UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2020
Commission
file number: 001-33886
ACORN
ENERGY, INC.
(Exact
name of registrant as specified in charter)
|
Delaware |
|
22-2786081 |
|
(State
or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
1000
N West Street, Suite 1200, Wilmington, Delaware |
|
19801 |
|
(Address
of principal executive offices) |
|
(Zip
Code) |
410-654-3315
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| None |
|
|
|
|
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
|
Large
accelerated filer [ ] |
|
Accelerated
filer [ ] |
| |
|
|
|
| |
Non-accelerated
filer [X] |
|
Smaller
reporting company [X] |
| |
|
|
|
| |
Emerging
growth company [ ] |
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
Indicate
the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
|
Class |
|
Outstanding
at August 9, 2020 |
|
Common
Stock, $0.01 par value per share |
|
39,687,589 |
ACORN
ENERGY, INC.
Quarterly
Report on Form 10-Q
for
the Quarterly Period Ended June 30, 2020
TABLE
OF CONTENTS
Certain
statements contained in this report are forward-looking in nature.
These statements are generally identified by the inclusion of
phrases such as “we expect”, “we anticipate”, “we believe”, “we
estimate” and other phrases of similar meaning. Whether such
statements ultimately prove to be accurate depends upon a variety
of factors that may affect our business and operations. Many of
these factors are described in our most recent Annual Report on
Form 10-K as filed with the Securities and Exchange
Commission.
PART I
|
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
June 30, 2020 |
|
|
As of
December 31, 2019 |
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
1,760 |
|
|
$ |
1,247 |
|
| Accounts
receivable, net |
|
|
706 |
|
|
|
962 |
|
| Inventory,
net |
|
|
301 |
|
|
|
291 |
|
| Deferred
charges |
|
|
814 |
|
|
|
741 |
|
| Other
current assets |
|
|
133 |
|
|
|
189 |
|
| Total
current assets |
|
|
3,714 |
|
|
|
3,430 |
|
| Property and equipment, net |
|
|
259 |
|
|
|
189 |
|
| Right-of-use assets, net |
|
|
541 |
|
|
|
587 |
|
| Other
assets |
|
|
707 |
|
|
|
778 |
|
| Total
assets |
|
$ |
5,221 |
|
|
$ |
4,984 |
|
| LIABILITIES AND DEFICIT |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Short-term
credit |
|
$ |
181 |
|
|
$ |
136 |
|
| Loan payable –
current portion |
|
|
180 |
|
|
|
― |
|
| Accounts
payable |
|
|
242 |
|
|
|
197 |
|
| Accrued
expenses |
|
|
91 |
|
|
|
136 |
|
| Deferred
revenue |
|
|
3,115 |
|
|
|
3,004 |
|
| Current operating
lease liabilities |
|
|
76 |
|
|
|
53 |
|
| Other
current liabilities |
|
|
111 |
|
|
|
68 |
|
| Total
current liabilities |
|
|
3,996 |
|
|
|
3,594 |
|
| Non-current liabilities: |
|
|
|
|
|
|
|
|
| Loan payable |
|
|
282 |
|
|
|
― |
|
| Deferred
revenue |
|
|
1,370 |
|
|
|
1,491 |
|
| Noncurrent
operating lease liabilities |
|
|
494 |
|
|
|
542 |
|
| Other
non-current liabilities |
|
|
4 |
|
|
|
2 |
|
| Total
non-current liabilities |
|
|
2,150 |
|
|
|
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 June 30, 2020 and December 31, 2019,
respectively |
|
|
397 |
|
|
|
396 |
|
| Additional paid-in
capital |
|
|
102,710 |
|
|
|
101,655 |
|
| Warrants |
|
|
3 |
|
|
|
1,021 |
|
| Accumulated
deficit |
|
|
(100,998 |
) |
|
|
(100,682 |
) |
| Treasury
stock, at cost – 801,920 shares at June 30, 2020 and December 31,
2019 |
|
|
(3,036 |
) |
|
|
(3,036 |
) |
| Total Acorn
Energy, Inc. shareholders’ deficit |
|
|
(924 |
) |
|
|
(646 |
) |
|
Non-controlling interests |
|
|
(1 |
) |
|
|
1 |
|
| Total
deficit |
|
|
(925 |
) |
|
|
(645 |
) |
| Total
liabilities and deficit |
|
$ |
5,221 |
|
|
$ |
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)
| |
|
Six months ended
June 30, |
|
|
Three months ended
June 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
|
$ |
2,806 |
|
|
$ |
2,704 |
|
|
$ |
1,468 |
|
|
$ |
1,377 |
|
| Cost of sales – products and
services |
|
|
862 |
|
|
|
952 |
|
|
|
446 |
|
|
|
476 |
|
| Cost of sales –
other |
|
|
― |
|
|
|
30 |
|
|
|
― |
|
|
|
― |
|
| Gross profit |
|
|
1,944 |
|
|
|
1,722 |
|
|
|
1,022 |
|
|
|
901 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Research and
development expenses |
|
|
293 |
|
|
|
283 |
|
|
|
138 |
|
|
|
139 |
|
|
Selling, general and administrative expense |
|
|
1,947 |
|
|
|
1,909 |
|
|
|
906 |
|
|
|
965 |
|
| Total
operating expenses |
|
|
2,240 |
|
|
|
2,192 |
|
|
|
1,044 |
|
|
|
1,104 |
|
| Operating
loss |
|
|
(296 |
) |
|
|
(470 |
) |
|
|
(22 |
) |
|
|
(203 |
) |
| Finance
expense, net |
|
|
(20 |
) |
|
|
5 |
|
|
|
(10 |
) |
|
|
(1 |
) |
| Loss before income
taxes |
|
|
(316 |
) |
|
|
(465 |
) |
|
|
(32 |
) |
|
|
(204 |
) |
| Income tax
expense |
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
— |
|
| Net loss |
|
|
(316 |
) |
|
|
(465 |
) |
|
|
(32 |
) |
|
|
(204 |
) |
| Non-controlling
interest share of net loss (income) |
|
|
― |
|
|
|
29 |
|
|
|
(1 |
) |
|
|
5 |
|
| Net
loss attributable to Acorn Energy, Inc. shareholders |
|
$ |
(316 |
) |
|
$ |
(436 |
) |
|
$ |
(33 |
) |
|
$ |
(199 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted
net loss per share attributable to Acorn Energy, Inc.
shareholders: |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
| Weighted
average number of shares outstanding attributable to Acorn Energy,
Inc. shareholders – basic and diluted |
|
|
39,659 |
|
|
|
30,515 |
|
|
|
39,687 |
|
|
|
30,675 |
|
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 EQUITY (DEFICIT) (UNAUDITED)
(IN
THOUSANDS)
| |
|
Three
and Six Months Ended June 30, 2020 |
|
| |
|
Number
of Shares |
|
|
Common
Stock |
|
|
Additional
Paid-In Capital |
|
|
Warrants |
|
|
Accumulated
Deficit |
|
|
Number
of Treasury Shares |
|
|
Treasury
Stock |
|
|
Total
Acorn
Energy, Inc.
Shareholders’
Equity
(Deficit) |
|
|
Non-controlling
interests |
|
|
Total
Equity (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 |
) |
| Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
|
|
1 |
|
|
|
(32 |
) |
| Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
| Value
of expired warrants |
|
|
― |
|
|
|
―* |
|
|
|
1,018 |
|
|
|
(1,018 |
) |
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
|
|
― |
|
| Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
| Balances
as of June 30, 2020 |
|
|
39,687 |
|
|
$ |
397 |
|
|
$ |
102,710 |
|
|
$ |
3 |
|
|
$ |
(100,998 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
(924 |
) |
|
$ |
(1 |
) |
|
$ |
(925 |
) |
| |
|
Three
and Six Months Ended June 30, 2019 |
|
| |
|
Number
of Shares |
|
|
Common
Stock |
|
|
Additional
Paid-In Capital |
|
|
Warrants |
|
|
Accumulated
Deficit |
|
|
Number
of Treasury Shares |
|
|
Treasury
Stock |
|
|
Total
Acorn
Energy, Inc.
Shareholders’
Equity
(Deficit) |
|
|
Non-controlling
interests |
|
|
Total
Equity (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 |
) |
| Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(199 |
) |
|
|
— |
|
|
|
— |
|
|
|
(199 |
) |
|
|
(5 |
) |
|
|
(204 |
) |
| Accrued
dividend in OmniMetrix preferred shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(20 |
) |
| Shares
granted in lieu of professional fees |
|
|
60 |
|
|
|
* |
|
|
|
18 |
|
|
|
― |
|
|
|
― |
|
|
|
— |
|
|
|
― |
|
|
|
18 |
|
|
|
― |
|
|
|
18 |
|
| Rights
offering, proceeds net of expenses |
|
|
9,975 |
|
|
|
100 |
|
|
|
2,106 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,206 |
|
|
|
— |
|
|
|
2,206 |
|
| Stock
option compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
Balances
as of June 30, 2019 |
|
|
39,591 |
|
|
$ |
396 |
|
|
$ |
102,484 |
|
|
$ |
1,118 |
|
|
$ |
(100,500 |
) |
|
|
802 |
|
|
$ |
(3,036 |
) |
|
$ |
462 |
|
|
$ |
39 |
|
|
$ |
501 |
|
*
Less than $1
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(IN
THOUSANDS)
| |
|
Six months ended June 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(316 |
) |
|
$ |
(465 |
) |
| Depreciation and
amortization |
|
|
21 |
|
|
|
34 |
|
| Non-cash lease
expense |
|
|
59 |
|
|
|
― |
|
| Stock-based
compensation |
|
|
19 |
|
|
|
12 |
|
| Professional fees
paid in common stock |
|
|
|
|
|
|
18 |
|
| Change in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Decrease
(increase) in accounts receivable |
|
|
256 |
|
|
|
(143 |
) |
| Increase in
inventory |
|
|
(10 |
) |
|
|
(108 |
) |
| Decrease
(increase) in deferred charges |
|
|
(5 |
) |
|
|
105 |
|
| Decrease in other
current assets and other assets |
|
|
63 |
|
|
|
7 |
|
| Increase
(decrease) in accounts payable and accrued expenses |
|
|
(4 |
) |
|
|
60 |
|
| Increase
(decrease) in deferred revenue |
|
|
(10 |
) |
|
|
75 |
|
| Decrease in
operating lease liability |
|
|
(38 |
) |
|
|
― |
|
|
Increase (decrease) in other current liabilities and non-current
liabilities |
|
|
43 |
|
|
|
(18 |
) |
| Net
cash provided by (used in) operating activities |
|
|
78 |
|
|
|
(423 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows used in investing
activities: |
|
|
|
|
|
|
|
|
| Purchases of software |
|
|
(88 |
) |
|
|
― |
|
|
Payments made for patent filings |
|
|
(3 |
) |
|
|
― |
|
| Net
cash used in investing activities |
|
|
(91 |
) |
|
|
― |
|
| |
|
|
|
|
|
|
|
|
| Cash flows provided by financing
activities: |
|
|
|
|
|
|
|
|
| Short-term credit,
net |
|
|
45 |
|
|
|
191 |
|
| Proceeds from
rights offering, net of expenses of $188 |
|
|
― |
|
|
|
2,206 |
|
| Loan proceeds |
|
|
462 |
|
|
|
― |
|
| Stock
option exercise proceeds |
|
|
19 |
|
|
|
― |
|
| Net
cash provided by financing activities |
|
|
526 |
|
|
|
2,397 |
|
| |
|
|
|
|
|
|
|
|
| Net increase in cash, cash equivalents
and restricted cash |
|
|
513 |
|
|
|
1,974 |
|
| 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 |
|
$ |
1,760 |
|
|
$ |
3,237 |
|
| |
|
|
|
|
|
|
|
|
| Cash, cash equivalents and restricted
cash consist of the following: |
|
|
|
|
|
|
|
|
| End of
period |
|
|
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$ |
1,760 |
|
|
$ |
2,933 |
|
|
Restricted cash |
|
|
― |
|
|
|
304 |
|
| |
|
$ |
1,760 |
|
|
$ |
3,237 |
|
| |
|
|
|
|
|
|
|
|
| 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 |
|
$ |
16 |
|
|
$ |
9 |
|
| |
|
|
|
|
|
|
|
|
| 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 |
|
$ |
2 |
|
|
$ |
40 |
|
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-and-six-month periods ended June 30, 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 unaudited
condensed consolidated financial statements for the six-month
period ended June 30, 2019 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 $6,000 from finance 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 finance expense as of March
31, 2019 and is included in SG&A as of June 30, 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 six-month period ended June 30, 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
unaudited condensed consolidated financial
statements.
NOTE 3—LIQUIDITY
At
June 30, 2020, the Company had negative working capital of
$282,000. The Company’s working capital includes approximately
$1,760,000 of cash, deferred revenue of approximately $3,115,000
and $180,000 representing the current portion of our PPP loan which
the Company expects to be substantially forgiven. The deferred
revenue does not require significant cash outlay for the revenue to
be recognized. During the first six months of 2020, the Company’s
OmniMetrix subsidiary provided $528,000 from operations while the
Company’s corporate headquarters used $450,000 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
August 9, 2020, the Company had cash of approximately $1,775,000.
The Company believes that 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 unaudited condensed 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 June 30, 2020 and 2019 were $10,000 and $27,000,
respectively. Operating lease payments for the six months ended
June 30, 2020 and 2019 were $38,000 and $54,000, respectively. The
lease payments were less in the current year periods due to two
months of rent abatement provided for in the new lease amendment
that were in effect during the six months period ended June 30,
2020. The future minimum lease payments on non-cancelable operating
leases as of June 30, 2020 using a discount rate of 4.5% are
$570,000.
Supplemental
cash flow information related to leases consisted of the following
(in thousands):
| |
|
June 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash paid for operating
lease liabilities |
|
$ |
38 |
|
|
$ |
54 |
|
Supplemental
balance sheet information related to leases consisted of the
following:
| |
|
2020 |
|
| Weighted average remaining
lease terms for operating leases |
|
|
5.22 |
|
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 June 30, 2020
(in thousands):
| |
|
Twelve-month
period
ended
June
30,
|
|
|
2021 |
|
$ |
100 |
|
| 2022 |
|
|
123 |
|
| 2023 |
|
|
126 |
|
| 2024 |
|
|
129 |
|
| 2025 |
|
|
131 |
|
| Thereafter |
|
|
33 |
|
| Total
undiscounted cash flows |
|
|
642 |
|
| Less:
Imputed interest |
|
|
(72 |
) |
| Present
value of operating lease liabilities (a) |
|
$ |
570 |
|
|
|
(a) |
Includes
current portion of $76 for operating leases. |
NOTE
6—DEBT
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 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 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 $2,330 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.
Interest
expense on these loans for the three and six months ended June 30,
2020 was less than $1,000. The Company intends to use the PPP loan
proceeds for qualified expenses and expects the full amount of the
loan to be forgiven.
(b)
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 $1,000,000. Debt incurred under this financing
arrangement bears interest at the greater of 6% and prime (3.25% at
June 30, 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% at June 30, 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 June 30, 2020 and 2019 was $9,000 and $2,000,
respectively. Interest expense for the six-months-ended June 30,
2020 and 2019 was $16,000 and $9,000, respectively.
OmniMetrix
had an outstanding balance of $181,000 and $136,000 as of June 30,
2020 and December 31, 2019, respectively, pursuant to the Loan and
Security Agreement and $122,000 was available to borrow at June 30,
2020.
NOTE
7—COMMITMENTS AND CONTINGENCIES
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.
NOTE
8—EQUITY
(a)
General
At
June 30, 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 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 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 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.
(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
June 30, 2020, 1,716,719 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 six
months ended June 30, 2020, an aggregate of 30,000 options was
issued to non-employee directors, 35,000 options were issued to the
Company’s CEO and 50,000 options were issued to the Company’s CFO.
The fair value of the options issued was $23,000.
96,250
options were exercised during the six months ended June 30, 2020.
The intrinsic value of options outstanding and of options
exercisable at June 30, 2020 was approximately $2,000.
A
summary of stock option activity for the six months ended June 30,
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 |
|
|
115,000 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
(96,250 |
) |
|
|
0.19 |
|
|
|
|
|
|
|
|
|
| Forfeited or
expired |
|
|
(524,430 |
) |
|
|
2.43 |
|
|
|
|
|
|
|
|
|
| Outstanding at June 30, 2020 |
|
|
858,810 |
|
|
$ |
1.51 |
|
|
|
3.3
years |
|
|
$ |
2,000 |
|
| Exercisable at June 30, 2020 |
|
|
631,976 |
|
|
$ |
1.94 |
|
|
|
2.3
years |
|
|
$ |
2,000 |
|
The
fair value of the options granted of $23,000 was estimated on the
grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
| Risk-free interest
rate |
|
|
1.05 |
% |
| Expected term of options |
|
|
3.8
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 $19,000 and $12,000 for
the six-month periods and $13,000 and $6,000 for the
three-month-periods ended June 30, 2020 and 2019,
respectively.
The
total compensation cost related to non-vested awards not yet
recognized was $39,000 as of June 30, 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 |
|
|
2,142,857 |
|
|
|
1.30 |
|
|
|
|
|
| Outstanding at June 30, 2020 |
|
|
35,000 |
|
|
$ |
.13 |
|
|
|
2.7
years |
|
On
May 5, 2020, 2,142,857 warrants with a fair value of $1,018,000
expired in accordance with their terms.
NOTE
9— SEGMENT REPORTING
As of
June 30, 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 and
a new line of annuciators. |
|
|
|
|
|
|
● |
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-and-six-month periods ended June 30, 2020 and 2019 (in
thousands):
| |
|
PG |
|
|
CP |
|
|
Total |
|
| Six months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
2,371 |
|
|
$ |
435 |
|
|
$ |
2,806 |
|
| Segment gross
profit |
|
|
1,720 |
|
|
|
224 |
|
|
|
1,944 |
|
| Depreciation and
amortization |
|
|
17 |
|
|
|
4 |
|
|
|
21 |
|
| Segment
income(loss) before income taxes |
|
$ |
204 |
|
|
$ |
(72 |
) |
|
$ |
132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues from
external customers |
|
$ |
2,053 |
|
|
$ |
651 |
|
|
$ |
2,704 |
|
| Segment gross
profit |
|
|
1,434 |
|
|
|
288 |
|
|
|
1,722 |
|
| Depreciation and
amortization |
|
|
25 |
|
|
|
9 |
|
|
|
34 |
|
| Segment
income(loss) before income taxes |
|
$ |
105 |
|
|
$ |
(134 |
) |
|
$ |
(29 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues from
external customers |
|
$ |
1,262 |
|
|
$ |
206 |
|
|
$ |
1,468 |
|
| Segment gross
profit |
|
|
915 |
|
|
|
107 |
|
|
|
1,022 |
|
| Depreciation and
amortization |
|
|
4 |
|
|
|
1 |
|
|
|
5 |
|
| Segment
income(loss) before income taxes |
|
$ |
199 |
|
|
$ |
(10 |
) |
|
$ |
189 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues from
external customers |
|
$ |
1,057 |
|
|
$ |
320 |
|
|
$ |
1,377 |
|
| Segment gross
profit |
|
|
748 |
|
|
|
153 |
|
|
|
901 |
|
| Depreciation and
amortization |
|
|
5 |
|
|
|
2 |
|
|
|
7 |
|
| Segment
income(loss) before income taxes |
|
$ |
82 |
|
|
$ |
(49 |
) |
|
$ |
33 |
|
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 Loss to Consolidated Net Loss Before Income
Taxes
| |
|
Six
months ended
June
30,
|
|
|
Three
months ended
June
30,
|
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| Total net income (loss)
before income taxes for reportable segments |
|
$ |
132 |
|
|
$ |
(29 |
) |
|
$ |
189 |
|
|
$ |
33 |
|
| Unallocated
cost of corporate headquarters |
|
|
(448 |
) |
|
|
(436 |
) |
|
|
(221 |
) |
|
|
(237 |
) |
| Consolidated loss before income
taxes |
|
$ |
(316 |
) |
|
$ |
(465 |
) |
|
$ |
(32 |
) |
|
$ |
(204 |
) |
NOTE
10—REVENUE
The
following table disaggregates the Company’s revenue for the
three-and-six-month periods ended June 30, 2020 and 2019 (in
thousands):
| |
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
| Six months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
| PG
Segment |
|
$ |
645 |
|
|
$ |
1,726 |
|
|
$ |
2,371 |
|
| CP
Segment |
|
|
308 |
|
|
|
127 |
|
|
|
435 |
|
| Total
Revenue |
|
$ |
953 |
|
|
$ |
1,853 |
|
|
$ |
2,806 |
|
| |
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
| Six
months ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
PG
Segment |
|
$ |
601 |
|
|
$ |
1,452 |
|
|
$ |
2,053 |
|
|
CP
Segment |
|
|
533 |
|
|
|
118 |
|
|
|
651 |
|
|
Total
Revenue |
|
$ |
1,134 |
|
|
$ |
1,570 |
|
|
$ |
2,704 |
|
| |
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
| Three months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
| PG
Segment |
|
$ |
368 |
|
|
$ |
894 |
|
|
$ |
1,262 |
|
| CP Segment |
|
|
142 |
|
|
|
64 |
|
|
|
206 |
|
| Total Revenue |
|
$ |
510 |
|
|
$ |
958 |
|
|
$ |
1,468 |
|
| |
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
| Three months ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
| PG
Segment |
|
$ |
311 |
|
|
$ |
746 |
|
|
$ |
1,057 |
|
| CP
Segment |
|
|
262 |
|
|
|
58 |
|
|
|
320 |
|
| Total
Revenue |
|
$ |
573 |
|
|
$ |
804 |
|
|
$ |
1,377 |
|
Deferred
revenue activity for the six months ended June 30, 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 |
|
|
777 |
|
|
|
1,827 |
|
|
|
2,604 |
|
| Recognized as
revenue |
|
|
(761 |
) |
|
|
(1,853 |
) |
|
|
(2,614 |
) |
| Balance at June 30, 2020 |
|
$ |
2,679 |
|
|
$ |
1,806 |
|
|
$ |
4,485 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Amounts to be recognized as revenue in
the twelve-month-period ending: |
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2021 |
|
$ |
1,495 |
|
|
$ |
1,620 |
|
|
$ |
3,115 |
|
| June 30, 2022 |
|
|
909 |
|
|
|
183 |
|
|
|
1,092 |
|
| June 30, 2023
and thereafter |
|
|
275 |
|
|
|
3 |
|
|
|
278 |
|
| |
|
$ |
2,679 |
|
|
$ |
1,806 |
|
|
$ |
4,485 |
|
Other
revenue of approximately $192,000, net of certain sales rebates of
$11,000, 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 six months ended June 30, 2020 can be seen in the
table below (in thousands):
|
Balance
at December 31, 2019 |
|
$ |
1,433 |
|
|
Additions,
net of adjustments, during the period |
|
|
425 |
|
|
Recognized
as cost of sales |
|
|
(424 |
) |
| Balance
at June 30, 2020 |
|
$ |
1,434 |
|
| |
|
|
|
|
| Amounts
to be recognized as cost of sales in the twelve-month-period
ending: |
|
|
|
|
|
June
30, 2021 |
|
$ |
814 |
|
|
June
30, 2022 |
|
|
476 |
* |
|
June
30, 2023 and thereafter |
|
|
144 |
* |
| |
|
$ |
1,434 |
|
*Amounts
included in other assets in the Company’s unaudited condensed
consolidated balance sheets at June 30, 2020 and December 31,
2019
Other
cost of goods sold (COGS) recognized of approximately $143,000 is
related to accessories, repairs, and other miscellaneous charges
that are recognized to revenue when sold and are not deferred in
addition to $295,000 in monitoring COGS which is not
deferred.
The
following table provides a reconciliation of the Company’s sales
commissions contract assets for the six-month period ended June 30,
2020 (in thousands):
| |
|
Hardware |
|
|
Monitoring |
|
|
Total |
|
| Balance at December 31, 2019 |
|
$ |
101 |
|
|
$ |
37 |
|
|
$ |
138 |
|
| Additions during the period |
|
|
49 |
|
|
|
9 |
|
|
|
58 |
|
| Amortization of
sales commissions |
|
|
(31 |
) |
|
|
(9 |
) |
|
|
(40 |
) |
| Balance at June 30, 2020 |
|
$ |
119 |
|
|
$ |
37 |
|
|
$ |
156 |
|
The
capitalized sales commissions are included in other current assets
($82,000) and other assets ($74,000) in the Company’s unaudited
condensed consolidated balance sheets at June 30, 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
11—SUBSEQUENT EVENTS
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 table shows, for the periods indicated, the financial
results (dollar amounts in thousands) attributable to each of our
consolidated companies.
| |
|
Six
months ended June 30, 2020 |
|
| |
|
OmniMetrix |
|
|
Acorn |
|
|
Total
Continuing Operations |
|
| Revenue |
|
$ |
2,806 |
|
|
|
$
― |
|
|
$ |
2,806 |
|
| Cost
of sales |
|
|
862 |
|
|
|
― |
|
|
|
862 |
|
| Gross
profit |
|
|
1,944 |
|
|
|
― |
|
|
|
1,944 |
|
| Gross
profit margin |
|
|
69 |
% |
|
|
|
|
|
|
69 |
% |
| R&D
expenses |
|
|
293 |
|
|
|
― |
|
|
|
293 |
|
| Selling,
general and administrative expenses |
|
|
1,502 |
|
|
|
445 |
|
|
|
1,947 |
|
| Operating
income (loss) |
|
$ |
149 |
|
|
$ |
(445 |
) |
|
$ |
(296 |
) |
| |
|
Six months ended June 30, 2019 |
|
| |
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
| Revenue |
|
$ |
2,704 |
|
|
$ |
— |
|
|
$ |
2,704 |
|
| Cost of sales |
|
|
952 |
|
|
|
― |
|
|
|
952 |
|
| Cost of sales -
other |
|
|
30 |
|
|
|
— |
|
|
|
30 |
|
| Gross profit |
|
|
1,722 |
|
|
|
— |
|
|
|
1,722 |
|
| Gross profit margin |
|
|
64 |
% |
|
|
|
|
|
|
64 |
% |
| R&D expenses |
|
|
283 |
|
|
|
— |
|
|
|
283 |
|
| Selling,
general and administrative expenses |
|
|
1,457 |
|
|
|
452 |
|
|
|
1,909 |
|
| Operating
loss |
|
$ |
(18 |
) |
|
$ |
(452 |
) |
|
$ |
(470 |
) |
| |
|
Three
months ended June 30, 2020 |
|
| |
|
OmniMetrix |
|
|
Acorn |
|
|
Total
Continuing Operations |
|
| Revenue |
|
$ |
1,468 |
|
|
|
$
― |
|
|
$ |
1,468 |
|
| Cost
of Sales |
|
|
446 |
|
|
|
― |
|
|
|
446 |
|
| Gross
profit |
|
|
1,022 |
|
|
|
― |
|
|
|
1,022 |
|
| Gross
profit margin |
|
|
70 |
% |
|
|
|
|
|
|
70 |
% |
| R&D
expenses |
|
|
138 |
|
|
|
― |
|
|
|
138 |
|
| Selling,
general and administrative expenses |
|
|
684 |
|
|
|
222 |
|
|
|
906 |
|
| Operating
income (loss) |
|
$ |
200 |
|
|
$ |
(222 |
) |
|
$ |
(22 |
) |
| |
|
Three months ended June 30, 2019 |
|
| |
|
OmniMetrix |
|
|
Acorn |
|
|
Total Continuing Operations |
|
| Revenue |
|
$ |
1,377 |
|
|
$ |
— |
|
|
$ |
1,377 |
|
| Cost of Sales |
|
|
476 |
|
|
|
— |
|
|
|
476 |
|
| Gross profit |
|
|
901 |
|
|
|
— |
|
|
|
901 |
|
| Gross profit margin |
|
|
65 |
% |
|
|
|
|
|
|
65 |
% |
| R&D expenses |
|
|
139 |
|
|
|
— |
|
|
|
139 |
|
| Selling,
general and administrative expenses |
|
|
722 |
|
|
|
243 |
|
|
|
965 |
|
| Operating
loss |
|
$ |
(40 |
) |
|
$ |
(243 |
) |
|
$ |
(203 |
) |
BACKLOG
As of
June 30, 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 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 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 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 book 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 and a new line of annunciators. |
|
|
|
|
|
|
● |
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 9 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.
Results
of Operations
The
following table sets forth certain information with respect to the
consolidated results of operations of the Company for the six-month
periods ended June 30, 2020 and 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 9 and 10 to the Unaudited Condensed Consolidated
Financial Statements included in this quarterly report.
| |
|
Six
months ended June 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
Change |
|
| |
|
($,000) |
|
|
% of
revenues |
|
|
($,000) |
|
|
% of
revenues |
|
|
from
2019 to 2020 |
|
| Revenue |
|
$ |
2,806 |
|
|
|
100 |
% |
|
$ |
2,704 |
|
|
|
100 |
% |
|
|
4 |
% |
| Cost
of sales |
|
|
862 |
|
|
|
31 |
% |
|
|
982 |
|
|
|
36 |
% |
|
|
(12 |
)% |
| Gross
profit |
|
|
1,944 |
|
|
|
69 |
% |
|
|
1,722 |
|
|
|
64 |
% |
|
|
13 |
% |
| R&D
expense |
|
|
293 |
|
|
|
10 |
% |
|
|
283 |
|
|
|
10 |
% |
|
|
4 |
% |
| SG&A
expense |
|
|
1,947 |
|
|
|
69 |
% |
|
|
1,909 |
|
|
|
71 |
% |
|
|
2 |
% |
| Operating
loss |
|
|
(296 |
) |
|
|
(11 |
)% |
|
|
(470 |
) |
|
|
(17 |
)% |
|
|
(37 |
)% |
| Finance
expense, net |
|
|
(20 |
) |
|
|
*
% |
|
|
|
5 |
|
|
|
*
% |
|
|
|
(500 |
)% |
| Loss
before income taxes |
|
|
(316 |
) |
|
|
(11 |
)% |
|
|
(465 |
) |
|
|
(17 |
)% |
|
|
(32 |
)% |
| Income
tax expense |
|
|
― |
|
|
|
― |
|
|
|
— |
|
|
|
— |
% |
|
|
― |
|
| Net
loss |
|
|
(316 |
) |
|
|
(11 |
)% |
|
|
(465 |
) |
|
|
(17 |
)% |
|
|
(32 |
)% |
| Non-controlling
interests share of net loss |
|
|
― |
|
|
|
―% |
|
|
|
29 |
|
|
|
1 |
% |
|
|
(100 |
)% |
| Net
loss attributable to Acorn Energy, Inc. |
|
$ |
(316 |
) |
|
|
(11 |
)% |
|
$ |
(436 |
) |
|
|
(16 |
)% |
|
|
(28 |
)% |
*result
is less than 1%.
The
following table sets forth certain information with respect to the
consolidated results of operations of the Company for the
three-month periods ended June 30, 2020 and 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 9 and 10 to the unaudited condensed consolidated
financial statements included in this quarterly report.
| |
|
Three months
ended June 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
Change |
|
| |
|
($,000) |
|
|
% of
revenues |
|
|
($,000) |
|
|
% of
revenues |
|
|
from
2019 to 2020 favorable (unfavorable) |
|
| Revenue |
|
$ |
1,468 |
|
|
|
100 |
% |
|
$ |
1,377 |
|
|
|
100 |
% |
|
|
7 |
% |
| Cost of sales |
|
|
446 |
|
|
|
30 |
% |
|
|
476 |
|
|
|
35 |
% |
|
|
6 |
% |
| Gross profit |
|
|
1,022 |
|
|
|
70 |
% |
|
|
901 |
|
|
|
65 |
% |
|
|
13 |
% |
| R&D expenses |
|
|
138 |
|
|
|
9 |
% |
|
|
139 |
|
|
|
10 |
% |
|
|
1 |
% |
| SG&A
expenses |
|
|
906 |
|
|
|
62 |
% |
|
|
965 |
|
|
|
70 |
% |
|
|
6 |
% |
| Operating
loss |
|
|
(22 |
) |
|
|
(1 |
)% |
|
|
(203 |
) |
|
|
(15 |
)% |
|
|
89 |
% |
| Finance
expense, net |
|
|
(10 |
) |
|
|
(1 |
)% |
|
|
(1 |
) |
|
|
*
% |
|
|
|
(900 |
)% |
| Loss before income
taxes |
|
|
(32 |
) |
|
|
(2 |
)% |
|
|
(204 |
) |
|
|
(15 |
)% |
|
|
84 |
% |
| Income tax
expense |
|
|
― |
|
|
|
―% |
|
|
|
— |
|
|
|
— |
% |
|
|
― |
|
| Net loss |
|
|
(32 |
) |
|
|
(2 |
)% |
|
|
(204 |
) |
|
|
(15 |
)% |
|
|
84 |
% |
| Non-controlling
interests share of net loss |
|
|
(1 |
) |
|
|
*
% |
|
|
|
5 |
|
|
|
*
% |
|
|
|
(120 |
)% |
| Net
loss attributable to Acorn Energy, Inc. |
|
$ |
(33 |
) |
|
|
(2 |
)% |
|
$ |
(199 |
) |
|
|
(14 |
)% |
|
|
83 |
% |
*result
is less than 1%.
Revenue.
OmniMetrix has two divisions: PG and CP. In the six months ended
June 30, 2020, OmniMetrix recorded revenue of $2,806,000
($2,371,000 in its PG activities and $435,000 in its CP activities)
as compared to revenue of $2,704,000 recorded in the six months
ended June 30, 2019 ($2,053,000 in its PG activities and $651,000
in its CP activities).
The
increase in revenue of $102,000, or 4%, in the six months ended
June 30, 2020 was due to an increase in monitoring revenue of
$283,000, or 18%, offset by a decrease in hardware revenue of
$181,000, or 16%. The increase in monitoring revenue from
$1,570,000 in the first six months of 2019 to $1,853,000 in the
first six months of 2020 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 $225,000 as a
result of the longer sales and closing cycle of a CP sale compared
to a PG sale and the impact of COVID-19 on our ability to meet with
potential customers and to act timely and effectively on sales
leads. 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 started
in January 2020; however, the length of our CP sales cycle has been
negatively impacted by restrictions related to COVID-19.
Revenue
increased by $91,000 or 7%, from $1,377,000 in the second quarter
of 2019 to $1,468,000 in the second quarter of 2020. OmniMetrix’s
increased revenue during the quarter was primarily attributable to
increased monitoring which increased $154,000, or 19% from $804,000
in the second quarter of 2019 to $958,000 in the second quarter of
2020. This increase was offset by a decrease in hardware revenue of
$63,000, or 11%. These fluctuations are attributed to the same
reasons as the increase in the six-month period ended June 30, 2020
discussed above.
Gross
Profit. Gross profit during the six months ended June 30, 2020
was $1,944,000 reflecting a gross margin of 69% on revenue compared
with a gross profit of $1,722,000 reflecting a 64% gross margin in
the six months ended June 30, 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 six
months ended June 30, 2020 was 40%, which was essentially flat as
compared to 39% for the six months ended June 30, 2019. Gross
margin on monitoring revenue remained strong at 84% during the six
months ended June 30, 2020 as compared to 83% for the six months
ended June 30, 2019.
OmniMetrix’s
gross profit increased $121,000, or 13%, from $901,000 in the three
months ended June 30, 2019 to $1,022,000 in the three months ended
June 30, 2020.
Gross
margin on hardware revenue for the three months ended June 30, 2020
was 42%, which was a 2% improvement as compared to 40% for the
three months ended June 30, 2019. Gross margin on monitoring
revenue remained strong at 84% during the three months ended June
30, 2020, which was flat as compared to 84% for the three months
ended June 30, 2019.
Research
and development expenses. During the six months ended June 30,
2020, OmniMetrix recorded $293,000 of R&D expense as compared
to $283,000 in the six months ended June 30, 2019. During the three
months ended June 30, 2020 and 2019, R&D expense was $138,000
and $139,000, respectively. The increase in R&D expense in the
year-to-date period of 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 six
months ended June 30, 2020, OmniMetrix recorded $1,502,000 of
SG&A costs compared to SG&A costs of $1,457,000 in the six
months ended June 30, 2019, an increase of $45,000 or 3%. This
increase was primarily due to increases in occupancy expense (in
2019 these expenses were primarily applied to a restructuring
accrual), and personnel costs offset by a reduction in sales tax
expenses.
For
the three months ended June 30, 2020, SG&A expenses decreased
$38,000, or 5%, to $684,000 from $722,000 for the three months
ended June 30, 2019, primarily due to a decrease in travel expenses
related to the restrictions of COVID-19. We anticipate that our
annual SG&A costs throughout 2020 will increase approximately
15% due to having a fully staffed sales team and because of our
continuing investments in our IT infrastructure.
Corporate
Corporate
selling, general and administrative (“SG&A”) expense of
$445,000 in the first six months of 2020 reflected a decrease of
$7,000, or 2%, from the $452,000 of SG&A expense reported in
the first six months of 2019, which is essentially flat year over
year. SG&A expense for the three months ended June 30, 2020
decreased $21,000, or 9%, to $222,000 from $243,000 for the three
months ended June 30, 2019, primarily due to the timing of certain
expenses. Second quarter 2020 SG&A expense was $222,000,
compared to first quarter 2020 SG&A expense of $223,000. We do
not expect the quarterly corporate overhead to change materially
except as may be required to support the growth of our OmniMetrix
subsidiary.
Net
loss attributable to Acorn Energy. We recognized a net loss
attributable to Acorn shareholders of $316,000 in the first six
months of 2020 compared to a net loss of $436,000 in the first six
months of 2019. Our loss in 2020 is comprised of net income at
OmniMetrix of $133,000 plus corporate expense of
$449,000.
We
recognized a net loss attributable to Acorn shareholders of $33,000
in the three months ended June 30, 2020 compared to a net loss of
$199,000 in the three months ended June 30, 2019. Our loss in the
second quarter 2020 is comprised of net income at OmniMetrix of
$190,000 offset by corporate expense of $222,000 plus a $1,000
attributed to the non-controlling interest share of our income in
Omnimetrix.
Liquidity
and Capital Resources
At
June 30, 2020, we had negative working capital of $282,000. Our
working capital includes approximately $1,760,000 of cash, deferred
revenue of approximately $3,115,000 and $180,000 representing the
current portion of our PPP loan which we expect to be substantially
forgiven. The deferred revenue does not require significant cash
outlay for the revenue to be recognized.
During
the first six months of 2020, our OmniMetrix subsidiary provided
$528,000 from operations while our corporate headquarters used
$450,000 during the same period.
We
invested $88,000 in software and $3,000 in patent related
expenses.
Net
cash of $526,000 was provided by financing activities during the
first six months of 2020 which was $19,000 in proceeds from the
exercise of stock options, net proceeds from borrowings on our line
of credit of $45,000 and proceeds from our PPP loan of
$462,000.
See
discussion of the proceeds we received from the PPP loan above
under Recent Developments.
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
August 9, 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 $181,000 at June 30, 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 $4,582,000 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 $1,760,000 of cash on June 30, 2020, and
approximately $1,775,000 on August 9, 2020. On August 9, 2020, we
had $145,000 outstanding on our line of credit and $208,000
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 June 30,
2020.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| |
|
Twelve
Month Periods Ending June 30,
(in
thousands)
|
|
| |
|
Total |
|
|
2020 |
|
|
2021-2022 |
|
|
2023-2024 |
|
|
2025 and thereafter |
|
| Debt * |
|
$ |
642 |
|
|
$ |
360 |
|
|
$ |
282 |
|
|
$ |
— |
|
|
$ |
— |
|
| Software agreements |
|
|
133 |
|
|
|
71 |
|
|
|
62 |
|
|
|
― |
|
|
|
― |
|
| Operating leases |
|
|
642 |
|
|
|
100 |
|
|
|
249 |
|
|
|
260 |
|
|
|
33 |
|
| Contractual
services |
|
|
157 |
|
|
|
148 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
| Total
contractual cash obligations |
|
$ |
1,574 |
|
|
$ |
679 |
|
|
$ |
602 |
|
|
$ |
260 |
|
|
$ |
33 |
|
* Includes $462,000 in proceeds from the PPP loan which we expect
to be substantially forgiven.
|
ITEM
3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK |
COVID-19
Risk
The
COVID-19 pandemic could negatively affect various aspects of our
business, including our workforce and supply chain, and make it
more difficult and expensive to meet our obligations to our
customers, and could result in reduced demand from our
customers.
The
outbreak of the COVID-19 pandemic has caused governments around the
world to implement quarantines of certain geographic areas and
implement significant restrictions on travel. Several governments
have also implemented work restrictions that prohibit many
employees from going to work, both around the world as well as in
certain jurisdictions in the United States. The number of these
quarantines, travel bans, and other restrictions has been
fluctuating at a rapid pace. At this time, it is unclear if foreign
governments or U.S. federal, state or local governments will
further extend any of the current restrictions or if further
restrictions will be put into place. In addition, many countries,
including the United States, have placed significant bans on
international travel. It is possible that restrictions or bans on
domestic travel may be implemented by U.S. federal, state or local
governments. As a result of the pandemic, businesses can be shut
down, supply chains can be interrupted, slowed, or rendered
inoperable, and individuals can become ill, quarantined, or
otherwise unable to work and/or travel due to health reasons or
governmental restrictions.
Although
OmniMetrix is considered an essential business because it provides
infrastructure support to both government and commercial sectors
and across key industries and has not been forced to shut down to
date, governmental mandates may require forced shutdowns of our
facilities for extended or indefinite periods. In addition, the
pandemic could adversely affect our workforce resulting in serious
health issues and absenteeism. The pandemic could also
substantially interfere with general commercial activity related to
our supply chain and customer base, which could have a material
adverse effect on our financial condition, results of operations,
business, or prospects. Although OmniMetrix has continued to
collect its monthly recurring monitoring revenues, has retained its
customer base and has continued to realize new equipment sales, the
rate of such new sales has not met our anticipated growth rate.
Restrictions related to the pandemic have had a negative impact on
our ability to meet with potential customers and to act timely and
effectively on sales leads, which has had a negative impact on the
length of our CP sales cycle. Some of the electronic devices and
hardware we purchase, like antennas, radios, and GPS modules are
very specific to our application; there are not likely to be
practical alternatives. In some cases, our circuit boards were
designed around specific electronic hardware that met our
specifications. We are working closely with our contract
manufacturers and suppliers to mitigate as much as possible the
risks to our supply chain for these critical devices and hardware,
including identifying any lead-time issues and any potential
alternate sources. We are also examining all currently open
purchase orders to identify whether we need to issue additional
orders to secure product that is critical, already has questionable
lead times and/or is unique to our requirements.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and
trade accounts receivable. The Company’s cash were deposited
primarily with U.S. banks and brokerage firms and amounted to
approximately $1,760,000 at June 30, 2020. The Company does not
believe there is significant risk of non-performance by these
counterparties. Approximately 22% of the accounts receivable at
June 30, 2020 was due from one customer who pays its receivables
over usual credit periods (the Company collected 100% of the
$157,000 due from this customer as of August 9, 2020). Credit risk
with respect to the balance of trade receivables is generally
diversified due to the number of entities comprising the Company’s
customer base.
Fair
Value of Financial Instruments
Fair
values of financial instruments included in current assets and
current liabilities are estimated to approximate their book values
due to the short maturity of such investments.
Interest
Rate Risk
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
August 9, 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.
|
ITEM
4. |
CONTROLS AND PROCEDURES |
As of
the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer and the Chief
Financial Officer, of the design and operation of our disclosure
controls and procedures (as such term is defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)). Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective due to material
weaknesses noted in our Annual Report on Form 10-K for the year
ended December 31, 2019, to ensure that the information required to
be disclosed by us in the reports we file or submit under the
Exchange Act is (i) accumulated and communicated to our management
(including our Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms.
As
noted in our Annual Report on Form 10-K for the year ended December
31, 2019, we employ a decentralized internal control methodology,
coupled with management’s oversight, whereby our OmniMetrix
subsidiary is responsible for mitigating its risks to financial
reporting by implementing and maintaining effective control
policies and procedures and subsequently translating that
respective risk mitigation up and through to the parent level and
to our external financial statements. In addition, as our operating
subsidiary is not large enough to effectively mitigate certain
risks by segregating incompatible duties, management must employ
compensating mechanisms throughout our company in a manner that is
feasible within the constraints it operates.
The
material weaknesses management identified were caused by an
insufficient complement of resources at our OmniMetrix subsidiary
and limited IT system capabilities, such that individual control
policies and procedures at the subsidiary could not be implemented,
maintained, or remediated when and where necessary. As a result, a
majority of the significant process areas management identified for
our OmniMetrix subsidiary had one or more material weaknesses
present.
Changes
in Internal Control Over Financial Reporting
There
was no change in our internal control over financial reporting (as
such term is defined in Rule 13a-15(f) under the Exchange Act)
during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by its principal financial officer thereunto duly
authorized.
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ACORN
ENERGY, INC. |
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| Dated:
August 12, 2020 |
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By: |
/s/
TRACY S. CLIFFORD |
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Tracy
S. Clifford |
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Chief
Financial Officer |
