were issued to the Company’s CFO. During the six months ended June 30, 2021, 30,000 options were issued to directors, 35,000 options were issued to the Company’s CEO and 100,000 options were issued to the Company’s CFO. In the six and three months ended June 30, 2021, there were no grants to non-employees. The fair value of the options issued was approximately $62,000.

 

No options were exercised in the six and three months ended June 30, 2021. The intrinsic value of options outstanding and of options exercisable at June 30, 2021 was approximately $177,000 and $134,000, respectively.

 

  10  

 

 

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, 2020     722,501     $ 0.62       4.4 years     $ 29,000  
Granted     165,000       0.54                  
Exercised     —       —                  
Forfeited or expired     (40,255 )     3.13                  
Outstanding at June 30, 2021     847,246     $ 0.48       4.7 years     $ 177,000  
Exercisable at June 30, 2021     546,074     $ 0.50       3.9 years     $ 134,000  

 

The fair value of the options granted of approximately $62,000 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

         
Risk-free interest rate     .44 %
Expected term of options     3.9 years  
Expected annual volatility     101 %
Expected dividend yield     — %

 

(c) Stock-based Compensation Expense

 

Stock-based compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations was approximately $36,000 and $19,000 for the six-month periods ended June 30, 2021 and 2020, respectively and approximately $21,000 and $13,000 for the three-month periods ended June 30, 2021 and 2020, respectively.

 

The total compensation cost related to non-vested awards not yet recognized was approximately $73,000 as of June 30, 2021.

 

(d) Warrants

 

The Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:

 

   

Number

of Warrants

(in shares)

    Weighted
Average
Exercise
Price Per Share 		    Weighted
Average
Remaining
Contractual Life 		 
Outstanding at December 31, 2020     35,000     $ 0.13       2.2 years  
Granted     —       —          
Exercised     —       —          
Forfeited or expired     —       —          
Outstanding at June 30, 2021     35,000     $ 0.13       1.71 years  

 

  11  

 

 

NOTE 8— SEGMENT REPORTING

 

As of June 30, 2021, 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 annunciators.
     
  ● 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-month and six-month periods ended June 30, 2021 and 2020 (in thousands):

 

    PG     CP     Total  
Six months ended June 30, 2021:                        
Revenues from external customers   $ 2,837     $ 479     $ 3,316  
Segment gross profit     2,150       282       2,432  
Depreciation and amortization     32       5       37  
Segment income(loss) before income taxes   $ 510     $ (17 )   $ 493  
                         
Six months ended June 30, 2020:                        
Revenues from external customers   $ 2,371     $ 435     $ 2,806  
Segment gross profit     1,720       224       1,944  
Depreciation and amortization     17       4       21  
Segment income(loss) before income taxes   $ 204     $ (72 )   $ 132  
                         
Three months ended June 30, 2021:                        
Revenues from external customers   $ 1,379     $ 232     $ 1,611  
Segment gross profit     1,082       140       1,222  
Depreciation and amortization     19       3       22  
Segment income(loss) before income taxes   $ 234     $ (4 )   $ 230  
                         
Three months ended June 30, 2020:                        
Revenues from external customers   $ 1,262     $ 206     $ 1,468  
Segment gross profit     915       107       1,022  
Depreciation and amortization     4       1       5  
Segment income(loss) before income taxes   $ 199     $ (10 )   $ 189  

 

  12  

 

 

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

 

                                 
   

Six months ended

June 30,

   

Three months ended

June 30,

 
    2021     2020     2021     2020  
Total net income before income taxes for reportable segments   $ 493     $ 132     $ 230     $ 189  
Unallocated cost of corporate headquarters     (467 )     (448 )     (226 )     (221 )
Consolidated net income (loss) before income taxes   $ 26     $ (316 )   $ 4     $ (32 )

 

 

NOTE 9—REVENUE

 

The following table disaggregates the Company’s revenue for the three-and-six-month periods ended June 30, 2021 and 2020 (in thousands):

 

    Hardware     Monitoring     Total  
Six months ended June 30, 2021:                        
PG Segment   $ 942     $ 1,895     $ 2,837  
CP Segment     349       130       479  
Total Revenue   $ 1,291     $ 2,025     $ 3,316  

 

    Hardware     Monitoring     Total  
Six months ended June 30, 2020:                  
PG Segment   $ 645     $ 1,726     $ 2,371  
CP Segment     308       127       435  
Total Revenue   $ 953     $ 1,853     $ 2,806  

 

    Hardware     Monitoring     Total  
Three months ended June 30, 2021:                        
PG Segment   $ 425     $ 954     $ 1,379  
CP Segment     169       63       232  
Total Revenue   $ 594     $ 1,017     $ 1,611  

 

    Hardware     Monitoring     Total  
Three months ended June 30, 2020:                        
PG Segment   $ 368     $ 894     $ 1,262  
CP Segment     142       64       206  
Total Revenue   $ 510     $ 958     $ 1,468  

 

  13  

 

 

Deferred revenue activity for the six months ended June 30, 2021 can be seen in the table below (in thousands):

 

    Hardware     Monitoring     Total  
Balance at December 31, 2020   $ 2,576     $ 1,978     $ 4,554  
Additions during the period     1,068       2,019       3,087  
Recognized as revenue     (898 )     (2,024 )     (2,922 )
Balance at June 30, 2021   $ 2,746     $ 1,973     $ 4,719  
                         
Amounts to be recognized as revenue in the twelve-month-period ending:                        
June 30, 2022   $ 1,507     $ 1,732     $ 3,239  
June 30, 2023     905       234       1,139  
June 30, 2024 and thereafter     334       7       341  
 Total   $ 2,746     $ 1,973     $ 4,719  

 

Other revenue of approximately $394,000, 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 six months ended June 30, 2021 can be seen in the table below (in thousands):

 

Balance at December 31, 2020   $ 1,306  
Additions, net of adjustments, during the period     472  
Recognized as cost of sales     (467 )
Balance at June 30, 2021   $ 1,311  
         
Amounts to be recognized as cost of sales in the twelve-month-period ending:        
June 30, 2022   $ 738  
June 30, 2023     425 *
June 30, 2024 and thereafter     148 *
    $ 1,311  

 

  * Amounts included in other assets in the Company’s unaudited condensed consolidated balance sheets at June 30, 2021.

 

Other cost of goods sold (COGS) recognized of approximately $231,000 is related to accessories, repairs, and other miscellaneous charges that are recognized to revenue when sold and are not deferred in addition to $186,000 in monitoring COGS which is not deferred.

 

The following table provides a reconciliation of the Company’s sales commissions contract assets for the six-month period ended June 30, 2021 (in thousands):

 

    Hardware     Monitoring     Total  
Balance at December 31, 2020   $ 136     $ 41     $ 177  
Additions during the period     88       15       103  
Amortization of sales commissions     (48 )     (10 )     (58 )
Balance at June 30, 2021   $ 176     $ 46     $ 222  

 

The capitalized sales commissions are included in other current assets (approximately $107,000) and other assets (approximately $115,000) in the Company’s unaudited condensed consolidated balance sheets at June 30, 2021. The capitalized sales commissions are included in other current assets (approximately $90,000) and other assets (approximately $87,000) in the Company’s consolidated balance sheets at December 31, 2020.

 

NOTE 10—SUBSEQUENT EVENTS

 

On July 6, 2021, the Company entered into an agreement with King Industrial Reality, Inc. to sublease 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 including 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. The sublease will commence on or about September 1, 2021 and run through December 31, 2024.

 

  14  

 

 

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, 2020 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. In the tables and discussion below, research and development expenses is referred to as “R&D” expense, selling, general and administrative expense is referred to as “SG&A” expense.

 

    Six months ended June 30, 2021  
    OmniMetrix     Acorn     Total Continuing Operations  
Revenue   $ 3,316     $ —     $ 3,316  
Cost of sales     884       —       884  
Gross profit     2,432       —       2,432  
Gross profit margin     73 %             73 %
R&D expense     353       —       353  
SG&A expense     1,581       467       2,048  
Operating income (loss)   $ 498     $ (467 )   $ 31  

 

    Six months ended June 30, 2020  
    OmniMetrix     Acorn     Total Continuing Operations  
Revenue   $ 2,806     $ —     $ 2,806  
Cost of sales     862       —       862  
Gross profit     1,944       —       1,944  
Gross profit margin     69 %             69 %
R&D expense     293       —       293  
SG&A expense     1,502       445       1,947  
Operating loss   $ 149     $ (445 )   $ (296 )

 

  15  

 

 

    Three months ended June 30, 2021  
    OmniMetrix     Acorn     Total Continuing Operations  
Revenue   $ 1,611     $ —     $ 1,611  
Cost of Sales     389       —       389  
Gross profit     1,222       —       1,222  
Gross profit margin     76 %             76 %
R&D expense     175       —       175  
SG&A expense     816       226       1,042  
Operating income (loss)   $ 231     $ (226 )   $ 5  

 

    Three months ended June 30, 2020  
    OmniMetrix     Acorn     Total Continuing Operations  
Revenue   $ 1,468     $ —     $ 1,468  
Cost of Sales     446       —       446  
Gross profit     1,022       —       1,022  
Gross profit margin     70 %             70 %
R&D expense     138       —       138  
SG&A expense     684       222       906  
Operating loss   $ 200     $ (222 )   $ (22 )

 

BACKLOG

 

As of June 30, 2020, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled approximately $4,719,000.

 

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. The cost of this project will be approximately $106,000 ($14,000 was paid at the commencement of this project and four equal installments of approximately $23,000 are due monthly starting in July 2021 and ending in October 2021). This project is expected to be completed by the end of 2021. This master services agreement also covers strategic enhancements to our technology infrastructure for an investment in the initial phase of approximately $21,000. These enhancements are expected to be completed by year-end. These costs are capitalized and amortization will begin once the new interface and the new infrastructure environment are launched.

 

On May 10, 2021, the monthly consulting fee for our Chief Financial Officer, Tracy S. Clifford, who also serves as Chief Operating Officer of our OmniMetrix subsidiary, was increased from $16,500 to $17,500, effective June 1, 2021. Ms. Clifford was also granted options to purchase 100,000 shares of our common stock, with an exercise price of $0.62 per share, which was the closing price of the common stock on May 7, 2021. The options vest and become exercisable on the first anniversary of the date of the grant and shall expire upon the earlier of (a) seven years from the date of the grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to our Company.

 

On July 6, 2021, we entered into an agreement with King Industrial Reality, Inc. to sublease 1,900 square feet of office space of our 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 including 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 we pay will be remitted to our landlord. The term of the sublease will commence on or about September 1, 2021 and run through December 31, 2024.

 

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OVERVIEW AND TREND INFORMATION

 

Acorn Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology driven solutions for energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC (“OmniMetrix”) subsidiary:

 

  ● Power Generation (“PG”) monitoring. OmniMetrix’s PG activities provide wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. The PG segment includes our monitoring device for industrial air compressors and dryers and a 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 and revenue information provided in Notes 8 and 9 to the interim unaudited condensed consolidated financial statements included in this quarterly report.

 

OmniMetrix

 

OmniMetrix is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, 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 IoT applications, whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, and cybersecurity threats. As residential and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly becoming monitored in IoT applications, and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this 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.

 

OmniMetrix Line of Credit

 

In March 2019, OmniMetrix reinstated its loan and security agreement which provided 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 bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was 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%. 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 was calculated on the greater of the outstanding balance or $150,000. From time to time, the balance outstanding could fall below $150,000 based on collections applied against the loan balance and the timing of loan draws.

 

We repaid the outstanding balance of approximately $149,000 in February 2021 and elected not to renew this line of credit, which expired in accordance with its terms on February 28, 2021.

 

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Results of Operations

 

The following table sets forth certain information with respect to the condensed consolidated results of operations of the Company for the six-month periods ended June 30, 2021 and 2020, 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 8 and 9 to the unaudited condensed consolidated financial statements included in this quarterly report.

 

    Six months ended June 30,  
    2021     2020     Change  
    ($,000)     % of revenues     ($,000)     % of revenues     from 2020 to 2021  
Revenue   $ 3,316       100 %   $ 2,806       100 %     18 %
Cost of sales     884       27 %     862       31 %     3 %
Gross profit     2,432       73 %     1,944       69 %     25 %
R&D expense     353       11 %     293       10 %     20 %
SG&A expense     2,048       62 %     1,947       69 %     5 %
Operating income (loss)     31       1 %     (296 )     (11 )%     (110 )%
Finance expense, net     (5 )     * %      (20 )     (1 )%     (75 )%
Income (loss) before income taxes     26       1 %     (316 )     (11 )%     (108 )%
Income tax expense     —       —       —       — %     —  
Net income (loss)     26       1 %     (316 )     (11 )%     (108 )%
Non-controlling interests share of net income     (4 )     * %      —       — %     (100 )%
Net income (loss) attributable to Acorn Energy, Inc.   $ 22       1 %   $ (316 )     (11 )%     (107 )%

 

*result is less than 1%.

 

The following table sets forth certain information with respect to the condensed consolidated results of operations of the Company for the three-month periods ended June 30, 2021 and 2020, 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 8 and 9 to the unaudited condensed consolidated financial statements included in this quarterly report.

 

    Three months ended June 30,  
    2021     2020     Change  
    ($,000)     % of revenues     ($,000)     % of revenues     from
2020 to 2021 		 
Revenue   $ 1,611       100 %   $ 1,468       100 %     10 %
Cost of sales     389       24 %     446       30 %     (13 )%
Gross profit     1,222       76 %     1,022       70 %     20 %
R&D expense     175       11 %     138       9 %     27 %
SG&A expense     1,042       65 %     906       62 %     15 %
Operating income (loss)     5       * %     (22 )     (1 )%     123 %
Finance expense, net     (1 )     * %     (10 )      (1 )%     (90 )%
Income (loss) before income taxes     4       * %     (32 )     (2 )%     113 %
Income tax expense     —       — %      —       — %     —  
Net income (loss)     4       * %     (32 )     (2 )%     113 %
Non-controlling interests share of net income     (2 )     * %      (1 )     * %      100 %
Net income (loss) attributable to Acorn Energy, Inc.   $ 2       * %   $ (33 )     (2 )%     106 %

 

*result is less than 1%.

 

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Revenue for the six and three months ended June 30, 2021 and 2020

 

In the six months ended June 30, 2021, revenue increased by approximately $510,000, or 18%, from approximately $2,806,000 in the six months ended June 30, 2020 to approximately $3,316,000 in the six months ended June 30, 2021. OmniMetrix’s increased revenue during the six months ended June 30, 2021 was primarily attributable to increased hardware and accessories sales, which increased approximately $338,000, or 35%, from approximately $953,000 in the six months ended June 30, 2020 to approximately $1,291,000 in the six months ended June 30, 2021. The increase in hardware revenue was due to an increase in the sale of (i) TG2 units , (ii) custom TG Pro units that are designed to large customer specifications and monitored by the customer and thus the revenue is not deferred, (iii) unit accessories for which the revenue is not deferred, and (iv) Hero-2 units.

 

Monitoring revenue increased by approximately $172,000, or 9%, from approximately $1,853,000 in the six months ended June 30, 2020 to approximately $2,025,000 in the six months ended June 30, 2021. As previously noted, the increase in monitoring revenue is due to an increase in the number of installed billable connections.

 

As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the approximately $3,316,000 in revenue recognized in the six months ended June 30, 2021, approximately $2,837,000 was generated by PG activities and approximately $479,000 was generated by CP activities. This represents an increase in revenue from PG activities of approximately $466,000, or 20%, from approximately $2,371,000 in the six months ended June 30, 2020, and an increase in revenue from CP activities of approximately $44,000, or 10%, from approximately $435,000 in the six months ended June 30, 2020. The CP sales cycle can take twelve to eighteen months from customer introduction to closing. The CP sales cycle has been further extended due to the restrictions from COVID-19 and our ability to meet with potential customers and to act timely and effectively on sales leads. We are now starting to see some positive results from the CP sales efforts as potential customers are opening or otherwise relaxing the COVID-19 restrictions.

 

Revenue increased by approximately $143,000, or 10%, from approximately $1,468,000 in the three months ended June 30, 2020 to approximately $1,611,000 in the three months ended June 30, 2021. OmniMetrix’s increased revenue during the three months ended June 30, 2021 was primarily attributable to increased hardware and accessories sales, which increased approximately $84,000 or 16%, from approximately $510,000 in the three months ended June 30, 2020 to approximately $594,000 in the three months ended June 30, 2021.

 

Monitoring revenue increased by approximately $59,000, or 6%, from approximately $958,000 in the three months ended June 30, 2020 to approximately $1,017,000 in the three months ended June 30, 2021. The increase in monitoring revenue is due to an increase in the number of installed billable connections.

 

Of the approximately $1,611,000 in revenue recognized in the three months ended June 30, 2021, approximately $1,379,000 was generated by PG activities and approximately $232,000 was generated by CP activities. This represents an increase in revenue from PG activities of approximately $117,000, or 9%, from approximately $1,262,000 in the three months ended June 30, 2020, and an increase in revenue from CP activities of approximately $26,000, or 13%, from approximately $206,000 in the three months ended June 30, 2020.

 

Gross profit for the six and three months ended June 30, 2021 and 2020

 

Gross profit for the six months ended June 30, 2021 was approximately $2,432,000 reflecting a gross margin of 73% compared with a gross profit of $1,944,000 reflecting a 69% gross margin for the six months ended June 30, 2020. Gross margin on hardware revenue for the six months ended June 30, 2021 was 46% compared to 40% for the six months ended June 30, 2020.

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Gross profit for the three months ended June 30, 2021 was approximately $1,222,000 reflecting a gross margin of 76% on revenue compared with a gross profit for the three months ended June 30, 2020 of $1,022,000 reflecting a gross margin of 70% on revenue. Gross margin on hardware revenue for the three months ended June 30, 2021 was 43% compared to 42% for the three months ended June 30, 2020.

 

The increased gross profit and gross margin in both the six- and three-month periods in 2021 was due to an increase in (i) sales to commercial and industrial customers over residential customers, (ii) accessory sales, (iii) monitoring revenue, and the restructuring of our data plan.

 

Operating expenses for the six and three months ended June 30, 2021 and 2020

 

OmniMetrix R&D expense. During the six months ended June 30, 2021 and 2020, R&D expense was $353,000 and $293,000, respectively. During the three months ended June 30, 2021, OmniMetrix recorded $175,000 of R&D expense as compared to $138,000 in the three months ended June 30, 2020. The increase in R&D expense in 2021 is 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 throughout 2021 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level of innovation.

 

OmniMetrix SG&A expense. During the six months ended June 30, 2021, OmniMetrix recorded SG&A expense of approximately $1,581,000 compared to SG&A costs of approximately $1,507,000 in the six months ended June 30, 2020, an increase of $74,000, or 5%. During the three months ended June 30, 2021, OmniMetrix recorded SG&A expense of approximately $816,000 compared to SG&A costs of approximately $687,000, in the three months ended June 30, 2020, an increase of approximately $129,000, or 19%. The increase in both periods is due to (i) an increase in travel expenses which had been significantly lower than normal in 2020 due to COVID-19 travel and trade show restrictions, (ii) compensation and benefit expenses in connection with two new sales engineers hired in March 2021, (iii) changes in our commission plan, and (iv) continued expenses related to enhancements in our technology infrastructure. We anticipate that our annual SG&A costs throughout 2021 will continue to increase due to having a fully staffed sales team, increases in sales travel to gain momentum stymied by COVID-19, additions to staff as we grow and our continuing investments in our technology infrastructure.

 

Corporate SG&A expense. Corporate SG&A expense of $467,000 in the first six months of 2021 reflected an increase of approximately $22,000, or 5%, from the $445,000 of corporate SG&A expense reported in the first six months of 2020. This increase is primarily due to increases audit fees and insurance costs. Corporate SG&A expense for the three months ended June 30, 2021 increased $4,000, or 2%, to $226,000 from $222,000 for the three months ended June 30, 2020. Second quarter 2021 corporate SG&A expense of $226,000 was below first quarter 2021 corporate SG&A expense of $241,000 primarily due to the timing of certain expenses. We do not expect the quarterly corporate overhead to change materially except as may be required to support the growth of our OmniMetrix subsidiary and typical annual increases in professional fees and insurance premiums.

 

Net income (loss) attributable to Acorn Energy. We recognized net income attributable to Acorn shareholders of approximately $22,000 in the six months ended June 30, 2021 compared to a net loss attributable to Acorn shareholders of approximately $316,000 in the six months ended June 30, 2020. Our net income during the six months ended June 30, 2021 is comprised of net income at OmniMetrix of approximately $493,000 offset by corporate expenses of approximately $467,000 and the non-controlling interest share of our income from OmniMetrix of approximately $4,000. Our net loss in the six months ended June 30, 2020 was comprised of net income at OmniMetrix of $133,000 plus corporate expense of $449,000.

 

For the three months ended June 30, 2021, we recognized net income attributable to Acorn shareholders of approximately $2,000 compared to a net loss attributable to Acorn shareholders of approximately $33,000 for the three months ended June 30, 2020. Our net income in the three months ended June 30, 2021 is comprised of net income at OmniMetrix of approximately $230,000 offset by corporate expenses of approximately $226,000 and the non-controlling interest share of our income from OmniMetrix of approximately $2,000. Our loss in the three months ended June 30, 2020 was comprised of net income at OmniMetrix of $190,000 offset by corporate expense of $222,000 plus $1,000 attributed to the non-controlling interest share of our income in OmniMetrix.

 

  20  

 

 

Liquidity and Capital Resources

 

At June 30, 2021, we had working capital of approximately $40,000. Our working capital includes approximately $1,955,000 of cash and deferred revenue of approximately $3,239,000. The deferred revenue does not require significant cash outlay for the revenue to be recognized.

 

During the first six months of 2021, our OmniMetrix subsidiary provided approximately $544,000 from operations while our corporate headquarters used approximately $461,000 during the same period.

 

We invested $42,000 in technology in projects including user interface development and design of cloud server environment as well as investments in new hardware and software upgrades.

 

Net cash of $149,000 was used in financing activities during the first six months of 2021 in repayments on our line of credit described above.

 

Other Liquidity Matters

 

OmniMetrix owes Acorn approximately $4,431,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of approximately $344,000 in the six months ended June 30, 2021 offset by interest, dividends and other advances of approximately $200,000 in the aggregate.

 

As of August 5, 2021, we had cash of approximately $2,039,000. We believe that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for the twelve months from the issuance of these unaudited condensed consolidated financial statements in particular. We may, at some point, elect to obtain a new line of credit to fund additional investments in the business.

 

Contractual Obligations and Commitments

 

The table below provides information concerning obligations under certain categories of our contractual obligations as of June 30, 2021.

 

CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS

 

    Twelve Month Periods Ending June 30, (in thousands)  
    Total     2022     2023-2024     2025-2026     2027 and thereafter  
Software agreements   $ 66     $ 62     $ 4     $ —     $ —  
Operating leases     542       122       256       164       —  
Contractual services     223       223       —       —       —  
Total contractual cash obligations   $ 831     $ 407     $ 260     $ 164     $ —  

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

COVID-19 Risk

 

The COVID-19 pandemic could negatively affect various aspects of our business, including our workforce and supply chain, and make it more difficult and expensive to meet our obligations to our customers, and could result in reduced demand from our customers.

 

The outbreak of the COVID-19 pandemic caused governments around the world to implement quarantines of certain geographic areas and implement significant restrictions on travel. Several governments also implemented work restrictions that prohibit many employees from going to work, both around the world as well as in certain jurisdictions in the United States. At this time, it is unclear if foreign governments or U.S. federal, state or local governments will further extend any of the current restrictions or if further restrictions will be put into place. In addition, many countries, including the United States, have placed significant bans on international travel. It is possible that restrictions or bans on domestic travel may be implemented by U.S. federal, state or local governments. As a result of the pandemic, businesses can be shut down, supply chains can be interrupted, slowed, or rendered inoperable, and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. OmniMetrix is considered an essential business due to the fact that it provides infrastructure support to both government and commercial sectors and across key industries, so it has not been forced to shut down to date.

 

Governmental mandates may require forced shutdowns of our facilities for extended or indefinite periods. In addition, the pandemic could adversely affect our workforce resulting in serious health issues and absenteeism. The pandemic could also substantially interfere with general commercial activity related to our supply chain and customer base, which could have a material adverse effect on our financial condition, results of operations, business, or prospects. Some of the electronic devices and hardware we purchase, like antennas, radios, and GPS modules are very specific to our application; there are not likely to be practical alternatives. In some cases, our circuit boards were designed around specific electronic hardware that met our specifications. We are working closely with our contract manufacturers and suppliers in order to mitigate as much as possible the risks to our supply chain for these critical devices and hardware, including identifying any lead-time issues and any potential alternate sources. We are also examining all currently open purchase orders in an effort to identify whether we need to issue additional orders to secure product that is critical, already has questionable lead times and/or is unique to our requirements.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $1,955,000 at June 30, 2021. The Company does not believe there is significant risk of non-performance by these counterparties. For the six-month period ended June 30, 2021, one customer represented approximately 10% of total invoiced sales. Approximately 18% and 11% of the accounts receivable at June 30, 2021 was due from two different customers both of whom pay their receivables over usual credit periods. As of August 5, 2021, the Company has collected 90% of the outstanding amount of approximately $207,000 due from these customers as of June 30, 2021. 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.

 

  22  

 

 

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

 

OmniMetrix’s Loan and Security Agreement expired in accordance with its terms on February 28, 2021 and we elected not to renew this line of credit. Subsequent to this date, we were not subject to any interest rate risk as of the date of this filing.

 

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 the material weaknesses noted in our Annual Report on Form 10-K for the year ended December 31, 2020, 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, 2020, we employ a decentralized internal control methodology, coupled with management’s oversight, whereby our OmniMetrix subsidiary is responsible for mitigating its risks to financial reporting by implementing and maintaining effective control policies and procedures and subsequently translating that respective risk mitigation up and through to the parent level and to our external financial statements. In addition, as our operating subsidiary is not large enough to effectively mitigate certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout our company in a manner that is feasible within the constraints in which it operates.

 

The material weaknesses management identified were caused by an insufficient complement of resources at our OmniMetrix subsidiary and limited IT system capabilities, such that individual control policies and procedures at the subsidiary could not be implemented, maintained, or remediated when and where necessary. As a result, a majority of the significant process areas management identified for our OmniMetrix subsidiary had one or more material weaknesses present.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

  23  

 

 

PART II

 

ITEM 6. EXHIBITS.

 

#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 June 30, 2021, filed on August 9, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
   
# This exhibit is filed or furnished herewith.

 

  24  

 

 

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: August 9, 2021    
     
  By: /s/ TRACY S. CLIFFORD
    Tracy S. Clifford
    Chief Financial Officer

 

  25  

 

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