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 March 31, June 30, 2022

 

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 filerSmaller 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 May 11,August 9, 2022
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 March 31,June 30, 2022

 

TABLE OF CONTENTS

 

 PAGE
PART I Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements:3
  
Item 1. Unaudited Condensed Consolidated Financial Statements:Balance Sheets as of June 30, 2022 and December 31, 20213
  
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 20213
Condensed Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2022 and 20214
  
Condensed Consolidated Statements of Changes in Deficit for the three and six months ended March 31,June 30, 2022 and 20215
  
Condensed Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2022 and 20216
  
Notes to Condensed Consolidated Financial Statements7
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations16
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk22
Item 4. Controls and Procedures23
  
PART II Other InformationItem 4. Controls and Procedures24
  
Item 6. ExhibitsPART II Other Information24
  
SignaturesItem 6. Exhibits25
25
Signatures26

 

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
March 31, 2022
  

As of

December 31, 2021

  As of
June 30, 2022
  As of
December 31, 2021
 
ASSETS                
Current assets:                
Cash $1,784  $1,722  $1,259  $1,722 
Accounts receivable, net  820   876   584   876 
Inventory, net  674   617   915   617 
Deferred cost of goods sold  851   799   858   799 
Other current assets  208   229   221   229 
Total current assets  4,337   4,243   3,837   4,243 
Property and equipment, net  656   517   687   517 
Right-of-use assets, net  374   399   349   399 
Deferred cost of goods sold  797   714   772   714 
Other assets  183   169   178   169 
Total assets $6,347  $6,042  $5,823  $6,042 
LIABILITIES AND DEFICIT                
Current liabilities:                
Accounts payable $516  $457  $340  $457 
Accrued expenses  227   164   156   164 
Deferred revenue  3,652   3,541   3,642   3,541 
Current operating lease liabilities  109   107   111   107 
Other current liabilities  35   34   43   34 
Total current liabilities  4,539   4,303   4,292   4,303 
Long-term liabilities:                
Deferred revenue  2,040   1,852   1,993   1,852 
Noncurrent operating lease liabilities  308   336 
Long-term operating lease liabilities  279   336 
Other long-term liabilities  13   12   14   12 
Total long-term liabilities  2,361   2,200   2,286   2,200 
Commitments and contingencies  -      
Commitments and contingencies (Note 5)  -   - 
Deficit:                
Acorn Energy, Inc. shareholders                
Common stock - $0.01 par value per share: Authorized – 42,000,000 shares; Issued – 39,687,589 shares at March 31, 2022 and December 31, 2021  397   397 
Common stock - $0.01 par value per share: Authorized – 42,000,000 shares; Issued – 39,687,589 shares at June 30, 2022 and December 31, 2021  397   397 
Additional paid-in capital  102,835   102,804   102,857   102,804 
Accumulated deficit  (100,757)  (100,634)  (100,980)  (100,634)
Treasury stock, at cost – 801,920 shares at March 31, 2022 and December 31, 2021  (3,036)  (3,036)
Treasury stock, at cost – 801,920 shares at June 30, 2022 and December 31, 2021  (3,036)  (3,036)
Total Acorn Energy, Inc. shareholders’ deficit  (561)  (469)  (762)  (469)
Non-controlling interests  8   8 
Non-controlling interest  7   8 
Total deficit  (553)  (461)  (755)  (461)
Total liabilities and deficit $6,347  $6,042  $5,823  $6,042 

 

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)

 

 2022 2021  2022  2021  2022  2021 
 Three months ended March 31,  

Six months ended

June 30,

 

Three months ended

June 30,

 
 2022 2021  2022  2021  2022  2021 
              
Revenue $1,751  $1,705  $3,372  $3,316  $1,621  $1,611 
Cost of sales  493   495   868   884   375   389 
Gross profit  1,258   1,210   2,504   2,432   1,246   1,222 
Operating expenses:                        
Research and development expense  198   178   410   353   212   175 
Selling, general and administrative expense  1,182   1,006   2,387   2,048   1,205   1,042 
Impairment of software  51      51    
Total operating expenses  1,380   1,184   2,848   2,401   1,468   1,217 
Operating (loss) income  (122)  26   (344)  31   (222)  5 
Finance expense, net     (4)  (1)  (5)  (1)  (1)
(Loss) income before income taxes  (122)  22   (345)  26   (223)  4 
Income tax expense                  
Net (loss) income  (122)  22   (345)  26   (223)  4 
Non-controlling interest share of net income  (1)  (2)  (1)  (4)  -*  (2)
Net (loss) income attributable to Acorn Energy, Inc. shareholders $(123) $20  $(346) $22  $(223) $2 
                        
Basic and diluted net (loss) income per share attributable to Acorn Energy, Inc. shareholders:         $(0.01) $0.00  $(0.01) $0.00 
Total attributable to Acorn Energy, Inc. shareholders $0.00  $0.00 
Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted:        
Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted                
Basic  39,688   39,688   39,688   39,688   39,688   39,688 
Diluted  39,688   39,861   39,688   39,914   39,688   39,936 

*Less than $1

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  Accumulated Deficit  Number of Treasury Shares  Treasury Stock  

Total Acorn

Energy, Inc.

Shareholders’

Deficit

  Non-
controlling interests
  Total Deficit 
 Three Months Ended March 31, 2022  Three and Six Months Ended June 30, 2022 
 

Number of

Shares

 

Common

Stock

 

Additional

Paid-In

Capital

 

Accumulated

Deficit

 

Number of

Treasury

Shares

 

Treasury

Stock

 

Total Acorn

Energy, Inc.

Shareholders’

Deficit

 

Non-

controlling

interests

 

Total

Deficit

  Number of Shares  Common Stock  Additional Paid-In Capital  Accumulated Deficit  Number of Treasury Shares  Treasury Stock  

Total Acorn

Energy, Inc.

Shareholders’

Deficit

  Non-
controlling interests
  Total Deficit 
Balances as of December 31, 2021  39,688  $397  $102,804  $(100,634)  802  $(3,036) $(469) $8  $(461)  39,688  $397  $102,804  $(100,634)  802  $(3,036) $(469) $8  $(461)
Net loss                  (123)                        (123)            1   (122)           (123)        (123)  1   (122)
Accrued dividend in OmniMetrix preferred shares                       (1)  (1)                       (1)  (1)
Stock option compensation        31            31      31         31            31      31 
Balances as of March 31, 2022  39,688  $397  $102,835  $(100,757)  802  $(3,036) $(561) $8  $(553)  39,688  $397  $102,835  $(100,757)  802  $(3,036) $(561) $8  $(553)
Net loss           (223)        (223)  -*  (223)
Accrued dividend in OmniMetrix preferred shares                       (1)  (1)
Stock option compensation        22            22      22 
Balances as of June 30, 2022  39,688  $397  $102,857  $(100,980)  802  $(3,036) $(762) $7  $(755)

 

 Three Months Ended March 31, 2021  Three and Six Months Ended June 30, 2021 
 

Number of

Shares

 

Common

Stock

 

Additional

Paid-In

Capital

 

Accumulated

Deficit

 

Number of

Treasury

Shares

 

Treasury

Stock

 

Total Acorn

Energy, Inc.

Shareholders’

Deficit

 

Non-

controlling

interests

 

Total

Deficit

  Number of Shares  Common Stock  Additional Paid-In Capital  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  39,688  $397  $102,729  $(100,613)  802  $(3,036) $(523) $4  $(519)  39,688  $397  $102,729  $(100,613)  802  $(3,036) $(523) $4  $(519)
Beginning balance  39,688  $397  $102,729  $(100,613)  802  $(3,036) $(523) $4  $(519)  39,688  $397  $102,729  $(100,613)  802  $(3,036) $(523) $4  $(519)
Net income                 20                     20             2   22            20         20   2   22 
Accrued dividend in OmniMetrix preferred shares                       (1)  (1)                       (1)  (1)
Stock option compensation        15            15      15         15            15      15 
Balances as of March 31, 2021  39,688  $397  $102,744  $(100,593)  802  $(3,036) $(488) $5  $(483)  39,688  $397  $102,744  $(100,593)  802  $(3,036) $(488) $5  $(483)
Net income           2         2   2   4 
Net income (loss)           2         2   2   4 
Accrued dividend in OmniMetrix preferred shares                       (1)  (1)
Stock option compensation        21            21      21 
Balances as of June 30, 2021  39,688  $397  $102,765  $(100,591)  802  $(3,036) $(465) $6  $(459)
Ending balance  39,688  $397  $102,744  $(100,593)  802  $(3,036) $(488) $5  $(483)  39,688  $397  $102,765  $(100,591)  802  $(3,036) $(465) $6  $(459)

*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)

(UNAUDITED) (IN(IN THOUSANDS)

 

 2022 2021  2022  2021 
 Three months ended March 31,  Six months ended June 30, 
 2022 2021  2022  2021 
Cash flows provided by operating activities:        
Cash flows (used in) provided by operating activities:        
Net (loss) income $(122) $22  $(345) $26 
Depreciation and amortization  20   18   48   37 
Impairment of software  51    
Non-cash lease expense  29   29   59   59 
Stock-based compensation  31   15   53   36 
Change in operating assets and liabilities:                
Decrease (increase) in accounts receivable  56   (39)  292   (98)
Increase in inventory  (57)  (7)  (298)  (127)
(Increase) decrease in deferred cost of goods sold  (135)  61 
Decrease (increase) in other current assets and other assets  7   (15)
Increase (decrease) in deferred revenue  299   (74)
Increase in deferred cost of goods sold  (117)  (33)
Increase in other current assets and other assets  (1)  (18)
Decrease in accounts payable and accrued expenses  (125)  (95)
Increase in deferred revenue  242   165 
Decrease in operating lease liability  (30)  (30)  (62)  (60)
Increase in accounts payable, accrued expenses, other current liabilities and non-current liabilities  123   88 
Net cash provided by operating activities  221   68 
Increase in other current liabilities and non-current liabilities  9   1 
Net cash (used in) provided by operating activities  (194)  83 
                
Cash flows used in investing activities:                
Investments in technology  (157)  (8)  (266)  (42)
Other capital investments  (2)     (3)   
Net cash used in investing activities  (159)  (8)  (269)  (42)
                
Cash flows used in financing activities:                
Short-term credit, net     (149)     (149)
Net cash used in financing activities     (149)
                
Net increase (decrease) in cash  62   (89)
Net decrease in cash  (463)  (108)
Cash at the beginning of the year  1,722   2,063   1,722   2,063 
Cash at the end of the period $1,784  $1,974  $1,259  $1,955 
                
Supplemental cash flow information:                
Cash paid during the year for:                
Interest $  $4  $1  $4 
                
Non-cash investing and financing activities:                
Accrued preferred dividends to former CEO of OmniMetrix $1  $1 
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 and consequently have been condensed.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 periodperiods ended March 31,June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. All dollar amounts are rounded to the nearest thousand and, thus, are approximate.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 31, 2022.

 

NOTE 2—ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements

 

The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.

 

As applicable to these unaudited condensed consolidated financial statements, the most significant estimates and assumptions relate to uncertainties with respect to income taxes, inventories, account receivable allowances, contingencies, revenue recognition, management’s projections and analyses of the possible impairments.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $1,784,0001,259,000 at March 31,June 30, 2022. The Company does not believe there is significant risk of non-performance by these counterparties. For the three-month periodthree- and six-month periods ended March 31,June 30, 2022, there were no customers that represented greater than 10% of the Company’s total invoiced sales. For the three months ended March 31, 2021, one customer represented approximately 11%sales or of total invoiced sales. Approximately 10% of theour accounts receivable at March 31, 2022 was due from one customer who pays its receivables over usual credit periods. As of May 11, 2022, we have collected the full outstanding amount of the approximately $84,000  due from this customer as of March 31,June 30, 2022. 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 (Loss) Income Per Share

 

Basic net (loss) income per share is computed by dividing the net (loss) income attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net (loss) income per share is computed by dividing the net (loss) income 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(loss) income per share if doing so would be antidilutive. The weighted averageFor both the six- and three-month periods ending June 30, 2022, the number of options that were excluded from the computation of diluted net loss, as they had an antidilutive effect, was 979,000 (which have a weighted average exercise price of $0.41) and the number of warrants that were excluded from the computation of diluted net loss, as they had an antidilutive effect, was 35,000 (which had a weighted average exercise price of $0.13). For the six- and three-month periods ending June 30, 2021, respectively, the number of options that were excluded from the computation of diluted net income per share, as they had an antidilutive effect, was approximately 929,000 286,000(which have (which had a weighted average exercise price of $0.410.79) and approximately 35,000 321,000(which have (which had a weighted average exercise price of $0.130.76), respectively, for the three-month period ending March 31, 2022. The weighted average number of options and warrants, in the aggregate, that; there were excluded from the computation of diluted net loss per share, as they had anno antidilutive effect, was approximately 964,000 (which have a weighted average exercise price of $0.40) and approximately 245,000 (which have a weighted average exercise price of $0.99) for the three-month periods ending March 31, 2022 and 2021, respectively.warrants.

 

7
 

 

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):

SCHEDULE OF EFFECT ON NET INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES 

 2022 2021  2022  2021  2022  2021 
 Three months ended March 31,  

Six months ended

June 30,

 

Three months ended

June 30,

 
 2022 2021  2022  2021  2022  2021 
Net (loss) income available to common stockholders $(123) $20  $(346) $22  $(223) $2 
                        
Weighted average shares outstanding:        
-Basic  39,688   39,688 
Weighted average share outstanding:                
Basic  39,688   39,688   39,688   39,688 
Add: Warrants     26      27      27 
Add: Stock options     147      199      221 
-Diluted  39,688   39,861 
Diluted  39,688   39,914   39,688   39,936 
                        
Basic and diluted net (loss) income per share $0.00  $0.00  $(0.01) $0.00  $(0.01) $0.00 

 

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 periodperiods ended March 31,June 30, 2022, 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 unaudited condensed consolidated financial statements and related disclosures.

 

8

NOTE 3—LIQUIDITY

 

As of March 31,At June 30, 2022, the Company had approximately $1,784,000 of consolidated cash.

At March 31, 2022, the Company had a negative working capital of approximately $202,000455,000. ItsThe Company’s working capital included approximatelyincludes $1,784,000 1,259,000of cash and deferred revenue of approximately $3,652,0003,642,000. Such deferred revenue does not require significant cash outlay for the revenue to be recognized. Net cash increaseddecreased during the threesix months ended March 31,June 30, 2022 by approximately $62,000463,000, of which approximately $221,000 194,000was provided byused in operating activities and approximately $159,000 269,000was used in investing activities

During the first six months of 2022, the Company’s OmniMetrix, LLC subsidiary provided $371,000 from operations while the Company’s corporate headquarters used $565,000 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 has continued to realize new equipment sales (although not at the anticipated growth rate due to travel and meeting 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 continue to be positioned for stable financial performance. Business travel has now started to resume and sales are returning to projected levels.

 

As of May 11,August 9, 2022, the Company had cash of approximately $1,335,0001,143,000. 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 or other source of financing to fund additional investments in the business.

8

NOTE 4—LEASES

OmniMetrix leases office space and office equipment under operating lease agreements. The office lease has an expiration date of September 30, 2025.2025. The office equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for the threesix months ended March 31,June 30, 2022 and 2021 were approximately $62,000 and $60,000, respectively. Operating lease payments for the three months ended June 30, 2022 and 2021 were $32,000 and $30,000 for both periods., respectively. The present value of future minimum lease payments on non-cancelablenon-cancellable operating leases as of March 31,June 30, 2022 using a discount rate of 4.5%4.5 is approximately% are $417,000390,000. The 4.5%4.5% discount rate used is the incremental borrowing rate which, as defined in ASC 842, is the rate of interest that a lessee would have to pay to borrow, on a collateralized basis, over a similar term and in a similar economic environment, an amount equal to the lease payments.

 

9

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

 SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES

  

For the three months

ending March 31,

 
  2022  2021 
Cash paid for operating lease liabilities $30  $30 
  June 30, 
  2022  2021 
Cash paid for operating lease liabilities $62  $60 

 

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

 SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES

 2022
Weighted average remaining lease terms for operating leases  3.483.23 years 

 

The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess of more than one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of March 31,June 30, 2022 (in thousands):

 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

 Twelve-month period ended March 31,  

Twelve-month

period ended

June 30,

 
2023 $125  $126 
2024  129   129 
2025  129   131 
2026  67   33 
Total undiscounted cash flows  450   419 
Less: Imputed interest  (33)  (29)
Present value of operating lease liabilities (a) $417  $390 

 

 (a)Includes current portion of approximately $109,000111,000 for operating leases.

On July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company 1,900 square feet of office space of the Company’s 21,000 square feet of office and production space in the Hamilton Mill Business Park located in Buford, Georgia for a monthly sublease payment of $2,375 which includes the base rent plus a pro-rata share of utilities, property taxes and insurance. Fifty percent of any excess rent received above the per square foot amount that the Company pays will be remitted to the Company’s landlord less the allocation of any shared expenses and leasehold improvements specific to the sublease. The Company invested approximately $7,000 on leasehold improvements related to the sublease. Due to the offset of the capital expenditures, the Company doeshas not expect to havehad any net rent due to its landlord for the first twelve months ofto date related to the sublease. The estimated amount the Company expects to remit to the landlord each year of the sublease subsequent to the first twelve months is approximately $6,700 per year. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is the end of the Company’s lease term with its landlord. Below are the future payments expected under the sublease (in thousands) net of the estimated annual service cost of $2,220 (gross of the estimated amount the Company expects to remit to its landlord):

SCHEDULE OF SUBLEASES

  Twelve-month period ended March 31, 
2023 $26 
2024  26 
2025  26 
2026  14 
Total undiscounted cash flows $92 

 

109
 

SCHEDULE OF SUBLEASE

  Twelve-month period ended June 30, 
2023 $26 
2024  26 
2025  26 
2026  7 
Total undiscounted cash flows $85 

 

NOTE 5—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. OmniMetrix will also 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 gas applications only. Commencing on January 1, 2021, OmniMetrix paid the partner a quarterly licensing fee of $12,500which was renegotiated to $4,450 effective October 1, 2021. The annual licensing fee moving forward will be $17,800, which will be paid in quarterly increments of $4,450. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but willand would have automatically renewrenewed for one-year periods unless either party deliversbut OmniMetrix delivered a written notice of termination to the other party sixty days prior to the end of the respective term. OmniMetrix is currently working with the software development partner to negotiate more favorable terms.

 

In addition to the above, the Company has approximately $417,000419,000 in operating lease obligations payable through 2026 and approximately $49,00028,000 in other contractual obligations. The Company also has approximately $1.9920,000 million in open purchase order commitments payable through 2022.

 

NOTE 6—EQUITY

 

(a) General

 

At March 31,June 30, 2022 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.

 

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

 

11

(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 March 31,June 30, 2022, 1,484,8501,434,850 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the three months ended March 31,June 30, 2022, 50,000 options were issued to the Company’s CFO. During the six months ended June 30, 2022, 30,000 options were issued to directors, 35,000 options were issued to the Company’s CEO, 50,000 options were issued to the Company’s CFO and 30,770 options were issued to the Company’s vice president of sales.other employees. In the six and three months ended March 31,June 30, 2022, there were 0 grants to non-employees (other than the non-employee directors, CEO and CEO). The fair value of the options issued was approximately $38,000CFO).

 

10

NaN options were exercised in the six and three months ended March 31,June 30, 2022. The intrinsic value of options outstanding and of options exercisable at March 31,June 30, 2022 was approximately $94,000126,000 and $98,000114,000, respectively.

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):

 SUMMARY OF BLACK-SCHOLES OPTION PRICING TO ESTIMATE FAIR VALUE

 

Number

of Options

(in shares)

 

Weighted

Average

Exercise

Price Per
Share

  Weighted
Average
Remaining
Contractual Life
 Aggregate
Intrinsic
Value
  

Number

of Options

(in shares)

 

Weighted

Average

Exercise

Price Per

Share

 

Weighted

Average

Remaining

Contractual Life

 

Aggregate

Intrinsic

Value

 
Outstanding at December 31, 2021  833,020  $0.39  4.7 years $291,000   833,020  $0.39  4.7 years $291,000 
Granted  95,770   0.60         145,770   0.55       
Exercised                      
Forfeited or expired                        
Outstanding at March 31, 2022  928,790  $0.41  4.7 years $94,000 
Exercisable at March 31, 2022  573,492  $0.34  4.0 years $98,000 
Outstanding at June 30, 2022  978,790  $0.41  4.6 years $126,000 
Exercisable at June 30, 2022  737,579  $0.38  4.1 years $114,000 

 

The fair value of the options granted of approximately $38,000$54,000 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES PRICING MODEL

    
Risk-free interest rate1.251.8%
Expected term of options4.03.9 years
Expected annual volatility93.993.6%
Expected dividend yield%

12

 

(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 $31,00053,000 and $15,00036,000 for the six-month periods ended June 30, 2022 and 2021, respectively and $22,000 and $21,000 for the three-month periods ended March 31,June 30, 2022 and 2021, respectively.

 

The total compensation cost related to non-vested awards not yet recognized was approximately $65,00059,000 as of March 31,June 30, 2022.

 

(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:

 SUMMARY OF WARRANT ACTIVITY

 

Number

of Warrants

(in shares)

  Weighted
Average
Exercise
Price Per Share
 Weighted
Average
Remaining
Contractual Life
  

Number

of Warrants

(in shares)

 

Weighted

Average

Exercise

Price Per

Share

 

Weighted

Average

Remaining

Contractual

Life

Outstanding at December 31, 2021  35,000  $0.13   14.5 months   35,000  $0.13  14.5 months
Granted                 
Exercised                  
Forfeited or expired                  
Outstanding at March 31, 2022  35,000  $0.13   11.5 months 
Outstanding at June 30, 2022  35,000  $0.13  8.5 months

11

NOTE 7— SEGMENT REPORTING

 

As of March 31,June 30, 2022, the Company operates in 2 reportable operating segments, both of which are performed through the Company’s OmniMetrix subsidiary:

 

 The Power GenerationPG (Power Generation) (“PG”) 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 line of annunciators.
   
 The Cathodic ProtectionCP (Cathodic Protection) (“CP”) 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 six-month and three-month periods ended March 31,June 30, 2022 and 2021 (in thousands):

SUMMARY OF SEGMENTED DATA 

 PG CP Total  PG  CP  Total 
Three months ended March 31, 2022:            
Six months ended June 30, 2022:            
Revenues from external customers $2,825  $547  $3,372 
Segment gross profit  2,164   340   2,504 
Depreciation and amortization  41   8   49 
Segment income (loss) before income taxes**$262  $(45) $217 
            
Six months ended June 30, 2021:            
Revenues from external customers $1,445  $306  $1,751  $2,837  $479  $3,316 
Segment gross profit  1,073   185   1,258   2,150   282   2,432 
Depreciation and amortization  17   3   20   32   5   37 
Segment income (loss) before income taxes $189  $(21) $168  $510  $(17) $493 
                        
Three months ended March 31, 2021:            
Three months ended June 30, 2022:            
Revenues from external customers $1,380  $241  $1,621 
Segment gross profit  1,091   155   1,246 
Depreciation and amortization  24   5   29 
Segment income (loss) before income taxes**$73  $(24) $49 
            
Three months ended June 30, 2021:            
Revenues from external customers $1,458  $247  $1,705  $1,379  $232  $1,611 
Segment gross profit  1,068   142   1,210   1,082   140   1,222 
Depreciation and amortization  16   2   18   19   3   22 
Segment income (loss) before income taxes $276  $(13) $263  $234  $(4) $230 

 

13*The software impairment of $51,000is not related to a specific segment and, thus, is not included in the “Segment income (loss) before income taxes” for the six and three months ended June 30, 2022.

 

The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments. Further, the Chief Decision Maker does not review the assets by segment.

 

12

Reconciliation of Segment Net(Loss) Income (Loss) to Consolidated Net (Loss) Income Before Income Taxes

 SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED NET INCOME LOSS BEFORE INCOME TAXES

 2022 2021          
 

Three months ended

March 31,

  

Six months ended

June 30,

 

Three months ended

June 30,

 
 2022 2021  2022  2021  2022  2021 
Total net income before income taxes for reportable segments $168  $263 
Total net income before income taxes for reportable segments**$217  $493  $49  $230 
Unallocated cost of corporate headquarters  (290)  (241)  (510)  (467)  (220)  (226)
Consolidated net (loss) income before income taxes $(122) $22  $(293) $26  $(171) $4 

*The software impairment of $51,000 is not related to a specific segment and, thus, is not included in the “Total net income before income taxes for reportable segments” for the six and three months ended June 30, 2022.

 

NOTE 8—REVENUE

 

The following table disaggregates the Company’s revenue for the six-month and three-month periods ended March 31,June 30, 2022 and 2021 (in thousands):

 SCHEDULE OF DISAGGREGATES OF REVENUE

 Hardware Monitoring Total  Hardware  Monitoring  Total 
Three months ended March 31, 2022:            
Six months ended June 30, 2022:            
PG Segment $523  $922  $1,445  $1,002  $1,823  $2,825 
CP Segment  238   68   306   414   133   547 
Total Revenue $761  $990  $1,751  $1,416  $1,956  $3,372 

 

 Hardware Monitoring Total  Hardware  Monitoring  Total 
Three months ended March 31, 2021:            
Six months ended June 30, 2021:            
PG Segment $517  $941  $1,458  $942  $1,895  $2,837 
CP Segment  180   67   247   349   130   479 
Total Revenue $697  $1,008  $1,705  $1,291  $2,025  $3,316 

  Hardware  Monitoring  Total 
Three months ended June 30, 2022:            
PG Segment $479  $901  $1,380 
CP Segment  176   65   241 
Total Revenue $655  $966  $1,621 

  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 

13

 

Deferred revenue activity for the threesix months ended March 31,June 30, 2022 can be seen in the table below (in thousands):

 SCHEDULE OF DEFERRED REVENUE ACTIVITY

  Hardware  Monitoring  Total 
Balance at December 31, 2021 $3,268  $2,125  $5,393 
Additions during the period  791   1,012   1,803 
Recognized as revenue  (514)  (990)  (1,504)
Balance at March 31, 2022 $3,545  $2,147  $5,692 
             
Amounts to be recognized as revenue in the twelve-month-period ending:            
March 31, 2022 $1,810  $1,842  $3,652 
March 31, 2023  1,251   299   1,550 
March 31, 2024 and thereafter  484   6   490 
Total $3,545  $2,147  $5,692 

14
  Hardware  Monitoring  Total 
Balance at December 31, 2021 $3,268  $2,125  $5,393 
Additions during the period  1,282   1,943   3,225 
Recognized as revenue  (1,027)  (1,956)  (2,983)
Balance at June 30, 2022 $3,523  $2,112  $5,635 
             
Amounts to be recognized as revenue in the twelve-month-period ending:            
June 30, 2023 $1,839  $1,803  $3,642 
June 30, 2024  1,270   304   1,574 
June 30, 2025 and thereafter  414   5   419 
Total $3,523  $2,112  $5,635 

 

Other revenue of approximately $247,000389,000, 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 threesix months ended March 31,June 30, 2022 can be seen in the table below (in thousands):

 SCHEDULE OF DEFERRED CHARGES ACTIVITY

Balance at December 31, 2021 $1,513  $1,513 
Additions, net of adjustments, during the period  377   601 
Recognized as cost of sales  (242)  (484)
Balance at March 31, 2022 $1,648 
Balance at June 30, 2022 $1,630 
        
Amounts to be recognized as cost of sales in the twelve-month-period ending:        
March 31, 2022 $851 
March 31, 2023  572*
March 31, 2024 and thereafter  225*
June 30, 2023 $858 
June 30, 2024  581*
June 30, 2025 and thereafter  191*
 $1,648  $1,630 

 

Other COGScost of goods sold (COGS) recognized of approximately $174,000227,000 is related to accessories, repairs, and other miscellaneous charges that are recognized to revenue when sold and are not deferred, in addition to approximately $77,000157,000 in monitoring COGS which is not deferred.

*Amounts included in other assets in the Company’s unaudited condensed consolidated balance sheets at March 31, 2022.

 

The following table provides a reconciliation of the Company’s sales commissions contract assets for the three-monthsix-month period ended March 31,June 30, 2022 (in thousands):

 SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS

 Hardware Monitoring Total  Hardware  Monitoring  Total 
Balance at December 31, 2021 $242  $53  $295  $242  $53  $295 
Additions during the period  57   11   68   94   20   114 
Amortization of sales commissions  (35)  (6)  (41)  (71)  (13)  (84)
Balance at March 31, 2022 $264  $58  $322 
Balance at June 30, 2022 $265  $60  $325 

 

The capitalized sales commissions are included in other current assets (approximately $($152,000159,000) and other assets (approximately $($170,000166,000) in the Company’s unaudited condensed consolidated balance sheets at March 31,as of June 30, 2022. The capitalized sales commissions are included in other current assets (approximately $($138,000) and other assets (approximately $($157,000) in the Company’s unaudited condensed consolidated balance sheets atas of December 31, 2021.

14

NOTE 9—RELATED PARTY BALANCES AND TRANSACTIONS

Officer and Director Fees

The Company recorded fees to officers of $261,000 and $256,000 for the six months ended June 30, 2022 and 2021, respectively, and $131,000 and $129,000 for the three months ended June 30, 2022 and 2021, respectively, which is included in selling, general and administrative expenses.

The Company recorded fees to directors of $30,000 for the six months ended June 30, 2022 and 2021, and $15,000 for the three months ended June 30, 2022 and 2021, which is included in selling, general and administrative expenses.

Intercompany

The related party balance due to Acorn from OmniMetrix for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s behalf was $3,661,000 as of June 30, 2022 as compared to $4,217,000 as of December 31, 2021. This balance is eliminated in consolidation. During the six months ended June 30, 2022, the intercompany amount due to Acorn from OmniMetrix decreased by $556,000. This included repayments of $780,000 offset by interest of $89,000, dividends of $38,000 due to Acorn and $97,000 in shared expenses paid by Acorn. During the six months ended June 30, 2021, the intercompany amount due to Acorn from OmniMetrix decreased by $157,000. This included repayments of $345,000 offset by interest of $104,000, dividends of $38,000 due to Acorn and $46,000 in shared expenses paid by Acorn.

 

15
 

 

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, 2021 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.

 

All dollar amounts in the discussion below are rounded to the nearest thousand and, thus, are approximate.

FINANCIAL RESULTS BY COMPANY

 

The following tables show,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 expense is referred to as “R&D expense,” and selling, general and administrative expense is referred to as “SG&A expense.”

 

 Three months ended March 31, 2022  Six months ended June 30, 2022 
 OmniMetrix Acorn Total  OmniMetrix  Acorn  Total 
Revenue $1,751  $  $1,751  $3,372  $  $3,372 
Cost of sales  493      493   868      868 
Gross profit  1,258      1,258   2,504      2,504 
Gross profit margin  72%      72%  74%      74%
R&D expenses  198      198 
Selling, general and administrative expenses  892   290   1,182 
R&D expense  410      410 
SG&A expense  1,877   510   2,387 
Impairment of software  51      51 
Operating income (loss) $168  $(290) $(122) $166  $(510) $(344)

 

 Three months ended March 31, 2021  Six months ended June 30, 2021 
 OmniMetrix Acorn Total  OmniMetrix  Acorn  Total 
Revenue $1,705  $  $1,705  $3,316  $  $3,316 
Cost of sales  495      495   884      884 
Gross profit  1,210      1,210   2,432      2,432 
Gross profit margin  71%      71%  73%      73%
R&D expenses  178      178 
Selling, general and administrative expenses  765   241   1,006 
R&D expense  353      353 
SG&A expense  1,581   467   2,048 
Operating income (loss) $267  $(241) $26  $498  $(467) $31 

 

16
 

 

  Three months ended June 30, 2022 
  OmniMetrix  Acorn  Total 
Revenue $1,621  $  $1,621 
Cost of Sales  375      375 
Gross profit  1,246      1,246 
Gross profit margin  77%      77%
R&D expense  212      212 
SG&A expense  985   220   1,205 
Impairment of software  51      51 
Operating loss $(2) $(220) $(222)

  Three months ended June 30, 2021 
  OmniMetrix  Acorn  Total 
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 

BACKLOG

 

As of March 31,June 30, 2022, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled approximately $5.7 million.$5,635,000.

 

RECENT DEVELOPMENTS

On January 1, 2022, 30,000 options in the aggregate were issued to directors with an exercise price of $0.63 and that vest in equal increments on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at approximately $12,100 in the aggregate.

 

On January 1, 2022, 35,000 options were issued to the CEO with an exercise price of $0.63 and that vest in equal increments on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at approximately $14,100.

 

On March 4, 2022, 30,770 options were issued to the vice presidentVice President of salesSales with an exercise price of $0.55 and that vest in equal increments over three years on the anniversary date of the grant. These options are valued at approximately $11,400.

On June 1, 2022, 50,000 options were issued to the CFO with an exercise price of $0.44 and that vest in equal increments on June 1, 2022, September 1, 2022, December 1, 2022 and March 1, 2023, valued at $16,000.

During June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment against the capitalized investment in this project of $51,000.

In July 2022, we announced a partnership between OmniMetrix, CPower Energy Management (“CPower”), and Power Solutions Specialists TX (“PSS”) designed to help homeowners that install next-generation standby generators to earn compensation for offering grid relief, known as “demand response,” to the Electric Reliability Council of Texas (“ERCOT”). CPower’s demand response solutions, combined with OmniMetrix’s remote control capabilities, allow the shifting of electricity production to PSS’s best-in-class residential standby generators for a few hours each year when the grid is stressed or ERCOT energy pricing is high, without the homeowner needing to take any action. Homeowners are compensated for signing up and possibly supplying grid offload by running their generators for up to 12 hours per year. We do not expect this partnership to begin generating revenue until 2023.

17

 

On August 19, 2019, we entered into an agreement with a software development partner to create and license to us a new software platform and application. Pursuant to this agreement, we paid this partner equal monthly payments over the first seven months of the term of the agreement equal to $200,000 in the aggregate. We will also 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 gas applications only. Commencing on January 1, 2021, we paid the partner a quarterly licensing fee of $12,500 which was renegotiated to $4,450 effective October 1, 2021. The annual licensing fee moving forward will be $17,800, which will be paid in quarterly increments of $4,450. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but willand would have automatically renewrenewed for one-year periods unless either party deliversbut we delivered a written notice of termination to the other party sixty days prior to the end of the respective term. We are currently working with the software development partner to negotiate more favorable terms.

 

We entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The agreement had a twelve-month term. In January 2021, we elected to renew this agreement for an additional twelve months under the same terms, extending the agreement to April 30, 2022. We did not extend this agreement for an additional one-year term beyond the expiration of the previous term on April 30, 2022 and are currently under a month-to-month arrangement which we intend to terminate by the end of the secondthird quarter of 2022. Under the applicable data hosting services agreements, we paid approximately $41,000$38,000 and $37,000$42,000 for the three-month periods ended March 31,June 30, 2022 and 2021, respectively, and $80,000 and $79,000 for the six-month periods ended June 30, 2022 and 2021, respectively.

 

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 is approximately $119,000 in design and development services ($14,000 was paid at the commencement of this project and three equal installments of approximately $23,000 were paid monthly starting in July 2021 with the fourth and final installment to be paid upon completion and launch of the new interface). This project is substantially completed and the launch of the new customer portal is expected into occur by the second quarterend of 2022.

The cost of this project is capitalized, and amortization will begin once the new interface is completed and ready to deploy.

17

 

The master services agreement also covers the design, set-up and deployment of a new Microsoft Azure cloud infrastructure to host our OmniView data servers which will replacereplaces our existing Peak 10 datacenter hosting environment. The new infrastructure will provideprovides a more modern, agile and cost-effective environment in which to grow our IoT connections and services. We invested approximately $166,000 in this initiative during the year ended December 31, 2021 and approximately $144,000$260,000 in the six months ended June 30, 2022, of which $116,000 was invested in the three months ended March 31,June 30, 2022. The new Microsoft Azure cloud infrastructure environment was completed and launched on May 1, 2022. The estimated additional investment subsequent to the end of the quarter and up to the launch date is approximately $70,000.

The cost of this project is capitalized, and amortization over an estimated useful life of seven years began on May 1, 2022.

 

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 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 7 and 8 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, and other industrial equipment) as well as cathodic protection for the pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix with 1% owned by the former CEO of OmniMetrix.

 

Following the emergence of machine-to-machine (M2M) and IoT applications, whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, cybersecurity threats, and cybersecurity threats.other issues related to the reliability of the electric power grid. As residential and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly becoming monitored in IoT applications, and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this market.

18

 

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.

 

18

Results of Operations

 

The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the six-month periods ended June 30, 2022 and 2021, 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 7 and 8 to the unaudited condensed consolidated financial statements included in this quarterly report. The fluctuation discussion that follows the tables contain dollar amounts that are rounded to the nearest thousand, thus, they are approximate.

  Six months ended June 30, 
  2022  2021  Change 
  ($,000)  % of revenues  ($,000)  % of revenues  

from

2021 to 2022

 
Revenue $3,372   100% $3,316   100%  2%
Cost of sales  868   26%  884   27%  (2)%
Gross profit  2,504   74%  2,432   73%  3%
R&D expense  410   12%  353   11%  16%
SG&A expense  2,387   71%  2,048   62%  17%
Impairment of software  51   2%     %  100%
Operating (loss) income  (344)  (10)%  31   1%  (1210)%
Finance expense, net  (1)  *%  (5)  *%  (80)%
(Loss) income before income taxes  (345)  (10)%  26   1%  (1,427)%
Income tax expense           %   
Net (loss) income  (345)  (10)%  26   1%  (1,427)%
Non-controlling interest share of net income  (1)  *%  (4)  *%  (125)%
Net (loss) income attributable to Acorn Energy, Inc. $(346)  (10)% $22   1%  (1,673)%

*result is less than 1%.

The following table sets forth certain information with respect to the unaudited consolidated results of operations of the Company for the three-month periods ended March 31,June 30, 2022 and March 31, 2021, 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 7 and 8 to the unaudited condensed consolidated financial statements included in this quarterly report.

 

  Three months ended March 31, 
  2022  2021  Change 
  ($,000)  % of revenues  ($,000)  % of revenues  from
2021 to 2022
 
Revenue $1,751   100% $1,705   100%  3%
Cost of sales  493   28%  495   29%  *%
Gross profit  1,258   72%  1,210   71%  4%
R&D expenses  198   11%  178   10%  11%
SG&A expenses  1,182   68%  1,006   59%  17%
Operating (loss) income  (122)  (7)%  26   2%  (569)%
Finance expense, net     *%  (4)  *%  100%
(Loss) income before income taxes  (122)  (7)%  22   1%  (655)%
Income tax expense     %     %  %
Net (loss) income  (122)  (7)%  22   1%  (655)%
Non-controlling interests share of net loss (income)  1   *%  (2)  *%  (150)%
Net (loss) income attributable to Acorn Energy, Inc. $(123)  (7)% $20   1%  (715)%

*result is less than 1%.

19
 

 

  Three months ended June 30, 
  2022  2021  Change 
  ($,000)  % of revenues  ($,000)  % of revenues  from
2021 to 2022
 
Revenue $1,621   100% $1,611   100%  1%
Cost of sales  375   23%  389   24%  (4)%
Gross profit  1,246   77%  1,222   76%  2%
R&D expense  212   13%  175   11%  21%
SG&A expense  1,205   74%  1,042   65%  16%
Impairment of software  51   3%     %  100%
Operating (loss) income  (222)  (14)%  5   *%   (4,540)%
Finance expense, net  (1)  %  (1)  *%  %
(Loss) Income before income taxes  (223)  (14)%  4   *%  (5,675)%
Income tax expense     %     %  %
Net (loss) income  (223)  (14)%  4   *%   (5,675)%
Non-controlling interest share of net (loss) income  **   *%  (2)  *%  (100)%
Net (loss) income attributable to Acorn Energy, Inc. $(223)  (14)% $2   *%  (11,450)%

*result is less than 1%.

**less than $1

Revenue. Revenue increased by approximately $46,000, or 3%, from approximately $1,705,000 infor the first quarter of 2021 to approximately $1,751,000 in the first quarter of 2022. OmniMetrix’s increased revenue during the quarter was primarily attributable to increased hardwaresix and accessories sales, which increased approximately $64,000, or 9%, from approximately $697,000 in the first quarter of 2021 to approximately $761,000 in the first quarter of 2022. During the three months ended March 31,June 30, 2022 and 2021

In the six months ended June 30, 2022, revenue increased by $56,000, or 2%, from $3,316,000 in the six months ended June 30, 2021 to $3,372,000 in the six months ended June 30, 2022. Hardware revenue increased by $125,000 from $1,291,000 in the six months ended June 30, 2021 to $1,416,000 in the six months ended June 30, 2022. During the six months ended June 30, 2021, we recorded approximately $112,000 in revenue from the sale of custom TG Pro units that are designed to large customer specifications and monitored by the customer and thus the revenue was not deferred. We did not have any custom unit orders in the threefirst six months ended March 31,June 30, 2022. The hardware revenue during the threesix months ended March 31,June 30, 2021, excluding the revenue from the sale of the custom units, was approximately $585,000;$1,179,000; thus, the increase in hardware revenue excluding the custom units was approximately 30%20%. This increase was dueattributed to an increaseHero-2 and TG Pro revenue increases as well as from service income realized offset by a decrease in revenue from the number of TG-2 and Hero-2 units sold during the first quarter of 2022.product. Monitoring revenue decreased by approximately $18,000,$69,000, or 2%3%, from approximately $1,008,000$2,025,000 in the first quarter ofsix months ended June 30, 2021 to approximately $990,000$1,956,000 in the first quarter ofsix months ended June 30, 2022. The decrease in monitoring revenue was due to the impact of the connections that dropped offfor which monitoring was discontinued as a result of the sunsetting 3G technology.

 

As discussed above, OmniMetrix has two reportable segments, PG and CP. Approximately $1,445,000 of $1,751,000Of the $3,372,000 in revenue recognized in the threesix months ended March 31,June 30, 2022, $2,825,000 was generated by PG activities and approximately $306,000$547,000 was generated by CP activities. This represents a decrease in revenue from PG activities of approximately $13,000,$12,000, or 1%0.4%, from approximately $1,458,000$2,837,000 in the threesix months ended March 31,June 30, 2021, and an increase in revenue from CP activities of approximately $59,000,$68,000, or 24%14%, from approximately $247,000$479,000 in the threesix months ended March 31,June 30, 2021. As noted above, the decrease in PG revenue was due to approximately $112,000 in revenue from the sale of custom designed units in the first quarter of 2021 that did not recur in the first quarter of 2022, in addition to the impact of the PG connections that dropped offfor which monitoring was discontinued in the first quarter ofsix months ended June 30, 2022 as a result of sunsetting 3G technology.

 

Gross Profit. Gross profit duringRevenue increased by $10,000, or 1%, from $1,611,000 in the three months ended March 31,June 30, 2021 to $1,621,000 in the three months ended June 30, 2022. Revenue was essentially flat period over period which we attribute to sales timing with significantly higher sales in first quarter 2022 that contributed to a slow down in purchasing in the second quarter 2022 in addition to concerns related to inflation and related to rising interest rates and gas prices.

20

Monitoring revenue decreased by $51,000, or 5%, from $1,017,000 in the three months ended June 30, 2021 to $966,000 in the three months ended June 30, 2022. The decrease is due to the same drivers in the six-month period as previously discussed.

Of the $1,621,000 in revenue recognized in the three months ended June 30, 2022, $1,380,000 was generated by PG activities and $241,000 was generated by CP activities. Revenue from PG activities was relatively flat period-over-period, only increasing $1,000 from $1,379,000 in the three months ended June 30, 2021. Revenue from CP activities increased $9,000, or 9%, from $232,000 in the three months ended June 30, 2021.

Gross profit for the six and three months ended June 30, 2022 and 2021

Gross profit for the six months ended June 30, 2022 was approximately $1,258,000,$2,504,000, reflecting a gross margin of 72%74%, compared with a gross profit of $2,432,000, reflecting a 73% gross margin, for the six months ended June 30, 2021. Gross margin on hardware revenue for the six months ended June 30, 2022 was 50% compared to 46% for the six months ended June 30, 2021. Gross margin on monitoring revenue for the six months ended June 30, 2022 was 92% compared to 91% for the six months ended June 30, 2021.

Gross profit for the three months ended June 30, 2022 was $1,246,000, reflecting a gross margin of 77% on revenue, compared with a gross profit duringfor the three months ended March 31,June 30, 2021 of $1,210,000,$1,222,000, reflecting a gross margin of 72%. Due to the increase in manufacturing component costs as a result of supply chain constraints, gross76% on revenue. Gross margin on hardware revenue for the three months ended March 31,June 30, 2022 was 45%55% compared to 49%43% for the three months ended March 31,June 30, 2021. This was offset by an increase inattributed to revenue from custom engineering fees, accessory sales, product mix and certain price increases during the grossperiod. Gross margin on monitoring revenue which was 92% for the three months ended March 31,June 30, 2022 was 92% compared to 86% during95% for the three months ended March 31,June 30, 2021.

 

Operating expenses for the six and three months ended June 30, 2022 and 2021

OmniMetrix R&D expense. During the threesix months ended March 31,June 30, 2022 and 2021, R&D expense was $198,000$410,000 and $178,000,$353,000, respectively. During the three months ended June 30, 2022, OmniMetrix recorded $212,000 of R&D expense as compared to $175,000 in the three months ended June 30, 2021. The increase in R&D expense in the six months ended June 30, 2022 of $57,000 and the increase of $37,000 for the three months ended March 31,June 30, 2022 of approximately $20,000 isare both related to salary increases of our engineering team effective September 1, 2021, the continued development of next-generationnext generation PG and CP products and exploration into new possible product lines. We expect a moderate increase in R&D expense for the remainder of 2022 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level of innovation.

 

Selling, general and administrativeOmniMetrix SG&A expense. During the six months ended June 30, 2022, OmniMetrix recorded SG&A expense of $1,877,000 compared to SG&A costs of $1,581,000 in the first threesix months of 2022 reflectedended June 30, 2021, an increase of approximately $176,000,$296,000, or 17%, as19%. During the three months ended June 30, 2022, OmniMetrix recorded SG&A expense of $985,000 compared to SG&A costs of $816,000 in the first three months ended June 30, 2021, an increase of 2021. OmniMetrix’s SG&A expense increased approximately $127,000,$169,000, or 17%, from approximately $765,00021%. The increase in the first three months of 2021 to approximately $892,000 in the first three months of 2022. This increasesix-month period was primarily due to an increase of approximately (i) $73,000$109,000 in personnel expenses which included partial year bonuses of $16,000 which were not paid in 2021, (ii) $26,000$23,000 in travel and trade show expenses, (iii) $15,000$94,000 in technology consulting fees and software license fees, (iv) $13,000$24,000 in contractor expenses, (v) $26,000 in amortization of sales commissions. Corporate SG&Acommissions and (vi) $20,000 in aggregate increases across other expense increased approximately $49,000, or 20%, from approximately $241,000categories. The increase in the first three months of 2021 to approximately $290,000 in the first three months of 2022. This increasethree-month period was primarily due to an increase of approximately (i) $26,000$50,000 in auditpersonnel expenses which included the partial year bonuses noted above of $16,000 that were not paid in the second quarter of 2021, (ii) $78,000 in technology consulting fees (ii) $14,000and software license fees, and (iii) $41,000 in aggregate increases across other expense categories.

During June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment against the capitalized investment in this project of $51,000.

Corporate SG&A expense. Corporate SG&A expense was $510,000 in the six months ended June 30, 2022, an increase of $43,000, or 9%, from the $467,000 of corporate SG&A expense reported in the six months ended June 30, 2021. This increase is primarily due to increased stock compensation expense, audit fees and (iii) $9,000insurance costs. Corporate SG&A expense for the three months ended June 30, 2022 decreased $6,000, or 3%, to $220,000 from $226,000 in other public company expenses.the three months ended June 30, 2021. Second quarter 2022 corporate SG&A expense of $220,000 was lower by $70,000 than first quarter 2022 corporate SG&A expense of $290,000, primarily due to expenses related to our annual audit which were incurred in the first quarter 2022. 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.

 

2021
 

Net (loss) income (loss) attributable to Acorn Energy. We recognized a net loss attributable to Acorn shareholders of approximately $123,000$346,000 in the first threesix months ofended June 30, 2022 compared to net income attributable to Acorn shareholders of approximately $20,000$22,000 in the first threesix months ofended June 30, 2021. Our loss innet income during the threesix months ended March 31,June 30, 2022 is comprised of net income at OmniMetrix of approximately $168,000, less$167,000 offset by corporate expenses, including net interest expense, of approximately $290,000, offset by approximately $1,000 representing$512,000 and the non-controlling interest share of our income in OmniMetrix.from OmniMetrix of $1,000. Our net income duringin the threesix months ended March 31,June 30, 2021 iswas comprised of net income at OmniMetrix of approximately $263,000 less$493,000 offset by corporate expenses of approximately $241,000 offset by approximately $2,000 representing$467,000 and the non-controlling interest share of our income from OmniMetrix of $4,000.

For the three months ended June 30, 2022, we recognized net loss attributable to Acorn shareholders of $223,000 compared to net income attributable to Acorn shareholders of $2,000 for the three months ended June 30, 2021. Our net loss in the three months ended June 30, 2022 is comprised of net loss at OmniMetrix of $1,000 plus corporate expenses of $222,000. The non-controlling interest share of OmniMetrix during this period rounded to zero. Our net income in the three months ended June 30, 2021 was comprised of net income at OmniMetrix of $230,000 offset by corporate expenses of $226,000 and less the $2,000 attributed to the non-controlling interest share of our income in OmniMetrix.

 

Liquidity and Capital Resources

 

At March 31,June 30, 2022, we had a negative working capital of approximately $202,000.$455,000. Our working capital includes approximately $1,784,000$1,259,000 of cash and deferred revenue of approximately $3,652,000. Such$3,642,000. The deferred revenue does not require significant cash outlay for the revenue to be recognized.

 

During the threesix months ended March 31,June 30, 2022, our OmniMetrix subsidiary provided approximately $511,000$371,000 from its operations while our corporate headquarters used approximately $290,000$565,000 during the same period.

 

During the threesix months ended March 31,June 30, 2022, we invested approximately $157,000$266,000 in technology, including user-interface development andprimarily in the design of aour new cloud server environment as well as investments in new hardware and software upgrades. In addition, we had other capital expenditures of approximately $2,000$3,000 related to patent filings and minor leasehold improvements.

 

Other Liquidity Matters

 

OmniMetrix owes Acorn approximately $4,054,000$3,660,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of $275,000$780,000 in the first quarterhalf of 2022 offset by interest, dividends and other advances of approximately $113,000$224,000 in the aggregate.

 

As of May 11,August 9, 2022, we had cash of approximately $1,335,000.$1,143,000. 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 or other source of financing to fund additional investments in the business.

22

Contractual Obligations and Commitments

 

The table below provides information concerning obligations under certain categories of our contractual obligations as of March 31,June 30, 2022.

 

CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS

 

 Twelve Month Periods Ending March 31, (in thousands)  Twelve Month Periods Ending June 30, (in thousands) 
 Total 2023 2024-2025 2026-2027 2028 and thereafter  Total 2023 2024-2025 2026-2027 2028 and thereafter 
Software agreements $28  $28  $  $  $  $17  $17  $  $  $     — 
Operating leases  450   125   259   66      419   126   260   33    
Contractual services  28   20   8         13   8   5       
Total contractual cash obligations $506  $173  $267  $66  $  $449  $151  $265  $33  $ 

 

21

The Company also has $920,000 in open purchase order commitments payable through 2022.

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 us to concentrations of credit risk, consist principally of cash and trade accounts receivable. Our cash was deposited with a U.S. bank and amounted to approximately $1,784,000$1,259,000 at March 31,June 30, 2022. We do not believe there is significant risk of non-performance by these counterparties. For the three monthssix- and three-month periods ended March 31,June 30, 2022, we did not have anythere were no customers that represented moregreater than 10% of theour total invoiced sales. For the three months ended March 31, 2021, one customer represented approximately 11%sales or of total invoiced sales. Approximately 10% of theour accounts receivable at March 31, 2022 was due from one customer who pays its receivables over usual credit periods. As of May 11, 2022, we have collected the full outstanding amount of approximately $84,000 due from this customer as of March 31,June 30, 2022. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising our customer base.

23

 

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.

 

22

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses noted in our Annual Report on Form 10-K for the year ended December 31, 2021, 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, 2021, 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.

 

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PART II

 

ITEM 6.EXHIBITS.

 

10.1*Amended and Restated Consulting Agreement, dated as of JanuaryJune 1, 2022, by and between Acorn Energy, Inc.the Registrant and Jan H. LoebTracy Clifford Consulting, LLC (incorporated herein by reference to Exhibit 10.7 to10.1 of the Registrant’s AnnualCurrent Report on Form 10-K for the year ended December 31, 2021)10-Q, filed June 1, 2022).
  
#31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
#31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
#32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
#32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
#101.1The following financial statements from Acorn Energy’s Form 10-Q for the quarter ended March 31,June 30, 2022, filed on May 13,August 12, 2022, 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 includes a management contract, compensatory plan or arrangement in which one or more directors or executive officers of the Registrant participate.

 

#This exhibit is filed or furnished herewith.

 

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SIGNATURES

 

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

 

 ACORN ENERGY, INC.
   
Dated: May 13,August 12, 2022  
   
 By:/s/ TRACY S. CLIFFORD
  Tracy S. Clifford
  Chief Financial Officer

 

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