ACORN ENERGY INC

Previous wording

This Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”, “intend”, “could”, “estimate” or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

Current wording

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, the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

Previous wording

All dollar amounts in the tables and discussion below are rounded to the nearest thousand, except per share data, and, thus, are approximate.

Current wording

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

Previous wording

The following tables show, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.

Current wording

The following table shows, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.

Previous wording

As of March 31, 2024, OmniMetrix had a backlog of $5,028,000, primarily comprised of deferred revenue, of which $3,823,000 is expected to be recognized as revenue in the next twelve months. This compares to a backlog of $6,216,000 at March 31, 2023. Now that we are selling hardware units that are capable of being distinct, the hardware backlog will no longer continue to grow and will be fully amortized by August 31, 2026, while the monitoring backlog will continue to be deferred and amortized over the period of service.

Current wording

As of June 30, 2024, OmniMetrix had a backlog of $4,580,000, primarily comprised of deferred revenue, of which $3,590,000 is expected to be recognized as revenue in the next twelve months. This compares to a backlog of $6,367,000 at June 30, 2023. Now that we are selling hardware units that are capable of operating distinctly from our monitoring and control software, the hardware backlog will no longer continue to grow and will be fully amortized by August 31, 2026, while the monitoring backlog will continue to be deferred and amortized over the period of service.

Previous wording

On January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services for a 36-month contract term with automatic one-year extensions, subject to termination notice. The pricing structure involves account setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services. The monthly expense obligation is $10,000 for the first 6 months and $15,000 thereafter. We will also be eligible for volume discounts based on total monthly service revenue. Additionally, the agreement includes an IoT Enhanced Support and Priority Care Services Rate Plan with various support service types and pricing tiers based on the number of devices and terms for SIM migrations, including tiered pricing and conditions for waiver of certain charges during migration. This new agreement will allow us to migrate our customers to higher tier data plans for nominal additional cost.

Current wording

On January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services for a 36-month contract term with automatic one-year extensions, subject to termination notice. The pricing structure involves account setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services. The monthly expense obligation is $10,000 for the first 6 months and $15,000 thereafter. We are also eligible for volume discounts based on total monthly service revenue. Additionally, the agreement includes an IoT Enhanced Support and Priority Care Services Rate Plan with various support service types and pricing tiers based on the number of devices and terms for SIM migrations, including tiered pricing and conditions for waiver of certain charges during migration. This agreement allows us to migrate our customers to higher tier data plans for nominal additional cost.

Previous wording

*Revenue.*Revenue in the first quarter of 2024 was $2,132,000 compared to $1,749,000 in the first quarter of 2023, which is an increase of $383,000, or 21.9%. As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the $2,132,000 in revenue recognized in the three-month period ended March 31, 2024, $1,794,000 was generated by PG activities and $338,000 was generated by CP activities. As compared to the three-month period ended March 31, 2023, revenue from PG activities increased $287,000, or 19%, and revenue from CP activities increased $96,000, or 39.7%. As compared to the three-month period ended March 31, 2023, hardware revenue increased $305,000, or 42.1%, while monitoring revenue increased $78,000, or 7.6%.

Current wording

As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the $4,407,000 in revenue recognized in the six-month period ended June 30, 2024, $3,855,000 was generated by PG activities and $552,000 was generated by CP activities. This represents an increase in revenue from PG activities of $659,000, or 20.6%, from $3,196,000 in the six-month period ended June 30, 2023, and an increase in revenue from CP activities of $26,000, or 4.9%, from $526,000 in the six-month period ended June 30, 2023.

Previous wording

The increase in PG revenue was due to an increase in the sales of TG Pro and TG2 products. The increase in CP revenue was due to an increase in the sale of Hero2 units. We sold 23% more Hero2 units in the three-month period ended March 31, 2024 compared to the number of units sold in the three-month period ended March 31, 2023. In addition, the new version of the hardware was sold in the first quarter of 2024; thus, the revenue was recognized when the units were shipped instead of being deferred and amortized over three years. The increase in monitoring revenue is due to an increase in the number of connections being monitored.

Current wording

The increase in PG revenue was due to an increase in the revenue recognized from TG Pro and TG2 products. The increase in CP revenue was due to an increase in the revenue recognized from Hero2 units in the first three months of 2024. We sold 23% more Hero2 units in the three-month period ended March 31, 2024 compared to the number of units sold in the three-month period ended March 31, 2023. In addition, the new version of the hardware was sold in 2024; thus, the revenue was recognized when the units were shipped instead of being deferred and amortized over three years. The increase in monitoring revenue is due to an increase in the number of connections being monitored.

Previous wording

Hardware revenue during the three-month periods ended March 31, 2024 and 2023 is further detailed in the table below (in thousands):

Current wording

Hardware revenue during the six- and three-month periods ended June 30, 2024 and 2023 is further detailed in the table below (in thousands):

Previous wording

Gross Profit. Gross profit during the three-month period ended March 31, 2024 was $1,591,000, reflecting a gross margin of 75% on revenue, compared with a gross profit during the three-month period ended March 31, 2023 of $1,316,000, also reflecting a gross margin of 75%.

Current wording

Gross profit for the six-month period ended June 30, 2024 was $3,256,000, reflecting a gross margin of 73.9%, compared with a gross profit of $2,806,000, reflecting a gross margin of 75.4%, for the six-month period ended June 30, 2023.

Previous wording

*Selling, general and administrative expense.*SG&A expense of the consolidated entities in the first three months of 2024 reflected an increase of $78,000, or 6.5%, as compared to the first three months of 2023. OmniMetrix’s SG&A expense increased $7,000, or less than 1%, from $963,000 in the first three months of 2023 to $970,000 in the first three months of 2024. This increase was primarily due to an increase of (i) $36,000 in personnel expenses due to compensation increases and staff additions, (ii) $13,000 in technology expenses, primarily consulting fees, (iii) $3,000 in amortization of sales commissions, offset by decreases of (iv) $10,000 in depreciation expense, (v) $10,000 in travel and trade show expenses, (vi) $9,000 in bad debt expense, (vii) $5,000 in facility expenses and (viii) $11,000 in other expenses. Corporate SG&A expense increased $71,000, or 30.3%, from $234,000 in the first three months of 2023 to $305,000 in the first three months of 2024. This increase was due to an increase of (i) $25,000 in audit fees due to an increase in engagement fees year over year of 14% and also to the timing of when the services were performed (i.e., during the first quarter of 2024 instead of during the fourth quarter of 2023), (ii) $16,000 in tax fees from the preparation of the 2023 tax provision, (iii) $12,000 in stock compensation expense, (iv) $6,000 in legal fees and (v) $12,000 in other public company expenses.

Current wording

Selling, general and administrative expense. SG&A expense of the consolidated entities in the six-month period ended June 30, 2024 reflected an increase of $40,000, or 1.6%, as compared to the six-month period ended June 30, 2023. OmniMetrix’s SG&A expense decreased $20,000, or 1.1%, from $1,942,000 in the six-month period ended June 30, 2023 to $1,922,000 in the six-month period ended June 30, 2024. This decrease was primarily due to a decrease of (i) $18,000 in depreciation expense, (ii) $17,000 in sales tax and other business tax related expenses, (iii) $10,000 in travel and trade show expenses, and (iv) $9,000 in net decreases in the aggregate across other expense categories offset by increases of $23,000 in technology expenses for software and IT professional fees and $11,000 in personnel expenses due primarily to compensation increases. Corporate SG&A expense increased $60,000, or 12.7%, from $474,000 in the six-month period ended June 30, 2023 to $534,000 in the six-month period ended June 30, 2024. This increase was due to an increase of (i) $13,000 in tax fees primarily from the preparation of the 2023 tax provision, (ii) $12,000 in legal fees due to an increase in our monthly retainer effective January 1, 2024, (iii) $10,000 in audit fees due to an increase in engagement fees year over year of 14% and also to the timing of when the services were performed, (iv) $10,000 in stock compensation expense, (v) $8,000 in officer fees due to a 3% increase effective January 1, 2024 and (vi) $7,000 in other public company expenses.

Previous wording

Net income (loss) attributable to Acorn Energy. We recognized net income attributable to Acorn stockholders of $65,000 in the first three months of 2024 compared to a net loss attributable to Acorn stockholders of $85,000 in the first three months of 2023. Our net income during the three-month period ended March 31, 2024 is comprised of pre-tax net income at OmniMetrix of $364,000 less state taxes of $25,000 on OmniMetrix income, corporate expenses of $271,000, and $3,000 representing the non-controlling interest share of our income from OmniMetrix. Our loss in the three-month period ended March 31, 2023 is comprised of net income at OmniMetrix of $151,000, less corporate expense of $235,000, offset by $1,000 representing the non-controlling interest share of our income in OmniMetrix.

Current wording

For the three-month period ended June 30, 2024, we recognized net income attributable to Acorn stockholders of $271,000, compared to a net income attributable to Acorn stockholders of $96,000 for the three- month period ended June 30, 2023. Our net income during the three-month period ended June 30, 2024 is comprised of net income at OmniMetrix of $539,000 offset by corporate expenses of $263,000 and the non-controlling interest share of our income from OmniMetrix of $5,000. Our net income during the three-month period ended June 30, 2023 is comprised of net income at OmniMetrix of $339,000 offset by corporate expenses of $240,000 and the non-controlling interest share of income from OmniMetrix of $3,000.

Previous wording

At March 31, 2024, we had a negative working capital of $620,000. Our working capital includes $1,417,000 of cash and deferred revenue of $3,823,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized.

Current wording

At June 30, 2024, we had a negative working capital of $423,000 which includes $1,463,000 of cash and deferred revenue of $3,590,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized.

Previous wording

During the three-month period ended March 31, 2024, our OmniMetrix subsidiary provided cash flow from operations of $268,000, while our corporate headquarters used $311,000 for operations during the same period.

Current wording

During the six-month period ended June 30, 2024, our OmniMetrix subsidiary provided cash flow from operations of $693,000, while our corporate headquarters used $652,000 for operations during the same period.

Previous wording

During the three-month period ended March 31, 2024, we invested $2,000 in technology and received proceeds of $13,000 from financing activities related to the exercise of stock options.

Current wording

During the six-month period ended June 30, 2024, we invested $40,000 in technology and equipment and received proceeds of $13,000 from financing activities related to the exercise of stock options.

Previous wording

OmniMetrix owes Acorn $2,660,000 for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s behalf as of March 31, 2024 as compared to $2,657,000 as of December 31, 2023. During the three-month period ended March 31, 2024, the intercompany amount due to Acorn from OmniMetrix increased by $3,000. This included repayments of $84,000 offset by interest of $34,000, dividends of $19,000 due to Acorn and $34,000 in shared expenses paid by Acorn. These intercompany balances and amounts are eliminated in consolidation.

Current wording

OmniMetrix owes Acorn $2,362,000 for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s behalf as of June 30, 2024 as compared to $2,657,000 as of December 31, 2023. During the six-month period ended June 30, 2024, the intercompany amount due to Acorn from OmniMetrix decreased by $295,000. This included repayments of $484,000 offset by interest of $68,000, dividends of $38,000 due to Acorn and $83,000 in shared expenses paid by Acorn. These intercompany balances and amounts are eliminated in consolidation.

Previous wording

As of May 7, 2024, we had cash of $1,455,000. We believe that such cash, plus the cash expected to be generated from operations, will provide sufficient liquidity to finance our activities at their current level of operations for at least the twelve-month period from the issuance of these unaudited condensed consolidated financial statements. We may, at some point, elect to obtain a new line of credit or other source of financing to fund additional investments in the business. If we decide to pursue additional financing in the future, it may be in the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or any combination thereof. Whether alternative funds, such as third-party loans or investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.

Current wording

As of August 6, 2024, we had cash of $1,546,000. We believe that such cash, plus the cash expected to be generated from operations, will provide sufficient liquidity to finance our activities at their current level of operations for at least the twelve-month period from the issuance of the unaudited condensed consolidated financial statements contained in this quarterly report. We may, at some point, elect to obtain financing to fund additional investments in the business. If we decide to pursue additional financing in the future, it may be in the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or any combination thereof. Whether alternative funds, such as third-party loans or investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.