NOTE
1— BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries, OmniMetrix, LLC and OMX
Holdings, Inc. (collectively, “Acorn” or “the Company”) have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the
United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month
period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Certain
reclassifications have been made to the Company’s unaudited condensed consolidated financial statements for the three-month period
ended March 31, 2020 to conform to the current period’s unaudited condensed consolidated financial statement presentation. There
was no effect on total assets, equity and net loss. A reclassification of $2,400 from the parent company’s SG&A expense to
the subsidiary’s SG&A expense was recorded to reclass the stock compensation expense of subsidiary employees.
These
unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Basic
and Diluted Net Income (Loss) Per Share
Basic
net income (loss) per share is computed by dividing the net income (loss) attributable to Acorn Energy, Inc. by the weighted average
number of shares outstanding during the year, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result
from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation
of diluted net loss per share if doing so would be antidilutive. The weighted average number of options and warrants that were excluded
from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately 245,000 (which have a weighted
average exercise price of $0.99) and approximately 2,987,000 (which have a weighted average exercise price of $1.36) for the three month
periods ending March 31, 2021 and 2020, respectively.
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):
|
|
Three
months ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net income (loss) available to
common stockholders
|
|
$
|
20
|
|
|
$
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
39,687
|
|
|
|
39,631
|
|
Add: Warrants
|
|
|
26
|
|
|
|
—
|
|
Add: Stock options
|
|
|
147
|
|
|
|
—
|
|
-Diluted
|
|
|
39,860
|
|
|
|
39,631
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
NOTE
2—RECENT AUTHORITATIVE GUIDANCE
Recently
Issued Accounting Principles
Other
than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements during
the three-month period ended March 31, 2021, that are of material significance, or have potential material significance, to the Company.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending
how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through
net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected
losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently
evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.
NOTE
3—LIQUIDITY
At
March 31, 2021, the Company had negative working capital of approximately $71,000. The Company’s working capital includes approximately
$1,974,000 of cash and deferred revenue of approximately $3,181,000. The deferred revenue does not require significant cash outlay for
the revenue to be recognized. During the first three months of 2021, the Company’s OmniMetrix, LLC subsidiary provided approximately
$342,000 from operations while the Company’s corporate headquarters used approximately $274,000 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. The Company has continued to realize
new equipment sales (although not at the anticipated growth rate due to travel restrictions which have negatively impacted the sales
closing timeline), has continued to collect its monthly recurring monitoring revenues and has retained its customer base. While the impacts
of COVID-19 in the future are uncertain, the Company believes that due to the need for backup power and the desirability of remote monitoring
services, it should be positioned for stable financial performance.
As
of May 7, 2021, the Company had cash of approximately $1,968,000. The Company believes that such cash, plus the cash generated
from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current
level of operations for the foreseeable future and for the twelve months from the issuance of these unaudited condensed consolidated
financial statements in particular. The Company may, at some point, elect to obtain a new line of credit to fund additional investments
in the business.
NOTE
4—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease expires on September 30, 2025. The office
equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for the three months ended March
31, 2021 and 2020 were approximately $30,000 and $28,000, respectively. The future minimum lease payments on non-cancellable operating
leases as of March 31, 2021 using a discount rate of 4.5% are $518,000. Supplemental balance sheet information related to leases consisted
of the following:
|
|
2021
|
|
Weighted average remaining lease
terms for operating leases
|
|
|
4.47
|
|
The
table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess
of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of March 31,
2021 (in thousands):
|
|
Twelve-month
period
ended
March
31,
|
|
2022
|
|
$
|
122
|
|
2023
|
|
|
125
|
|
2024
|
|
|
129
|
|
2025
|
|
|
130
|
|
2026
|
|
|
66
|
|
Total undiscounted cash flows
|
|
|
572
|
|
Less: Imputed interest
|
|
|
(54
|
)
|
Present value of operating
lease liabilities (a)
|
|
$
|
518
|
|
|
(a)
|
Includes
current portion of $101,000 for operating leases.
|
NOTE
5—DEBT
In
March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable formula-based
financing of the lesser of 75% of eligible receivables or $1,000,000. Debt incurred under this financing arrangement bore interest at
the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of 0.75% of the average aggregate
principal amount outstanding for the prior month, for an effective rate of interest on advances of 15% at February 28, 2021. OmniMetrix
also agreed to continue to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two years
beginning March 1, 2019. From time to time, the balance outstanding fell below $150,000 based on collections applied against the loan
balance and the timing of loan draws. The monthly service charge and interest was calculated on the greater of the outstanding balance
or $150,000. Interest expense for the period January 1, 2021 to February 28, 2021, when the line expired, was approximately $4,000 compared
to approximately $7,000 for the three months ended March 31, 2020.
OmniMetrix
paid off the outstanding balance in February 2021 and decided not to renew this line of credit, which expired in accordance with its
terms on February 28, 2021.
NOTE
6—COMMITMENTS AND CONTINGENCIES
On
August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix
a new software platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over
the first seven months of the term of the agreement equal to $200,000 in the aggregate. In addition, OmniMetrix will pay the partner
(i) a per-sensor monitoring fee for each sensor connected to the developed technology, or (ii) a percentage of any revenue received
above a specified amount per sensor monitored per month in oil and gas applications only. Commencing on January 1, 2021, OmniMetrix
pays the partner an annual licensing fee of $50,000 which is paid in quarterly increments of $12,500. The per-sensor monitoring
fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but will automatically renew for one-year
periods unless either party delivers a written notice of termination to the other party sixty days prior to the end of the respective
term.
On
April 28, 2020, the Company entered into a new agreement for data hosting services, replacing an expiring agreement with the same vendor,
effective May 1, 2020. The agreement has a twelve-month term and the total payments under this agreement are approximately $148,000 in
the aggregate. In January 2021, the Company elected to renew this agreement for an additional twelve-months under the same terms. The
Company paid approximately $37,500 under this agreement in the three months ended March 31, 2021. The agreement will now expire on April
30, 2022.
On
March 17, 2021, the Company entered into a master services agreement for the development of a new user interface for its customer data
portal. The cost of this project is not expected to exceed approximately $85,000 and is expected to be completed by July 31, 2021. This
master services agreement also covers strategic enhancements to our technology infrastructure at an estimated investment of approximately
$21,000 that will be completed by year-end.
In
addition to the above, the Company has approximately $600,000 in other contractual obligations related to software agreements,
operating leases and contractual services, payable through 2026.
NOTE
7—EQUITY
(a)
General
At
March 31, 2021 the Company had issued and outstanding 39,687,589 shares of its common stock, par value $0.01 per share. Holders of outstanding
common stock are entitled to receive dividends when, 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.
(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 three-year period from the date of the grant.
At
March 31, 2021, 1,652,394 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were
available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the three
months ended March 31, 2021, 30,000 options were issued to directors and 35,000 options were issued to the Company’s CEO. In the
three months ended March 31, 2021, there were no grants to non-employees. The fair value of the options issued was approximately $19,000.
No
options were exercised in the three months ended March 31, 2021. The intrinsic value of options outstanding and of options exercisable
at March 31, 2021 was approximately $197,000 and $102,000, 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):
|
|
Number
of
Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
722,501
|
|
|
$
|
0.62
|
|
|
4.4 years
|
|
$
|
29,000
|
|
Granted
|
|
|
65,000
|
|
|
|
0.43
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(16,255
|
)
|
|
|
4.07
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
771,246
|
|
|
$
|
0.53
|
|
|
4.5 years
|
|
$
|
197,000
|
|
Exercisable at March 31, 2021
|
|
|
429,828
|
|
|
$
|
0.67
|
|
|
3.4 years
|
|
$
|
102,000
|
|
The
fair value of the options granted of approximately $19,000 was estimated on the grant date using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Risk-free interest rate
|
|
|
.25
|
%
|
Expected term of options
|
|
|
3.7
years
|
|
Expected annual volatility
|
|
|
102
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
(c)
Stock-based Compensation Expense
Stock-based
compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated
statements of operations was approximately $15,000 and $6,000 for the three-month periods ended March 31, 2021 and 2020, respectively.
The
total compensation cost related to non-vested awards not yet recognized was approximately $64,000 as of March 31, 2021.
(d)
Warrants
The
Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the
date of issuance. A summary of warrant activity follows:
|
|
Number
of
Warrants
(in
shares)
|
|
|
Weighted
Average
Exercise
Price Per Share
|
|
|
Weighted
Average
Remaining
Contractual Life
|
Outstanding at December 31, 2020
|
|
|
35,000
|
|
|
$
|
0.13
|
|
|
2.2 years
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at March 31, 2021
|
|
|
35,000
|
|
|
$
|
0.13
|
|
|
1.95 years
|
NOTE
8— SEGMENT REPORTING
As
of March 31, 2021, the Company operates in two reportable operating segments, both of which are performed through the Company’s
OmniMetrix subsidiary:
|
●
|
The
PG (Power Generation) segment provides wireless remote monitoring and control systems and services for critical assets as well as
Internet of Things applications. The PG segment includes OmniMetrix’s monitoring device for industrial air compressors and
dryers, and a new line of annunciators.
|
|
|
|
|
●
|
The
CP (Cathodic Protection) segment provides remote monitoring of cathodic protection systems on gas pipelines for gas utilities and
pipeline companies.
|
The
Company’s reportable segments are strategic business units, offering different products and services, and are managed separately
as each business requires different technology and marketing strategies.
The
following tables represent segmented data for the three-month periods ended March 31, 2021 and 2020 (in thousands):
|
|
PG
|
|
|
CP
|
|
|
Total
|
|
Three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
external customers
|
|
$
|
1,458
|
|
|
$
|
247
|
|
|
$
|
1,705
|
|
Segment gross profit
|
|
|
1,068
|
|
|
|
142
|
|
|
|
1,210
|
|
Depreciation and amortization
|
|
|
16
|
|
|
|
2
|
|
|
|
18
|
|
Segment income (loss) before
income taxes
|
|
$
|
276
|
|
|
$
|
(13
|
)
|
|
$
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external
customers
|
|
$
|
1,109
|
|
|
$
|
229
|
|
|
$
|
1,338
|
|
Segment gross profit
|
|
|
805
|
|
|
|
117
|
|
|
|
922
|
|
Depreciation and amortization
|
|
|
13
|
|
|
|
3
|
|
|
|
16
|
|
Segment income (loss) before
income taxes
|
|
$
|
3
|
|
|
$
|
(62
|
)
|
|
$
|
(59
|
)
|
The
Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments.
Further, the Chief Decision Maker does not review the assets by segment.
Reconciliation
of Segment Net Income (Loss) to Consolidated Net Income (Loss) Before Income Taxes
|
|
Three
months ended
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
Total net income (loss) before
income taxes for reportable segments
|
|
$
|
263
|
|
|
$
|
(59
|
)
|
Unallocated cost of
corporate headquarters
|
|
|
(241
|
)
|
|
|
(225
|
)
|
Consolidated net income
(loss) before income taxes
|
|
$
|
22
|
|
|
$
|
(284
|
)
|
NOTE
9—REVENUE
The
following table disaggregates the Company’s revenue for the three-month periods ended March 31, 2021 and 2020 (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
517
|
|
|
$
|
941
|
|
|
$
|
1,458
|
|
CP
Segment
|
|
|
180
|
|
|
|
67
|
|
|
|
247
|
|
Total
Revenue
|
|
$
|
697
|
|
|
$
|
1,008
|
|
|
$
|
1,705
|
|
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
277
|
|
|
$
|
832
|
|
|
$
|
1,109
|
|
CP
Segment
|
|
|
166
|
|
|
|
63
|
|
|
|
229
|
|
Total
Revenue
|
|
$
|
443
|
|
|
$
|
895
|
|
|
$
|
1,338
|
|
Deferred
revenue activity for the three months ended March 31, 2021 can be seen in the table below (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
2,576
|
|
|
$
|
1,978
|
|
|
$
|
4,554
|
|
Additions during the period
|
|
|
378
|
|
|
|
1,006
|
|
|
|
1,384
|
|
Recognized as revenue
|
|
|
(449
|
)
|
|
|
(1,009
|
)
|
|
|
(1,458
|
)
|
Balance at March 31, 2021
|
|
$
|
2,505
|
|
|
$
|
1,975
|
|
|
$
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the
twelve-month-period ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022
|
|
$
|
1,432
|
|
|
$
|
1,749
|
|
|
$
|
3,181
|
|
March 31, 2023
|
|
|
819
|
|
|
|
219
|
|
|
|
1,038
|
|
March 31, 2024 and
thereafter
|
|
|
254
|
|
|
|
7
|
|
|
|
261
|
|
|
|
$
|
2,505
|
|
|
$
|
1,975
|
|
|
$
|
4,480
|
|
Other
revenue of approximately $247,000 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 three months ended March 31, 2021 can be seen in the
table below (in thousands):
Balance at December 31, 2020
|
|
$
|
1,306
|
|
Additions, net of adjustments,
during the period
|
|
|
163
|
|
Recognized as cost
of sales
|
|
|
(237
|
)
|
Balance at March 31, 2021
|
|
$
|
1,232
|
|
|
|
|
|
|
Amounts to be recognized as cost of sales in
the twelve-month-period ending:
|
|
|
|
|
March 31, 2022
|
|
$
|
722
|
|
March 31, 2023
|
|
|
397
|
*
|
March 31, 2024 and
thereafter
|
|
|
113
|
*
|
|
|
$
|
1,232
|
|
Other
COGS recognized of approximately $121,000 is related to accessories, repairs, and other miscellaneous charges that are recognized to
revenue when sold and are not deferred, in addition to approximately $137,000 in monitoring COGS which is not deferred.
*Amounts
included in other assets in the Company’s unaudited condensed consolidated balance sheets at March 31, 2021.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the three-month period ended March
31, 2021 (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
136
|
|
|
$
|
41
|
|
|
$
|
177
|
|
Additions during the period
|
|
|
42
|
|
|
|
6
|
|
|
|
48
|
|
Amortization of sales
commissions
|
|
|
(23
|
)
|
|
|
(5
|
)
|
|
|
(28
|
)
|
Balance at March 31, 2021
|
|
$
|
155
|
|
|
$
|
42
|
|
|
$
|
197
|
|
The
capitalized sales commissions are included in other current assets (approximately $97,000) and other assets (approximately $100,000)
in the Company’s unaudited condensed consolidated balance sheets at March 31, 2021. The capitalized sales commissions are included
in other current assets (approximately $90,000) and other assets (approximately $87,000) in the Company’s unaudited condensed consolidated
balance sheets at December 31, 2020.
NOTE 10—SUBSEQUENT
EVENTS
On May 10, 2021, the
Company’s Chief Financial Officer was granted options to purchase 100,000 shares of the Company’s common stock, with
an exercise price of $0.62 per share. The options vest and become exercisable on the first anniversary of the date of the grant
and shall expire upon the earlier of (a) seven years from the date of the grant or (b) 18 months from the date she ceases to be
a consultant to the Company. The fair value of this option award was approximately $42,000.