ACORN ENERGY, INC. 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 endedDecember 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 expense
is referred to as "R&D expense," and selling, general and administrative expense
is referred to as "SG&A expense."
Nine months ended September 30, 2021
Total Continuing
OmniMetrix Acorn Operations
Revenue $ 5,022 $ - $ 5,022
Cost of sales 1,348 - 1,348
Gross profit 3,674 - 3,674
Gross profit margin 73 % 73 %
R&D expense 532 - 532
SG&A expense 2,379 707 3,086
Operating income (loss) $ 763 $ (707 ) $ 56
Nine months ended September 30, 2020
Total Continuing
OmniMetrix Acorn Operations
Revenue $ 4,323 $ - $ 4,323
Cost of sales 1,302 - 1,302
Gross profit 3,021 - 3,021
Gross profit margin 70 % 70 %
R&D expense 453 - 453
SG&A expense 2,210 677 2,887
Operating income (loss) $ 358 $ (677 ) $ (319 )
15
Three months ended September 30, 2021
Total Continuing
OmniMetrix Acorn Operations
Revenue $ 1,706 $ - $ 1,706
Cost of Sales 464 - 464
Gross profit 1,242 - 1,242
Gross profit margin 73 % 73 %
R&D expense 179 - 179
SG&A expense 798 240 1,038
Operating income (loss) $ 265 $ (240 ) $ 25
Three months ended September 30, 2020
Total Continuing
OmniMetrix Acorn Operations
Revenue $ 1,517 $ - $ 1,517
Cost of Sales 440 - 440
Gross profit 1,077 - 1,077
Gross profit margin 71 % 71 %
R&D expense 160 - 160
SG&A expense 707 233 940
Operating income (loss) $ 210 $ (233 ) $ (23 )
BACKLOG
As of September 30, 2021 , our backlog of work to be completed (primarily
deferred revenue) at our OmniMetrix subsidiary totaled approximately $5,311,000 ,
of which approximately $200,000 are open sales orders pending completion for
shipping.
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 were paid monthly starting in July 2021 with the fourth and final
installment payment to be paid upon completion and launch of the new interface).
This project is expected to be completed by the end of 2021. This master
services agreement also covers strategic enhancements to our technology
infrastructure which is ongoing. The new infrastructure environment is expected
to be completed and launched by May 1, 2022 . We invested approximately $114,000
in this initiative during the nine months ended September 30, 2021 . These costs
are capitalized and amortization will begin once the new interface and the new
infrastructure environment are launched.
16
OnJuly 6, 2021 , we entered into an agreement withKing Industrial Realty, Inc. , to sublease from us 1,900 square feet of office space of our 21,000 square feet of office and production space in theHamilton Mill Business Park located inBuford, 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 less the allocation of any shared expenses and leasehold improvements specific to the sublease. We invested approximately$7,000 on leasehold improvements related to the sublease. Due to the offset of the capital expenditures, we do not expect to have any net rent due to our landlord for the first twelve months of the sublease. The estimated amount we expect to remit to the landlord subsequent to the first twelve months is approximately$6,700 per year. The term of the sublease commenced onOctober 1, 2021 and runs throughSeptember 30, 2025 which is the termination date of our lease with our landlord.
OVERVIEW AND TREND INFORMATION
? 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 8 and 9 to the interim unaudited condensed consolidated financial statements included in this quarterly report.
OmniMetrix
OmniMetrix is aGeorgia limited liability company based inBuford, 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 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. 17 OmniMetrix Line of Credit
InMarch 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 beginningMarch 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$149,000 inFebruary 2021 and elected not to renew this line of credit, which expired in accordance with
its terms onFebruary 28, 2021 . Results of Operations The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the nine-month periods endedSeptember 30, 2021 and 2020, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components. For segment data, see Notes 8 and 9 to the unaudited condensed consolidated financial statements included in this quarterly report. Nine months ended September 30, 2021 2020 Change from 2020 to ($,000 ) % of revenues ($,000 ) % of revenues 2021 Revenue$ 5,022 100 %$ 4,323 100 % 16 % Cost of sales 1,348 27 % 1,302 30 % 4 % Gross profit 3,674 73 % 3,021 70 % 22 % R&D expense 532 11 % 453 10 % 17 % SG&A expense 3,086 61 % 2,887 67 % 7 % Operating income (loss) 56 1 % (319 ) 7 % 118 % Finance expense, net (5 ) * % (28 ) 1 % 82 % Income (loss) before income taxes 51 1 % (347 ) 8 % 115 % Income tax expense - - - - % - Net income (loss) 51 1 % (347 ) 8 % 115 % Non-controlling interests share of net income (6 ) * % (1 ) * % 500 % Net income (loss) attributable to Acorn Energy, Inc.$ 45 1 %$ (348 ) 8 % 113 % *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 endedSeptember 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. 18 Three months ended September 30, 2021 2020 Change from ($,000 ) % of revenues ($,000 ) % of revenues 2020 to 2021 Revenue$ 1,706 100 %$ 1,517 100 % 12 % Cost of sales 464 27 % 440 29 % 5 % Gross profit 1,242 73 % 1,077 71 % 15 % R&D expense 179 10 % 160 11 % 12 % SG&A expense 1,038 61 % 940 62 % 10 % Operating income (loss) 25 1 % (23 ) 2 % 209 % Finance expense, net - - % (8 ) 1 % 100 % Income (loss) before income taxes 25 1 % (31 ) 2 % 181 % Income tax expense - - % - - % - Net income (loss) 25 1 % (31 ) 2 % 181 % Non-controlling interests share of net income (2 ) * % (1 ) * % 100 % Net income (loss) attributable to Acorn Energy, Inc.$ 23 1 %$ (32 ) 2 % 172 % *result is less than 1%.
Revenue for the nine and three months ended
In the nine months endedSeptember 30, 2021 , revenue increased by approximately$699,000 , or 16%, from approximately$4,323,000 in the nine months endedSeptember 30, 2020 to approximately$5,022,000 in the nine months endedSeptember 30, 2021 . OmniMetrix's increased revenue during the nine months endedSeptember 30, 2021 was primarily attributable to increased hardware and accessories sales, which increased approximately$492,000 , or 33%, from approximately$1,500,000 in the nine months endedSeptember 30, 2020 to approximately$1,992,000 in the nine months endedSeptember 30, 2021 . The increase in hardware revenue was due to an increase in the sale of (i) TG Pro units due, in part, to the sales of new units to replace older units with sunsetting 3G technology and also due to an increase in the number of industrial and commercial customers as a percentage of our total customer base, (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
As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the approximately$5,022,000 in revenue recognized in the nine months endedSeptember 30, 2021 , approximately$4,283,000 was generated by PG activities and approximately$739,000 was generated by CP activities. This represents an increase in revenue from PG activities of approximately$650,000 , or 18%, from approximately$3,633,000 in the nine months endedSeptember 30, 2020 , and an increase in revenue from CP activities of approximately$49,000 , or 7%, from approximately$690,000 in the nine months endedSeptember 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$189,000 , or 12%, from approximately$1,517,000 in the three months endedSeptember 30, 2020 to approximately$1,706,000 in the three months endedSeptember 30, 2021 . OmniMetrix's increased revenue during the three months endedSeptember 30, 2021 was primarily attributable to increased hardware and accessories sales, which increased approximately$154,000 or 28%, from approximately$547,000 in the three months endedSeptember 30, 2020 to approximately$701,000 in the three months endedSeptember 30, 2021 . 19 Monitoring revenue increased by approximately$35,000 , or 4%, from approximately$970,000 in the three months endedSeptember 30, 2020 to approximately$1,005,000 in the three months endedSeptember 30, 2021 . The increase in monitoring revenue is due to an increase in the number of installed billable connections offset by disconnections attributed to the sunset of 3G technology. Of the approximately$1,706,000 in revenue recognized in the three months endedSeptember 30, 2021 , approximately$1,446,000 was generated by PG activities and approximately$260,000 was generated by CP activities. This represents an increase in revenue from PG activities of approximately$184,000 , or 15%, from approximately$1,262,000 in the three months endedSeptember 30, 2020 , and an increase in revenue from CP activities of approximately$5,000 , or 2%, from approximately$255,000 in the three months endedSeptember 30, 2020 .
Gross profit for the nine and three months ended
Gross profit for the nine months endedSeptember 30, 2021 was approximately$3,674,000 reflecting a gross margin of 73% compared with a gross profit of$3,021,000 reflecting a 70% gross margin for the nine months endedSeptember 30, 2020 . Gross margin on hardware revenue for the nine months endedSeptember 30, 2021 was 46% compared to 42% for the nine months endedSeptember 30, 2020 . Gross profit for the three months endedSeptember 30, 2021 was approximately$1,242,000 reflecting a gross margin of 73% on revenue compared with a gross profit for the three months endedSeptember 30, 2020 of$1,077,000 reflecting a gross margin of 71% on revenue. Gross margin on hardware revenue for the three months endedSeptember 30, 2021 was 46% compared to 44% for the three months endedSeptember 30, 2020 . The increased gross profit and gross margin in both the nine- 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 (iv) the restructuring of our data plan.
Operating expenses for the nine and three months ended
OmniMetrix R&D expense. During the nine months endedSeptember 30, 2021 and 2020, R&D expense was$532,000 and$453,000 , respectively. During the three months endedSeptember 30, 2021 , OmniMetrix recorded$179,000 of R&D expense as compared to$160,000 in the three months endedSeptember 30, 2020 . The increase in R&D expense in the nine months endedSeptember 30, 2021 of approximately$79,000 is related to salary increases of our engineering team effectiveSeptember 1, 2020 andSeptember 1, 2021 , 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 for the remainder of 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 nine months endedSeptember 30, 2021 , OmniMetrix recorded SG&A expense of approximately$2,379,000 compared to SG&A costs of approximately$2,210,000 in the nine months endedSeptember 30, 2020 , an increase of$169,000 , or 8%. During the three months endedSeptember 30, 2021 , OmniMetrix recorded SG&A expense of approximately$798,000 compared to SG&A costs of approximately$707,000 , in the three months endedSeptember 30, 2020 , an increase of approximately$91,000 , or 13%. The increase in both periods is due to (i) compensation and benefit expenses in connection with three new positions added to our staff in the nine months endedSeptember 30, 2021 and performance-based salary increases for our staff that were effectiveSeptember 1, 2021 (ii) changes in our commission plan, and (iii) increases in our information technology consulting and managed services expenses. 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 continued spending for information technology consulting, services and support related to certain strategic initiatives in this area. 20 Corporate SG&A expense. Corporate SG&A expense was$707,000 in the nine months endedSeptember 30, 2021 , an increase of approximately$29,000 , or 4%, from the$677,000 of corporate SG&A expense reported in the nine months endedSeptember 30, 2020 . This increase is primarily due to increased stock compensation expense, audit fees and insurance costs. Corporate SG&A expense for the three months endedSeptember 30, 2021 increased$7,000 , or 3%, to$240,000 from$233,000 for the three months endedSeptember 30, 2020 . Third quarter 2021 corporate SG&A expense of$240,000 was higher than second quarter 2021 corporate SG&A expense of$226,000 by$14,000 primarily due to expenses related to our annual shareholder meeting held in the third quarter. 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 toAcorn Energy . We recognized net income attributable to Acorn shareholders of approximately$45,000 in the nine months endedSeptember 30, 2021 compared to a net loss attributable to Acorn shareholders of approximately$348,000 in the nine months endedSeptember 30, 2020 . Our net income during the nine months endedSeptember 30, 2021 is comprised of net income at OmniMetrix of approximately$759,000 offset by corporate expenses, including net interest expense, of approximately$708,000 and the non-controlling interest share of our income from OmniMetrix of approximately$6,000 . Our net loss in the nine months endedSeptember 30, 2020 was comprised of net income at OmniMetrix of$335,000 offset by corporate expenses of approximately$682,000 and the non-controlling interest share of our income from OmniMetrix of approximately$1,000 . For the three months endedSeptember 30, 2021 , we recognized net income attributable to Acorn shareholders of approximately$23,000 compared to a net loss attributable to Acorn shareholders of approximately$32,000 for the three months endedSeptember 30, 2020 . Our net income in the three months endedSeptember 30, 2021 is comprised of net income at OmniMetrix of approximately$266,000 offset by corporate expenses of approximately$241,000 and the non-controlling interest share of our income from OmniMetrix of approximately$2,000 . Our loss in the three months endedSeptember 30, 2020 was comprised of net income at OmniMetrix of$203,000 offset by corporate expenses of$234,000 and$1,000 attributed to the non-controlling interest share of our income in OmniMetrix.
Liquidity and Capital Resources
AtSeptember 30, 2021 , we had working capital of approximately$13,000 . Our working capital includes approximately$2,016,000 of cash and deferred revenue of approximately$3,458,000 . The deferred revenue does not require significant cash outlay for the revenue to be recognized.
During the nine months ended
During the nine months endedSeptember 30, 2021 , we invested approximately$214,000 in technology including user interface development and design of cloud server environment as well as investments in new hardware and software upgrades. In addition, we had other capital expenditures of approximately$7,000 related to patent filings and minor leasehold improvements.
Net cash of approximately
Other Liquidity Matters OmniMetrix owes Acorn approximately$4,303,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix made repayments to Acorn of approximately$523,000 in the nine months endedSeptember 30, 2021 offset by interest, dividends and other advances of approximately$251,000 in the aggregate. As ofNovember 8, 2021 , we had cash of approximately$1,928,000 . 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. 21
Contractual Obligations and Commitments
The table below provides information concerning obligations under certain
categories of our contractual obligations as of
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
Twelve Month Periods
Ending
Total 2022 2023-2024 2025-2026 2027 and thereafter
Software agreements $ 48 $ 48 $ - $ - $ -
Operating leases 512 124 257 131 -
Contractual services 114 114 - - -
Total contractual cash
obligations $ 674 $ 286 $ 257 $ 131 $ -
The Company also has approximately
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