ITEM
1.
|
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
|
As
of
March 31, 2020
|
|
|
As
of
December 31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,416
|
|
|
$
|
1,247
|
|
Accounts
receivable, net
|
|
|
528
|
|
|
|
962
|
|
Inventory,
net
|
|
|
309
|
|
|
|
291
|
|
Deferred
charges
|
|
|
781
|
|
|
|
741
|
|
Other
current assets
|
|
|
136
|
|
|
|
189
|
|
Total
current assets
|
|
|
3,170
|
|
|
|
3,430
|
|
Property
and equipment, net
|
|
|
263
|
|
|
|
189
|
|
Right-of-use
assets, net
|
|
|
564
|
|
|
|
587
|
|
Other
assets
|
|
|
711
|
|
|
|
778
|
|
Total
assets
|
|
$
|
4,708
|
|
|
$
|
4,984
|
|
LIABILITIES
AND DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
credit
|
|
$
|
139
|
|
|
$
|
136
|
|
Accounts
payable
|
|
|
250
|
|
|
|
197
|
|
Accrued
expenses
|
|
|
76
|
|
|
|
136
|
|
Deferred
revenue
|
|
|
3,093
|
|
|
|
3,004
|
|
Current
operating lease liabilities
|
|
|
55
|
|
|
|
53
|
|
Other
current liabilities
|
|
|
86
|
|
|
|
68
|
|
Total
current liabilities
|
|
|
3,699
|
|
|
|
3,594
|
|
Non-current
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
1,393
|
|
|
|
1,491
|
|
Noncurrent
operating lease liabilities
|
|
|
518
|
|
|
|
542
|
|
Other
long-term liabilities
|
|
|
3
|
|
|
|
2
|
|
Total
long-term liabilities
|
|
|
1,914
|
|
|
|
2,035
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Deficit:
|
|
|
|
|
|
|
|
|
Acorn
Energy, Inc. shareholders
|
|
|
|
|
|
|
|
|
Common
stock - $0.01 par value per share:
|
|
|
|
|
|
|
|
|
Authorized
– 42,000,000 shares; Issued – 39,687,589 and 39,591,339 shares at March 31, 2020 and December 31, 2019, respectively
|
|
|
397
|
|
|
|
396
|
|
Additional
paid-in capital
|
|
|
101,679
|
|
|
|
101,655
|
|
Warrants
|
|
|
1,021
|
|
|
|
1,021
|
|
Accumulated
deficit
|
|
|
(100,965
|
)
|
|
|
(100,682
|
)
|
Treasury
stock, at cost – 801,920 shares at March 31, 2020 and December 31, 2019
|
|
|
(3,036
|
)
|
|
|
(3,036
|
)
|
Total
Acorn Energy, Inc. shareholders’ deficit
|
|
|
(904
|
)
|
|
|
(646
|
)
|
Non-controlling
interests
|
|
|
(1
|
)
|
|
|
1
|
|
Total
deficit
|
|
|
(905
|
)
|
|
|
(645
|
)
|
Total
liabilities and deficit
|
|
$
|
4,708
|
|
|
$
|
4,984
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN
THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Three
months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,338
|
|
|
$
|
1,327
|
|
Cost
of sales – products and services
|
|
|
416
|
|
|
|
476
|
|
Cost
of sales – other
|
|
|
―
|
|
|
|
30
|
|
Gross
profit
|
|
|
922
|
|
|
|
821
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development expense
|
|
|
155
|
|
|
|
144
|
|
Selling,
general and administrative expense
|
|
|
1,041
|
|
|
|
944
|
|
Total
operating expenses
|
|
|
1,196
|
|
|
|
1,088
|
|
Operating
loss
|
|
|
(274
|
)
|
|
|
(267
|
)
|
Finance
(expense) income, net
|
|
|
(10
|
)
|
|
|
6
|
|
Loss
before income taxes
|
|
|
(284
|
)
|
|
|
(261
|
)
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
(284
|
)
|
|
|
(261
|
)
|
Non-controlling
interest share of net loss
|
|
|
1
|
|
|
|
24
|
|
Net
loss attributable to Acorn Energy, Inc. shareholders
|
|
$
|
(283
|
)
|
|
$
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share attributable to Acorn Energy, Inc. shareholders:
|
|
|
|
|
|
|
|
|
Total
attributable to Acorn Energy, Inc. shareholders
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted
|
|
|
39,631
|
|
|
|
29,556
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT (UNAUDITED)
(IN
THOUSANDS)
|
|
Three
Months Ended March 31, 2020
|
|
|
|
Number
of Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-
In
Capital
|
|
|
Warrants
|
|
|
Accumulated
Deficit
|
|
|
Number
of Treasury Shares
|
|
|
Treasury
Stock
|
|
|
Total
Acorn
Energy, Inc.
Shareholders’
Deficit
|
|
|
Non-
controlling interests
|
|
|
Total
Deficit
|
|
Balances
as of December 31, 2019
|
|
|
39,591
|
|
|
$
|
396
|
|
|
$
|
101,655
|
|
|
$
|
1,021
|
|
|
$
|
(100,682
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(646
|
)
|
|
$
|
1
|
|
|
$
|
(645
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(283
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(283
|
)
|
|
|
(1
|
)
|
|
|
(284
|
)
|
Accrued
dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Proceeds
from stock option exercise
|
|
|
96
|
|
|
|
1
|
|
|
|
18
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
19
|
|
|
|
―
|
|
|
|
19
|
|
Stock
option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Balances
as of March 31, 2020
|
|
|
39,687
|
|
|
$
|
397
|
|
|
$
|
101,679
|
|
|
$
|
1,021
|
|
|
$
|
(100,965
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(904
|
)
|
|
$
|
(1
|
)
|
|
$
|
(905
|
)
|
|
|
Three
Months Ended March 31, 2019
|
|
|
|
Number
of Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-
In
Capital
|
|
|
Warrants
|
|
|
Accumulated
Deficit
|
|
|
Number
of Treasury Shares
|
|
|
Treasury
Stock
|
|
|
Total
Acorn
Energy, Inc.
Shareholders’
Deficit
|
|
|
Non-
controlling interests
|
|
|
Total Deficit
|
|
Balances
as of December 31, 2018
|
|
|
29,556
|
|
|
$
|
296
|
|
|
$
|
100,348
|
|
|
$
|
1,118
|
|
|
$
|
(100,064
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(1,338
|
)
|
|
$
|
108
|
|
|
$
|
(1,230
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
(24
|
)
|
|
|
(261
|
)
|
Accrued
dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Stock
option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Balances
as of March 31, 2019
|
|
|
29,556
|
|
|
$
|
296
|
|
|
$
|
100,354
|
|
|
$
|
1,118
|
|
|
$
|
(100,301
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(1,569
|
)
|
|
$
|
64
|
|
|
$
|
(1,505
|
)
|
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(IN
THOUSANDS)
|
|
Three
months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(284
|
)
|
|
$
|
(261
|
)
|
Depreciation
and amortization
|
|
|
16
|
|
|
|
27
|
|
Non-cash
lease expense
|
|
|
29
|
|
|
|
―
|
|
Stock-based
compensation
|
|
|
6
|
|
|
|
6
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
434
|
|
|
|
(25
|
)
|
Increase
in inventory
|
|
|
(18
|
)
|
|
|
(105
|
)
|
Decrease
in deferred charges
|
|
|
27
|
|
|
|
73
|
|
Decrease
in other current assets and other assets
|
|
|
53
|
|
|
|
28
|
|
Decrease
in accounts payable and accrued expenses
|
|
|
(7
|
)
|
|
|
(69
|
)
|
Decrease
in deferred revenue
|
|
|
(9
|
)
|
|
|
(10
|
)
|
Decrease
in operating lease liability
|
|
|
(28
|
)
|
|
|
―
|
|
Increase
in other current liabilities and non-current liabilities
|
|
|
18
|
|
|
|
11
|
|
Net
cash provided by (used in) operating activities
|
|
|
237
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of software
|
|
|
(87
|
)
|
|
|
―
|
|
Payments
made for patent filings
|
|
|
(3
|
)
|
|
|
―
|
|
Net
cash used in investing activities
|
|
|
(90
|
)
|
|
|
―
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by financing activities:
|
|
|
|
|
|
|
|
|
Short-term
credit, net
|
|
|
3
|
|
|
|
140
|
|
Stock
option exercise proceeds
|
|
|
19
|
|
|
|
―
|
|
Net
cash provided by financing activities
|
|
|
22
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
169
|
|
|
|
(185)
|
|
Cash,
cash equivalents and restricted cash at the beginning of the year
|
|
|
1,247
|
|
|
|
1,263
|
|
Cash,
cash equivalents and restricted cash at the end of the period
|
|
$
|
1,416
|
|
|
$
|
1,078
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
End
of period
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,416
|
|
|
$
|
779
|
|
Restricted
cash
|
|
|
―
|
|
|
|
299
|
|
|
|
$
|
1,416
|
|
|
$
|
1,078
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,247
|
|
|
$
|
973
|
|
Restricted
cash
|
|
|
―
|
|
|
|
290
|
|
|
|
$
|
1,247
|
|
|
$
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Purchase
of equipment under installment agreement
|
|
$
|
―
|
|
|
$
|
7
|
|
Accrued
preferred dividends to former Acorn director and/or former Omnimetrix CEO
|
|
$
|
1
|
|
|
$
|
20
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE
1— BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries (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, 2020 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2020.
Certain
reclassifications have been made to the Company’s condensed consolidated financial statements for the three-month period
ended March 31, 2019 to conform to the current period’s condensed consolidated financial statement presentation. There
was no effect on total assets, equity and net loss. A reclassification of $6,000 from interest expense to SG&A expense was
recorded to reclass the Intuit processing fees for customer payments made through the Intuit portal via credit card or bank draft
that was previously included in interest expense as of March 31, 2019 and is included in SG&A as of March 31, 2020.
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, 2019.
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, 2020, 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.
Recently
Adopted Accounting Principles
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The
amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard was effective in
the first quarter of fiscal year 2020, although early adoption was permitted (but no sooner than the adoption of Topic 606). The
Company concluded that the adoption of this ASU did not have a material impact on the Company’s
condensed consolidated financial statements.
NOTE
3—LIQUIDITY
As
of March 31, 2020, the Company had approximately $1,416,000 in cash. As of May 10, 2020, the Company had cash of
approximately $1,881,000 including $461,000 in PPP loan proceeds. OmniMetrix is considered an essential business due to the fact that it provides infrastructure support to both government
and commercial sectors and across key industries. The Company has not experienced any material negative
impacts due to the COVID-19 pandemic to date. The Company continued to realize new equipment sales just not at the
anticipated growth rate and it 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. Such cash plus
the cash generated from operations and borrowing from the OmniMetrix Loan and Security Agreement, 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.
NOTE
4—INVESTMENT IN OMNIMETRIX
In
2015, one of the Company’s then-current directors (the “Investor”) acquired a 20% interest in the Company’s
OMX Holdings, Inc. subsidiary (“Holdings”) through the purchase of $1,000,000 of OmniMetrix Preferred Stock (“Preferred
Stock”). Holdings is the holder of 100% of the membership interests of OmniMetrix, LLC through which the Company operates
its Power Generation and Cathodic Protection monitoring activities. The $1,000,000 investment by the Investor was recorded as
an increase in non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company repurchased from
the Investor the shares of Preferred Stock then held by the Investor for a purchase price of $1,273,000 in cash (which included $323,000 of unpaid accrued dividends through June 30, 2019). The repurchase raised the Company’s ownership in Holdings
from 80% to 99%, with the remaining 1% owned by the then-CEO of OmniMetrix, LLC.
NOTE
5—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, 2020 and 2019 were $28,000 and $27,000, respectively. The future minimum lease payments on non-cancelable
operating leases as of March 31, 2020 using a discount rate of 4.5% are $573,000.
Supplemental
cash flow information related to leases consisted of the following (in thousands):
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
paid for operating lease liabilities
|
|
$
|
28
|
|
|
|
―
|
|
Supplemental
balance sheet information related to leases consisted of the following:
|
|
2020
|
|
Weighted
average remaining lease terms for operating leases
|
|
|
5.47
|
|
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 consolidated balance sheet as of March 31, 2020
(in thousands):
|
|
Twelve-month
period ended
March 31,
|
|
2021
|
|
$
|
80
|
|
2022
|
|
|
122
|
|
2023
|
|
|
125
|
|
2024
|
|
|
129
|
|
2025
|
|
|
129
|
|
Thereafter
|
|
|
67
|
|
Total
undiscounted cash flows
|
|
|
652
|
|
Less:
Imputed interest
|
|
|
(79
|
)
|
Present
value of operating lease liabilities (a)
|
|
$
|
573
|
|
|
(a)
|
Includes
current portion of $55,000 for operating leases.
|
NOTE
6—DEBT
(a)
OmniMetrix
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement providing 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 bears interest
at the greater of 6% and prime (3.25% at March 31, 2020) plus 1.5% per year. In addition, OmniMetrix is 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% during the three months ended March 31, 2020. 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 may fall below $150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly
service charge and interest is calculated on the greater of the outstanding balance or $150,000. Interest expense for the three-months-ended
March 31, 2020 and 2019 was $7,000 and $2,000, respectively.
OmniMetrix
had an outstanding balance of $139,000 and $136,000 as of March 31, 2020 and December 31, 2019, respectively, pursuant to the
Loan and Security Agreement and $54,000 was available to borrow at March 31, 2020.
NOTE
7—EQUITY
(a)
General
At
March 31, 2020, 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.
Holders of common stock do not have subscription, redemption, conversion or other preemptive rights. Holders of the common stock
are entitled to elect all of the Directors on the Company’s Board. Holders of the common stock do not have cumulative voting
rights, meaning that the holders of more than 50% of the common stock can elect all of the Company’s Directors. Except as
otherwise required by Delaware General Corporation Law, all stockholder action is taken by vote of a majority of shares of common
stock present at a meeting of stockholders at which a quorum (a majority of the issued and outstanding shares of common stock)
is present in person or by proxy or by written consent pursuant to Delaware law (other than the election of Directors, who are
elected by a plurality vote).
The
Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.
(b)
Rights Offering
On
June 28, 2019, the Company completed a rights offering, raising $2,184,000 in proceeds of which $1,628,000 was from related parties,
net of $210,000 in expenses. Pursuant to the rights offering, Acorn securityholders and parties to a backstop agreement
purchased 9,975,553 shares of Acorn common stock for $0.24 per share.
Under
the terms of the rights offering, each right entitled securityholders as of June 3, 2019, the record date for the rights offering,
to purchase 0.312 shares of Acorn common stock at a subscription price of $0.24 per whole share. No fractional shares were issued.
The closing price of Acorn’s common stock on the record date of the rights offering was $0.2925. Distribution of the rights
commenced on June 6, 2019 and were exercisable through June 24, 2019.
In
connection with the rights offering, Acorn entered into a backstop agreement with certain of its directors and Leap Tide Capital
Management LLC, the sole manager of which is Acorn’s President and CEO, pursuant to which they agreed to purchase from Acorn
any and all unsubscribed shares of common stock in the rights offering, subject to the terms, conditions and limitations of the
backstop agreement. The backstop purchasers did not receive any compensation or other consideration for entering into or consummating
the backstop agreement.
On
July 1, 2019, the Company utilized a portion of the rights offering proceeds to complete the planned reacquisition of a 19% interest
in its OMX Holdings, Inc. subsidiary (“Holdings”) for $1,273,000, including accrued dividends. Holdings owns 100%
of the membership interests of OmniMetrix, LLC. The purchase price was based on terms established in November 2015 at the time
of the original investment. The purchase raised Acorn’s ownership in Holdings from 80% to 99%, with the remaining 1% owned
by the former CEO of OmniMetrix, LLC. See Note 4 for further discussion.
The
balance of the rights offering net proceeds provides OmniMetrix with additional sales and marketing resources to facilitate expansion
into additional geographic markets and new product applications, to support next-generation product development and for general
working capital purposes.
(c)
Summary Employee Option Information
The
Company’s stock option plans provide for the grant to officers, directors and other key employees of options to purchase
shares of common stock. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”,
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 to 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 the annual meeting of stockholders on September 11, 2012, the Company’s stockholders approved
an Amendment to the Company’s 2006 Stock Incentive Plan to increase the number of available shares by 1,000,000 and an Amendment
to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors to increase the number of available shares by 200,000.
In February 2019, the Company’s Board extended the expiration date of the 2006 Stock Incentive Plan until December 31, 2024.
At
March 31, 2020, 1,766,719 options were available for grant under the 2006 Amended and Restated Stock Incentive Plan and no options
were available for grant under the 2006 Director Plan. During the three months ended March 31, 2020, 30,000 options were issued
to directors and 35,000 options were issued to the Company’s CEO. In the three months ended March 30, 2020, there were no
grants to non-employees. The fair value of the options issued was $14,000.
96,250
options were exercised during the three months ended March 31, 2020. The intrinsic value of options outstanding and of options
exercisable at March 31, 2020 was less than $1,000.
A
summary of stock option activity for the three months ended March 31, 2020 is as follows:
|
|
Number
of
Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2019
|
|
|
1,364,490
|
|
|
$
|
1.87
|
|
|
|
1.81
years
|
|
|
$
|
46,000
|
|
Granted
|
|
|
65,000
|
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(96,250
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(524,430
|
)
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2020
|
|
|
808,810
|
|
|
$
|
1.59
|
|
|
|
3.3
years
|
|
|
$
|
—
|
|
Exercisable
at March 31, 2020
|
|
|
585,726
|
|
|
$
|
2.06
|
|
|
|
2.2
years
|
|
|
$
|
—
|
|
The
fair value of the options granted of $14,000 was estimated on the grant date using the Black-Scholes option-pricing model with
the following weighted average assumptions:
Risk-free
interest rate
|
|
|
1.5
|
%
|
Expected
term of options
|
|
|
3.7
years
|
|
Expected
annual volatility
|
|
|
110
|
%
|
Expected
dividend yield
|
|
|
—
|
%
|
(d)
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 $6,000 and $6,000 for the three-month periods ended March 31, 2020 and 2019, respectively.
The
total compensation cost related to non-vested awards not yet recognized was $39,000 as of March 31, 2020.
(e)
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, 2019
|
|
|
2,177,857
|
|
|
$
|
1.28
|
|
|
|
4
months
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited
or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding
at March 31, 2020
|
|
|
2,177,857
|
|
|
$
|
1.28
|
|
|
|
1
month
|
|
NOTE
8— SEGMENT REPORTING
As
of March 31, 2020, 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 air compressor monitoring device
that provides performance monitoring on industrial air compressors and dryers.
|
|
|
|
|
●
|
The
CP (Cathodic Protection) segment provides for 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, 2020 and March 31, 2019 (in thousands):
|
|
PG
|
|
|
CP
|
|
|
Total
|
|
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
|
|
$
|
5
|
|
|
$
|
(62
|
)
|
|
$
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$
|
996
|
|
|
$
|
331
|
|
|
$
|
1,327
|
|
Segment
gross profit
|
|
|
686
|
|
|
|
135
|
|
|
|
821
|
|
Depreciation
and amortization
|
|
|
20
|
|
|
|
7
|
|
|
|
27
|
|
Segment
income (loss) before income taxes
|
|
$
|
23
|
|
|
$
|
(85
|
)
|
|
$
|
(62
|
)
|
The
gross profit of the PG segment during the three months ended March 31, 2019 included a $30,000 accrual, which unfavorably impacted
gross margin by approximately 2%. The accrual was for an estimated payment of approximately $30,000 related to a long-term purchase
commitment of what is now discontinued technology that has been replaced with upgraded technology. This adjustment is recorded
in cost of sales – other.
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 (CDM) does not review the assets by segment.
Reconciliation
of Segment Loss to Consolidated Net Loss Before Income Taxes
|
|
Three
months ended
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Total
net loss before income taxes for reportable segments
|
|
$
|
(57
|
)
|
|
$
|
(62
|
)
|
Unallocated
cost of corporate headquarters
|
|
|
(227
|
)
|
|
|
(199
|
)
|
Consolidated
loss before income taxes
|
|
$
|
(284
|
)
|
|
$
|
(261
|
)
|
NOTE
9—REVENUE
The
following table disaggregates the Company’s revenue for the three-month periods ended March 31, 2020 and 2019 (in thousands):
|
|
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
|
|
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Three
months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG
Segment
|
|
$
|
290
|
|
|
$
|
706
|
|
|
$
|
996
|
|
CP
Segment
|
|
|
271
|
|
|
|
60
|
|
|
|
331
|
|
Total
Revenue
|
|
$
|
561
|
|
|
$
|
766
|
|
|
$
|
1,327
|
|
Deferred
revenue activity for the three months ended March 31, 2020 can be seen in the table below (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance
at December 31, 2019
|
|
$
|
2,663
|
|
|
$
|
1,832
|
|
|
$
|
4,495
|
|
Additions
during the period
|
|
|
349
|
|
|
|
908
|
|
|
|
1,286
|
|
Recognized
as revenue
|
|
|
(371
|
)
|
|
|
(895
|
)
|
|
|
(1,295
|
)
|
Balance
at March 31, 2020
|
|
$
|
2,641
|
|
|
$
|
1,845
|
|
|
$
|
4,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
to be recognized as revenue in the twelve-month-period ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2021
|
|
$
|
1,431
|
|
|
$
|
1,662
|
|
|
$
|
3,093
|
|
March
31, 2022
|
|
|
928
|
|
|
|
180
|
|
|
|
1,108
|
|
March
31, 2023 and thereafter
|
|
|
282
|
|
|
|
3
|
|
|
|
285
|
|
|
|
$
|
2,641
|
|
|
$
|
1,845
|
|
|
$
|
4,486
|
|
Other
revenue of approximately $72,000 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, 2020 can be seen
in the table below (in thousands):
Balance
at December 31, 2019
|
|
$
|
1,433
|
|
Additions,
net of adjustments, during the period
|
|
|
190
|
|
Recognized
as cost of sales
|
|
|
(208
|
)
|
Balance
at March 31, 2020
|
|
$
|
1,415
|
|
|
|
|
|
|
Amounts
to be recognized as cost of sales in the twelve-month-period ending:
|
|
|
|
|
March
31, 2021
|
|
$
|
781
|
|
March
31, 2022
|
|
|
490
|
*
|
March
31, 2023 and thereafter
|
|
|
144
|
*
|
|
|
$
|
1,415
|
|
Other
COGS recognized of approximately $63,000 is related to accessories, repairs, and other miscellaneous charges that are recognized
to revenue when sold and are not deferred in addition to $145,000 in monitoring COGS which is not deferred.
*Amounts
included in other assets in the Company’s unaudited condensed consolidated balance sheets at March 31, 2020.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the three-month period
ended March 31, 2020 (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance
at December 31, 2019
|
|
$
|
101
|
|
|
$
|
37
|
|
|
$
|
138
|
|
Additions
during the period
|
|
|
21
|
|
|
|
5
|
|
|
|
26
|
|
Amortization
of sales commissions
|
|
|
(14
|
)
|
|
|
(5
|
)
|
|
|
(19
|
)
|
Balance
at March 31, 2020
|
|
$
|
108
|
|
|
$
|
37
|
|
|
$
|
145
|
|
The
capitalized sales commissions are included in other current assets ($76,000) and other assets ($69,000) in the Company’s
unaudited condensed consolidated balance sheets at March 31, 2020. The capitalized sales commissions are included in other current
assets ($60,000) and other assets ($78,000) in the Company’s consolidated balance sheets at December 31, 2019.
NOTE
10—SUBSEQUENT EVENTS
On
April 24, 2020, Acorn Energy, Inc. received Paycheck Protection Program (“PPP”) loan proceeds in the amount of $41,600.
On
April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in the amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “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 Act and any rule, regulation, or guidance issued
by the SBA pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP
loan depends on the borrower’s payroll costs over an eight-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 in order to obtain such loan forgiveness. Pursuant to the provisions of the 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.
If no portion of
the Acorn Energy PPP loan is forgiven under the Forgiveness Provisions, the monthly payments on that loan will be in the amount
of $2,400 each; if no portion of the OmniMetrix PPP loan is forgiven under the Forgiveness Provisions, the monthly payments on
that loan will be in the amount of $24,000 each. If
any portion of a loan is forgiven under the Forgiveness Provisions, the payments will be in equal amounts which are sufficient
to repay all principal and interest over the remaining term of the loan. The lender will apply each installment payment
first to pay interest accrued to the day the lender receives the payment, then to bring principal current, then to pay
any late fees, and will apply any remaining balance to reduce principal. All remaining principal and accrued interest is due and
payable two years from the date of the applicable promissory note. In any event any payment is not made within ten days
of the due date, the borrower will pay the lender a late charge in the amount not to exceed 5% of the payment. The
borrower may prepay the principal at any time without penalty. Upon default, the loan shall bear interest at 6%
per year until paid in full.
On April 28,
2020, the Company entered into a new agreement for data hosting and business continuity 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 $148,000 in the aggregate. This represents an increase of $21,000 for additional services under this agreement
from the prior twelve-month period.
On
May 5, 2020, 2,142,857 warrants with a fair value of $1,018,000 expired in accordance with their terms.
ACORN
ENERGY, INC.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This
Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current
expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial
condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact
are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”,
“intend”, “could”, “estimate” or “continue” or the negative or other comparable
terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and
uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability
of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s
control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect,
or any of the other risks set out under the caption “Risk Factors” in the Company’s 10-K report for the year
ended December 31, 2019 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 tables show, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of
our consolidated companies.
|
|
Three
months ended March 31, 2020
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
1,338
|
|
|
$
|
—
|
|
|
$
|
1,338
|
|
Cost
of sales
|
|
|
416
|
|
|
|
—
|
|
|
|
416
|
|
Gross
profit
|
|
|
922
|
|
|
|
—
|
|
|
|
922
|
|
Gross
profit margin
|
|
|
69
|
%
|
|
|
|
|
|
|
69
|
%
|
R&D
expenses
|
|
|
155
|
|
|
|
—
|
|
|
|
155
|
|
Selling,
general and administrative expenses
|
|
|
818
|
|
|
|
223
|
|
|
|
1,041
|
|
Adjusted
operating loss
|
|
$
|
(51
|
)
|
|
$
|
(223
|
)
|
|
$
|
(274
|
)
|
|
|
Three
months ended March 31, 2019
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
1,327
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
Cost
of sales
|
|
|
476
|
|
|
|
―
|
|
|
|
476
|
|
Cost
of sales - other
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
Gross
profit
|
|
|
821
|
|
|
|
—
|
|
|
|
821
|
|
Gross
profit margin
|
|
|
62
|
%
|
|
|
|
|
|
|
62
|
%
|
R&D
expenses
|
|
|
144
|
|
|
|
—
|
|
|
|
144
|
|
Selling,
general and administrative expenses
|
|
|
735
|
|
|
|
209
|
|
|
|
944
|
|
Adjusted
operating loss
|
|
$
|
(58
|
)
|
|
$
|
(209
|
)
|
|
$
|
(267
|
)
|
In
the three months ended March 31, 2019, OmniMetrix recorded an accrual for an estimated payment of approximately $30,000 for a
long-term purchase commitment of what is now discontinued technology that has been replaced with upgraded technology. This adjustment
is recorded as cost of sales – other and is included in the OmniMetrix gross profit in the table above. Gross profit excluding
this non-recurring adjustment would be $851,000, or 64%.
BACKLOG
As
of March 31, 2020, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled approximately
$4.5 million.
RECENT
DEVELOPMENTS
On
April 24, 2020, Acorn Energy, Inc. received Paycheck Protection Program (“PPP”) loan proceeds in the amount of $41,600.
On
April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in the amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “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 Act and any rule, regulation, or guidance issued
by the SBA pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP
loan depends on the borrower’s payroll costs over an eight-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 in order to obtain such loan forgiveness. Pursuant to the provisions of the 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.
While we fully
anticipate that Acorn and OmniMetrix will each comply with their applicable Forgiveness Provisions and qualify for forgiveness
of their respective loans, there can be no assurance that such loan forgiveness will be obtained. If no portion of the Acorn PPP
loan is forgiven under the Forgiveness Provisions, the monthly payments on that loan will be in the amount of $2,330 each; if
no portion of the OmniMetrix PPP loan is forgiven under the Forgiveness Provisions, the monthly payments on that loan will be
in the amount of $23,510 each. If any portion of a loan is forgiven under the Forgiveness Provisions, the payments
will be in equal amounts which are sufficient to repay all principal and interest over the remaining term of the loan. The
lender will apply each installment payment first to pay interest accrued to the day the lender receives the payment,
then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal. All remaining
principal and accrued interest is due and payable two years from the date of the applicable promissory note. In any event
any payment is not made within ten days of the due date, the borrower will pay the lender a late charge in
the amount not to exceed 5% of the payment. The borrower may prepay the principal at any time without penalty. Upon default,
the loan shall bear interest at 6% per year until paid in full.
On
April 28, 2020, we entered in to a new agreement for data hosting and business continuity 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 $148,000 in the aggregate. This represents an increase of $21,000 for additional services under this agreement from the prior
twelve-month period.
On
May 5, 2020, 2,142,857 warrants with a fair value of $1,018,000 expired in accordance with their terms.
OVERVIEW
AND TREND INFORMATION
Acorn
Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology driven solutions for
energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC
(“OmniMetrix”) subsidiary:
|
●
|
Power
Generation (“PG”) monitoring. OmniMetrix’s PG activities provide wireless remote monitoring and control
systems and services for critical assets as well as Internet of Things applications. The PG activities includes monitoring
on industrial air compressors and dryers.
|
|
|
|
|
●
|
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP activities provide for 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
information provided in Note 8 to the interim unaudited condensed consolidated financial statements included in this
quarterly report.
OmniMetrix
OmniMetrix
LLC is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control
systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including
stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, 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 Internet of Things (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 Internet of Things applications, and given that OmniMetrix monitors
all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this new 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.
Revenue.
OmniMetrix has two divisions: PG and CP. In the three months ended March 31, 2020, OmniMetrix recorded revenue of $1,338,000
($1,109,000 in its PG activities and $229,000 in its CP activities) as compared to revenue of $1,327,000 recorded in the three
months ended March 31, 2019 ($996,000 in its PG activities and $331,000 in its CP activities). The nominal increase in revenue
of $11,000 in the three months ended March 31, 2020 was due to an increase in monitoring revenue of $129,000 offset by a decrease
in hardware revenue of $118,000. The increase in monitoring revenue is the result of an increase in the number of units being
monitored. The decrease in hardware revenue is primarily due to a decrease in the CP segment of $102,000 as a result of the lack
of a fully staffed CP sales team for the majority of 2019 and the longer sales and closing cycle of a CP sale compared to a PG
sale. A CP sales cycle can take twelve to eighteen months from customer introduction to closing. We have had a fully staffed CP
sales team since the end of 2019 and our new sales director stared in January 2020; however, the length of our CP sales cycle
has been negatively impacted by restrictions related to COVID-19.
Gross
Profit. Gross profit during the three months ended March 31, 2020 was $922,000 reflecting a gross margin of 69% on revenue
compared with a gross profit of $821,000 reflecting a 62% gross margin in the three months ended March 31, 2019. The increased
gross profit in 2020 was due to a change in the revenue mix with a higher percentage of our total revenue being monitoring revenue
which has a higher gross margin. Gross margin on hardware revenue for the three months ended March 31, 2020 was 39% which was
essentially flat over the three months ended March 31, 2019 which was 38%. Gross margin on monitoring revenue remained strong
at 84% during the three months ended March 31, 2020 as compared to 83% for the three months ended March 31, 2019.
Research
and development expenses. During the three months ended March 31, 2020, OmniMetrix recorded $155,000 of R&D expense as
compared to $144,000 in the three months ended March 31, 2019. The increase in R&D expense in 2020 is related to 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 throughout 2020 as we continue to work on certain initiatives to redesign products and expand product lines
to increase the level of innovation and to reduce their costs in order to increase our future margins.
Selling,
general and administrative expenses “SG&A”. During the three months ended March 31, 2020, OmniMetrix recorded
$818,000 of SG&A costs compared to SG&A costs of $735,000 in the three months ended March 31, 2019, an increase
of $83,000 or 11%. This increase was primarily due to increases in personnel costs, computer software, travel and payment processing
service charges. We anticipate that our annual SG&A costs throughout 2020 will increase approximately 15% due to having a
fully staffed sales team and as a result of our continuing investments in our IT infrastructure.
OmniMetrix
Line of Credit
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement providing 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 bears interest at the greater of 6% and prime (3.25% at May 15, 2020) plus 1.5% per year. In addition, OmniMetrix
is to pay a monthly service charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for a
current effective rate of interest on advances of 15%. 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 may fall below $150,000 based on collections applied against the loan balance and the timing of loan
draws.
During
the three months ended March 31, 2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately $54,000
representing accrued interest and dividends. This included accrued interest and dividends of $83,000 offset by repayments
of $29,000. We believe that OmniMetrix will not need working capital support in 2020 beyond the amounts available
to it under the amended Loan and Security Agreement. 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, a loan by Acorn, or a combination of the
above. The availability and amount of any additional loans from us 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, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined.
Corporate
Corporate
general and administrative (“G&A”) expenses were $223,000 and $209,000 during the three months ended March 31,
2020 and 2019, respectively, reflecting an increase of $14,000, or 7%. This increase was primarily due to an increase in officer
and board fees and travel expenses offset by savings in insurance expenses, We do not expect our annual corporate G&A expense
to materially change in 2020 other than expenses that may be required to corporately support the growth in OmniMetrix. Non-cash
stock compensation was flat at $6,000 for both periods.
On
December 24, 2019, we signed on an income tax assessment agreement for tax years 2013-2018, with the Israeli Tax Authority, according
to which, we had additional tax liability in the amount of NIS 1,306 (approximately $373,000), in tax year 2018, with respect
to our sale of DSIT Solutions Ltd. shares.
As
a result, we received a tax refund in the amount of NIS 146,000 (approximately $42,000) and NIS 44,000 (approximately $12,500)
as principal, with interest and linkage in the amount of approximately NIS 14,500 (approximately $4,000) and approximately NIS
1,900 (approximately $550), for the tax years 2017 and 2018, respectively. Prior to receiving this refund, the balance in our
account in Israel was $313,000 which represented the $287,000 refund received for 2016 plus interest income of $21,000 and exchange
gain of $5,000(the fees of $65,000 were paid out of our US bank account). Subsequent to year-end December 31, 2019, the aggregate
tax refunds held in the bank account in Israel of approximately $371,000 were transferred from our bank account in Israel to our
bank account in the US with exemption from withholding tax and our corporate income tax file was closed as of January 1, 2020.
As
of May 10, 2020, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of approximately
$1,881,000 in cash and cash equivalents.
Results
of Operations
The
following table sets forth certain information with respect to the condensed consolidated results of operations of the Company
for the three-month periods ended March 31, 2020 and March 31, 2019, including the percentage of total revenues during each period
attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components.
For segment data, see Notes 8 and 9 to the Unaudited Condensed Consolidated Financial Statements included in this
quarterly report.
|
|
Three
months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
($,000)
|
|
|
%
of
revenues
|
|
|
($,000)
|
|
|
%
of
revenues
|
|
|
from
2019 to 2020
favorable/(unfavorable)
|
|
Revenue
|
|
$
|
1,338
|
|
|
|
100
|
%
|
|
$
|
1,327
|
|
|
|
100
|
%
|
|
|
1
|
%
|
Cost
of sales – products and services
|
|
|
416
|
|
|
|
31
|
%
|
|
|
506
|
|
|
|
38
|
%
|
|
|
18
|
%
|
Gross
profit
|
|
|
922
|
|
|
|
69
|
%
|
|
|
821
|
|
|
|
62
|
%
|
|
|
12
|
%
|
R&D
expenses
|
|
|
155
|
|
|
|
12
|
%
|
|
|
144
|
|
|
|
11
|
%
|
|
|
(8
|
)%
|
SG&A
expenses
|
|
|
1,041
|
|
|
|
78
|
%
|
|
|
944
|
|
|
|
71
|
%
|
|
|
(10
|
)%
|
Operating
loss
|
|
|
(274
|
)
|
|
|
(20
|
)%
|
|
|
(267
|
)
|
|
|
(20
|
)%
|
|
|
(3
|
)%
|
Finance
income (expense), net
|
|
|
(10
|
)
|
|
|
(1
|
)%
|
|
|
6
|
|
|
|
*
|
%
|
|
|
(267
|
)%
|
Loss
before income taxes
|
|
|
(284
|
)
|
|
|
(21
|
)%
|
|
|
(261
|
)
|
|
|
(20
|
)%
|
|
|
(9
|
)%
|
Income
tax expense
|
|
|
―
|
|
|
|
―
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
%
|
Net
loss
|
|
|
(284
|
)
|
|
|
(21
|
)%
|
|
|
(261
|
)
|
|
|
(20
|
)%
|
|
|
(9
|
)%
|
Non-controlling
interests share of net loss
|
|
|
|
1
|
|
|
*
|
%
|
|
|
24
|
|
|
|
2
|
%
|
|
|
(96
|
)%
|
Net
loss attributable to Acorn Energy, Inc.
|
|
$
|
(283
|
)
|
|
|
(21
|
)%
|
|
$
|
(237
|
)
|
|
|
(18
|
)%
|
|
|
(19
|
)%
|
See
discussion of Revenue, Gross Profit and Research and development expenses above under the section titled “Omnimetrix”
Selling,
general and administrative expenses. SG&A expenses in the first three months of 2020 reflected an increase of $97,000
(10%) as compared to the first three months of 2019. OmniMetrix’s SG&A expense increased from $735,000 in the first
three months of 2019 to $818,000 in the first three months of 2020. Corporate SG&A expense increased from $209,000 in the
first three months of 2019 to $223,000 in the first three months of 2020. See discussion of these fluctuations above under the
sections titled “Omnimetrix” and “Corporate”.
Net
loss attributable to Acorn Energy. We recognized a net loss attributable to Acorn shareholders of $283,000 in the first three
months of 2020 compared to $237,000 in the first three months of 2019. Our loss during the three months ended March 31, 2020 is
comprised of a net loss at OmniMetrix of $57,000 plus corporate expenses of $227,000 offset by $1,000 representing the non-controlling
interest share of our loss in OmniMetrix. Our loss in the three months ended March 31, 2019
is comprised of net loss at OmniMetrix of $61,000 plus corporate expense of $200,000. These losses were
partially offset by $24,000 representing the non-controlling interest share of our loss in OmniMetrix.
Liquidity
and Capital Resources
At
March 31, 2020, we had a negative working capital of $529,000. Our working capital includes approximately $1,416,000 of
cash and deferred revenue of approximately $3.1 million. Such deferred revenue does not require significant cash outlay for the
revenue to be recognized.
During
the first three months of 2020, our OmniMetrix subsidiary provided $407,000 from its operations while our corporate headquarters
used $170,000 during the same period.
We
invested $87,000 in software and $3,000 in patent related expenses.
Net
cash of $22,000 was provided by financing activities during the first three months of 2020 which was $19,000 in
proceeds from the exercise of stock options and net proceeds from borrowings on our line of credit of $3,000.
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement providing 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 bears interest
at the greater of 6% and prime (3.25% at May 10, 2020) plus 1.5% per year. In addition, OmniMetrix is to pay a monthly service
charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for a current effective rate of interest
on advances of 15%. 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. The monthly service charge and interest is calculated on the greater
of the outstanding balance or $150,000. From time to time, the balance outstanding may fall below $150,000 based on collections
applied against the loan balance and the timing of loan draws.
OmniMetrix
had an outstanding balance of $139,000 at March 31, 2020, pursuant to the Loan and Security Agreement.
Rights
Offering
On
June 28, 2019, we completed a rights offering, raising $2,186,000 in proceeds, net of $210,000 in expenses. Pursuant to
the rights offering, our securityholders and parties to a backstop agreement purchased 9,975,553 shares of our common stock for
$0.24 per share.
Under
the terms of the rights offering, each right entitled securityholders as of June 3, 2019, the record date for the rights offering,
to purchase 0.312 shares of our common stock at a subscription price of $0.24 per whole share. No fractional shares were issued.
The closing price of our common stock on the record date of the rights offering was $0.2925. Distribution of the rights commenced
on June 6, 2019 and were exercisable through June 24, 2019.
In
connection with the rights offering, we entered into a backstop agreement with certain of our directors and Leap Tide Capital
Management LLC, the sole manager of which is our President and CEO, pursuant to which they agreed to purchase from us any and
all unsubscribed shares of common stock in the rights offering, subject to the terms, conditions and limitations of the backstop
agreement. The backstop purchasers did not receive any compensation or other consideration for entering into or consummating the
backstop agreement.
On
July 1, 2019, we utilized a portion of the rights offering proceeds to complete the planned reacquisition of a 19% interest in
our OMX Holdings, Inc. subsidiary (“Holdings”) for $1,273,000 discussed below.
The
balance of the rights offering net proceeds provided OmniMetrix with additional sales and marketing resources to facilitate expansion
into additional geographic markets and new product applications, to support next-generation product development and for general
working capital purposes.
Purchase
of Non-Controlling Interest
In
2015, one of our then-current directors (the “Investor”) acquired a 20% interest in our OMX Holdings, Inc. subsidiary
(“Holdings”) through the purchase of $1,000,000 of OmniMetrix Preferred Stock (“Preferred Stock”). Holdings
is the holder of 100% of the membership interests of OmniMetrix, LLC through which we operate our Power Generation and Cathodic
Protection monitoring activities. The $1,000,000 investment by the Investor was recorded as an increase in non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company utilized a portion
of the rights offering proceeds, as discussed above, to repurchase from the Investor the shares of Preferred Stock then held by
the Investor for a purchase price of $1,273,000 (which included $323,000 of unpaid accrued dividends through June 30, 2019).
The repurchase raised the Company’s ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO
of OmniMetrix, LLC.
Other
Liquidity Matters
OmniMetrix
owes Acorn approximately $4,559,000 for loans, accrued interest and expenses advanced to it by Acorn. Such amounts will only be
repaid to Acorn when OmniMetrix is generating sufficient cash to allow such repayment.
We
had approximately $1,416,000 of cash on March 31, 2020, and approximately $1,881,000 on May 10, 2020 which includes
approximately $461,000 in PPP loan proceeds. On May 10, 2020, we had $184,000 outstanding on our line of credit and
$157,000 available to borrow. We believe that our current cash plus the cash expected to be generated from operations and
borrowing from available lines of credit will provide sufficient liquidity to finance the operating activities of Acorn and the
operations of its operating subsidiaries for at least the next twelve months.
Contractual
Obligations and Commitments
The
table below provides information concerning obligations under certain categories of our contractual obligations as of March 31,
2020.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
|
|
Twelve
Month Periods Ending March 31,
(in thousands)
|
|
|
|
Total
|
|
|
2020
|
|
|
2021-2022
|
|
|
2023-2024
|
|
|
2025
and thereafter
|
|
Debt
|
|
$
|
136
|
|
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Software
agreements
|
|
|
167
|
|
|
|
83
|
|
|
|
84
|
|
|
|
―
|
|
|
|
―
|
|
Operating
leases
|
|
|
652
|
|
|
|
80
|
|
|
|
247
|
|
|
|
259
|
|
|
|
66
|
|
Contractual
services
|
|
|
173
|
|
|
|
149
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
Total
contractual cash obligations
|
|
$
|
1,128
|
|
|
$
|
448
|
|
|
$
|
355
|
|
|
$
|
259
|
|
|
$
|
66
|
|