ACORN ENERGY, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW AND TREND INFORMATION The following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Certain of these factors are discussed in “Item 1A. Risk Factors.” We currently operate in two reportable operating segments, both of which are performed through our OmniMetrix subsidiary: ● The PG segment which provides wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications; and ● The CP segment which provides for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. The following analysis should be read together with the segment information provided in Notes 12 and 13 to our consolidated financial statements included in this report. 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 economic ecosystem. In addition, OmniMetrix continues to see a 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. Residential, commercial 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. Given that OmniMetrix monitors all major brands of critical equipment and continues to invest in research and development in response to customer and potential customer feedback, OmniMetrix remains well-positioned as a competitive participant in this market to continue to grow its customer base and expand its product offerings. OmniMetrix Line of Credit In March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable formula-based financing of the lesser of 75% of eligible receivables or $1 million. Debt incurred under this financing arrangement bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances of 15%. OmniMetrix also agreed to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two years beginning March 1, 2019. The monthly service charge and interest was calculated on the greater of the outstanding balance or $150,000. From time to time, the balance outstanding could fall below $150,000 based on collections applied against the loan balance and the timing of loan draws. 13 OmniMetrix had an outstanding balance of approximately $149,000 at December 31, 2020, pursuant to the loan and security agreement. We repaid the outstanding balance in February 2021 and elected not to renew this line of credit, which expired in accordance with its terms on February 28, 2021. Small Business Administration Paycheck Protection Program (“SBA PPP”) On April 24, 2020, Acorn Energy, Inc. received SBA PPP loan proceeds in the amount of $41,600. On April 30, 2020, OmniMetrix, LLC received SBA PPP loan proceeds in the amount $419,800. Under the SBA PPP of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), up to the full principal amount of a loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll, benefits, lease/mortgage payments and/or utilities) required under the CARES Act and any rule, regulation, or guidance issued by the SBA pursuant to the CARES Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the SBA PPP loan depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the CARES Act, the first six monthly payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note. On October 20, 2020, OmniMetrix submitted its SBA PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed that OmniMetrix’s application for forgiveness had been approved and that its SBA PPP loan, in the amount of $419,800 plus accrued interest of $2,162, had been forgiven. The Company elected not to apply for forgiveness of the SBA PPP loan proceeds received by Acorn Energy, Inc., in the amount of $41,600 plus accrued interest of $206. This loan was repaid to the lender effective October 22, 2020. Intercompany During 2021, the intercompany amount due to Acorn from OmniMetrix decreased by approximately $359,000. This included repayments of approximately $677,000 offset by interest of approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses paid by Acorn. During 2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately $70,000. This included repayments of approximately $435,000 offset by interest of approximately $253,000, dividends of $76,000 due to Acorn and approximately $176,000 in shared expenses paid by Acorn. We believe that OmniMetrix will not need working capital support in 2022. However, we have no assurance that this will be the case. Additional financing for OmniMetrix 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 a combination of the above. The availability and amount of any additional loans from Acorn to OmniMetrix may be limited by the working capital needs of our corporate activities. Whether Acorn will have the resources necessary to provide funding, or 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. As of March 28, 2022, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of approximately $64,000 in cash. Other Matters 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 will automatically renew for one-year periods unless either party delivers a written notice of termination to the other party sixty days prior to the end of the respective term. We entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The agreement has a twelve-month term. 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. Under the applicable data hosting services agreements, we paid approximately $158,000 and $137,000 in the years ended December 31, 2021 and 2020, respectively. On March 17, 2021, we entered into a master services agreement for the development of a new user interface for its customer data portal. The cost of this project will be approximately $119,000 in design and development services ($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 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 in the second quarter of 2022. This 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 replace our existing Peak 10 datacenter hosting environment. The new infrastructure will provide a more modern, agile and cost effective environment in which to grow our IoT connections and services. The new Microsoft Azure cloud infrastructure environment is expected to be completed and deployed on or about May 1, 2022. We invested approximately $166,000 in this initiative during the year ended December 31, 2021. Additional investment in this project is ongoing and the total investment is dependent on the professional hours required to complete, test and successfully deploy the new environment. The cost of these projects are capitalized and amortization will begin once the new interface and the new infrastructure environment are completed and ready to deploy. 14 CRITICAL ACCOUNTING POLICIES The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The following discussion of critical accounting policies represents our attempt to report on those accounting policies, which we believe are critical to our consolidated financial statements and other financial disclosure. It is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which the selection of an available alternative policy would not produce a materially different result. We have identified the following as critical accounting policies affecting our Company: revenue recognition and stock-based compensation. Revenue Recognition Our revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is satisfied. We assess whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. Our sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size. If revenue recognition criteria are not satisfied, amounts received from customers are classified as deferred revenue on the consolidated balance sheets until such time as the revenue recognition criteria are met. Sales of OmniMetrix monitoring systems include the sale of equipment (“HW”) and of monitoring services (“Monitoring”). Sales of OmniMetrix equipment do not qualify as a separate unit of accounting. As a result, 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. See Notes 12 and 13 for the disaggregation of our revenue for the periods presented. Stock-based Compensation We recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the Black-Scholes option valuation method. Accordingly, we are required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which an employee is required to provide service in exchange for the award. Under the Black-Scholes method, we make assumptions with respect to the expected lives of the options that have been granted and are outstanding, the expected volatility, the dividend yield percentage of our common stock and the risk-free interest rate at the respective dates of grant. For our Acorn options, the expected volatility factor used to value stock options in 2021 was based on the historical volatility of the market price of our common stock over a period equal to the expected term of the options. For the expected term of the option, we used an estimate of the expected option life based on historical experience. The risk-free interest rate used is based upon U.S. Treasury yields for a period consistent with the expected term of the options. We assumed no quarterly dividend rate. We recognize stock-based compensation expense on an accelerated basis over the requisite service period. Due to the numerous assumptions involved in calculating share-based compensation expense, the expense recognized in our consolidated financial statements may differ significantly from the value realized by employees on exercise of the share-based instruments. In accordance with the prescribed methodology, we do not adjust our recognized compensation expense to reflect these differences. For the years ended December 31, 2021 and 2020, we incurred stock compensation expense with respect to options of approximately $75,000 and $35,000, respectively. See Note 9 to the consolidated financial statements for the assumptions used to calculate the fair value of share-based employee compensation for Acorn options. 15 RESULTS OF OPERATIONS The selected consolidated statement of operations data for the years ended December 31, 2021 and 2020 and consolidated balance sheet data as of December 31, 2021 and 2020 has been derived from our audited consolidated financial statements included in this Annual Report. This data should be read in conjunction with our consolidated financial statements and related notes included herein. Selected Consolidated Statement of Operations Data: For the Years Ended December 31, 2021 2020 (in thousands, except per share data) Revenue $ 6,776 $ 5,922 Cost of sales 1,877 1,791 Gross profit 4,899 4,131 Research and development expenses, net 739 619 Selling, general and administrative expenses 4,168 3,822 Operating loss (8 ) (310 ) Finance expense, net (5 ) (35 ) Gain on SBA loan extinguishment — 421 (Loss) Income before income taxes (13 ) 76 Income tax expense — — Net (loss) income (13 ) 76 Non-controlling interest share of income (8 ) (7 ) Net (loss) income attributable to Acorn Energy, Inc. shareholders $ (21 ) $ 69 Basic and diluted net (loss) income per share attributable to Acorn Energy, Inc. shareholders: Net (loss) income per share attributable to Acorn Energy, Inc. shareholders – basic and diluted $ (0.00 ) $ 0.00 Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic 39,688 39,674 Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – diluted 39,688 39,713 The following table sets forth certain information with respect to revenues and profits of our reportable business segments for the years ended December 31, 2021 and 2020 (dollars in thousands), including the percentages of revenues attributable to such segments. (See Note 12 to our consolidated financial statements for the definitions of our reporting segments). PG CP Total Year ended December 31, 2021: Revenues from external customers $ 5,787 $ 989 $ 6,776 Percentage of total revenues from external customers 85 % 15 % 100 % Segment gross profit 4,328 571 4,899 Year ended December 31, 2020: Revenues from external customers $ 4,988 $ 934 $ 5,922 Percentage of total revenues from external customers 84 % 16 % 100 % Segment gross profit 3,626 505 4,131 2021 COMPARED TO 2020 Revenue. In 2021, OmniMetrix recorded total revenue of approximately $6,776,000, as compared to total revenue of approximately $5,922,000 in 2020, for an increase of approximately $854,000 (14%). As previously stated, OmniMetrix has two divisions: PG and CP. The PG segment includes our monitoring device for generators, industrial air compressors and our annunciator products. The CP segment includes our monitoring device for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. In 2021, revenue of approximately $5,787,000 was attributed to the PG segment and revenue of approximately $989,000 was attributed to the CP segment, as compared to the 2020 revenue of approximately $4,988,000 that was attributed to the PG segment and approximately $934,000 that was attributed to the CP segment. Increased revenue in PG was due to an increase in hardware revenue of 31% from approximately $2,103,000 in 2020 to approximately $2,746,000 in 2021. In addition to the increase in hardware revenue, monitoring revenue increased 6% from approximately $3,819,000 in 2020 to approximately $4,030,000 in 2021. The increase in hardware revenue is primarily due to an increase of hardware sales in the PG segment. However, we also had an increase in CP hardware revenue of approximately $48,000 (7%). The overall increase in hardware revenue was due to a higher percentage of commercial and industrial (C&I) customers versus residential (RESI) customers in our customer mix and an increase in the number of monitoring devices sold on a consolidated segment basis in 2021, when compared to 2020, which is, in part, as a result of the sunsetting of 3G units which are replaced with LTE units. The C&I products have a higher price point than the RESI products; thus, the customer concentration of increasing C&I customers has a positive impact on our revenue per unit. Monitoring revenue did not increase ratably with hardware revenue due to the sale of hardware units that replace sunsetting 3G units and our dealers focus on the impact to their business of the 3G sunsetting. These replacement units assume the remaining prepaid monitoring plan of the sunsetting unit at the time of the physical replacement of the unit. 16 Gross profit . Gross profit for 2021 was approximately $4,899,000 reflecting a gross margin of 72% on revenue, compared with a gross profit of approximately $4,131,000 reflecting a 70% gross margin on revenue in 2020. The 2021 gross margin slightly outpaced the 2020 gross margin despite increases in our cost of sales due to supply chain constraints, as we implemented a price increase to help offset the increasing cost of sales, in addition to the impact of the strengthening margin on our monitoring revenue, which increased from 84% to 91%. The increase in our margin on monitoring revenue is a result of the successful negotiation with our carrier of a more favorably-structured cellular data rate plan for our business in the first quarter of 2021. Research and development (“R&D”) expense. During 2021, OmniMetrix recorded approximately $739,000 of R&D expense as compared to approximately $619,000 in 2020, an increase of approximately $120,000 (19%). The increase in R&D expense in 2021 is related to increases in wages and bonuses paid to our engineering personnel in 2021 and the expenses and materials paid to third party consultants in the continued development of next generation PG and CP products and exploration into new possible product lines. We expect an increase of approximately 15% in R&D expense in 2022 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level of innovation and gain more market share. Selling, general and administrative (“SG&A”) expense. Consolidated SG&A expense in 2021 increased by approximately $346,000 (9%) from approximately $3,822,000 in 2020 to approximately $4,168,000 in 2021. Corporate overhead increased by approximately $43,000 from approximately $890,000 in 2020 to approximately $933,000 in 2021, due to increases in the cost of insurance and audit fees. OmniMetrix’s SG&A expense increased approximately $303,000 (10%) from approximately $2,932,000 in 2020 to approximately $3,235,000 in 2021. This increase was primarily due to increases of (i) $151,000 in personnel expenses related to bonuses, promotional wage increases, staff additions and stock compensation expense, (ii) $83,000 in software license fees due to the launch of our enhanced customer interface software for CP customers in 2021 and additional fees from the increase in the number of users of certain accounting and operations software, (iii) $53,000 in depreciation and amortization expenses attributed to the launch of the customer interface software for CP customers and also the depreciation of new office equipment and computers purchased in 2021 and (iv) $38,000 in commissions due to the increase in cash-basis sales in 2021 and the achievement of established sales targets. The increases in these categories were offset by decreases in occupancy expense, travel and entertainment expenses and dues and subscription expenses. We anticipate that our annual SG&A costs in 2022 will increase approximately 15% due to increasing wage and benefit expenses and due to our continuing investments in technology and operations. Finance expense, net. Finance expense in 2021 was comprised of interest expense and service charges of approximately $4,000 associated with OmniMetrix’s line of credit and miscellaneous net interest expense of approximately $1,000. Finance expense in 2020 was comprised of interest expense and service charges of approximately $28,000 associated with OmniMetrix’s line of credit, miscellaneous net interest expense of approximately $3,000 and currency exchange loss of approximately $4,000. Gain on SBA PPP loan extinguishment . On April 24, 2020, Acorn Energy, Inc. received SBA PPP loan proceeds in the amount of $41,600. On April 30, 2020, OmniMetrix, LLC received SBA PPP loan proceeds in the amount $419,800. Under the PPP of the CARES Act, up to the full principal amount of a loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll, benefits, lease/mortgage payments and/or utilities) required under the CARES Act and any rule, regulation, or guidance issued by the SBA pursuant to the CARES Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the CARES Act, the first six monthly payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note. On October 20, 2020, OmniMetrix submitted its PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed that OmniMetrix’s application for forgiveness had been approved and that its PPP loan, in the amount of $419,800 plus accrued interest of $2,162, had been forgiven. We elected not to apply for forgiveness of the PPP loan proceeds received by Acorn Energy, Inc., in the amount of $41,600 plus accrued interest of $206. This loan was repaid to the lender effective October 22, 2020. Net loss attributable to Acorn Energy. We had net loss attributable to Acorn Energy of approximately $21,000 in 2021 as compared to net income of approximately $69,000 in 2020. Our income in 2021 is comprised of net income at OmniMetrix of approximately $921,000, corporate expense of approximately $934,000, offset by approximately $8,000 representing the non-controlling interest share of our income in OmniMetrix. Our income in 2020 is comprised of net income at OmniMetrix of approximately $549,000, corporate expense of approximately $894,000 offset by the gain on the extinguishment of the PPP loan of approximately $421,000 and approximately $7,000 representing the non-controlling interest share of our income in OmniMetrix. 17 LIQUIDITY AND CAPITAL RESOURCES At December 31, 2021, we had a negative working capital of approximately $60,000. Our working capital includes approximately $1,722,000 of cash and deferred revenue of approximately $3,541,000. Such deferred revenue does not require significant cash outlay for the revenue to be recognized. Total deferred revenue increased approximately $839,000 at December 31, 2021 from approximately $4,554,000 at December 31, 2020 as a result of a significant increase in cash sales which we have to amortize over a three-year period in accordance with GAAP. Net cash decreased during the year ended December 31, 2021 by approximately $341,000, of which approximately $132,000 was provided by operating activities, approximately $324,000 was used in investing activities, and approximately $149,000 was used in financing activities. During the year ended December 31, 2021, our operating activities provided approximately $132,000 of net cash. Our OmniMetrix subsidiary provided approximately $1,035,000 from its operations while our corporate headquarters used approximately $903,000 in its operating activities during the period. OmniMetrix’s inventory balance increased $381,000 at December 31, 2021 due to our efforts to mitigate the supply chain challenges and have adequate safety stock on hand. During the year ended December 31, 2020, our operating activities provided approximately $464,000. Our OmniMetrix subsidiary provided approximately $1,366,000 from its operations while our corporate headquarters used approximately $902,000 in its operating activities during the same period. During the year ended December 31, 2021, net cash of approximately $324,000 was used in investment activities, primarily in our technology infrastructure. These investments include the development of a new user interface for our PG customers and the design of a new cloud server environment, as well as investments in hardware and software upgrades. In addition, we had capital expenditures of approximately $7,000 related to minor leasehold improvements. Net cash of approximately $101,000 was used in investing activities in 2020 which was primarily investments in software. Net cash of approximately $149,000 was used by financing activities during the year ended December 31, 2021 as repayments on our line of credit. Net cash of approximately $453,000 was provided by financing activities which was comprised of approximately $421,000 in proceeds, net of repayments, from the SBA PPP loan, approximately $13,000 in net proceeds from OmniMetrix’s line of credit described above under the heading “OVERVIEW AND TREND INFORMATION — OmniMetrix Line of Credit”, and approximately $19,000 in proceeds from the exercise of stock options. As previously discussed, we elected not to renew OmniMetrix’s line of credit and it expired in accordance with its terms on February 28, 2021. If we decide to pursue additional financing for OmniMetrix 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 a combination of the above. The availability and amount of any additional loans from Acorn to OmniMetrix may be limited by the working capital needs of our corporate activities. Whether Acorn will have the resources necessary to provide funding, or 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. Other Liquidity Matters OmniMetrix owes Acorn approximately $4,217,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix has made monthly payments to Acorn of varying amounts since the second quarter of 2019. In 2021, OmniMetrix made payments to Acorn of $677,000 offset by interest of approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses paid by Acorn. OmniMetrix will continue to make payments to Acorn against this balance as long as OmniMetrix is generating sufficient cash to allow such repayments. This intercompany balance is eliminated in consolidation. We had approximately $1,722,000 of cash on December 31, 2021, and approximately $1,825,000 on March 28, 2022. We believe that such cash, plus the cash expected to be 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 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. Contractual Obligations and Commitments The table below provides information concerning obligations under certain categories of our contractual obligations as of December 31, 2021. CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS Years Ending December 31, (in thousands) Total 2022 2023-2024 2025-2026 Software agreements $ 58 $ 56 $ 2 $ — Operating leases* 481 124 258 99 Contractual services 93 84 9 — Purchase obligations** 1,217 1,217 — — Total contractual cash obligations $ 1,849 $ 1,481 $ 269 $ 99 *Reflects the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease. **Reflects open purchase orders for components/parts to be delivered over the next twelve months as sales forecast requires. 18