PART
I
ITEM
1. BUSINESS
OVERVIEW
Acorn
Energy, Inc. and its subsidiaries, OmniMetrix, LLC and OMX Holdings, Inc. (collectively, “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 OmniMetrix, LLC (“OmniMetrix”) subsidiary:
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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. This includes our AIRGuard product, which
remotely monitors and controls air compressors. In 2020, we expanded our product offering to our generator dealers with
the introduction of an Annunciator. The annunciator is typically sold with a new commercial or industrial generator and indicates
the current status of that generator. In many instances having a generator annunciator onsite is mandated by law.
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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.
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During
2020, each of our PG and CP activities represented a reportable segment.
We
continually evaluate opportunities related to our activities, and our goal is to maximize shareholder value and position our holdings
for a strategic event, which may include co-investment by one or more third parties and/or a synergistic acquisition of another
company.
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.
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Year ended December 31, 2020
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OmniMetrix
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Acorn
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Total
Continuing
Operations
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Revenues
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$
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5,922
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$
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—
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$
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5,922
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Cost of sales
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1,791
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—
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1,791
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Gross profit
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4,131
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—
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4,131
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Gross profit margin
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70
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%
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70
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%
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R&D expenses
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619
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—
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619
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Selling, general and administrative expenses
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2,932
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890
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3,822
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Operating income (loss)
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$
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580
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$
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(890
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)
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$
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(310
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)
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Year ended December 31, 2019
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OmniMetrix
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Acorn
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Total
Continuing
Operations
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Revenues
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$
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5,490
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$
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—
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$
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5,490
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Cost of sales
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1,900
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—
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1,900
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Gross profit
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3,590
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—
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3,590
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Gross profit margin
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65
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%
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65
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%
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R&D expenses
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559
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—
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559
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Selling, general and administrative expenses
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2,854
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876
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3,730
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Operating income (loss)
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$
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177
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$
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(876
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)
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$
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(699
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OMNIMETRIX
– POWER GENERATION MONITORING AND CONTROL AND CATHODIC PROTECTION MONITORING AND CONTROL
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 critical assets (including stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors
and other industrial equipment) and multiple markets in the Internet of Things (“IoT”) ecosystem, as well as cathodic
protection for the pipeline industry (gas utilities and pipeline companies). Acorn owned 80% of OmniMetrix until July 1, 2019
when it purchased an additional 19% of OmniMetrix from a former Acorn director, which brought its ownership interest to 99%, with
the remaining 1% owned by OmniMetrix’s former CEO.
Following
the emergence of machine-to-machine (“M2M”) and IoT applications whereby companies aggregate multiple sensors and
monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this economic ecosystem. In addition,
OmniMetrix continues to see a 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 IoT applications, and given that OmniMetrix monitors all major
brands of critical equipment and continues to invest in research and development in response to customer and potential customer
feedback, OmniMetrix believes it is well-positioned as a competitive participant in this market to continue to grow its customer
base and expand its product offerings.
Products
& Services
In
the PG segment, OmniMetrix sells a line of devices and services built on its baseline TrueGuard wireless remote monitor. This
device is broadly applicable across all brands and models of emergency power generators and industrial engine applications. The
TrueGuard product family connects directly to the engine’s control panel, and captures all data flowing through the control
panel. As a result, the product provides the ability to identify whether an emergency generator is capable of operating as expected.
OmniMetrix alsosells its AIRGuard product which remotely monitors and controls industrial air compressors. In 2020, OmniMetrix
expanded its product offering to its generator dealers with the introduction of an Annunciator. The annunciator is typically sold
with a new commercial or industrial generator and indicates the current status of that generator. In many instances having a generator
annunciator onsite is mandated by law.
In
the CP segment, OmniMetrix offers two primary product lines: the Hero Rectifier Monitor and the Patriot Test Station Monitor.
Both of these products are used to monitor cathodic protection systems, a process which reduces rust and corrosion on the steel
pipes used to transport natural gas. As the name suggests, the Hero Rectifier Monitor product monitors the operation of the rectifiers,
which are a critical component in the effort to prevent corrosion and are also the most common point of failure in the pipeline
system. The Patriot Test Station Monitor is also used to provide data points along the pipeline segment powered by the rectifier.
Customers
and Markets
At
its core, the OmniMetrix PG monitors (Trueguard PRO and Truegard 2) can remotely monitor and control a variety of industrial engine
applications, including engines, standby generators, air and gas compressors, fire pumps, batteries, turbines, pumps and other
equipment. Early in the company’s history, a strategic decision was made to focus primarily on the standby power generation
market. In the past several years, the company has expanded its focus to add several additional applications where it sees demand.
Standby generator monitoring is part of the IoT ecosystem, whereby multiple sensing and monitoring devices are aggregated into
one simple dashboard for customers.
As
OmniMetrix can monitor and control all major brands of standby generators, it is well-positioned to compete in this market.
In
the first stages of OmniMetrix’s PG product and market development, relatively unsophisticated generator controls and early
generation cellular and satellite communication processes limited the applications to alarm delivery. Customers were notified
that some event had taken place after the fact. There was no diagnostic data opportunity, but service organizations could, at
best, practice a proactive service approach.
With
the advent of second-generation cellular systems and newer, computerized engine controls, OmniMetrix migrated to a design point
of collecting large amounts of performance data from the remote machinery, allowing service organizations to perform diagnostics
on remote equipment before dispatching service. This was the beginning of the OmniMetrix SmartService Program. It allowed
the service organization to put the right person in the right truck with the right parts to effect a one-trip or a zero-trip solution.
At this phase, service organizations could be efficient, as well as proactive, in their operations. They could also manage more
customers by using remote monitoring. Customers have provided OmniMetrix feedback telling how customer service teams are able
to work “smarter” and more efficiently by going directly to sites with problems, thus increasing the value of their
businesses.
OmniMetrix
is now focused on expanding its product offerings while it also continues to execute in its third phase of evolution, maturing
the high-performance data collection design point into the first provider offering of automated prognostic solutions. As most
generator failures are the result of consumables, and as those consumables can be monitored, the consumption trends can be extrapolated
into predictions of the most common failure modes.
OmniMetrix’s
PG monitors have been installed on commercial, industrial and residential generators from original equipment manufacturers (“OEMs”)
such as Caterpillar, Kohler, Generac, Cummins, MTU Energy and other generator manufacturers. OmniMetrix provides dual value propositions
to the generator service organizations as well as to the machine owner. The dealers benefit from the receipt of performance data
and status conditions from the generators they service for their customers, which allows the dealer service organization to be
proactive in their delivery of service to their customers, as well as to implement the OmniMetrix SmartService approach
to analyzing the remote machines before dispatching a service truck. Since the majority of service and warranty costs are incurred
from service people driving trucks, preemptive analysis of customer site conditions prior to dispatch can reduce their labor cost.
From the machine owner’s perspective, the OmniMetrix product provides a powerful tool to be used in their constant effort
to avoid failures that come from consumables such as batteries and fuel. With proper monitoring, the large majority of machine
failures can be avoided completely. This migration from failure reporting to failure prevention is fundamental to the OmniMetrix
focus and is the result of a strong data collection and analysis design point. We believe that this transition to prognostics
sets OmniMetrix apart from its competitors, many of whom are still in the failure reporting phase of application development.
OmniMetrix has shifted its primary focus to the commercial and industrial segments from residential due to the ability to customize
our products to the customers’ specifications. We have also increased our marketing efforts to end-users in an effort
to increase demand for our services. These efforts have proven to be successful, and OmniMetrix continues to execute on that strategy.
Competition
OmniMetrix
is a vertical market company, deeply focused on providing an excellent customer experience and product and service designs for
a complete end-to-end program for its customers. Having been the first provider of wireless remote monitoring systems for standby
generators and pipeline corrosion programs, the company has had the opportunity to mature its offering to a level not offered
by others who might like to compete in these two segments. This long experience working with key brand project partners over the
years has resulted in product offerings that are competitive.
There
are two types of competitors in the PG marketplace:
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Independent
monitoring organizations (such as OmniMetrix) that produce the monitoring systems, but not the equipment being monitored.
Among these are companies such as Ayantra, FleetZOOM, Gen-Tracker, and PowerTelematics. The other competitors operate in the
reactive “failure notification” mode described in the early stages of the OmniMetrix business model. In the past,
those competitors positioned themselves at a lower-performance, lower-price quadrant of the market.
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(2)
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OEMs
such as generator manufacturers or generator controls manufacturers that offer customer connectivity to their machinery. They
offer a current generation connectivity replacing telephone dial-up modems that had been used in the past. Their offerings
are limited to their own brands, so they do not fit into a broad application such as does the OmniMetrix SmartService,
supporting service organizations that service all brands. They are also generally designed for the machine owners’
use, in a reactive application.
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We
believe OmniMetrix has a well-established and well-defended position in the high-performance PG monitoring segment, due to its
long history and numerous industry partner projects. While the execution of our aggressive sales strategy was interrupted by the
impact of COVID-19, the company has recently resumed an aggressive sales effort into the market segment requiring less technology
and lower price (including the extremely large residential generator market) as well as developing more sophisticated, diagnostic
products and custom solutions for commercial and industrial clientele.
Within
the CP marketplace, there are no OEM competitors, but there are several independent monitoring companies similar to OmniMetrix
such as Abriox, Elecsys, and American Innovations. We believe that OmniMetrix systems provide greater functionality than these
competitors, though those competitors are much larger and have greater resources, potentially enabling better channel penetration
than OmniMetrix can accomplish.
Intellectual
Property
OmniMetrix
has always focused on being the technology leader in its markets, and as a result has created many “industry firsts”.
Initially, the company only pursued patents on the most valuable processes and systems and otherwise made public disclosure of
many processes to prevent others from making later patent claims on those items. Nonetheless, OmniMetrix has five issued patents.
Furthermore, the company has agreements with its employees and consultants which establish certain non-disclosure and, in some
cases, non-compete, requirements. OmniMetrix continually evaluates whether and how to best protect its intellectual property,
but there can be no assurance that its efforts will be successful in all cases.
Facilities
OmniMetrix’s
activities are currently conducted in approximately 21,000 square feet of office and production space in the Hamilton Mill Business
Park located in Buford, Georgia under a lease that has been extended from its original expiration date of April 30, 2020 to September
30, 2025. OmniMetrix is currently utilizing only a portion of these leased facilities and expects to grow into a portion of the
currently unused space and potentially sublease several available executive office spaces.
BACKLOG
As
of December 31, 2020, OmniMetrix had a backlog of approximately $4.5 million, primarily comprised of deferred revenue, of which
approximately $3.2 million is expected to be recognized as revenue in 2021.
RESEARCH
AND DEVELOPMENT EXPENSE, NET
Research
and development expense recorded for the years ended December 31, 2020 and 2019 for our OmniMetrix subsidiary in continuing operations
is as follows (amounts in thousands of U.S. dollars):
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Years ended
December 31,
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2020
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2019
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OmniMetrix
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$
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619
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$
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559
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EMPLOYEES
At
December 31, 2020, we employed a total of 23 employees – all of which were full-time employees employed by OmniMetrix in
the U.S. Our CEO, who also serves as acting CEO of OmniMetrix, and CFO, who also serves as COO of OmniMetrix, are hired as consultants
to us.
Ten
of OmniMetrix’s 23 employees are engaged in production, engineering and technical support, eight in marketing and sales
and five in finance and IT. We consider our relationship with our employees to be satisfactory. We have no collective bargaining
agreements with any of our employees.
ADDITIONAL
FINANCIAL INFORMATION
For
additional financial information regarding our operating segments, foreign and domestic operations and sales, see “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 11 to our Consolidated
Financial Statements included in this Annual Report.
AVAILABLE
INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission
(the “SEC”). These filings are available to the public over the internet at the SEC’s website at http://www.sec.gov.
You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington,
DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
Our
website can be found at http://www.acornenergy.com. We make available free of charge on or through our website, access to our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon
as reasonably practicable after such material is electronically filed, or furnished, to the SEC. Our website also includes our
Code of Business Conduct and Ethics, and our Board of Directors’ Committee Charter for the Audit Committee.
ITEM
1A. RISK FACTORS
We
may from time to time make written or oral statements that contain forward-looking information. However, our actual results may
differ materially from our expectations, statements or projections. The following risks and uncertainties, together with other
factors not presently determinable, could cause actual results to differ from our expectations, statements or projections.
GENERAL
FACTORS
We
have a history of operating losses and have used significant amounts of cash for operations and to fund our acquisitions and investments.
Although
we had a history of losses from our OmniMetrix subsidiary and corporate overhead and have used significant amounts of cash to
fund our operating activities over the years, we have had several consecutive quarters of profitability at our OmniMetrix subsidiary
and also were able to cover corporate overhead in the fourth quarter of 2020 resulting in consolidated net income For the full
year 2020 and 2019, we had operating losses of approximately $310,000 and $699,000, respectively. Cash provided by operating activities
was approximately $464,000 in 2020 and cash used in operating activities was approximately $1.2 million in 2019.
On
March 11, 2021, we had approximately $1.8 million of consolidated cash and cash equivalents.
During
2019, we provided OmniMetrix $323,000 for the repayment of a loan to a former director, and approximately $234,000 was added to
the intercompany amounts owed to Acorn for accrued interest and dividends, net of repayments of approximately $52,000. Our corporate
overhead has also been significantly reduced and has stabilized. Based on the above, we believe we have sufficient cash to finance
our operations for at least twelve months from the issuance of the consolidated financial statements contained in this Annual
Report. However, we may need to seek additional sources of funding for long-term corporate costs or if OmniMetrix were not to
grow at the rate anticipated and needed additional funds for their operations. Additional sources of funding may include additional
loans from related and/or non-related parties, partial sale of, or finding a strategic partner for, OmniMetrix or equity financings.
There can be no assurance additional funding will be available at acceptable terms or that we will be able to successfully utilize
any of these possible sources to provide additional liquidity.
We
depend on key management for the success of our business.
Our
success is largely dependent on the skills, experience and efforts of our senior management team, including Jan Loeb and Tracy
Clifford. The loss of the services of any of these key managers could materially harm our business, financial condition, future
results and cash flow. We do not maintain “key person” life insurance policies on any members of senior management.
We may also not be able to locate or employ on acceptable terms qualified replacements for our senior management if their services
were no longer available.
Loss
of the services of a few key employees could harm our operations.
We
depend on key technical employees and sales personnel. The loss of certain personnel could diminish our ability to develop and
maintain relationships with customers and potential customers. The loss of certain technical personnel could harm our ability
to meet development and implementation schedules. The loss of key sales personnel could have a negative effect on sales to certain
current customers. Although most of our significant employees are bound by confidentiality and non-competition agreements, the
enforceability of such agreements cannot be assured. Our future success also depends on our continuing ability to identify, hire,
train and retain other highly qualified technical and managerial personnel. If we fail to attract or retain highly qualified technical
and managerial personnel in the future, our business could be disrupted.
There
is a limited trading market for our common stock and the price of our common stock may be volatile.
Our
common stock is traded on the OTCQB marketplace under the symbol “ACFN.” The OTCQB is a regulated quotation service
that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities and provides significantly
less liquidity than a listing on the NASDAQ Stock Markets or other national securities exchanges. The OTCQB securities are traded
by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock
exchanges, and any prices quoted may not be a reliable indication of the value of our common stock. Quotes for stocks included
on the OTCQB are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market or the NYSE. Therefore,
prices for securities traded solely on the OTCQB may be difficult to obtain.
Trading
on the OTCQB marketplace as opposed to a national securities exchange has resulted, and may continue to result, in a reduction
in some or all of the following, each of which could have a material adverse effect on the price of our common stock and our company:
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the
liquidity of our common stock;
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the
market price of shares of our common stock;
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our
ability to obtain financing for the continuation of our operations;
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the
number of institutional and other investors that will consider investing in shares of our common stock;
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the
number of market markers in shares of our common stock;
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the
availability of information concerning the trading prices and volume of shares of our common stock; and
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the
number of broker-dealers willing to execute trades in shares of our common stock.
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In
addition, the market price of our common stock could be subject to wide fluctuations in response to:
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quarterly
variations in our revenues and operating expenses;
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announcements
of new products or services by us;
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fluctuations
in interest rates;
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significant
sales of our common stock;
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the
operating and stock price performance of other companies that investors may deem comparable to us; and
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news
reports relating to trends in our markets or general economic conditions.
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Penny
stock rules will limit the ability of our stockholders to sell their stock.
The
SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price
(as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities
are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors”. The term “accredited investor” refers generally
to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer
orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules
discourage investor interest in and limit the marketability of our common stock; however, we have the option to execute a reverse
split which could mitigate this issue.
Compliance
with changing regulation of corporate governance, public disclosure and financial accounting standards may result in additional
expenses and affect our reported results of operations.
Keeping
informed of, and in compliance with, changing laws, regulations and standards relating to corporate governance, public disclosure
and accounting standards, including the Sarbanes-Oxley Act, Dodd-Frank Act, as well as new and proposed SEC regulations and accounting
standards, has required an increased amount of management attention and external resources. Compliance with such requirements
may result in increased general and administrative expenses and an increased allocation of management time and attention to compliance
activities.
We
may not be able to successfully integrate companies which we may invest in or acquire in the future, which could materially and
adversely affect our business, financial condition, future results and cash flow.
Part
of our business model includes the acquisition of new companies either as new platform companies or complimentary companies. Any
failure to effectively integrate any future acquisition’s management into our controls, systems and procedures could materially
adversely affect our business, results of operations, financial condition and cash flow.
Any
significant acquisition could require substantial use of our capital and may require significant debt or equity financing. We
anticipate the need to closely manage our cash for the foreseeable future and cannot provide any assurance as to the availability
or terms of any such financing or its effect on our liquidity and capital resources.
Integrating
acquisitions is often costly, and we may not be able to successfully integrate acquired companies with existing operations without
substantial costs, delays or other adverse operational or financial consequences. Integrating acquired companies involves a number
of risks that could materially and adversely affect our business, including:
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failure
of the acquired companies to achieve the results we expect;
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inability
to retain key personnel of the acquired companies;
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dilution
of existing stockholders;
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potential
disruption of our ongoing business activities and distraction of our management;
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difficulties
in retaining business relationships with suppliers and customers of the acquired companies;
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difficulties
in coordinating and integrating overall business strategies, sales and marketing, and research and development efforts; and
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difficulties
in establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and procedures.
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We
incur substantial costs as a result of being a public company.
As
a public company, we incur significant legal, accounting, and other expenses in connection with our reporting requirements. The
Sarbanes-Oxley Act of 2002, Dodd-Frank Act and the rules subsequently implemented by the Securities and Exchange Commission (“SEC”)
have required changes in corporate governance practices of public companies. These rules and regulations have already increased
our legal and financial compliance costs and the amount of time and effort we devote to compliance activities. We expect that
as a result of continued compliance with these rules and regulations, we will continue to incur significant legal and financial
compliance costs. We continue to regularly monitor and evaluate developments with respect to these new rules with our legal counsel,
but we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
We
may in the future become involved in litigation that may materially adversely affect us.
From
time to time in the ordinary course of our business, we may become involved in various legal proceedings, including commercial,
product liability, employment, class action and other litigation and claims, as well as governmental and other regulatory investigations
and proceedings. Any legal proceedings can be time-consuming, divert management’s attention and resources and cause us to
incur significant expenses. Because litigation is inherently unpredictable, the results of any such actions may have a material
adverse effect on our business, operations or financial condition.
We
have reported material weaknesses in internal controls over financial reporting as of December 31, 2020 and we cannot assure you
that additional material weaknesses will not be identified in the future or that we can effectively remediate our reported weaknesses.
If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors
in our consolidated financial statements that could require a restatement, or our filings may not be timely, and investors may
lose confidence in our reported financial information.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting
as of the end of each year, and to include a management report assessing the effectiveness of our internal control over financial
reporting in each Annual Report on Form 10-K.
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over
financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree
of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
As
a result, we cannot assure you that additional significant deficiencies or material weaknesses in our internal control over financial
reporting will not be identified in the future or that we can effectively remediate our reported weaknesses. Any failure to maintain
or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in significant
deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in material
misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations
regarding disclosure controls and the effectiveness of our internal control over financial reporting required under Section 404
of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of a material weakness could result in errors
in our consolidated financial statements that could result in a restatement of consolidated financial statements, cause us to
fail to timely meet our reporting obligations and cause investors to lose confidence in our reported financial information.
If
we are unable to protect our intellectual property, or our intellectual property protection efforts are unsuccessful, others may
duplicate our technology.
We
rely on a combination of patents, trademarks, copyrights, trade secret laws and restrictions on disclosure to protect our intellectual
property rights. Our ability to compete effectively will depend, in part, on our ability to protect our proprietary technology,
systems designs and manufacturing processes. The ability of others to use our intellectual property could allow them to duplicate
the benefits of our products and reduce our competitive advantage. In the future, should we apply for new patents, we do not know
whether any of our pending patent applications will be issued or, in the case of patents issued, that the claims allowed are or
will be sufficiently broad to protect our technology or processes. Further, a patent issued covering one use of our technology
may not be broad enough to cover uses of that technology in other business areas. Even if all our patent applications are issued
and are sufficiently broad, they may be challenged or invalidated, or our competitors may independently develop or patent technologies
or processes that are equivalent or superior to ours. We could incur substantial costs in prosecuting patent and other intellectual
property infringement suits and defending the validity of our patents and other intellectual property. While we have attempted
to safeguard and maintain our property rights, we do not know whether we have been or will be completely successful in doing so.
These actions could place our patents, trademarks and other intellectual property rights at risk and could result in the loss
of patent, trademark or other intellectual property rights protection for the products, systems and services on which our business
strategy partly depends. Furthermore, it is not practical from a cost/benefit perspective to file for patent or trademark protection
in every jurisdiction where we now or in the future may conduct business. In those territories where we do not have the benefit
of patent or trademark protections, our competitors may be able to prevent us from selling our products or otherwise limit our
ability to advertise under our established product names and we may face risks associated with infringement litigation as discussed
below.
We
rely, to a significant degree, on contractual provisions to protect our trade secrets and proprietary knowledge. These trade secrets
either cannot be protected by patent protection or we have determined that seeking a patent is not in our interest. These agreements
may be breached, and we may not have adequate remedies for any breach. Our trade secrets may also be known without breach of such
agreements or may be independently developed by competitors.
It
can be difficult or expensive to obtain the insurance we need for our business operations.
As
part of our business operations, we maintain insurance as a corporate risk management strategy. Insurance products are impacted
by market fluctuations and can become expensive and sometimes very difficult to obtain. There can be no assurance that we can
secure all necessary or appropriate insurance at an affordable price for the required limits. Our failure to obtain such insurance
could lead to uninsured losses that could have a material adverse effect on our results of operations or financial condition or
cause us to be out of compliance with our contractual obligations.
We
may in the future be involved in product liability and product warranty claims relating to the products we manufacture and distribute
that, if adversely determined, could adversely affect our financial condition, results of operations, and cash flows. Product
liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods,
regardless of the ultimate outcome. Claims of this nature could also have a negative impact on customer confidence in our products
and our company. While insurance can mitigate some of this risk, due to our current size and limited operating history, we have
been unable to obtain product liability insurance with significant coverage. Our customers may not accept the terms we have been
able to procure and seek to terminate our existing contracts or cease to do business with us.
Our
financial instruments could subject us to concentrations of credit risk.
Our
financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade accounts
receivable. Our cash was deposited with a U.S. bank and amounted to approximately $2.1 million at December 31, 2020. Approximately
32% of the accounts receivable at December 31, 2020 was due from two customers, 20% from one and 12% from another, who pay their
receivables over usual credit periods. Credit risk with respect to the balance of trade receivables is generally diversified due
to the number of entities comprising our customer base. Although we do not believe there is significant risk of non-performance
by these counterparties, any failures or defaults on their part could negatively impact the value of our financial instruments
and could have a material adverse effect on our business, operations or financial condition.
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 Coronavirus 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. 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.
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. 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 in order 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 in an effort 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.
OmniMetrix,
to date, has been deemed an essential business; however, if this were to change and our operations are curtailed, we may need
to seek alternate sources of supply for services and staff, which may be more expensive. Alternate sources may not be available
or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect
our results of operations. Further, if our customers’ businesses are similarly affected, they might delay or reduce purchases
from us, which could adversely affect our results of operations.
RISKS
RELATED TO OMNIMETRIX
While
OmniMetrix has reported quarterly net income since the second quarter of 2020, OmniMetrix has had a history of incurring net losses
since it was acquired by us and may never achieve sustained profitability.
Although
OmniMetrix realized an operating profit of approximately $0.6 million in 2020 and $0.2 million in 2019, OmniMetrix has a history
of incurring operating losses since OmniMetrix was acquired by Acorn in 2012. While OmniMetrix has significantly reduced its losses
and its cash needs from us and we expect positive cash flow from its operations in 2021, we can provide no assurance that OmniMetrix
will be able to generate sufficient revenues and cash flow to allow it to become profitable or to eventually sustain profitability
or to have positive cash flows.
An
increase in customer terminations would negatively affect our business by reducing OmniMetrix revenue or requiring us to spend
more money to grow our customer base.
Non-renewals
or other monitoring service terminations could increase in the future due to customer dissatisfaction with our products and services,
increased competition from other providers or alternative technologies.
If
we have an increase in our non-renewal rate, we will have to acquire new customers on an ongoing basis just to maintain our existing
level of customers and revenues. As a result, marketing expenditures are an ongoing requirement of our business. We incur significant
costs to acquire new customers, and those costs are an important factor in determining our net profitability. Therefore, if we
are unsuccessful in retaining customers or are required to spend significant amounts to acquire new customers, our revenue could
decrease and our operating results could be affected.
OmniMetrix
is a relatively small company with limited resources compared to some of its current and potential competitors, which may hinder
its ability to compete effectively.
Some
of OmniMetrix’s current and potential competitors have significantly greater resources and broader name recognition than
it does. As a result, these competitors may have greater credibility with OmniMetrix’s existing and potential customers.
They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and
sale of their products, which would allow them to respond more quickly to new or emerging technologies or changes in customer
requirements. In particular, at the present time we are facing significant competition from generator manufacturers who offer
their own monitoring solutions.
OmniMetrix
may not be able to access sufficient capital to support growth.
Although
OmniMetrix is not expected to need funding from us in 2021 to support its growth and working capital needs, OmniMetrix has historically
been dependent on Acorn’s ability and willingness to provide funding to support its business and growth strategy. Since
our acquisition of OmniMetrix in February 2012, we have invested approximately $14.0 million and, as of December 31, 2020, have
lent approximately $2,985,000, net of repayments of approximately $570,000 in the aggregate made in 2019 and 2020, to OmniMetrix,
not including approximately $1,590,000 of accrued interest and expenses advanced to it by Acorn since 2014. The loans included
$323,000 lent in 2019 to repay a loan from a former director. The advances include $114,000 in accrued preferred dividends for
preferred OmniMetrix stock purchased by Acorn from a former director in connection with Acorn’s reacquisition of 19% of
OmniMetrix in 2019.
We
have no assurance that current cash balances plus cash flow from operations will provide sufficient liquidity for OmniMetrix’s
working capital needs in 2021. 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.
OmniMetrix
sells equipment and services which monitor third-party products, thus its revenues are dependent on the continued sales of such
third-party products.
OmniMetrix’s
end-user customer base is comprised exclusively of parties who have chosen to purchase either generators or construct gas pipelines.
OmniMetrix has no ability to control the rate at which new generators or cathodic protection systems are acquired. If purchases
of such products decline, the associated need for OmniMetrix’s products and services is expected to decline as well.
If
OmniMetrix is unable to keep pace with changing market or customer-mandated product and service improvements, OmniMetrix’s
results of operations and financial condition may suffer.
Many
of OmniMetrix’s existing products may require ongoing engineering and upgrades in conjunction with market developments as
well as specific customer needs. There can be no assurance that OmniMetrix will continue to be successful in its engineering efforts
regarding the development of its products, and future technological difficulties could adversely affect its business, results
of operations and financial condition.
The
cellular networks used by OmniMetrix are also subject to periodic technical updates that may require corresponding updates to,
or replacement of, OmniMetrix’s monitoring equipment.
Cellular
networks have evolved over time to offer more robust technical capabilities in both voice and data transmission. At the present
time, the changes from the so-called “2G” to “3G” and “LTE” service have resulted in only
limited service interruptions. OmniMetrix anticipates, however, that as these new capabilities come online, it will be necessary
to have equipment that can readily interface with the newer cellular networks to avoid negative impacts on customer service. Not
all of the costs associated with OmniMetrix’s corresponding equipment upgrades can be passed on to customers, and any increased
expenses are expected to have a negative impact on OmniMetrix’s operating results.
A
substantial portion of OmniMetrix’s revenues are expected to be generated not from product sales, but from periodic monitoring
fees and thus it is continually exposed to risks associated with its customers’ financial stability.
OmniMetrix
sells on-going monitoring services to both PG and CP customers. It is therefore dependent on these customers continuing to timely
pay service fees on an on-going basis. If a significant portion of these fees are not renewed from year-to-year, OmniMetrix could
expect to experience deterioration in its financial condition.
OmniMetrix’s
ability to provide, and to collect revenues from, monitoring services is dependent on the reliability of cellular networks not
controlled by OmniMetrix.
OmniMetrix
provides monitoring services through the use of cellular and satellite technology utilizing the networks of third-party providers.
These providers generally do not warrant their services to either OmniMetrix or the end users and any dropped transmissions could
result in the loss of customer renewals and potential claims against OmniMetrix. While OmniMetrix uses contractual measures to
limit its liability to customers, there is no assurance that such limitations will be enforced or that customers will not cancel
monitoring services due to network issues.
OmniMetrix’s
business is dependent on its ability to reliably store and manage data, but there can be no guarantee that it has sufficient capabilities
to mitigate potential data loss in all cases.
The
efficient operation of OmniMetrix’s business is dependent on its information technology systems. In addition, OmniMetrix’s
ability to assist customers in analyzing data related to the performance of such customers’ power and cathodic protection
monitoring systems is an important component of its customer value proposition. OmniMetrix utilizes off-site data servers, housed
within a commercial data center utilizing accepted data and power monitoring and protection processes, but whether a data loss
can be avoided cannot be assured in every case. OmniMetrix’s information technology systems are vulnerable to damage or
interruption from natural disasters, sabotage (including theft and attacks by computer viruses or hackers), power outages; and
computer systems, Internet, telecommunications or data network failure. Any interruption of OmniMetrix’s information technology
systems could result in decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential
lawsuits, any of which could have a material adverse effect on its results of operations and financial condition.
RISKS
RELATED TO OUR SECURITIES
Our
stock price is highly volatile and we do not expect to pay dividends on shares of our common stock for the foreseeable future.
Investors may never obtain a return on their investment.
The
market price of our common stock has fluctuated substantially in the past and is likely to continue to be highly volatile and
subject to wide fluctuations. During 2020, our common stock traded at prices as low as $0.11 and as high as $0.50 per share. Fluctuations
in our stock price may continue to occur in response to various factors, many of which we cannot control, including:
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general
economic and political conditions and specific conditions in the markets we address;
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quarter-to-quarter
variations in our operating results;
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strategic
investments or divestments;
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announcements
of changes in our senior management;
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the
gain or loss of one or more significant customers or suppliers;
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announcements
of technological innovations or new products by our competitors, customers or us;
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the
gain or loss of market share in any of our markets;
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changes
in accounting rules;
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changes
in investor perceptions; or
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changes
in expectations relating to our products, plans and strategic position or those of our competitors or customers.
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We
do not intend to pay dividends to our stockholders in the foreseeable future. We intend to reinvest earnings, if any, in the development
and expansion of our business. Accordingly, you will need to rely on sales of your common stock after price appreciation, which
may never occur, in order to realize a return on your investment.
Our
share price may decline due to the large number of shares of our common stock eligible for future sale in the public market including
shares underlying warrants and options.
Almost
all of our outstanding shares of common stock are, or could upon exercise of options or warrants become, eligible for sale in
the public market as described below. Sales of a substantial number of shares of our common stock in the public market, or the
possibility of these sales, may adversely affect our stock price.
As
of March 11, 2021, 39,687,589 shares of our common stock were issued and outstanding. As of that date we had 35,000 warrants outstanding
and exercisable with a weighted average exercise price of $0.13 per share and 429,828 options outstanding and exercisable with
a weighted average exercise price of $0.67 per share, which if exercised would result in the issuance of additional shares of
our common stock. In addition to the options noted above, at March 11, 2021, there were 341,418 options are outstanding, but have
not yet vested and are not yet exercisable.
Substantially
all of our currently outstanding shares and shares issuable under our outstanding options and warrants are or would be freely
tradable.
We
may have to offer additional securities for sale in the near future.
As
of March 11, 2021, we had consolidated cash of approximately $1.8 million which we believe is sufficient for at least the
next twelve months. Despite this, we may ultimately not have sufficient cash to allow us to execute our plans, and the occurrence
of one or more unanticipated events may require us to make significant expenditures. Accordingly, we may need to raise additional
amounts to finance our operations. If we were to do so by selling shares of our common stock and/or other securities convertible
into shares of our common stock, current investors may incur additional dilution in the value of their shares.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
OmniMetrix’s
activities are currently conducted in approximately 21,000 square feet of office and production space in the Hamilton Mill Business
Park located in Buford, Georgia under a lease that has been extended from its original expiration date of April 30, 2020 to September
30, 2025. The annual total of rent payments in 2020 was approximately $78,000 which reflects eight months of rent and four free
months for which the expense is amortized over the term of the lease. For 2021, the annual rent payments will
be approximately $119,000. OmniMetrix is currently utilizing only a portion of these leased facilities and expects to grow into
a portion of the currently unused space and potentially sublease several available executive office spaces.
ITEM
3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our
common stock is traded under the symbol “ACFN” on the OTCQB marketplace. The following table sets forth, for the periods
indicated, the high and low bid prices on the OTCQB marketplace.
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High
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Low
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2020:
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First Quarter
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$
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0.40
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$
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0.11
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Second Quarter
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0.28
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0.16
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Third Quarter
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0.40
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0.20
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Fourth Quarter
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0.50
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0.29
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2019:
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First Quarter
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$
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0.45
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$
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0.26
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Second Quarter
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0.36
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0.25
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Third Quarter
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0.36
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0.20
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Fourth Quarter
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0.38
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0.24
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As
of March 11, 2021, the last reported sales price of our common stock on the OTCQB marketplace was $0.55, there were 78
record holders of our common stock and we estimate that there were approximately 3,400 beneficial owners of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AND TREND INFORMATION
The
following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate
depends upon a variety of factors that may affect our business and operations. Certain of these factors are discussed in “Item
1A. Risk Factors.”
We
currently operate in two reportable operating segments, both of which are performed though our OmniMetrix subsidiary:
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The
PG segment which provides wireless remote monitoring and control systems and services for critical assets as well as Internet
of Things applications; and
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The
CP segment which provides for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline
companies.
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The
following analysis should be read together with the segment information provided in Note 11 to our consolidated financial statements
included in this report.
OmniMetrix
Following
the emergence of M2M and IoT applications whereby companies aggregate multiple sensors and monitors into a simplified dashboard
for customers, OmniMetrix believes it plays a key role in this economic ecosystem. In addition, OmniMetrix 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, commercial and industrial standby generators,
turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly
becoming monitored in IoT applications, and given that OmniMetrix monitors all major brands of critical equipment and continues
to invest in research and development in response to customer and potential customer feedback, OmniMetrix believes it is well-positioned
as a competitive participant in this market to continue to grow its customer base and expand its product offerings.
OmniMetrix
Line of Credit
In
March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible receivables or $1 million. Debt incurred under this financing arrangement
bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of
0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances
of 15%. OmniMetrix also agreed to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum
of two years beginning March 1, 2019. The monthly service charge and interest was calculated on the greater of the outstanding
balance or $150,000. From time to time, the balance outstanding could fall below $150,000 based on collections applied against
the loan balance and the timing of loan draws.
OmniMetrix
had an outstanding balance of approximately $149,000 at December 31, 2020, pursuant to the loan and security agreement. We repaid
the outstanding balance in February 2021 and elected not to renew this line of credit, which expired in accordance with its terms
on February 28, 2021.
Small
Business Administration Paycheck Protection Program (“SBA PPP”)
On
April 24, 2020, Acorn Energy, Inc. received SBA PPP loan proceeds in the amount of $41,600.
On
April 30, 2020, OmniMetrix, LLC received SBA PPP loan proceeds in the amount $419,800.
Under
the SBA PPP of the Coronavirus Aid, Relief and Economic Security Act (the “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 SBA PPP loan
depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding.
Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness
Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly
payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal
and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note.
On
October 20, 2020, OmniMetrix submitted its SBA PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed
that OmniMetrix’s application for forgiveness had been approved and that its SBA PPP loan, in the amount of
$419,800 plus accrued interest of $2,162, had been forgiven.
The
Company elected not to apply for forgiveness of the SBA PPP loan proceeds received by its parent entity, Acorn Energy, Inc., in
the amount of $41,600 plus accrued interest of $206. This loan was repaid to the lender effective October 22, 2020.
Intercompany
During
2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately $70,000. This included interest of
approximately $253,000, dividends of $76,000 due to Acorn and approximately $176,000 in shared expenses paid by Acorn less repayments
from OmniMetrix of $435,000. We believe that OmniMetrix will not need working capital support in 2021. 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.
In
January 2020, the aggregate tax refunds held in the bank account in Israel of approximately $371,000 were transferred to our bank
account in the US with exemption from withholding tax, and our Israeli corporate income tax file related to a 2018 sale of our
ownership interest in an Israeli subsidiary was closed as of January 1, 2020.
As
of March 11, 2021, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of approximately
$1,812,000 in cash.
Other
Matters
On
April 28, 2020, we entered into a new agreement for data hosting services, replacing an expiring agreement with the same vendor,
effective May 1, 2020. The agreement has a twelve-month term and the total payments under this agreement are approximately $148,000
in the aggregate. This represents an increase of approximately $21,000 from the prior twelve-month term for additional services
including enhanced business continuity and disaster recovery services.
On
May 5, 2020, 2,142,857 warrants with a book value of approximately $1,018,000 expired in accordance with their terms.
CRITICAL
ACCOUNTING POLICIES
The
SEC defines “critical accounting policies” as those that require application of management’s most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.
The
following discussion of critical accounting policies represents our attempt to report on those accounting policies, which we believe
are critical to our consolidated financial statements and other financial disclosure. It is not intended to be a comprehensive
list of all of our significant accounting policies, which are more fully described in Note 2 of the Notes to the Consolidated
Financial Statements included in this Annual Report. In many cases, the accounting treatment of a particular transaction is specifically
dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There
are also areas in which the selection of an available alternative policy would not produce a materially different result.
We
have identified the following as critical accounting policies affecting our Company: principles of consolidation and investments
in associated companies; revenue recognition and stock-based compensation.
Principles
of Consolidation
Our
consolidated financial statements include the accounts of all majority-owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Revenue
Recognition
Our
revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle
of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this
core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those
contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract,
which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is
satisfied. We assess whether payment terms are customary or extended in accordance with normal practice relative to the market
in which the sale is occurring. Our sales arrangements generally include standard payment terms. These terms effectively relate
to all customers, products, and arrangements regardless of customer type, product mix or arrangement size.
If
revenue recognition criteria are not satisfied, amounts received from customers are classified as deferred revenue on the consolidated
balance sheets until such time as the revenue recognition criteria are met.
Sales
of OmniMetrix monitoring systems include the sale of equipment (“HW”) and of monitoring services (“Monitoring”).
Sales of OmniMetrix equipment do not qualify as a separate unit of accounting. As a result, revenue (and related costs) associated
with sale of equipment are recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. Revenue
and related costs with respect to the sale of equipment are recognized over the estimated life of the units which are currently
estimated to be three years. Revenues from the prepayment of monitoring fees (generally paid twelve months in advance) are initially
recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service
period. See Notes 11 and 12 for the disaggregation of our revenue for the periods presented.
Stock-based
Compensation
We
recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles,
using the Black-Scholes option valuation method. Accordingly, we are required to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over
the period during which an employee is required to provide service in exchange for the award. Under the Black-Scholes method,
we make assumptions with respect to the expected lives of the options that have been granted and are outstanding, the expected
volatility, the dividend yield percentage of our common stock and the risk-free interest rate at the respective dates of grant.
For
our Acorn options, the expected volatility factor used to value stock options in 2020 was based on the historical volatility of
the market price of our common stock over a period equal to the expected term of the options. For the expected term of the option,
we used an estimate of the expected option life based on historical experience. The risk-free interest rate used is based upon
U.S. Treasury yields for a period consistent with the expected term of the options. We assumed no quarterly dividend rate. We
recognize stock-based compensation expense on an accelerated basis over the requisite service period. Due to the numerous assumptions
involved in calculating share-based compensation expense, the expense recognized in our consolidated financial statements may
differ significantly from the value realized by employees on exercise of the share-based instruments. In accordance with the prescribed
methodology, we do not adjust our recognized compensation expense to reflect these differences.
For
the years ended December 31, 2020 and 2019, we incurred stock compensation expense with respect to options of approximately $35,000
and $22,000, respectively.
See
Note 8 to the consolidated financial statements for the assumptions used to calculate the fair value of share-based employee compensation
for our Acorn options.
RESULTS
OF OPERATIONS
The
selected consolidated statement of operations data for the years ended December 31, 2020 and 2019 and consolidated balance sheet
data as of December 31, 2020 and 2019 has been derived from our audited consolidated financial statements included in this Annual
Report. The selected consolidated statement of operations data for the years ended December 31, 2018, 2017 and 2016 has been derived
from our consolidated financial statements not included herein.
This
data should be read in conjunction with our consolidated financial statements and related notes included herein and “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Selected
Consolidated Statement of Operations Data:
|
|
For
the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in
thousands, except per share data)
|
|
Revenue
|
|
$
|
5,922
|
|
|
$
|
5,490
|
|
Cost
of sales
|
|
|
1,791
|
|
|
|
1,900
|
|
Gross
profit
|
|
|
4,131
|
|
|
|
3,590
|
|
Research
and development expenses, net
|
|
|
619
|
|
|
|
559
|
|
Selling,
general and administrative expenses
|
|
|
3,822
|
|
|
|
3,730
|
|
Operating
loss
|
|
|
(310
|
)
|
|
|
(699
|
)
|
Finance
income (expense), net
|
|
|
(35
|
)
|
|
|
2
|
|
Gain
on PPP loan extinguishment
|
|
|
421
|
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
|
76
|
|
|
|
(697
|
)
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
Net
income (loss) after income taxes
|
|
|
76
|
|
|
|
(697
|
)
|
Gain
on sale of interest in DSIT
|
|
|
—
|
|
|
|
50
|
|
Net
income (loss)
|
|
|
76
|
|
|
|
(647
|
)
|
Non-controlling
interest share of (income) loss
|
|
|
(7
|
)
|
|
|
29
|
|
Net
income (loss) attributable to Acorn Energy, Inc. shareholders
|
|
$
|
69
|
|
|
$
|
(618
|
)
|
Basic
and diluted net income (loss) per share attributable to Acorn Energy, Inc. shareholders:
|
|
|
|
|
|
|
|
|
Net
loss per share attributable to Acorn Energy, Inc. shareholders – basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic
|
|
|
39,674
|
|
|
|
35,495
|
|
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – diluted
|
|
|
39,713
|
|
|
|
35,495
|
|
The
following table sets forth certain information with respect to revenues and profits of our reportable business segments for the
years ended December 31, 2020 and 2019 (dollars in thousands), including the percentages of revenues attributable to such segments.
(See Note 12 to our consolidated financial statements for the definitions of our reporting segments).
|
|
PG
|
|
|
CP
|
|
|
Total
|
|
Year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
4,988
|
|
|
$
|
934
|
|
|
$
|
5,922
|
|
Percentage of total revenues from external customers
|
|
|
84
|
%
|
|
|
16
|
%
|
|
|
100
|
%
|
Segment gross profit
|
|
|
3,626
|
|
|
|
505
|
|
|
|
4,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
4,282
|
|
|
$
|
1,208
|
|
|
$
|
5,490
|
|
Percentage of total revenues from external customers
|
|
|
78
|
%
|
|
|
22
|
%
|
|
|
100
|
%
|
Segment gross profit
|
|
|
3,030
|
|
|
|
560
|
|
|
|
3,590
|
|
2020
COMPARED TO 2019
Revenue.
In 2020, OmniMetrix recorded total revenue of approximately $5,922,000, as compared to total revenue of approximately $5,490,000
in 2019, for an increase of approximately $432,000 (8%). As previously stated, OmniMetrix has two divisions: PG and CP. The PG
segment includes our monitoring device for generators, industrial air compressors and dryers, and a new line of annunciators.
In 2020, revenue of approximately $4,988,000 was attributed to the PG segment and revenue of approximately $934,000 was
attributed to the CP segment, as compared to the 2019 revenue of approximately $4,282,000 that was attributed to
the PG segment and approximately $1,208,000 that was attributed to the CP segment. PG revenue increased from approximately
$4,282,000 in 2019 to approximately $4,988,000 in 2020 (16%) while CP revenue decreased from approximately $1,208,000 in 2019
to approximately $934,000 in 2020 (23%). Increased revenue in PG was due to an increase in monitoring revenue of 15% from approximately
$3,327,000 in 2019 to approximately $3,819,000 in 2020. The increase in monitoring revenue is the result of an increase in the
number of units being monitored. The increase in monitoring revenue was offset by a decrease in hardware revenue which decreased
3% from approximately $2,163,000 in 2019 to approximately $2,103,000 in 2020. The decrease in hardware revenue is primarily due
to a decrease of hardware sales in the CP segment. CP hardware revenue decreased approximately $290,000 (30%) 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 typically take twelve to eighteen months from
customer introduction to closing. This decrease in CP hardware revenue was offset by an increase in PG hardware revenue of approximately
$230,000 (19%).
Gross
profit. Gross profit for 2020 was approximately $4,131,000 reflecting a gross margin of 70% on revenue, compared with a gross
profit of approximately $3,590,000 reflecting a 65% gross margin in 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 as well
as to higher gross margin realized on hardware revenue. Gross margin on hardware revenue increased in 2020 to 44% from 38% in
2019. This increase was the result of increased gross margins for PG hardware which grew from 34% in 2019 to 40% in 2020. The
increased margin was the result of reduced costs in our PG units as we benefit from our redesigned products. CP hardware gross
margin increased to 49% in 2020 from 43% in 2019 due to product mix. Gross margin on monitoring revenue remained strong at 84%
during 2020 and 2019.
Research
and development. During 2020, OmniMetrix recorded approximately $619,000 of R&D expense as compared to approximately $559,000
in 2019, an increase of approximately $60,000 (11%). 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 in 2021 as we continue to work on certain initiatives to redesign products and expand product lines to increase the level
of innovation and gain more market share.
Selling,
general and administrative expense (“SG&A”). Consolidated SG&A expense in 2020 increased by approximately
$92,000 (2%) as compared to 2019. Corporate overhead increased by approximately $14,000 from approximately $876,000
in 2019 to approximately $890,000 in 2020 due to additional professional fees incurred. OmniMetrix’s SG&A increased
approximately $79,000 (3%) from approximately $2,854,000 in 2019 to approximately $2,932,000 in 2020. 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 travel and sales tax expenses. We anticipate that our annual SG&A costs in 2021 will
increase approximately 15% due to having a fully staffed and expanded sales team and due to our continuing investments in technology
and operations.
Finance
expense, net. Finance expense in 2020 was primarily comprised of interest expense and service charges of approximately $28,000
associated with OmniMetrix’s line of credit, miscellaneous net interest expense of approximately $3,000 and currency exchange
loss of approximately $4,000. Finance expense in 2019 was primarily comprised of interest expense and service charges of approximately
$23,000 associated with OmniMetrix’s line of credit, miscellaneous net interest income of approximately $2,000 and currency
exchange net gain of approximately $23,000.
Loss
on sale of DSIT. In the first quarter of 2018, we closed on the sale of our remaining interests in DSIT Solutions Ltd. In
2019, we received an additional tax benefit of approximately $50,000 that reduced the loss on the sale of DSIT.
Gain
on PPP loan extinguishment. 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
Small Business Administration (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.
On
October 20, 2020, OmniMetrix submitted its PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed
that OmniMetrix’s application for forgiveness had been approved and that its PPP loan, in the amount of $419,800 plus accrued
interest of $2,162, had been forgiven.
We
elected not to apply for forgiveness of the PPP loan proceeds received by our parent entity in the amount of $41,600 plus accrued
interest of $206. This loan was repaid to the lender effective October 22, 2020.
Net
loss attributable to Acorn Energy. We had net income attributable to Acorn Energy of approximately $69,000 in 2020 as compared
with a net loss of approximately $618,000 in 2019. Our income in 2020 is comprised of net income at OmniMetrix of approximately
$549,000, corporate expense of approximately $894,000 offset by the gain on the extinguishment of the PPP loan of approximately
$421,000 and approximately $7,000 representing the non-controlling interest share of our income in OmniMetrix. Our loss in 2019
is comprised of net income at OmniMetrix of approximately $184,000, corporate expense of approximately $852,000 partially offset
by the gain of approximately $50,000 related to the tax recovery on the sale of our remaining interest in DSIT, which occurred
in February 2018, and by $29,000 representing the non-controlling interest share of our loss in OmniMetrix.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2020, we had a negative working capital of approximately $95,000. Our working capital includes approximately $2,063,000
of cash and deferred revenue of approximately $3,214,000. Such deferred revenue does not require significant cash outlay for the
revenue to be recognized. Net cash increased during the year ended December 31, 2020 by approximately $816,000, of which approximately
$464,000 was provided by operating activities, approximately $101,000 was used in investing activities, and approximately $453,000
was provided by financing activities, of which approximately $421,000 was net proceeds from the SBA PPP loan.
During
the year ended December 31, 2020, our operating activities provided approximately $464,000. Our OmniMetrix subsidiary provided
approximately $1,366,000 from its operations while our corporate headquarters used approximately $902,000 in its operating activities
during the same period.
Net
cash of approximately $101,000 was used in investing activities in 2020 which was primarily investments in software.
Net
cash of approximately $453,000 was provided by financing activities which was comprised of approximately $421,000 in proceeds,
net of repayments, from the PPP loan, approximately $13,000 in net proceeds from OmniMetrix’s line of credit described above
under the heading “OVERVIEW AND TREND INFORMATION — OmniMetrix Line of Credit”, and approximately $19,000 in
proceeds from the exercise of stock options.
As
previously discussed, we elected not to renew OmniMetrix’s line of credit and it expired in accordance with its terms on
February 28, 2021. If we decide to pursue additional financing for OmniMetrix in the future, it may be in the form of a bank line,
a new loan or investment by others, an equity raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or a combination
of the above. The availability and amount of any additional loans from 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
at this time.
Rights
Offering
On
June 28, 2019, we completed a rights offering, raising approximately $2,186,000 in proceeds, net of approximately $208,000 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 for $1,273,000 discussed below.
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.
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 PG and CP 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 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 $4,575,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix has made
monthly payments to Acorn of varying amounts, $570,000 in the aggregate, since the second quarter of 2019. OmniMetrix will
continue to make payments to Acorn against this balance while as long as OmniMetrix is generating sufficient cash to allow
such repayments.
We
had approximately $2,063,000 of cash on December 31, 2020, and approximately $1,812,000 on March 11, 2021. 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 December
31, 2020.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
|
|
Years Ending December 31,
(in thousands)
|
|
|
|
Total
|
|
|
2021
|
|
|
2022-2023
|
|
|
2024-2025
|
|
|
2026 and thereafter
|
|
Software agreements
|
|
$
|
101
|
|
|
$
|
70
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating leases
|
|
|
603
|
|
|
|
121
|
|
|
|
253
|
|
|
|
229
|
|
|
|
—
|
|
Contractual services
|
|
|
211
|
|
|
|
160
|
|
|
|
51
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual cash obligations
|
|
$
|
915
|
|
|
$
|
351
|
|
|
$
|
335
|
|
|
$
|
229
|
|
|
$
|
—
|
|
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
General
We
are required to make certain disclosures regarding our financial instruments, including derivatives, if any.
A
financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that imposes on one entity
a contractual obligation either to deliver or receive cash or another financial instrument to or from a second entity. Examples
of financial instruments include cash and cash equivalents, deposits, trade accounts receivable, loans, investments, trade accounts
payable, accrued expenses, options and forward contracts. The disclosures below include, among other matters, the nature and terms
of derivative transactions, information about significant concentrations of credit risk, and the fair value of financial assets
and liabilities.
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.
Concentrations
of Credit Risk
The
Company’s financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally
of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $2,063,000
at December 31, 2020. Approximately 32% of the accounts receivable at December 31, 2020 was due from two customers, 20% from one
and 12% from another, who pay their receivables over usual credit periods. 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. The Company does not believe
there is significant risk of non-performance by these counterparties.
Interest
Rate Risk
In
March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible receivables or $1 million. Debt incurred under this financing arrangement
bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix paid a monthly service charge of 0.75%
of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances of 15%.
OmniMetrix also agreed to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two
years beginning March 1, 2019. From time to time, the balance outstanding fell below $150,000 based on collections applied against
the loan balance and the timing of loan draws. We elected not to renew this line of credit and allowed it to expire in accordance
with its terms on February 28, 2021. OmniMetrix no longer has interest rate risk related to debt.
COVID-19
Pandemic Risk to Supply Chain
As
discussed above under the “RISK FACTORS” heading, the COVID-19 pandemic could 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. 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 continue to work closely
with our contract manufacturers and suppliers in order 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 also continue
to examine all currently open purchase orders in an effort 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. Alternate sources may not be available
or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect
our results of operations. Further, if our customers’ businesses are similarly affected as a result of the pandemic, they
might delay or reduce purchases from us, which could adversely affect our results of operations.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Furnished
at the end of this report commencing on page F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our
CEO and CFO concluded that, due to the material weaknesses in our internal control over financial reporting as described below,
our disclosure controls and procedures were not effective as of December 31, 2020.
Internal
Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based upon
the document “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). Based upon this assessment and those criteria, management concluded that due
to the material weaknesses described below, our internal control over financial reporting was not effective as of December 31,
2020.
The
Company employs a decentralized internal control methodology, coupled with management’s oversight, whereby its 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 the Company’s
external consolidated financial statements. Also, as the Company’s subsidiary is not large enough to effectively mitigate
certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout the 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 the Company’s OmniMetrix
subsidiary and limited IT system capabilities, such that individual control policies and procedures could not be implemented,
maintained, or remediated when and where necessary. As a result, a majority of the significant process areas management identified
for the Company’s OmniMetrix subsidiary had one or more material weaknesses present. This condition was further exacerbated
as the Company could not demonstrate that each of the principles described within COSO’s document “Internal Control
- Integrated Framework (2013)” were present and functioning.
Although
a material weakness is defined as a deficiency, or a combination of deficiencies in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated
financial statements will not be prevented or detected on a timely basis, this material weakness did not result in any material
misstatements of the Company’s consolidated financial statements and disclosures for any interim periods during, or for
the annual period ended December 31, 2020.
Remediation
Actions
Management
will continue to focus on strengthening the Company’s internal controls. Management expects to make progress towards reducing
the risk that the material weakness could result in a material misstatement of the Company’s annual or interim consolidated
financial statements. As business conditions allow and resources permit, management will continue to systematically build the
necessary capabilities and infrastructure to implement corrective action.
Changes
in Internal Control Over Financial Reporting
Other
than those changes associated with our material weakness described above and the corresponding remediation actions, there was
no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended), during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
and Executive Officers
Set
forth below is certain information concerning the directors and certain officers of the Company:
Name
|
|
Age
|
|
Position
|
Jan
H. Loeb
|
|
62
|
|
Director,
President and Chief Executive Officer of the Company and Acting CEO of OmniMetrix
|
Gary
Mohr
|
|
62
|
|
Director
and member of our Audit, Nominating and Compensation Committees
|
Michael
F. Osterer
|
|
75
|
|
Director
and member of our Audit, Nominating and Compensation Committees
|
Samuel
M. Zentman
|
|
75
|
|
Director,
Chairman of our Audit Committee and member of our Nominating and Compensation Committees
|
Tracy
S. Clifford
|
|
52
|
|
Chief
Financial Officer of the Company and COO of OmniMetrix
|
Jan
H. Loeb has served as our President and CEO since January 28, 2016 and as Acting CEO of OmniMetrix since December 1, 2019.
He was appointed to our Board in August 2015 pursuant to the terms of our loan and security agreement with Leap Tide Capital Partners
III, LLC (the “Leap Tide Loan Agreement”). He was also appointed to the Board of our then subsidiary DSIT in August
2015 pursuant to the terms of the Leap Tide Loan Agreement and held that position until the sale of our remaining interest in
DSIT in February 2018. Mr. Loeb has more than 40 years of money management and investment banking experience. He has been the
Managing Member of Leap Tide Capital Management LLC since 2007. From 2005 to 2007, he served as the President of Leap Tide’s
predecessor, Leap Tide Capital Management Inc., which was formerly known as AmTrust Capital Management Inc. He served as a Portfolio
Manager of Chesapeake Partners from February 2004 to January 2005. From January 2002 to December 2004, he served as Managing Director
at Jefferies & Company, Inc. From 1994 to 2001, he served as Managing Director at Dresdner Kleinwort Wasserstein, Inc. (formerly
Wasserstein Perella & Co., Inc.). He served as a Lead Director of American Pacific Corporation from July 8, 2013 to February
27, 2014, and also served as its Director from January 1997 to February 27, 2014. He served as an Independent Director of Pernix
Therapeutics Holdings Inc. (formerly, Golf Trust of America, Inc.) from 2006 to August 31, 2011. He served as a Director of TAT
Technologies, Ltd. from August 2009 to December 21, 2016. He served as a Director of Keweenaw Land Association, Ltd. from December
2016 until May 2019.
Key
Attributes, Experience and Skills. Mr. Loeb brings to the Acorn Board significant financial expertise, cultivated over more
than 40 years of money management and investment banking experience, together with a background in public company management and
audit committee experience.
Gary
Mohr was elected to the Board in August 2018 and is a member of our Audit, Compensation and Nominating Committees. Mr. Mohr
is President of UE Systems, Incorporated, an international technology company specializing in the field of plant asset reliability
through ultrasound. Mr. Mohr started with UE Systems in 1988 as a salesman and rapidly progressed through the ranks as regional
sales manager, National Sales Manager, Vice President and eventually President of the company. It is through Mr. Mohr’s
stewardship that UE Systems has grown from a national brand to an international company with offices in Toronto, Mexico City,
Hong Kong, India and the Netherlands, and developed a list of loyal customers, including those in the Fortune 500.
Key
Attributes, Experience and Skills. Mr. Mohr brings to the Board a broad range of operational and managerial experience, including
a successful track record in product development and marketing leadership.
Michael
F. Osterer was elected to the Board in August 2018 and is a member of our Audit, Compensation and Nominating Committees. He
served as an advisor to our Board from October 2017 until his election as director. Since 1973, Mr. Osterer has served as Chairman
of the Board of UE Systems, Incorporated, a leader in the field of plant asset reliability through ultrasound, which he founded
in 1973. He also served as President of UE Systems from 1973 to 1985. Since 1987, Mr. Osterer has served as President of Libom
Oil, an oil exploration, drilling and purchasing company, which he founded in 1987. He is the Acting Chairman of the Board of
Radon Testing Corporation of America, Inc., which he founded in 1985 and where he served as President from 1985 through 1989.
Mr. Osterer also founded Westchester Consultants, a general business consultancy nationally recognized for branding expertise
of food products. He served in the United States Air Force/Air National Guard, 105th Airborne Division, from 1964 through 1970.
Mr. Osterer graduated from Fordham University with a BA in Social Sciences, Magna Cum Laude.
Key
Attributes, Experience and Skills. Mr. Osterer brings to Acorn a wealth of operational and managerial experience gained over
his long history of successful entrepreneurial pursuits, corporate leadership and oversight.
Samuel
M. Zentman has been one of our directors since November 2004 and currently serves as Chairman of our Audit Committee and as
a member of our Compensation and Nominating Committees. From 1980 until 2006, Dr. Zentman was the president and chief executive
officer of a privately-held textile firm, where he also served as vice president of finance and administration from 1978 to 1980.
From 1973 to 1978, Dr. Zentman served in various capacities in the Information Systems department at American Motors Corporation
including Director of the Corporate Data Center and the Engineering Computer Centers. He holds a Ph.D. in Complex Analysis. Dr.
Zentman serves on the board of Hinson & Hale Medical Technologies, Inc., as well as several national charitable organizations
devoted to advancing the quality of education.
Key
Attributes, Experience and Skills. Dr. Zentman’s long-time experience as a businessman together with his experience
with computer systems and software enables him to bring valuable insights to the Board. Dr. Zentman has a broad, fundamental understanding
of the business drivers affecting our Company and also brings leadership and oversight experience to the Board.
Tracy
S. Clifford has served as the Company’s Chief Financial Officer since June 1, 2018 and as the COO of OmniMetrix since
December 1, 2019. She serves in such positions pursuant to a Consulting Agreement between the Company and Tracy Clifford Consulting,
LLC. Ms. Clifford is President and Owner of Tracy Clifford Consulting, LLC, through which she has been providing contract CFO/COO
services and other advisory services and project engagements since June 2015. Between October 1999 and May 2015, she served as
CFO, Principal Accounting Officer, Corporate Controller and Secretary for a publicly-traded pharmaceutical company and a publicly-traded
REIT. Her prior experience includes accounting leadership positions at United Healthcare (Atlanta) and the North Broward Hospital
District (Fort Lauderdale) and work on the audit team of Deloitte & Touche (Miami). Ms. Clifford obtained a Bachelor of Science
Degree in Accounting from the College of Charleston and a Master’s Degree in Business Administration with a concentration
in Finance from Georgia State University. Ms. Clifford is a licensed CPA in the state of South Carolina and holds a Certification
in the Fundamentals of Forensic Accounting from the AICPA.
Audit
Committee; Audit Committee Financial Expert
The
Company has a separate designated standing Audit Committee established and administered in accordance with SEC rules. The three
members of the Audit Committee are Samuel M. Zentman (who serves as Chairman of the Audit Committee), Gary Mohr and Michael F.
Osterer. The Board of Directors has determined that each member of the Audit Committee meets the independence criteria prescribed
by NASDAQ governing the qualifications for audit committee members and each Audit Committee member meets NASDAQ’s financial
knowledge requirements. Our Board has determined that Dr. Zentman qualifies as an “audit committee financial expert,”
as defined in the rules and regulations of the SEC.
Compensation
Committee
Our
executive compensation is administered by the Compensation Committee of the Board of Directors, which was reconstituted in 2017.
The members of the Compensation Committee are Gary Mohr, Michael F. Osterer and Samuel M. Zentman, all of whom have been determined
by the Board to be independent in accordance with NASDAQ’s requirement for independent director oversight of executive officer
compensation.
Nominating
Committee
The
Nominating Committee of our Board of Directors, which was reconstituted in 2017, has overall responsibility for identifying, evaluating,
recruiting and selecting qualified candidates for election, re-election or appointment to the Board. The Members of the Nominating
Committee are Gary Mohr, Samuel M. Zentman and Michael Osterer all of whom have been determined by the Board to meet the independence
criteria prescribed by NASDAQ governing the qualifications of nominating committee members.
Our
stockholders may recommend potential director candidates by contacting the Secretary of the Company to receive a copy of the procedure
to recommend a potential director candidate for consideration by the Nominating Committee, who will evaluate recommendations from
stockholders in the same manner that they evaluate recommendations from other sources.
Section
16(a) Beneficial Ownership Reporting Compliance; Delinquent Section 16(a) Reports
Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our executive officers and directors, and
persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership
with the SEC. These persons are also required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Further, we have implemented measures to assure timely filing of Section 16(a) reports by our executive officers and directors.
Based solely on our review of such forms or written representations from certain reporting persons, we believe that during 2020
our executive officers and directors complied with the filing requirements of Section 16(a).
Code
of Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers and employees. This code of ethics
is designed to comply with the NASDAQ marketplace rules related to codes of conduct.
Our code of ethics may be accessed on the Internet under “Investor Relations” on our website at www.acornenergy.com.
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision
of our code of ethics by posting such information on our website, www.acornenergy.com.
ITEM
11. EXECUTIVE COMPENSATION
EXECUTIVE
AND DIRECTOR COMPENSATION
Summary
Compensation Table
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Jan H. Loeb
|
|
2020
|
|
|
312,000
|
(3)
|
|
|
—
|
|
|
|
7,974
|
(5)
|
|
|
—
|
|
|
|
199,974
|
|
President and CEO of the Company and Acting CEO of OmniMetrix (1)
|
|
2019
|
|
|
174,000
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy S. Clifford
|
|
2020
|
|
|
198,000
|
(4)
|
|
|
—
|
|
|
|
8,319
|
(6)
|
|
|
—
|
|
|
|
146,319
|
|
CFO of the Company and COO of OmniMetrix (2)
|
|
2019
|
|
|
129,000
|
(4)
|
|
|
—
|
|
|
|
6,353
|
(7)
|
|
|
—
|
|
|
|
135,353
|
|
|
(1)
|
Mr.
Loeb began serving as President and CEO of the Company on January 28, 2016 and as Acting CEO of OmniMetrix on December 1,
2019.
|
|
(2)
|
Ms.
Clifford began serving as CFO of the Company on June 1, 2018 and as COO of OmniMetrix on December 1, 2019.
|
|
(3)
|
Represents
the consulting fee paid for the provision of Mr. Loeb’s services to the Company as President and CEO of the Company
and Acting CEO of OmniMetrix.
|
|
(4)
|
Represents
the consulting fee paid for the provision of Ms. Clifford’s services as CFO of the Company and COO of OmniMetrix.
|
|
(5)
|
Represents
the grant date fair value calculated in accordance with applicable accounting principles with respect to 35,000 options granted
on January 30, 2020 with an exercise price of $0.37. The fair value of the options was determined using the Black-Scholes
option pricing model using the following assumptions: (i) a risk-free interest rate of 1.38% (ii) an expected term of 3.62
years (iii) an assumed volatility of 109% and (iv) no dividends.
|
|
(6)
|
Represents
the grant date fair value calculated in accordance with applicable accounting principles with respect to 50,000 options granted
on June 8, 2020 with an exercise price of $0.23. The fair value of the options was determined using the Black-Scholes option
pricing model using the following assumptions: (i) a risk-free interest rate of .4% (ii) an expected term of 4.0 years (iii)
an assumed volatility of 109% and (iv) no dividends.
|
|
(7)
|
Represents
the grant date fair value calculated in accordance with applicable accounting principles with respect to 30,000 options granted
on June 25, 2019 with an exercise price of $0.28. The fair value of the options was determined using the Black-Scholes option
pricing model using the following assumptions: (i) a risk-free interest rate of 1.7% (ii) an expected term of 4.0 years (iii)
an assumed volatility of 122% and (iv) no dividends.
|
Executive
Compensation for 2019 and 2020
Jan
H. Loeb. On April 9, 2018, the Company entered into a consulting agreement (the “2018 Consulting Agreement”)
with Mr. Loeb extending its arrangements for compensation of Mr. Loeb for his services as President and CEO of the Company.
Pursuant
to the 2018 Consulting Agreement, Mr. Loeb received cash compensation of $12,000 per month commencing May 1, 2018, and $16,000
per month commencing August 15, 2019. When he assumed the additional position of Acting CEO of OmniMetrix, his monthly cash compensation
was increased to $26,000 effective December 1, 2019. He was eligible for bonuses during the term of the 2018 Consulting Agreement:
$150,000 upon consummation of a corporate acquisition transaction approved by the Company’s Board, and $150,000 upon consummation
of a corporate financing/funding transaction approved by the Company’s Board. On August 13, 2019, Mr. Loeb waived his right
to receive the $150,000 bonus otherwise due to him under the terms of the 2018 Consulting Agreement in connection with the consummation
of the Company’s June 2019 Rights Offering. The 2018 Consulting Agreement expired on December 31, 2019.
On
January 30, 2020, the Company entered into a new consulting agreement (the “2020 Consulting Agreement”) with Mr. Loeb,
extending its arrangements for compensation of Mr. Loeb for his services as President and CEO of the Company and as principle
executive officer of the Company’s OmniMetrix subsidiary in the capacity of Acting CEO.
Pursuant
to the 2020 Consulting Agreement, Mr. Loeb received cash compensation, effective retroactively as of January 1, 2020, of $16,000
per month for service as President and CEO of the Company, and an additional $10,000 per month for service as Acting CEO of OmniMetrix.
Mr. Loeb also received a grant of options on January 30, 2020, to purchase 35,000 shares of the Company’s common stock,
which are exercisable at an exercise price equal to the December 31, 2019, closing price of the common stock of $0.37 per share.
Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on April
1, 2020, July 1, 2020 and October 1, 2020. The exercise period and other terms are otherwise substantially the same as the terms
of the options granted by the Company to its outside directors.
The
2020 Consulting Agreement expired on December 31, 2020; the Company and Mr. Loeb have entered into a new Consulting Agreement
for 2021 as described below.
Tracy
S. Clifford. On June 1, 2018, Tracy S. Clifford was appointed CFO of the Company, replacing outgoing CFO, Michael Barth,
who resigned from this position as of that date. Concurrent with the appointment of Ms. Clifford as CFO, the Company entered into
a consulting arrangement with Ms. Clifford pursuant to which she initially received a monthly fee of $8,500, increased to $9,500
effective November 1, 2018 as allowed by the agreement for the additional hours worked in excess of the average monthly hours
covered by the original retainer, in exchange for her services as CFO. Her monthly fee was increased to $11,500 effective August
15, 2019. Ms. Clifford was appointed to the additional position of COO of OmniMetrix on November 18, 2019 and her monthly fee
was increased to $16,500 effective December 1, 2019. Ms. Clifford received a grant on June 25, 2019 of options to purchase 30,000
shares of our common stock, with an exercise price of $0.28 per share, which was the closing price of the common stock on June
24, 2019. The options vested and became exercisable on the first anniversary of the date of grant and shall expire upon the earlier
of (a) seven years from the date of the grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the Company.
She also received a grant on June 8, 2020 of options to purchase 50,000 shares of our common stock, with an exercise price of
$0.23 per share, which was the closing price of the common stock on June 23, 2020, and similar vesting and expiration terms as
her 2019 option grant.
Stockholder
input on executive compensation. Stockholders can provide the Company with their views on executive compensation matters
at each year’s annual meeting through the stockholder advisory vote on executive compensation and during the interval between
stockholder advisory votes. The Company welcomes stockholder input on our executive compensation matters, and stockholders are
able to reach out directly to our independent directors by emailing to samzentman@yahoo.com to express their views on executive
compensation matters.
Employment
Arrangements
The
employment arrangements of each named executive officer and certain other officers are described below. From time to time, the
Company has made discretionary awards of management options as reflected in the table above.
Jan
H. Loeb. On February 2, 2021, the Company entered into a new consulting agreement (the “2021 Consulting Agreement”)
with Jan H. Loeb, extending its arrangements for compensation of Mr. Loeb for his services as President and CEO of the Company
and as principle executive officer of the Company’s OmniMetrix subsidiary in the capacity of Acting CEO.
Pursuant
to the 2021 Consulting Agreement, Mr. Loeb will receive cash compensation, effective retroactively as of January 1, 2021, of $16,000
per month for service as President and CEO of the Company, and an additional $10,000 per month for so long as he serves as Acting
CEO of OmniMetrix. Mr. Loeb also received a grant of options on February 2, 2021, to purchase 35,000 shares of the Company’s
common stock, which are exercisable at an exercise price equal to the February 1, 2021, closing price of the common stock of $0.48
per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments
on April 1, 2021, July 1, 2021 and October 1, 2021. The exercise period and other terms are otherwise substantially the same as
the terms of the options granted by the Company to its outside directors.
Tracy
S. Clifford serves as both CFO of the Company and COO of OmniMetrix pursuant to a Consulting Agreement with Tracy Clifford
Consulting, LLC, for the provision of Ms. Clifford’s services. In such capacity, Ms. Clifford acts as a consultant to, and
not an employee of, Acorn. The current term of the Consulting Agreement began on June 1, 2020, and expires on June 1, 2021. The
Consulting Agreement automatically renews for an additional year upon the expiration of each one-year term. Pursuant to the Consulting
Agreement, Ms. Clifford currently receives cash compensation of $16,500 per month. At the beginning of each one-year term of the
Consulting Agreement, Ms. Clifford also receives a grant of options to purchase 30,000 shares of the Company’s common stock,
with an exercise price equal to the closing price of the common stock on trading day immediately preceding the commencement of
such one-year term. The options will vest and become exercisable on the first anniversary of the date of grant and shall expire
upon the earlier of (a) seven years from the date of grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant
to the Company.
Outstanding
Equity Awards at 2020 Fiscal Year End
The
following tables set forth all outstanding equity awards made to each of the Named Executive Officers that were outstanding at
December 31, 2020.
OPTIONS TO PURCHASE ACORN ENERGY, INC. STOCK
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan H. Loeb
|
|
|
25,000
|
|
|
|
—
|
|
|
|
0.20
|
|
|
August 13, 2022
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
0.36
|
|
|
January 8, 2024
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
0.35
|
|
|
January 1, 2025
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
0.37
|
|
|
January 1,2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy S. Clifford
|
|
|
30,000
|
|
|
|
—
|
|
|
|
0.41
|
|
|
June 1, 2025
|
|
|
|
30,000
|
|
|
|
—
|
|
|
|
0.28
|
|
|
June 24, 2026
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
0.23
|
|
|
June 8, 2027
|
WARRANTS TO PURCHASE ACORN ENERGY, INC. STOCK
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Warrants (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Warrants (#)
Unexercisable
|
|
|
Warrant
Exercise
Price
($)
|
|
|
Warrant
Expiration Date
|
Jan H. Loeb
|
|
35,000(1)
|
|
|
—
|
|
|
0.13
|
|
|
March 16, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy S. Clifford
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
(1)
Warrants held by Leap Tide Capital Management, LLC.
Option
and Warrant Exercises
None.
Non-qualified
Deferred Compensation
The
following table provides information on the executive non-qualified deferred compensation activity for each of our named executive
officers for the year ended December 31, 2020.
Named
Executive Officer
|
|
|
Executive
Contributions in Last
Fiscal Year
($)
|
|
|
|
Registrant
Contributions
in Last
Fiscal Year
($)
|
|
|
|
Aggregate
Earnings
(Losses) in
Last Fiscal
Year ($)
|
|
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
|
|
Aggregate
Balance at
Last Fiscal
Year End
($)
|
|
Jan
H. Loeb
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy
S. Clifford
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Payments
and Benefits Upon Termination or Change in Control
Jan
H. Loeb
Under
the terms of the consulting agreement with Mr. Loeb, there are no amounts due under any termination scenario.
Tracy
S. Clifford
Under
the terms of the consulting agreement with Ms. Clifford, there are no amounts due under any termination scenario.
Compensation
of Directors
The
Board reviews non-employee director compensation on an annual basis. Our compensation policy for non-employee Directors for 2020
was as follows:
Each
non-employee Director (other than the Executive Chairman) receives an annual retainer of $15,000, plus an annual grant on January
1 of an option to purchase 10,000 shares of Company Common Stock.
Upon
a non-employee Director’s first election or appointment to the Board, such newly elected/appointed Director will be granted
an option to purchase 25,000 shares of Company Common Stock. Each option so granted to a newly elected/appointed Director shall
vest for the purchase of one-third of the shares purchasable under such option on each of the three anniversaries following the
date of first election or appointment.
All
options granted to non-employee Directors shall have an exercise price equal to closing price of the Company’s Common Stock
on its then-current trading platform or exchange on the last trading day immediately preceding the date of grant, and shall, except
as described in the preceding paragraph, vest in four installments quarterly in advance. Once vested, such options shall be exercisable
in whole or in part at all times until the earliest of (i) seven years from the date of grant or (ii) 18 months from the date
such Director ceases to be a Director, officer, employee of, or consultant to, the Company.
The
chair of the Audit Committee receives an additional annual retainer of $10,000; each Audit Committee member other than the chair
receives an additional annual retainer of $2,000.
Each
Director may, in his or her discretion, elect by written notice delivered on or before the first day of each calendar year whether
to receive, in lieu of some or all of his or her retainer and board fees, that number of shares of Company Common Stock as shall
have a value equal to the applicable retainer and board fees, based on the closing price of the Company’s Common Stock on
its then-current trading platform or exchange on the last trading day immediately preceding the first day of the applicable year.
Once made, the election shall be irrevocable for such election year and the shares subject to the election shall vest and be issued
one-fourth upon the first day of the election year and one-fourth as of the first day of each of the second through fourth calendar
quarters thereafter during the remainder of the election year. A newly-elected or appointed Director may, in his or her discretion,
make such an election for the balance of the year in which he or she was elected/appointed by written notice delivered on or before
the tenth day after his or her election/appointment to the Board, with the number of shares of Company Common Stock subject to
such newly elected/appointed Director’s election to be based on closing price of the Company’s Common Stock on its
then-current trading platform or exchange on the last trading day immediately preceding the day of such newly elected/appointed
Director’s election/appointment.
The
following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal
year ended December 31, 2020 by each individual (other than Mr. Loeb who was not separately compensated for his Board service)
who served as a Director at any time during the fiscal year.
DIRECTOR
COMPENSATION IN 2020
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
|
Option
Awards ($) (1)
|
|
|
All Other
Compensation ($)
|
|
|
Total
($)
|
|
Samuel M. Zentman
|
|
|
25,000
|
(2)
|
|
|
2,383
|
|
|
|
—
|
|
|
|
27,383
|
|
Gary Mohr
|
|
|
17,000
|
(3)
|
|
|
2,383
|
|
|
|
—
|
|
|
|
19,383
|
|
Michael F. Osterer
|
|
|
17,000
|
(3)
|
|
|
2,383
|
|
|
|
—
|
|
|
|
10,883
|
|
|
(1)
|
On
January 8, 2020, Samuel M. Zentman, Gary Mohr, and Michael F. Osterer were each granted 10,000 options to acquire stock in
the Company. The options had an exercise price of $0.38 and were to expire on January 8, 2027. The fair value of the options
was determined using the Black-Scholes option pricing model using the following assumptions: (i) a risk-free interest rate
of 1.6% (ii) an expected term of 3.7 years (iii) an assumed volatility of 111% and (iv) no dividends.
|
|
(2)
|
Represents
the annual retainer of $15,000 as a non-employee director and $10,000 received for services rendered as Chairman of the Audit
Committee.
|
|
(3)
|
Represents
the annual retainer of $15,000 as a non-employee director plus $2,000 received for services rendered as a member of the Audit
Committee.
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
OWNERSHIP
OF THE COMPANY’S COMMON STOCK
The
following table and the notes thereto set forth information, as of March 11, 2021, concerning beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of common stock by (i) each director of the Company, (ii) each executive
officer (iii) all executive officers and directors as a group, and (iv) each holder of 5% or more of the Company’s outstanding
shares of common stock.
Name and Address of Beneficial Owner (1) (2)
|
|
Number of Shares of
Common Stock Beneficially
Owned (2)
|
|
|
Percentage of
Common Stock
Outstanding (2)
|
|
Jan H. Loeb
|
|
|
7,943,014
|
(3)
|
|
|
19.9
|
%
|
Gary Mohr
|
|
|
1,133,480
|
(4)
|
|
|
2.9
|
%
|
Michael F. Osterer
|
|
|
2,864,641
|
(5)
|
|
|
7.2
|
%
|
Samuel M. Zentman
|
|
|
193,278
|
(6)
|
|
|
*
|
|
Tracy S. Clifford
|
|
|
60,000
|
(7)
|
|
|
*
|
|
All executive officers and directors of the Company as a group (5 people)
|
|
|
11,361,081
|
(8)
|
|
|
28.3
|
%
|
*
Less than 1%
(1)
|
Unless
otherwise indicated, the address for each of the beneficial owners listed in the table is in care of the Company, 1000 N West
Street, Suite 1200, Wilmington, Delaware 19801.
|
|
|
(2)
|
Unless
otherwise indicated, each person has sole investment and voting power with respect to the shares indicated. For purposes of
this table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given
date which such person has the right to acquire within 60 days after such date. Percentage information is based on the 39,687,589
shares outstanding as of March 11, 2021.
|
(3)
|
Consists
of 2,021,831 shares held by Mr. Loeb directly, 1,366,666 shares held by PENSCO Trust Company Custodian FBO JAN LOEB IRA, 4,372,017
shares held by Leap Tide Capital Acorn LLC, 147,500 shares underlying currently exercisable options held by Mr.Loeb, and 35,000
currently exercisable warrants held by Leap Tide Capital Management LLC. Mr. Loeb is the sole manager of each of Leap Tide
Capital Acorn LLC and Leap Tide Capital Management LLC, with sole voting and dispositive power over the securities held by
such entities. Mr. Loeb disclaims beneficial ownership of the securities held by Leap Tide Capital Acorn LLC and Leap Tide
Capital Management LLC except to the extent of his pecuniary interest therein.
|
|
|
(4)
|
Consists
of 258,481 shares held by Mr. Mohr, 833,332 shares held by UE Systems Inc., and 41,667 shares underlying currently
exercisable options.
|
|
|
(5)
|
Consists
of 1,984,392 shares held by Mr. Osterer, 833,332 shares held by UE Systems Inc., and 46,917 shares underlying currently
exercisable options.
|
|
|
(6)
|
Consists
of 80,615 shares and 112,663 shares underlying currently exercisable options.
|
|
|
(7)
|
Consists
solely of currently exercisable options.
|
|
|
(8)
|
Consists
of 10,917,334 shares, 408,747 shares underlying currently exercisable options and 35,000 shares underlying currently
exercisable warrants.
|
EQUITY
COMPENSATION PLAN INFORMATION
The
table below provides certain information concerning our equity compensation plans as of December 31, 2020.
Plan Category
|
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)
|
|
|
Weighted-average Exercise Price of Outstanding Options, Warrants and Rights
|
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in
Column (a))
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
244,622
|
|
|
$
|
1.16
|
|
|
|
—
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
512,879
|
|
|
$
|
.33
|
|
|
|
1,717,394
|
|
Total
|
|
|
757,501
|
|
|
$
|
.60
|
|
|
|
1,717,394
|
|
The
grants made under our equity compensation plans not approved by security holders includes 476,000 options which were granted under
our 2006 Stock Incentive Plan following the original expiration of the Plan on February 8, 2017, and 1,879 options granted in
2015 under our 2006 Stock Option Plan for Non-Employee Directors but in excess of the maximum number of options available for
grant under such plan as approved by stockholders. These grants were made to directors and officers at exercise prices equal to
the fair market value on the date of the grant. The options generally vest over a one-year period and expire seven years from
the date of the grant. The grants made under our equity compensation plans not approved by security holders also includes 35,000
warrants issued as compensation to underwriters for services provided in connection capital raise transactions. In February 2019,
the Company’s Board ratified all option grants made under our 2006 Stock Incentive Plan following the original expiration
of the Plan on February 8, 2017 and extended the expiration date of the Amended and Restated 2006 Stock Incentive Plan until December
31, 2024.
ITEM
13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions
With Related Persons
Rights
Offering
On
June 28, 2019, we completed a rights offering, raising approximately $2,184,000 in proceeds, net of approximately $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. 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
our ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix, LLC.
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
On
May 14, 2018, Holdings and one of our then current directors (the “Investor”) entered into an agreement whereby effective
May 1, 2018, the dividend on the Preferred Stock was reduced to 8%. In addition, all the amounts due to the Investor (accrued
dividends, loan and accrued interest) and all future dividends that would accrue on the Preferred Stock through June 30, 2020,
were to be paid by Holdings pursuant to an agreed-upon payment schedule which was scheduled to end on June 30, 2020. During the
three months ended June 30, 2019, the Company accrued $20,000 for the quarterly dividend. During the six months ended June 30,
2019, the Company accrued $40,000 in quarterly dividends in the aggregate. At June 30, 2019, the obligation to the Investor was
$323,000, representing unpaid accrued dividends.
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 (which included the $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.
Director
Independence
Applying
the definition of independence provided under the NASDAQ rules, the Board has determined that with the exception of Jan H. Loeb,
all of the members of the Board of Directors are independent. The Board has also determined that all of the members of the Audit
Committee, the Compensation Committee and the Nominating Committee are independent under the NASDAQ independence standards for
such committees.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Accounting
Fees
Friedman
LLP
The
following table summarized the fees billed to Acorn for professional services rendered by Friedman LLP for the years ended December
31, 2020 and 2019.
|
|
2020
|
|
|
2019
|
|
Audit fees
|
|
$
|
77,455
|
|
|
$
|
115,600
|
|
Audit – related fees
|
|
|
—
|
|
|
|
400
|
|
Tax fees
|
|
|
15,249
|
|
|
|
10,500
|
|
All other fees
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
92,704
|
|
|
$
|
126,500
|
|
Audit
Fees were for professional services rendered for the audits of the consolidated financial statements of the Company, assistance
with review of documents filed with the SEC, consents, and other assistance required to be performed by our independent accountants.
Audit-Related
Fees were for travel costs and administrative fees associated with our audit.
Pre-Approval
Policies and Procedures
The
Audit Committee’s current policy is to pre-approve all audit and non-audit services that are to be performed and fees to
be charged by our independent auditor to assure that the provision of these services does not impair the independence of the auditor.
The Audit Committee pre-approved all audit and non-audit services rendered by our principal accountant in 2020 and 2019.
Notes
to Consolidated Financial Statements
NOTE
1—NATURE OF OPERATIONS
(a)
Description of Business
Acorn
Energy, Inc. and its subsidiaries, OMX Holdings, Inc. and OmniMetrix, LLC (collectively, “Acorn” or “the Company”)
is a Delaware corporation which is holding company focused on technology-driven solutions for energy infrastructure asset management.
The Company provides the following services and products through its OmniMetrix, 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. This includes our AIRGuard product,
which remotely monitor and controls air compressors. In 2020, the Company expanded its product offering
to its generator dealers with the introduction of an Annunciator. The annunciator is typically sold with a new commercial
or industrial generator and indicates the current status of that generator. In many instances having a generator annunciator
onsite is mandated by law.
|
|
|
|
|
●
|
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.
|
Acorn’s
shares are traded on the OTCQB marketplace under the symbol ACFN.
See
Notes 12 and 13 for segment information and major customers.
(b)
Liquidity
As
of December 31, 2020, the Company had approximately $2,063,000 of corporate cash and cash equivalents.
At
December 31, 2020, we had a negative working capital of approximately $95,000. Our working capital included approximately
$2,063,000 of cash and deferred revenue of approximately $3,214,000. Such deferred revenue does not require significant cash outlay
for the revenue to be recognized. Net cash increased during the year ended December 31, 2020 by approximately $816,000, of which
approximately $464,000 was provided by operating activities, approximately $101,000 was used in investing activities, and approximately
$453,000 was provided by financing activities, of which approximately $421,000 was net proceeds from the SBA PPP loan.
The
Company’s operations may be affected by the ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared
a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain;
however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible
effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s
labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company,
including inventories, property and equipment, and marketable securities.
As
of March 11, 2021, the Company had corporate cash of approximately $1,812,000. Such cash plus the cash generated from operations,
will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations
for the foreseeable future and for the twelve months from the issuance of these consolidated financial statements in particular.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
Principles
of Consolidation and Presentation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. In these consolidated financial statements,
“subsidiaries” are companies that are over 50% controlled, the accounts of which are consolidated with those of the
Company. Significant intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales are
also eliminated; non-controlling interests are included in equity.
Reclassification
Certain
reclassifications have been made to the Company’s consolidated financial statements for the year ended December 31, 2019
to conform to the current period’s consolidated financial statement presentation. There was no effect on total assets, equity
and net loss. A reclassification of approximately $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 and is included in SG&A as of December 31, 2019.
Use
of Estimates in Preparation of Financial Statements
The
preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the reporting periods.
As
applicable to these consolidated financial statements, the most significant estimates and assumptions relate to uncertainties
with respect to income taxes, inventories, account receivable allowances, contingencies, revenue recognition, management’s
projections and analyses of the possible impairments.
Accounts
Receivable
Accounts
receivable consists of trade receivables. Trade receivables are recorded at the invoiced amount.
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required
payments. This allowance is based on specific customer account reviews and historical collections experience. If the financial
condition of the Company’s funding parties or customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. The Company performs ongoing credit evaluations of its customers and
does not require collateral.
During
the years ended December 31, 2020 and 2019, approximately $21,000 and $14,000 was charged to expense, respectively. At December
31, 2020 and 2019, the balance in allowance for doubtful accounts was approximately $9,000 and $11,000, respectively.
Inventory
Inventories
are comprised of components (raw materials), work-in-process and finished goods, which are measured at net realizable value.
Raw
materials inventory is generally comprised of radios, cables, antennas, and electrical components. Finished goods inventory consists
of fully assembled systems ready for final shipment to the customer. Costs are determined at cost of acquisition on a weighted
average basis and include all outside production and applicable shipping costs.
All
inventories are periodically reviewed for impairment related to slow-moving and obsolete inventory. Management conducted an assessment
and there were no impairment charges for the years ended December 31, 2020 or 2019.
Non-Controlling
Interests
The
Financial Accounting Standards Board (“FASB”) requires that non-controlling interests be reported as a component of
equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity
transactions, and upon a loss of control, retained ownership interest be re-measured at fair value, with any gain or loss recognized
in earnings. The Company attributes the applicable percentage of income and losses to the non-controlling interests associated
with OmniMetrix (see Note 3).
Property
and Equipment
Property
and equipment are presented at cost at the date of acquisition. Depreciation and amortization are calculated based on the straight-line
method over the estimated useful lives of the depreciable assets, or in the case of leasehold improvements, the shorter of the
lease term or the estimated useful life of the asset, a portion of which is allocated to cost of sales. Improvements are capitalized
while repairs and maintenance are charged to operations as incurred.
Capitalization
of Software
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-15 (“ASU 2018-15”), Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements
for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company elected to early adopt
ASU 2018-15 for the period beginning in the second quarter of 2019, applying the guidance under ASU 2018-15 prospectively. During
the years ended December 31, 2020 and 2019, the Company capitalized costs totaling approximately $87,000 and $163,000, respectively,
related to such contracts.
Leases
The
Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use
(“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s
consolidated balance sheets. The Company evaluates and classifies leases as operating or finance leases for financial reporting
purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the
non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when
the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty.
All the Company’s real estate leases are classified as operating leases.
ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement
date of the lease based on the present value of the lease payments over the lease term. The lease payments included in the present
value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its
collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present
value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating
lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line
basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees
or restrictive covenants in its leases.
The
Company also made accounting policy elections by class of underlying asset to not apply the recognition requirements of the standard
to leases with terms of 12 months or less and to not separate non-lease components from lease components. Consequently, each separate
lease component and the non-lease components associated with that lease component will be accounted for as a single lease component
for lease classification, recognition, and measurement purposes.
The
lease obligation liability was approximately $542,000 and $595,000 as of December 31, 2020 and December 31, 2019, respectively,
which includes the original office space lease, an amendment to this lease entered into in November 2019 that became effective
with the period beginning May 1, 2020, and an office equipment lease entered into in April 2019.
Treasury
Stock
Shares
of common stock repurchased are recorded at cost as treasury stock. When shares are reissued, the cost method is used for determining
cost. In accordance with GAAP, the excess of the acquisition cost over the reissuance price of the treasury stock, if any, is
charged to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess
is charged to accumulated deficit.
Revenue
Recognition
The
Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The
core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that
reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to
achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations
within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation
in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance
obligation is satisfied. The Company assesses whether payment terms are customary or extended in accordance with normal practice
relative to the market in which the sale is occurring. The Company’s sales arrangements generally include standard payment
terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or
arrangement size.
If
revenue recognition criteria are not satisfied, amounts received from customers are classified as deferred revenue on the balance
sheet until such time as the revenue recognition criteria are met.
Sales
of OmniMetrix monitoring systems include the sale of equipment (“HW”) and of monitoring services (“Monitoring”).
The majority of the sales of OmniMetrix equipment do not qualify as a separate unit of accounting. As a result, revenue (and related
costs) associated with sale of equipment are recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring
units. Revenue and related costs with respect to the sale of equipment are recognized over the estimated life of the units which
are currently estimated to be three years. In the rare instance that a specific sale of OmnMetrix equipment does qualify as a
separate unit of accounting (the unit is custom designed and sold without monitoring), the revenue is recognized when the unit
is shipped to the customer and not deferred. Revenues from the prepayment of monitoring fees (generally paid twelve months in
advance) are initially recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over
the monitoring service period. See Notes 12 and 13 for the disaggregation of the Company’s revenue for the periods presented.
Warranty
Provision
OmniMetrix
generally grants their customers a one-year warranty on their products. Estimated warranty obligations are provided for as a cost
of sales in the period in which the related revenues are recognized, based on management’s estimate of future potential
warranty obligations and limited historical experience. Adjustments are made to accruals as warranty claim data and historical
experience warrant.
The
Company’s warranty obligations may be materially affected by product or service failure rates and other costs incurred in
correcting a product or service failure. Should actual product or service failure rates or other related costs differ from the
Company’s estimates, revisions to the accrued warranty liability would be required.
Concentration
of Credit Risk
The
Company’s financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally
of cash, escrow deposits and trade accounts receivable. The Company’s cash was deposited with a U.S. bank
and amounted to approximately $2,063,000 at December 31, 2020. The Company does not believe there is significant
risk of non-performance by these counterparties. See Note 12(d) with respect to revenue from significant customers and concentrations
of trade accounts receivables.
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 instruments.
Research
and Development Expenses
Research
and development expenses consist primarily of labor and related expenses and are charged to operations as incurred.
Advertising
Expenses
Advertising
expenses are charged to operations as incurred. Advertising expense was approximately $15,000 and $17,000 for each of the years
ended December 31, 2020 and 2019, respectively, and are included in selling, general and administrative expenses on the consolidated
statements of operations.
Stock-Based
Compensation
The
Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation
expense related to share-based transactions, including employee stock options, to be measured and recognized in the consolidated
financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined
using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes
expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally
the vesting period of the equity grant). Stock compensation expense is included in selling, general and administrative expenses.
The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price
volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based
compensation expense.
Options
awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards
in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.
See
Note 9(c) for the assumptions used to calculate the fair value of stock-based employee compensation. Upon the exercise of options,
it is the Company’s policy to issue new shares rather than utilizing treasury shares.
Deferred
Income Taxes
Deferred
income taxes reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss and tax credit
carryforwards. Deferred tax assets and liabilities are classified as non-current in accordance with ASU 2015-17, Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes. Valuation allowances are established against deferred tax assets
if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the
period that includes the enactment date. See Note 10(e) for the impact of the Tax Cuts and Jobs Act of 2017.
Income
Tax Uncertainties
The
calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
The Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed by applicable accounting
principles. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount
that is more likely than not being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such
amounts, as this requires the Company to determine the probability of various possible outcomes. The Company reevaluates these
uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition
or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The
Company recognizes interest and penalties as incurred in finance income (expense), net in the consolidated statements of operations.
As
of December 31, 2020 and 2019, no interest or penalties were accrued on the consolidated balance sheets related to uncertain tax
positions.
During
the years ending December 31, 2020 and 2019, the Company had no changes in unrecognized tax benefits or associated interest and
penalties as a result of tax positions made during the current or prior periods with respect to its continuing or discontinued
operations.
The
Company is subject to U.S. Federal and state income tax. As of January 1, 2020, the Company is no longer subject to examination
by U.S. Federal taxing authorities for years before 2017, or for years before 2016 for state income taxes.
Basic
and Diluted Net Income (Loss) Per Share
Basic
net income (loss) per share is computed by dividing the net income (loss) attributable to Acorn Energy, Inc. by the weighted average
number of shares outstanding during the year, excluding treasury stock. Diluted net income (loss) per share is computed by dividing
the net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which
would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded
from the computation of diluted net loss per share if doing so would be antidilutive. The weighted average number of options and
warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately
409,626 (which have a weighted average exercise price of $0.84) and 3,368,013 for the years ending December 31,
2020 and 2019, respectively.
The
following data represents the amounts used in computing EPS and the effect on net income and the weighted average number of shares
of dilutive potential common stock (in thousands):
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss) available to common stockholders
|
|
$
|
69
|
|
|
$
|
(618
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
39,674
|
|
|
|
35,495
|
|
Add: Warrants
|
|
|
19
|
|
|
|
—
|
|
Add: Stock options
|
|
|
20
|
|
|
|
—
|
|
-Diluted
|
|
|
39,713
|
|
|
|
35,495
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
Fair
Value Measurement
The
Company follows the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair
value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between
market participants at the measurement date.
The
standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes
the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs
that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy
is described below:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority
to Level 3 inputs.
Recently
Issued Accounting Principles
Other
than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements
during the year ended December 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 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. This standard was effective
in the first quarter of fiscal year 2020, and the adoption did not have a material impact on the consolidated financial statements.
Other
recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.
NOTE
3—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 PG and CP 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 former CEO of OmniMetrix, LLC.
NOTE
4—INVENTORY
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
216
|
|
|
$
|
260
|
|
Finished goods
|
|
|
20
|
|
|
|
31
|
|
|
|
$
|
236
|
|
|
$
|
291
|
|
At
December 31, 2020 and 2019, the Company’s inventory reserve was $0.
NOTE
5—PROPERTY AND EQUIPMENT, NET
Property
and equipment consists of the following:
|
|
Estimated
Useful Life
(in years)
|
|
As of December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
(in thousands)
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
3 - 5
|
|
$
|
311
|
|
|
$
|
218
|
|
Equipment
|
|
7
|
|
|
151
|
|
|
|
151
|
|
Leasehold improvements
|
|
Term of lease
|
|
|
339
|
|
|
|
339
|
|
Intangible asset
|
|
Patent term
|
|
|
11
|
|
|
|
3
|
|
|
|
|
|
|
812
|
|
|
|
711
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
|
|
|
55
|
|
|
|
55
|
|
Equipment
|
|
|
|
|
150
|
|
|
|
142
|
|
Leasehold improvements
|
|
|
|
|
339
|
|
|
|
325
|
|
Intangible asset
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
544
|
|
|
|
522
|
|
Property and equipment, net
|
|
|
|
$
|
268
|
|
|
$
|
189
|
|
*less
than $1,000
Depreciation
and amortization in respect of property and equipment amounted to approximately $22,000 and $56,000 for 2020 and 2019, respectively.
NOTE
6—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease, which had an expiration date of April
30, 2020, was amended in November 2019 and the term was extended to September 30, 2025. The office equipment lease was entered
into in April 2019, previously it was month-to-month, and has a sixty-month term. Operating lease payments for 2020 and 2019 were
approximately $78,000 and $109,000, respectively. The future minimum lease payments on non-cancelable operating leases as of December
31, 2020 using a discount rate of 4.5% are approximately $542,000. The 4.5% used is the incremental borrowing rate which,
as defined in ASC 842, is the rate of interest that a lessee would have to pay to borrow, on a collateralized basis,
over a similar term and in a similar economic environment, an amount equal to the lease payments.
Supplemental
cash flow information related to leases consisted of the following (in thousands):
|
|
2020
|
|
|
2019
|
|
Cash
paid for operating lease liabilities
|
|
$
|
78
|
|
|
$
|
47
|
|
Supplemental
balance sheet information related to leases consisted of the following:
|
|
2020
|
|
Weighted average remaining lease terms for operating leases
|
|
|
4.72
|
|
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 December 31,
2020 (in thousands):
|
|
2020
|
|
2021
|
|
$
|
121
|
|
2022
|
|
|
125
|
|
2022
|
|
|
128
|
|
2024
|
|
|
129
|
|
2025
|
|
|
99
|
|
Thereafter
|
|
|
—
|
|
Total undiscounted cash flows
|
|
|
602
|
|
Less: Imputed interest
|
|
|
(60
|
)
|
Present value of operating lease liabilities (a)
|
|
$
|
542
|
|
|
(a)
|
Includes
current portion of approximately $99,000 for operating leases.
|
NOTE
7—DEBT
(a)
Loans payable
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
Small Business Administration (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.
On
October 20, 2020, OmniMetrix submitted its PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed
that OmniMetrix’s application for forgiveness had been approved and that its PPP loan, in the amount of $419,800
plus accrued interest of $2,162, had been forgiven.
The
Company elected not to apply for forgiveness of the PPP loan proceeds received by its parent entity, Acorn Energy, Inc., in the
amount of $41,600 plus accrued interest of $206. This loan was repaid to the lender effective October 22, 2020.
Aggregate
interest expense on these loans at the time of forgiveness/repayment was approximately $1,000.
(b)
Line of credit
In
March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable
formula-based financing of the lesser of 75% of eligible receivables or $1,000. Debt incurred under this financing arrangement
bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of
0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances
of 15% at December 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 could fall below
$150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly service charge and interest
was calculated on the greater of the outstanding balance or $150,000. Interest expense for the year ended December 31, 2020 and
2019 was approximately $28,000 and $21,000, respectively.
OmniMetrix
had an outstanding balance of approximately $149,000 and $136,000 as of December 31, 2020 and 2019, respectively, pursuant to
the loan and security agreement and approximately $191,000 was available to borrow.
OmniMetrix
paid off the outstanding balance in February 2021 and decided not to renew this line of credit, which expired in accordance with
its terms on February 28, 2021.
NOTE
8—COMMITMENTS AND CONTINGENCIES
On
April 28, 2020, the Company entered into a new agreement for data hosting services, replacing an expiring agreement with the same
vendor, effective May 1, 2020. The agreement has a twelve-month term and the total payments under this agreement are approximately
$148,000 in the aggregate. This represents an increase of approximately $21,000 from the prior twelve-month term for additional
services including enhanced business continuity and disaster recovery services. See Note 14-Subsequent Events.
On
August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix
a new software platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over
the first seven months of the term of the agreement equal to $200,000 in the aggregate. In addition, OmniMetrix will pay the partner
a per sensor monitoring fee for each sensor connected to the developed technology, or (ii) a percentage of any revenue received
above a specified amount per sensor monitored per month in oil and gas applications only. Commencing on January 1, 2021, OmniMetrix
will pay the partner an annual licensing fee of $50,000 to be paid out on a monthly or quarterly basis as determined by OmniMetrix.
No sensor monitoring fees or license fees were paid in 2019 or 2020. These fees commenced in 2021.
NOTE
9—EQUITY
(a)
General
At
December 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.
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 approximately $2,184,000 in proceeds of which approximately $1,628,000
was from related parties, net of approximately $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 3 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 Option 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 Amended and Restated 2006 Stock Incentive Plan
until December 31, 2024.
At
December 31, 2020, 1,717,394 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no
options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. In 2020 and 2019, 230,000 and 227,500
options, respectively, were granted to directors, executive officers and employees. In 2020 and 2019, there were no grants to
non-employees (other than the non-employee directors and executive officers). The fair value of the options issued was approximately
$59,000 and $58,000 in 2020 and 2019, respectively.
96,250
options were exercised in the year ended December 31, 2020. No options were exercised in the year ended December 31, 2019.
The intrinsic value of options outstanding and of options exercisable at December 31, 2020 was approximately $29,000 and $46,000,
respectively.
The
Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective
years (all in weighted averages):
|
|
2020
|
|
|
2019
|
|
Risk-free interest rate
|
|
|
0.6
|
%
|
|
|
2.3
|
%
|
Expected term of options, in years
|
|
|
4.4
|
|
|
|
4.7
|
|
Expected annual volatility
|
|
|
115.2
|
%
|
|
|
118.7
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Determined weighted average grant date fair value per option
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
The
expected term of the options is the length of time until the expected date of exercising the options. With respect to determining
expected exercise behavior, the Company has grouped its option grants into certain groups in order to track exercise behavior
and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected
term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected
term. The Company expects no dividends to be paid. The Company believes that the valuation technique and the approach utilized
to develop the underlying assumptions are appropriate in determining the estimated fair value of the Company’s stock options
granted in the years ended December 31, 2020 and 2019. Estimates of fair value are not intended to predict actual future events
or the value ultimately realized by persons who receive equity awards.
(d)
Summary Option Information
A
summary of the Company’s option plans as of December 31, 2020 and 2019, as well as changes during each of the years then
ended, is presented below:
|
|
2020
|
|
|
2019
|
|
|
|
Number
of
Options
(in shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Options
(in shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
1,364,490
|
|
|
|
1.87
|
|
|
|
1,466,489
|
|
|
$
|
3.01
|
|
Granted at market price
|
|
|
230,000
|
|
|
|
0.36
|
|
|
|
227,500
|
|
|
|
0.31
|
|
Exercised
|
|
|
96,250
|
|
|
|
0.19
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
775,739
|
|
|
|
2.80
|
|
|
|
(329,499
|
)
|
|
|
5.86
|
|
Outstanding at end of year
|
|
|
722,501
|
|
|
|
0.62
|
|
|
|
1,364,490
|
|
|
|
1.87
|
|
Exercisable at end of year
|
|
|
429,833
|
|
|
|
0.81
|
|
|
|
1,190,156
|
|
|
$
|
2.10
|
|
Summary
information regarding the options outstanding and exercisable at December 31, 2020 is as follows:
|
|
Outstanding
|
|
|
Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
(in shares)
|
|
|
(in years)
|
|
|
|
|
|
(in shares)
|
|
|
|
|
$0.14 – $0.41
|
|
|
611,250
|
|
|
|
5.13
|
|
|
$
|
0.33
|
|
|
|
318,582
|
|
|
$
|
0.32
|
|
$1.68
|
|
|
70,996
|
|
|
|
.73
|
|
|
$
|
1.68
|
|
|
|
70,996
|
|
|
$
|
1.68
|
|
$2.49
|
|
|
24,000
|
|
|
|
.32
|
|
|
$
|
2.49
|
|
|
|
24,000
|
|
|
$
|
2.49
|
|
$4.07
|
|
|
16,255
|
|
|
|
—
|
|
|
$
|
4.07
|
|
|
|
16,255
|
|
|
$
|
4.07
|
|
|
|
|
722,501
|
|
|
|
|
|
|
|
|
|
|
|
429,833
|
|
|
|
|
|
Stock-based
compensation expense included in selling, general and administrative expense in the Company’s Consolidated Statements of
Operations was approximately $35,000 and $22,000 in the years ending December 31, 2020 and 2019, respectively.
The
total compensation cost related to non-vested awards not yet recognized was approximately 61,000 as of December 31, 2020.
(e)
Warrants
The
Company has 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:
|
|
2020
|
|
|
2019
|
|
|
|
Number of
shares
underlying
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
shares
underlying
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
2,177,857
|
|
|
|
1.28
|
|
|
|
2,392,142
|
|
|
$
|
1.28
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
2,142,857
|
|
|
|
1.30
|
|
|
|
(214,285
|
)
|
|
|
1.26
|
|
Outstanding and exercisable at end of year
|
|
|
35,000
|
|
|
|
0.13
|
|
|
|
2,177,857
|
|
|
$
|
1.28
|
|
The
warrants outstanding at December 31, 2020 have a weighted average remaining contractual life of approximately 26.5 months.
NOTE
10—INCOME TAXES
(a)
Composition of loss from continuing operations before income taxes is as follows (in thousands):
|
|
Year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Domestic
|
|
$
|
76
|
|
|
$
|
(697
|
)
|
Income
tax expense consists of the following (in thousands):
|
|
Year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
16
|
|
|
$
|
—
|
|
State and local
|
|
|
5
|
|
|
|
—
|
|
|
|
|
21
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(16
|
)
|
|
|
—
|
|
State and local
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
|
(21
|
)
|
|
|
—
|
|
Total income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
(b)
Effective Income Tax Rates
Set
forth below is a reconciliation between the federal tax rate and the Company’s effective income tax rates with respect to
continuing operations:
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Statutory Federal rates
|
|
|
21
|
%
|
|
|
21
|
%
|
Increase (decrease) in income tax rate resulting from:
|
|
|
|
|
|
|
|
|
Other, net (primarily permanent differences)
|
|
|
12
|
|
|
|
(2
|
)
|
Valuation allowance
|
|
|
(33
|
)
|
|
|
(19
|
)
|
Effective income tax rates
|
|
|
—
|
%
|
|
|
(—
|
)%
|
(c)
Analysis of Deferred Tax Assets and (Liabilities) (in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets (liabilities) consist of the following:
|
|
|
|
|
|
|
Employee benefits and deferred compensation
|
|
$
|
1,076
|
|
|
$
|
1,040
|
|
Investments and asset impairments
|
|
|
1,818
|
|
|
|
1,818
|
|
Other temporary differences
|
|
|
(1,002
|
)
|
|
|
(871
|
)
|
Net operating loss and capital loss carryforwards
|
|
|
15,739
|
|
|
|
15,591
|
|
|
|
|
17,631
|
|
|
|
17,578
|
|
Valuation allowance
|
|
|
(17,631
|
)
|
|
|
(17,578
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Valuation
allowances relate principally to net operating loss carryforwards related to the Company’s consolidated tax losses as well
as state tax losses related the Company’s OmniMetrix subsidiary and book-tax differences related asset impairments and stock
compensation expense of the Company. During the year ended December 31, 2020, the valuation allowance increased by approximately
$52,000.
(d)
Summary of Tax Loss Carryforwards
As
of December 31, 2020, the Company had various operating loss carryforwards expiring as follows (in thousands):
Expiration
|
|
Federal
|
|
|
Capital Loss
|
|
|
State
|
|
2023
|
|
$
|
—
|
|
|
$
|
556
|
|
|
$
|
—
|
|
2025 – 2031*
|
|
|
2,579
|
|
|
|
—
|
|
|
|
—
|
|
2032 – 2039
|
|
|
63,180
|
|
|
|
—
|
|
|
|
14,898
|
|
Unlimited
|
|
|
3,882
|
|
|
|
—
|
|
|
|
1,721
|
|
Total
|
|
$
|
69,641
|
|
|
$
|
556
|
|
|
$
|
16,619
|
|
*
The utilization of a portion of these net operating loss carryforwards is limited due to limits on utilizing net operating loss
carryforwards under Internal Revenue Service regulations when or if a change of control were to occur
(e)
Taxation in the United States
The
Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax
rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were
previously tax deferred and creates new taxes on certain foreign sourced earnings. The most significant impact of the legislation
for the Company was a reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits)
as a result of lowering the U.S. corporate income tax rate from 35% to 21%. The Act also includes a requirement to pay a one-time
transition tax (the “Transition Tax”) on the cumulative value of earnings and profits that were previously not repatriated
for U.S. income tax purposes. The Company does not believe that it will be required to pay any Transition Tax on its previously
unrepatriated earnings and profits of its previously consolidated foreign subsidiaries.
As
a holding company without other business activity in Delaware, the Company is exempt from Delaware state income tax. Thus, the
Company’s statutory income tax rate on domestic earnings is the federal rate of 21%.
NOTE
11—RELATED PARTY BALANCES AND TRANSACTIONS
a)
Director Fees
The
Company recorded fees to directors of approximately $59,000 and $50,000 for the years ended December 31, 2020 and 2019, respectively,
which is included in Selling, general and administrative expenses.
Each
Director of the Company may elect by written notice delivered on or before the first day of each calendar year whether to receive,
in lieu of some or all of his or her retainer and board fees, that number of shares of Company common stock as shall have a value
equal to the applicable retainer and board fees, based on the closing price of the Company’s common stock on its then-current
trading platform or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the
election shall be irrevocable for such election year and the shares subject to the election shall vest and be issued one-fourth
upon the first day of the election year and one-fourth as of the first day of each of the second through fourth calendar quarters
thereafter during the remainder of the election year.
b)
See Note 3 for information related to the sale of OmniMetrix Preferred Stock to one of the Company’s former directors and
a loan from the director to OmniMetrix and the subsequent repurchase of this Preferred Stock on July 1, 2019.
c)
The related party balance due to Acorn from OmniMetrix is approximately $4,575,000 for amounts loaned, accrued interest and expenses
paid by Acorn on Omni’s behalf as of December 31, 2020 as compared to approximately $4,506,000 as of December 31, 2019.
OmniMetrix made gross repayments in the aggregate of $435,000 and $135,000 in the years ended December 31, 2020 and 2019, respectively.
This balance is eliminated in consolidation.
NOTE
12—SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
(a)
General Information
As
of December 31, 2020, the Company operates in two reportable operating segments, both of which are performed though the Company’s
OmniMetrix subsidiary:
|
●
|
The
PG segment provides wireless remote monitoring and control systems and services for critical assets as well as Internet of
Things applications.
|
|
|
|
|
●
|
The
CP 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.
(b)
Information about profit or loss and assets
The
accounting policies of all the segments are those described in the summary of significant accounting policies. The Company evaluates
performance based on net income or loss before taxes.
The
Company does not systematically allocate assets to the divisions of the subsidiaries constituting its consolidated group, unless
the division constitutes a significant operation. Accordingly, where a division of a subsidiary constitutes a segment that does
not meet the quantitative thresholds of applicable accounting principles, depreciation expense is recorded against the operations
of such segment, without allocating the related depreciable assets to that segment. However, where a division of a subsidiary
constitutes a segment that does meet the quantitative thresholds, related depreciable assets, along with other identifiable assets,
are allocated to such division.
The
following tables represent segmented data for the years ended December 31, 2020 and 2019 (in thousands). 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.
|
|
PG
|
|
|
CP
|
|
|
Total
|
|
Year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
4,988
|
|
|
|
934
|
|
|
|
5,922
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Segment gross profit
|
|
|
3,626
|
|
|
|
505
|
|
|
|
4,131
|
|
Depreciation and amortization
|
|
|
19
|
|
|
|
3
|
|
|
|
22
|
|
Segment income (loss) before income taxes
|
|
|
624
|
|
|
|
(75
|
)
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
4,282
|
|
|
$
|
1,208
|
|
|
$
|
5,490
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Segment gross profit
|
|
|
3,030
|
|
|
|
560
|
|
|
|
3,590
|
|
Depreciation and amortization
|
|
|
43
|
|
|
|
13
|
|
|
|
56
|
|
Segment income (loss) before income taxes
|
|
|
353
|
|
|
|
(198
|
)
|
|
|
155
|
|
(c)
The following tables represent a reconciliation of the segment data to consolidated statement of operations and balance sheet
data for the years ended and as of December 31, 2020 and 2019 (in thousands):
|
|
Year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total net income before income taxes for reportable segments
|
|
$
|
549
|
|
|
$
|
155
|
|
Gain on PPP loan extinguishment
|
|
|
421
|
|
|
|
—
|
|
Gain on sale of interest in DSIT
|
|
|
—
|
|
|
|
50
|
|
Unallocated net cost of corporate headquarters*
|
|
|
(894
|
)
|
|
|
(852
|
)
|
Consolidated net income (loss) before taxes on income
|
|
$
|
76
|
|
|
$
|
(647
|
)
|
*
Includes approximately $35,000 and $22,000 of stock compensation expense for the years ended December 31, 2020 and 2019, respectively.
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
Total assets for OmniMetrix subsidiary
|
|
$
|
4,870
|
|
|
$
|
3,965
|
|
Assets of corporate headquarters
|
|
|
331
|
|
|
|
1,019
|
|
Total consolidated assets
|
|
$
|
5,201
|
|
|
$
|
4,984
|
|
|
|
Year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues based on location of customer (in thousands):
|
|
|
|
|
|
|
United States
|
|
$
|
5,887
|
|
|
$
|
5,423
|
|
Other
|
|
|
35
|
|
|
|
67
|
|
|
|
$
|
5,922
|
|
|
$
|
5,490
|
|
All
of the Company’s long-lived assets are located in the United States.
(d)
Revenues and Accounts Receivable Balances from Major Customers (in thousands):
|
|
Invoiced Sales
|
|
|
Accounts Receivable
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Customer
|
|
Total
|
|
|
%
|
|
|
Total
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
A
|
|
$
|
776
|
|
|
|
13
|
%
|
|
$
|
700
|
|
|
|
12
|
%
|
|
$
|
124
|
|
|
|
20
|
%
|
|
$
|
139
|
|
|
|
14
|
%
|
B
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
172
|
|
|
|
18
|
%
|
C
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
71
|
|
|
|
12
|
%
|
|
|
*
|
|
|
|
*
|
|
*
Balance is not significant.
NOTE
13—REVENUE
The
following table disaggregates the Company’s revenue for the years ended December 31, 2020 and 2019 (in thousands):
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
1,423
|
|
|
$
|
3,565
|
|
|
$
|
4,988
|
|
CP Segment
|
|
|
680
|
|
|
|
254
|
|
|
|
934
|
|
Total Revenue
|
|
$
|
2,103
|
|
|
$
|
3,819
|
|
|
$
|
5,922
|
|
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
1,193
|
|
|
$
|
3,089
|
|
|
$
|
4,282
|
|
CP Segment
|
|
|
970
|
|
|
|
238
|
|
|
|
1,208
|
|
Total Revenue
|
|
$
|
2,163
|
|
|
$
|
3,327
|
|
|
$
|
5,490
|
|
Deferred
revenue activity for the year ended December 31, 2020 can be seen in the table below (in thousands):
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
2,663
|
|
|
$
|
1,832
|
|
|
$
|
4,495
|
|
Additions during the period
|
|
|
1,602
|
|
|
|
3,965
|
|
|
|
5,567
|
|
Recognized as revenue
|
|
|
(1,689
|
)
|
|
|
(3,819
|
)
|
|
|
(5,508
|
)
|
Balance at December 31, 2020
|
|
|
2,576
|
|
|
|
1,978
|
|
|
|
4,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the year ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
|
1,471
|
|
|
|
1,743
|
|
|
|
3,214
|
|
December 31, 2022
|
|
|
846
|
|
|
|
226
|
|
|
|
1,072
|
|
December 31, 2023 and thereafter
|
|
|
259
|
|
|
|
9
|
|
|
|
268
|
|
|
|
$
|
2,576
|
|
|
$
|
1,978
|
|
|
$
|
4,554
|
|
Other
revenue of approximately $414,000 is related to custom design hardware, accessories, repairs, and other miscellaneous charges
that are recognized to revenue when sold and are not deferred.
Deferred
revenue activity for the year ended December 31, 2019 can be seen in the table below (in thousands):
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
$
|
2,432
|
|
|
$
|
1,629
|
|
|
$
|
4,061
|
|
Additions during the period
|
|
|
2,199
|
|
|
|
3,529
|
|
|
|
5,728
|
|
Recognized as revenue
|
|
|
(1,968
|
)
|
|
|
(3,326
|
)
|
|
|
(5,294
|
)
|
Balance at December 31, 2019
|
|
$
|
2,663
|
|
|
$
|
1,832
|
|
|
$
|
4,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the year ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
$
|
1,350
|
|
|
$
|
1,654
|
|
|
$
|
2,732
|
|
December 31, 2021
|
|
|
990
|
|
|
|
174
|
|
|
|
975
|
|
December 31, 2022 and thereafter
|
|
|
323
|
|
|
|
4
|
|
|
|
354
|
|
|
|
$
|
2,663
|
|
|
$
|
1,832
|
|
|
$
|
4,495
|
|
Other
revenue of approximately $196,000 is related to revenue from sales of custom design hardware, 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 year ended December 31, 2020 can be seen in the
table below (in thousands):
Balance at December 31, 2019
|
|
$
|
1,433
|
|
Additions during the period
|
|
|
794
|
|
Recognized as cost of sales
|
|
|
(921
|
)
|
Balance at December 31, 2020
|
|
$
|
1,306
|
|
|
|
|
|
|
Amounts to be recognized as cost of sales in the year ending:
|
|
|
|
|
December 31, 2021
|
|
$
|
764
|
|
December 31, 2022
|
|
|
420
|
*
|
December 31, 2023 and thereafter
|
|
|
122
|
*
|
|
|
$
|
1,306
|
|
*
Amounts included in Other Assets in the Company’s Consolidated Balance Sheets at December 31, 2020.
Data
costs (COGS) for monitoring services of approximately $608,000 and the COGS for the miscellaneous revenue from sales of custom
design hardware, accessories and repairs of approximately $262,000 are expensed as incurred and are not deferred.
Deferred
charges activity for the year ended December 31, 2019 can be seen in the table below (in thousands):
Balance at December 31, 2018
|
|
$
|
1,438
|
|
Additions during the period
|
|
|
1,241
|
|
Recognized as cost of sales
|
|
|
(1,246
|
)
|
Balance at December 31, 2019
|
|
$
|
1,433
|
|
|
|
|
|
|
Amounts to be recognized as cost of sales in the year ending:
|
|
|
|
|
December 31, 2020
|
|
$
|
741
|
|
December 31, 2021
|
|
|
531
|
*
|
December 31, 2022 and thereafter
|
|
|
161
|
*
|
|
|
$
|
1,433
|
|
*
Amounts included in Other Assets in the Company’s Consolidated Balance Sheets at December 31, 2019.
Data
costs (COGS) for monitoring services of approximately $544,000 and the COGS for the miscellaneous revenue from sales of accessories
and repairs of approximately $110,000 are expensed as incurred and are not deferred.
The
Company pays its employees sales commissions for sales of HW and for first sales of monitoring services (not for renewals). In
accordance with Topic 606, Revenue from Contracts with Customers, of the FASB Accounting Standards Codification (“ASC 606”),
the Company capitalizes as a contract asset the sales commissions on these sales. Contract assets associated with HW are amortized
over the estimated life of the units which are currently estimated to be three years. Contract assets associated with monitoring
services are amortized over the expected monitoring life including renewals.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December
31, 2020 (in thousands):
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
101
|
|
|
$
|
37
|
|
|
$
|
138
|
|
Additions during the period
|
|
|
106
|
|
|
|
23
|
|
|
|
129
|
|
Amortization of sales commissions
|
|
|
(71
|
)
|
|
|
(19
|
)
|
|
|
(90
|
)
|
Balance at December 31, 2020
|
|
$
|
136
|
|
|
$
|
41
|
|
|
$
|
177
|
|
The
capitalized sales commissions are included in Other Current Assets (approximately $90,000) and Other Assets (approximately $87,000)
in the Company’s Consolidated Balance Sheets at December 31, 2020.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December
31, 2019 (in thousands):
|
|
HW
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
$
|
107
|
|
|
$
|
36
|
|
|
$
|
143
|
|
Additions during the period
|
|
|
69
|
|
|
|
18
|
|
|
|
87
|
|
Amortization of sales commissions
|
|
|
(75
|
)
|
|
|
(17
|
)
|
|
|
(92
|
)
|
Balance at December 31, 2019
|
|
$
|
101
|
|
|
$
|
37
|
|
|
$
|
138
|
|
The
capitalized sales commissions are included in Other Current Assets (approximately $60,000) and Other Assets (approximately $78,000)
in the Company’s Consolidated Balance Sheets at December 31, 2019.
NOTE
14—SUBSEQUENT EVENTS
On
January 1, 2021, 30,000 options in the aggregate were issued to directors with an exercise price of $0.37 and that vest in equal
increments on January 1, 2021, April 1, 2021, July 1, 2021 and October 1, 2021 valued at $7,400 in the aggregate.
On
February 2, 2021, 35,000 options were issued to the CEO with an exercise price of $0.48 and that vest in equal increments on February
2, 2021, April 1, 2021, July 1, 2021 and October 1, 2021 valued at approximately $11,500.
The
Company paid off the outstanding balance of $7,974 under the OmniMetrix loan and security agreement on February 26, 2021 and elected
not to renew this line of credit, which expired in accordance with its terms on February 28, 2021.
The
Company’s data hosting agreement that was due to expire on April 28, 2021 was renewed at its existing terms for an additional
one-year term.