ITEM
1.
|
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
|
As of
September 30, 2020
|
|
|
As of
December 31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,966
|
|
|
$
|
1,247
|
|
Accounts receivable, net
|
|
|
732
|
|
|
|
962
|
|
Inventory, net
|
|
|
299
|
|
|
|
291
|
|
Deferred charges
|
|
|
806
|
|
|
|
741
|
|
Other current assets
|
|
|
117
|
|
|
|
189
|
|
Total current assets
|
|
|
3,920
|
|
|
|
3,430
|
|
Property and equipment, net
|
|
|
264
|
|
|
|
189
|
|
Right-of-use assets, net
|
|
|
518
|
|
|
|
587
|
|
Other assets
|
|
|
670
|
|
|
|
778
|
|
Total assets
|
|
$
|
5,372
|
|
|
$
|
4,984
|
|
LIABILITIES AND DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term credit
|
|
$
|
171
|
|
|
$
|
136
|
|
Loan payable – current portion
|
|
|
256
|
|
|
|
―
|
|
Accounts payable
|
|
|
273
|
|
|
|
197
|
|
Accrued expenses
|
|
|
55
|
|
|
|
136
|
|
Deferred revenue
|
|
|
3,289
|
|
|
|
3,004
|
|
Current operating lease liabilities
|
|
|
97
|
|
|
|
53
|
|
Other current liabilities
|
|
|
143
|
|
|
|
68
|
|
Total current liabilities
|
|
|
4,284
|
|
|
|
3,594
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Loan payable
|
|
|
207
|
|
|
|
―
|
|
Deferred revenue
|
|
|
1,357
|
|
|
|
1,491
|
|
Noncurrent operating lease liabilities
|
|
|
468
|
|
|
|
542
|
|
Other non-current liabilities
|
|
|
5
|
|
|
|
2
|
|
Total non-current liabilities
|
|
|
2,037
|
|
|
|
2,035
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Deficit:
|
|
|
|
|
|
|
|
|
Acorn Energy, Inc. shareholders
|
|
|
|
|
|
|
|
|
Common stock - $0.01 par value per share:
|
|
|
|
|
|
|
|
|
Authorized – 42,000,000 shares; Issued – 39,687,589 and 39,591,339 shares at September 30, 2020 and December 31, 2019, respectively
|
|
|
397
|
|
|
|
396
|
|
Additional paid-in capital
|
|
|
102,718
|
|
|
|
101,655
|
|
Warrants
|
|
|
3
|
|
|
|
1,021
|
|
Accumulated deficit
|
|
|
(101,030
|
)
|
|
|
(100,682
|
)
|
Treasury stock, at cost – 801,920 shares at September 30, 2020 and December 31, 2019
|
|
|
(3,036
|
)
|
|
|
(3,036
|
)
|
Total Acorn Energy, Inc. shareholders’ deficit
|
|
|
(948
|
)
|
|
|
(646
|
)
|
Non-controlling interests
|
|
|
(1
|
)
|
|
|
1
|
|
Total deficit
|
|
|
(949
|
)
|
|
|
(645
|
)
|
Total liabilities and deficit
|
|
$
|
5,372
|
|
|
$
|
4,984
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,517
|
|
|
$
|
1,386
|
|
|
$
|
4,323
|
|
|
$
|
4,090
|
|
Cost
of sales – products and services
|
|
|
460
|
|
|
|
465
|
|
|
|
1,322
|
|
|
|
1,417
|
|
Cost
of sales – other
|
|
|
(20
|
)
|
|
|
(1
|
)
|
|
|
(20
|
)
|
|
|
29
|
|
Gross
profit
|
|
|
1,077
|
|
|
|
922
|
|
|
|
3,021
|
|
|
|
2,644
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
160
|
|
|
|
137
|
|
|
|
453
|
|
|
|
420
|
|
Selling,
general and administrative expense
|
|
|
940
|
|
|
|
906
|
|
|
|
2,887
|
|
|
|
2,815
|
|
Total
operating expenses
|
|
|
1,100
|
|
|
|
1,043
|
|
|
|
3,340
|
|
|
|
3,235
|
|
Operating
loss
|
|
|
(23
|
)
|
|
|
(121
|
)
|
|
|
(319
|
)
|
|
|
(591
|
)
|
Finance
expense, net
|
|
|
(8
|
)
|
|
|
―
|
|
|
|
(28
|
)
|
|
|
5
|
|
Loss
before income taxes
|
|
|
(31
|
)
|
|
|
(121
|
)
|
|
|
(347
|
)
|
|
|
(586
|
)
|
Income
tax expense
|
|
|
―
|
|
|
|
—
|
|
|
|
―
|
|
|
|
—
|
|
Net
loss
|
|
|
(31
|
)
|
|
|
(121
|
)
|
|
|
(347
|
)
|
|
|
(586
|
)
|
Non-controlling
interest share of net (income) loss
|
|
|
(1
|
)
|
|
|
―
|
|
|
|
(1
|
)
|
|
|
29
|
|
Net
loss attributable to Acorn Energy, Inc. shareholders
|
|
$
|
(32
|
)
|
|
$
|
(121
|
)
|
|
$
|
(348
|
)
|
|
$
|
(557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share attributable to Acorn Energy, Inc. shareholders:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted
|
|
|
39,687
|
|
|
|
40,393
|
|
|
|
39,669
|
|
|
|
33,844
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT (UNAUDITED)
(IN
THOUSANDS)
|
|
Three
and Nine Months Ended September 30, 2020
|
|
|
|
Number
of Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-In Capital
|
|
|
Warrants
|
|
|
Accumulated
Deficit
|
|
|
Number
of Treasury Shares
|
|
|
Treasury
Stock
|
|
|
Total
Acorn
Energy,
Inc.
Shareholders’
Deficit
|
|
|
Non-
controlling
interests
|
|
|
Total
Deficit
|
|
Balances as of December 31, 2019
|
|
|
39,591
|
|
|
$
|
396
|
|
|
$
|
101,655
|
|
|
$
|
1,021
|
|
|
$
|
(100,682
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(646
|
)
|
|
$
|
1
|
|
|
$
|
(645
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(283
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(283
|
)
|
|
|
(1
|
)
|
|
|
(284
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Proceeds from stock option exercise
|
|
|
96
|
|
|
|
1
|
|
|
|
18
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
19
|
|
|
|
―
|
|
|
|
19
|
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Balances as of March 31, 2020
|
|
|
39,687
|
|
|
$
|
397
|
|
|
$
|
101,679
|
|
|
$
|
1,021
|
|
|
$
|
(100,965
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(904
|
)
|
|
$
|
(1
|
)
|
|
$
|
(905
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
1
|
|
|
|
(32
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Value of expired warrants
|
|
|
―
|
|
|
|
―*
|
|
|
|
1,018
|
|
|
|
(1,018
|
)
|
|
|
―
|
|
|
|
—
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
Balances as of June 30, 2020
|
|
|
39,687
|
|
|
$
|
397
|
|
|
$
|
102,710
|
|
|
$
|
3
|
|
|
$
|
(100,998
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(924
|
)
|
|
$
|
(1
|
)
|
|
$
|
(925
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
1
|
|
|
|
(31
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
Balances as of September 30, 2020
|
|
|
39,687
|
|
|
$
|
397
|
|
|
$
|
102,718
|
|
|
$
|
3
|
|
|
$
|
(101,030
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(948
|
)
|
|
$
|
(1
|
)
|
|
$
|
(949
|
)
|
|
|
Three
and Nine Months Ended September 30, 2019
|
|
|
|
Number
of Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-
In
Capital
|
|
|
Warrants
|
|
|
Accumulated
Deficit
|
|
|
Number
of Treasury Shares
|
|
|
Treasury
Stock
|
|
|
Total
Acorn
Energy,
Inc.
Shareholders’
Equity
(Deficit)
|
|
|
Non-
controlling
interests
|
|
|
Total
Deficit
|
|
Balances as of December 31, 2018
|
|
|
29,556
|
|
|
$
|
296
|
|
|
$
|
100,348
|
|
|
$
|
1,118
|
|
|
$
|
(100,064
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(1,338
|
)
|
|
$
|
108
|
|
|
$
|
(1,230
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
(24
|
)
|
|
|
(261
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Balances as of March 31, 2019
|
|
|
29,556
|
|
|
$
|
296
|
|
|
$
|
100,354
|
|
|
$
|
1,118
|
|
|
$
|
(100,301
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(1,569
|
)
|
|
$
|
64
|
|
|
$
|
(1,505
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(199
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(199
|
)
|
|
|
(5
|
)
|
|
|
(204
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Shares granted in lieu of professional fees
|
|
|
60
|
|
|
|
*
|
|
|
|
18
|
|
|
|
―
|
|
|
|
―
|
|
|
|
—
|
|
|
|
―
|
|
|
|
18
|
|
|
|
―
|
|
|
|
18
|
|
Rights offering, proceeds net of expenses
|
|
|
9,975
|
|
|
|
100
|
|
|
|
2,106
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,206
|
|
|
|
—
|
|
|
|
2,206
|
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Balances as of June 30, 2019
|
|
|
39,591
|
|
|
$
|
396
|
|
|
$
|
102,484
|
|
|
$
|
1,118
|
|
|
$
|
(100,500
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
462
|
|
|
$
|
39
|
|
|
$
|
501
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
—
|
|
|
|
(121
|
)
|
|
|
―
|
|
|
|
(121
|
)
|
Accrued dividend in OmniMetrix preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Purchase of non-controlling interest
|
|
|
―
|
|
|
|
―
|
|
|
|
(914
|
)
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
(914
|
)
|
|
|
(36
|
)
|
|
|
(950
|
)
|
Rights offering, proceeds net of expenses
|
|
|
―
|
|
|
|
*
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(20
|
)
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
Balances as of September 30, 2019
|
|
|
39,591
|
|
|
$
|
396
|
|
|
$
|
101,557
|
|
|
$
|
1,118
|
|
|
$
|
(100,621
|
)
|
|
|
802
|
|
|
$
|
(3,036
|
)
|
|
$
|
(586
|
)
|
|
$
|
2
|
|
|
$
|
(584
|
)
|
*
Less than $1
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN
THOUSANDS)
|
|
Nine months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(347
|
)
|
|
$
|
(586
|
)
|
Depreciation and amortization
|
|
|
22
|
|
|
|
56
|
|
Non-cash lease expense
|
|
|
88
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
27
|
|
|
|
19
|
|
Professional fees paid in common stock
|
|
|
—
|
|
|
|
18
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
230
|
|
|
|
(96
|
)
|
Increase in inventory
|
|
|
(8
|
)
|
|
|
(97
|
)
|
Decrease in deferred charges
|
|
|
48
|
|
|
|
113
|
|
Decrease (increase) in other current assets and other assets
|
|
|
66
|
|
|
|
(26
|
)
|
Decrease in accounts payable and accrued expenses
|
|
|
(3
|
)
|
|
|
(270
|
)
|
Increase in deferred revenue
|
|
|
151
|
|
|
|
304
|
|
Decrease in amounts due to DSIT and directors
|
|
|
—
|
|
|
|
(323
|
)
|
Decrease in operating lease liability
|
|
|
(48
|
)
|
|
|
—
|
|
Increase (decrease) in other current liabilities and non-current liabilities
|
|
|
74
|
|
|
|
(45
|
)
|
Net cash provided by (used in) operating activities
|
|
|
300
|
|
|
|
(933
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
Purchases of software
|
|
|
(90
|
)
|
|
|
(60
|
)
|
Payments made for patent filings
|
|
|
(7
|
)
|
|
|
—
|
|
Purchase of non-controlling interest in OmniMetrix
|
|
|
—
|
|
|
|
(950
|
)
|
Net cash used in investing activities
|
|
|
(97
|
)
|
|
|
(1,010
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
Short-term credit, net
|
|
|
35
|
|
|
|
143
|
|
Proceeds from rights offering, net of expenses of $0 and $208
|
|
|
—
|
|
|
|
2,186
|
|
Loan proceeds
|
|
|
462
|
|
|
|
—
|
|
Stock option exercise proceeds
|
|
|
19
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
516
|
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
719
|
|
|
|
386
|
|
Cash, cash equivalents and restricted cash at the beginning of the year
|
|
|
1,247
|
|
|
|
1,263
|
|
Cash, cash equivalents and restricted cash at the end of the period
|
|
$
|
1,966
|
|
|
$
|
1,649
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
End of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,966
|
|
|
$
|
1,338
|
|
Restricted cash
|
|
|
—
|
|
|
|
311
|
|
|
|
$
|
1,966
|
|
|
$
|
1,649
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash consist of the following:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,247
|
|
|
$
|
973
|
|
Restricted cash
|
|
|
—
|
|
|
|
290
|
|
|
|
$
|
1,247
|
|
|
$
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
23
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment under installment agreement
|
|
$
|
—
|
|
|
$
|
7
|
|
Accrued preferred dividends to former Acorn director and/or former OmniMetrix
CEO
|
|
$
|
3
|
|
|
$
|
41
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACORN
ENERGY, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE
1— BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries (the “Company”)
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial
statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for
a fair presentation have been included. Operating results for the three-and-nine-month periods ended September 30, 2020 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Certain
reclassifications have been made to the Company’s unaudited condensed consolidated financial statements for the nine-month
period ended September 30, 2019 to conform to the current period’s unaudited condensed consolidated financial statement
presentation. There was no effect on total assets, equity and net loss. A reclassification of $6,000 from finance expense to SG&A
expense was recorded to reclass the Intuit processing fees for customer payments made through the Intuit portal via credit card
or bank draft that was previously included in finance expense as of March 31, 2019 and is included in SG&A as of September
30, 2019. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
NOTE
2—RECENT AUTHORITATIVE GUIDANCE
Recently
Issued Accounting Principles
Other
than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements
during the nine-month period ended September 30, 2020, that are of material significance, or have potential material significance,
to the Company.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending
how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair
value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment
model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December
15, 2022. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements
and related disclosures.
Recently
Adopted Accounting Principles
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The
amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard was effective in
the first quarter of fiscal year 2020, although early adoption was permitted (but no sooner than the adoption of Topic 606). The
Company concluded that the adoption of this ASU did not have a material impact on the Company’s
unaudited condensed consolidated financial statements.
NOTE
3—LIQUIDITY
At September 30, 2020,
the Company had negative working capital of $364,000. The Company’s working capital includes approximately $1,966,000 of
cash, deferred revenue of approximately $3,289,000 and $256,000 representing the current portion of our PPP loans (see Note
6—Debt and Note 11—Subsequent Events). The deferred revenue does not require significant cash outlay for the revenue
to be recognized. During the first nine months of 2020, the Company’s OmniMetrix subsidiary provided $976,000 from operations
while the Company’s corporate headquarters used $676,000 during the same period.
OmniMetrix
is considered an essential business because it provides infrastructure support to both government and commercial sectors and across
key industries. The Company has experienced minimal negative impacts due to the COVID-19 pandemic to date. The Company has continued
to realize new equipment sales (although not at the anticipated growth rate due to travel restrictions which have negatively impacted
the sales closing timeline), has continued to collect its monthly recurring monitoring revenues and has retained its customer
base. While the impacts of COVID-19 in the future are uncertain, the Company believes that due to the need for backup power and
the desirability of remote monitoring services, it should be positioned for stable financial performance.
As
of November 9, 2020, the Company had cash of approximately $2,006,000. The Company believes that such cash, plus the cash
generated from operations and borrowing from the OmniMetrix Loan and Security Agreement, will provide sufficient liquidity to
finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for
the twelve months from the issuance of these unaudited condensed consolidated financial statements in particular.
NOTE
4—INVESTMENT IN OMNIMETRIX
In
2015, one of the Company’s then-current directors (the “Investor”) acquired a 20% interest in the Company’s
OMX Holdings, Inc. subsidiary (“Holdings”) through the purchase of $1,000,000 of OmniMetrix Preferred Stock (“Preferred
Stock”). Holdings is the holder of 100% of the membership interests of OmniMetrix, LLC through which the Company operates
its Power Generation and Cathodic Protection monitoring activities. The $1,000,000 investment by the Investor was recorded as
an increase in non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company repurchased from
the Investor the shares of Preferred Stock then held by the Investor for a purchase price of $1,273,000 in cash (which included
$323,000 of unpaid accrued dividends through June 30, 2019). The repurchase raised the Company’s ownership in Holdings from
80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix, LLC.
NOTE
5—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease expires on September 30, 2025. The
office equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for the three months
ended September 30, 2020 and 2019 were $10,000 and $42,000, respectively. Operating lease payments for the nine months ended September
30, 2020 and 2019 were $48,000 and $96,000 respectively. The lease payments were less in the current year periods due to four
months of rent abatement provided for in the new lease amendment that were in effect during the nine-month period ended September
30, 2020. The future minimum lease payments on non-cancellable operating leases as of September 30, 2020 using a discount rate
of 4.5% are $565,000.
Supplemental
cash flow information related to leases consisted of the following (in thousands):
|
|
September,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for operating lease liabilities
|
|
$
|
48
|
|
|
$
|
96
|
|
Supplemental
balance sheet information related to leases consisted of the following:
|
|
2020
|
|
Weighted average remaining lease terms for operating leases
|
|
|
4.970
|
|
The
table below reconciles the undiscounted future minimum lease payments under non-cancellable lease agreements having initial terms
in excess of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet
as of September 30, 2020 (in thousands):
|
|
Twelve-month
period ended
September 30,
|
|
2021
|
|
$
|
120
|
|
2022
|
|
|
124
|
|
2023
|
|
|
127
|
|
2024
|
|
|
129
|
|
2025
|
|
|
132
|
|
Thereafter
|
|
|
—
|
|
Total undiscounted cash flows
|
|
|
632
|
|
Less: Imputed interest
|
|
|
(67
|
)
|
Present value of operating lease liabilities (a)
|
|
$
|
565
|
|
|
(a)
|
Includes
current portion of $97 for operating leases.
|
NOTE
6—DEBT
On April 24, 2020, Acorn Energy, Inc. received Paycheck Protection
Program (“PPP”) loan proceeds in the amount of $41,600.
On
April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in the amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “Act”), up to the full principal amount of a
loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll,
benefits, lease/mortgage payments and/or utilities) required under the Act and any rule, regulation, or guidance issued by the
SBA pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends
on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any
processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness
Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly
payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal
and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note.
Aggregate interest expense
on these loans for the three and nine months ended September 30, 2020 was approximately $1,000 (see Note 11—Subsequent
Events).
(b)
Line of credit
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement providing OmniMetrix with access to accounts receivable formula-based
financing of the lesser of 75% of eligible receivables or $1,000,000. Debt incurred under this financing arrangement bears interest
at the greater of 6% and prime (3.25% at September 30, 2020) plus 1.5% per year. In addition, OmniMetrix is to pay a monthly service
charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on
advances of 15% at September 30, 2020. 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 may fall below
$150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly service charge and interest
is calculated on the greater of the outstanding balance or $150,000. Interest expense for the three-months-ended September 30,
2020 and 2019 was $6,000 and $6,000 respectively. Interest expense for the nine-months-ended September 30, 2020 and 2019 was $22,000
and $15,000, respectively.
OmniMetrix
had an outstanding balance of $171,000 and $136,000 as of September 30, 2020 and December 31, 2019, respectively, pursuant to
the Loan and Security Agreement, and $253,000 was available to borrow at September 30, 2020.
NOTE
7—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 $148,000
in the aggregate. This represents an increase of $21,000 from the prior twelve-month term for additional services including enhanced
business continuity and disaster recovery services.
NOTE
8—EQUITY
(a)
General
At
September 30, 2020, the Company had issued and outstanding 39,687,589 shares of its common stock, par value $0.01 per share. Holders
of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the
assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
Holders of common stock do not have subscription, redemption, conversion or other preemptive rights. Holders of the common stock
are entitled to elect all the Directors on the Company’s Board. Holders of the common stock do not have cumulative voting
rights, meaning that the holders of more than 50% of the common stock can elect all the Company’s Directors. Except as otherwise
required by Delaware General Corporation Law, all stockholder action is taken by vote of a majority of shares of common stock
present at a meeting of stockholders at which a quorum (a majority of the issued and outstanding shares of common stock) is present
in person or by proxy or by written consent pursuant to Delaware law (other than the election of Directors, who are elected by
a plurality vote).
The
Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.
(b)
Rights Offering
On
June 28, 2019, the Company completed a rights offering, raising $2,184,000 in proceeds (net of $210,000 in expenses) of which
$1,628,000 was from related parties. 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 raised Acorn’s ownership in Holdings from 80% to 99%, with
the remaining 1% owned by the former CEO of OmniMetrix, LLC. See Note 4 for further discussion.
The
balance of the rights offering net proceeds provided OmniMetrix with additional sales and marketing resources to facilitate expansion
into additional geographic markets and new product applications, to support next-generation product development and for general
working capital purposes.
(c)
Summary Employee Option Information
The
Company’s stock option plans provide for the grant to officers, directors and other key employees of options to purchase
shares of common stock. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”,
it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the
exercise price of the option from the optionee, but reduces the number of shares of common stock issued upon the exercise of the
option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise
price for the option shares covered by the option exercised. Each option is exercisable for one share of the Company’s common
stock. Most options expire within five to ten years from the date of the grant, and generally vest over a 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
September 30, 2020, 1,628,225 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no
options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the nine months ended September
30, 2020, an aggregate of 30,000 options was issued to non-employee directors, 35,000 options were issued to the Company’s
CEO, 50,000 options were issued to the Company’s CFO and 115,000 options were issued to the Company’s other employees.
The fair value of the options issued was $59,000.
96,250
options were exercised during the nine months ended September 30, 2020. The intrinsic value of options outstanding and of options
exercisable at September 30, 2020 was approximately $2,000.
A
summary of stock option activity for the nine months ended September 30, 2020 is as follows:
|
|
Number
of Options
(in shares)
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2019
|
|
|
1,364,490
|
|
|
$
|
1.87
|
|
|
|
1.81 years
|
|
|
$
|
46,000
|
|
Granted
|
|
|
230,000
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(96,250
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(560,936
|
)
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
937,304
|
|
|
$
|
1.19
|
|
|
|
3.6 years
|
|
|
$
|
15,000
|
|
Exercisable at September 30, 2020
|
|
|
628,386
|
|
|
$
|
1.61
|
|
|
|
2.3 years
|
|
|
$
|
10,000
|
|
The
fair value of the options granted of $59,000 was estimated on the grant date using the Black-Scholes option-pricing model with
the following weighted average assumptions:
Risk-free
interest rate
|
|
|
.63
|
%
|
Expected
term of options
|
|
|
4.4 years
|
|
Expected
annual volatility
|
|
|
115
|
%
|
Expected
dividend yield
|
|
|
—
|
%
|
(d)
Stock-based Compensation Expense
Stock-based
compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated
statements of operations was $27,000 and $19,000 for the nine-month periods and $8,000 and $6,000 for the three-month-periods
ended September 30, 2020 and 2019, respectively.
The
total compensation cost related to non-vested awards not yet recognized was $67,000 as of September 30, 2020.
(e)
Warrants
The
Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock
at the date of issuance. A summary of warrant activity follows:
|
|
Number
of Warrants
(in shares)
|
|
|
Weighted
Average
Exercise
Price Per Share
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Outstanding at December 31, 2019
|
|
|
2,177,857
|
|
|
$
|
1.28
|
|
|
|
4 months
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited or expired
|
|
|
(2,142,857
|
)
|
|
|
1.30
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
35,000
|
|
|
$
|
.13
|
|
|
|
2.4 years
|
|
On
May 5, 2020, 2,142,857 warrants with a fair value of $1,018,000 expired in accordance with their terms.
NOTE
9— SEGMENT REPORTING
As
of September 30, 2020, the Company operates in two reportable operating segments, both of which are performed through the Company’s
OmniMetrix subsidiary:
|
●
|
The
PG (Power Generation) segment provides wireless remote monitoring and control systems and services for critical assets as
well as Internet of Things applications. The PG segment includes OmniMetrix’s monitoring device for industrial air compressors
and dryers, and a new line of annuciators.
|
|
|
|
|
●
|
The
CP (Cathodic Protection) segment provides remote monitoring of cathodic protection systems on gas pipelines for gas utilities
and pipeline companies.
|
The
Company’s reportable segments are strategic business units, offering different products and services, and are managed separately
as each business requires different technology and marketing strategies.
The
following tables represent segmented data for the three-and-nine-month periods ended September 30, 2020 and 2019 (in thousands):
|
|
PG
|
|
|
CP
|
|
|
Total
|
|
Three
months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$
|
1,262
|
|
|
$
|
255
|
|
|
$
|
1,517
|
|
Segment
gross profit
|
|
|
936
|
|
|
|
141
|
|
|
|
1,077
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Segment
income (loss) before income taxes
|
|
$
|
210
|
|
|
$
|
(7
|
)
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$
|
1,090
|
|
|
$
|
296
|
|
|
$
|
1,386
|
|
Segment
gross profit
|
|
|
772
|
|
|
|
150
|
|
|
|
922
|
|
Depreciation
and amortization
|
|
|
18
|
|
|
|
4
|
|
|
|
22
|
|
Segment
income (loss) before income taxes
|
|
$
|
126
|
|
|
$
|
(26
|
)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$
|
3,633
|
|
|
$
|
690
|
|
|
$
|
4,323
|
|
Segment
gross profit
|
|
|
2,656
|
|
|
|
365
|
|
|
|
3,021
|
|
Depreciation
and amortization
|
|
|
17
|
|
|
|
4
|
|
|
|
21
|
|
Segment
income (loss) before income taxes
|
|
$
|
414
|
|
|
$
|
(79
|
)
|
|
$
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$
|
3,143
|
|
|
$
|
947
|
|
|
$
|
4,090
|
|
Segment
gross profit
|
|
|
2,206
|
|
|
|
438
|
|
|
|
2,644
|
|
Depreciation
and amortization
|
|
|
43
|
|
|
|
13
|
|
|
|
56
|
|
Segment
income (loss) before income taxes
|
|
$
|
231
|
|
|
$
|
(160
|
)
|
|
$
|
71
|
|
The
Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between
the segments. Further, the Chief Decision Maker does not review the assets by segment.
Reconciliation
of Segment Loss to Consolidated Net Loss Before Income Taxes
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Total
net income (loss) before income taxes for reportable segments
|
|
$
|
203
|
|
|
$
|
100
|
|
|
$
|
335
|
|
|
$
|
71
|
|
Unallocated
cost of corporate headquarters
|
|
|
(234
|
)
|
|
|
(221
|
)
|
|
|
(682
|
)
|
|
|
(657
|
)
|
Consolidated
loss before income taxes
|
|
$
|
(31
|
)
|
|
$
|
(121
|
)
|
|
$
|
(347
|
)
|
|
$
|
(586
|
)
|
NOTE
10—REVENUE
The
following table disaggregates the Company’s revenue for the three-and-nine-month periods ended September 30, 2020 and 2019
(in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Three months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
354
|
|
|
$
|
908
|
|
|
$
|
1,262
|
|
CP Segment
|
|
|
193
|
|
|
|
62
|
|
|
|
255
|
|
Total Revenue
|
|
$
|
547
|
|
|
$
|
970
|
|
|
$
|
1,517
|
|
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Three months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
305
|
|
|
$
|
785
|
|
|
$
|
1,090
|
|
CP Segment
|
|
|
234
|
|
|
|
62
|
|
|
|
296
|
|
Total Revenue
|
|
$
|
539
|
|
|
$
|
847
|
|
|
$
|
1,386
|
|
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
999
|
|
|
$
|
2,634
|
|
|
$
|
3,633
|
|
CP Segment
|
|
|
501
|
|
|
|
189
|
|
|
|
690
|
|
Total Revenue
|
|
$
|
1,500
|
|
|
$
|
2,823
|
|
|
$
|
4,323
|
|
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment
|
|
$
|
906
|
|
|
$
|
2,237
|
|
|
$
|
3,143
|
|
CP Segment
|
|
|
767
|
|
|
|
180
|
|
|
|
947
|
|
Total Revenue
|
|
$
|
1,673
|
|
|
$
|
2,417
|
|
|
$
|
4,090
|
|
Deferred
revenue activity for the nine months ended September 30, 2020 can be seen in the table below (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
2,663
|
|
|
$
|
1,832
|
|
|
$
|
4,495
|
|
Additions during the period
|
|
|
1,195
|
|
|
|
2,977
|
|
|
|
4,172
|
|
Recognized as revenue
|
|
|
(1,198
|
)
|
|
|
(2,823
|
)
|
|
|
(4,021
|
)
|
Balance at September 30, 2020
|
|
$
|
2,660
|
|
|
$
|
1,986
|
|
|
$
|
4,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the twelve-month-period ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
$
|
1,512
|
|
|
$
|
1,777
|
|
|
$
|
3,289
|
|
September 30, 2022
|
|
|
881
|
|
|
|
205
|
|
|
|
1,086
|
|
September 30, 2023 and thereafter
|
|
|
267
|
|
|
|
4
|
|
|
|
271
|
|
|
|
$
|
2,660
|
|
|
$
|
1,986
|
|
|
$
|
4,646
|
|
Other
revenue of approximately $302,000, net of certain sales rebates of $19,000, is related to accessories, repairs, and other miscellaneous
charges that are recognized to revenue when sold and are not deferred.
Deferred
charges relate only to the sale of equipment. Deferred charges activity for the nine months ended September 30, 2020 can be seen
in the table below (in thousands):
Balance at December 31, 2019
|
|
$
|
1,433
|
|
Additions, net of adjustments, during the period
|
|
|
612
|
|
Recognized as cost of sales
|
|
|
(663
|
)
|
Balance at September 30, 2020
|
|
$
|
1,382
|
|
|
|
|
|
|
Amounts to be recognized as cost of sales in the twelve-month-period ending:
|
|
|
|
|
September 30, 2021
|
|
$
|
806
|
|
September 30, 2022
|
|
|
446
|
*
|
September 30, 2023 and thereafter
|
|
|
130
|
*
|
|
|
$
|
1,382
|
|
*Amounts
included in other assets in the Company’s unaudited condensed consolidated balance sheets at September 30, 2020 and December
31, 2019
Other
cost of goods sold (COGS) recognized of approximately $188,000 is related to accessories, repairs, and other miscellaneous charges
that are recognized to revenue when sold and are not deferred, in addition to $451,000 in monitoring COGS which is not deferred.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the nine-month period ended
September 30, 2020 (in thousands):
|
|
Hardware
|
|
|
Monitoring
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
101
|
|
|
$
|
37
|
|
|
$
|
138
|
|
Additions during the period
|
|
|
77
|
|
|
|
15
|
|
|
|
92
|
|
Amortization of sales commissions
|
|
|
(49
|
)
|
|
|
(14
|
)
|
|
|
(63
|
)
|
Balance at September 30, 2020
|
|
$
|
129
|
|
|
$
|
38
|
|
|
$
|
167
|
|
The
capitalized sales commissions are included in other current assets ($87,000) and other assets ($80,000) in the Company’s
unaudited condensed consolidated balance sheet at September 30, 2020, and in other current assets ($60,000) and other assets ($78,000)
in the Company’s consolidated balance sheet at December 31, 2019.
NOTE
11—SUBSEQUENT EVENTS
On October 20, 2020, OmniMetrix,
LLC submitted its PPP Loan Forgiveness Application to the Small Business Administration (SBA). On November 5, 2020, the SBA
confirmed that OmniMetrix’s application for forgiveness has been approved and that its PPP loan, in the amount
of $419,800, has 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. This loan was repaid to the lender effective October 22, 2020.
ACORN
ENERGY, INC.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This
Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current
expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial
condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact
are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”,
“intend”, “could”, “estimate” or “continue” or the negative or other comparable
terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and
uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability
of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s
control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect,
or any of the other risks set out under the caption “Risk Factors” in the Company’s 10-K report for the year
ended December 31, 2019 occur, actual outcomes and results could differ materially from those indicated in the forward-looking
statements.
Any
forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation
to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement
is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements.
FINANCIAL
RESULTS BY COMPANY
The
following table shows, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of
our consolidated companies.
|
|
Three
months ended September 30, 2020
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
1,517
|
|
|
$
|
—
|
|
|
$
|
1,517
|
|
Cost of Sales
|
|
|
440
|
|
|
|
—
|
|
|
|
440
|
|
Gross profit
|
|
|
1,077
|
|
|
|
—
|
|
|
|
1,077
|
|
Gross profit margin
|
|
|
71
|
%
|
|
|
|
|
|
|
71
|
%
|
R&D expenses
|
|
|
160
|
|
|
|
—
|
|
|
|
160
|
|
Selling, general and administrative
expenses
|
|
|
707
|
|
|
|
233
|
|
|
|
940
|
|
Operating income (loss)
|
|
$
|
210
|
|
|
$
|
(233
|
)
|
|
$
|
(23
|
)
|
|
|
Three
months ended September 30, 2019
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
1,386
|
|
|
$
|
—
|
|
|
$
|
1,386
|
|
Cost of Sales
|
|
|
464
|
|
|
|
—
|
|
|
|
464
|
|
Gross profit
|
|
|
922
|
|
|
|
—
|
|
|
|
922
|
|
Gross profit margin
|
|
|
67
|
%
|
|
|
|
|
|
|
67
|
%
|
R&D expenses
|
|
|
137
|
|
|
|
—
|
|
|
|
137
|
|
Selling, general and administrative
expenses
|
|
|
679
|
|
|
|
227
|
|
|
|
906
|
|
Operating income (loss)
|
|
$
|
106
|
|
|
$
|
(227
|
)
|
|
$
|
(121
|
)
|
|
|
Nine
months ended September 30, 2020
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
4,323
|
|
|
$
|
—
|
|
|
$
|
4,323
|
|
Cost of sales
|
|
|
1,302
|
|
|
|
—
|
|
|
|
1,302
|
|
Gross profit
|
|
|
3,021
|
|
|
|
—
|
|
|
|
3,021
|
|
Gross profit margin
|
|
|
70
|
%
|
|
|
|
|
|
|
70
|
%
|
R&D expenses
|
|
|
453
|
|
|
|
—
|
|
|
|
453
|
|
Selling, general and administrative
expenses
|
|
|
2,210
|
|
|
|
677
|
|
|
|
2,887
|
|
Operating income (loss)
|
|
$
|
358
|
|
|
$
|
(677
|
)
|
|
$
|
(319
|
)
|
|
|
Nine
months ended September 30, 2019
|
|
|
|
OmniMetrix
|
|
|
Acorn
|
|
|
Total
Continuing Operations
|
|
Revenue
|
|
$
|
4,090
|
|
|
$
|
—
|
|
|
$
|
4,090
|
|
Cost of sales
|
|
|
1,417
|
|
|
|
—
|
|
|
|
1,417
|
|
Cost of sales - other
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
Gross profit
|
|
|
2,644
|
|
|
|
—
|
|
|
|
2,644
|
|
Gross profit margin
|
|
|
65
|
%
|
|
|
|
|
|
|
65
|
%
|
R&D expenses
|
|
|
420
|
|
|
|
—
|
|
|
|
420
|
|
Selling, general and administrative
expenses
|
|
|
2,136
|
|
|
|
679
|
|
|
|
2,815
|
|
Operating income (loss)
|
|
$
|
88
|
|
|
$
|
(679
|
)
|
|
$
|
(591
|
)
|
BACKLOG
As
of September 30, 2020, our backlog of work to be completed (primarily deferred revenue) at our OmniMetrix subsidiary totaled
approximately $4.6 million.
RECENT
DEVELOPMENTS
On April 24, 2020, Acorn Energy, Inc. received Paycheck Protection
Program (“PPP”) loan proceeds in the amount of $41,600.
On April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in
the amount $419,800.
Under
the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “Act”), up to the full principal amount of a
loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll,
benefits, lease/mortgage payments and/or utilities) required under the Act and any rule, regulation, or guidance issued by the
SBA pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends
on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any
processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness
Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly
payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal
and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note.
On October 20, 2020, OmniMetrix,
LLC submitted its PPP Loan Forgiveness Application to the Small Business Administration (SBA). On November 5, 2020, the SBA
confirmed that OmniMetrix’s application for forgiveness has been approved and that its PPP loan, in the amount
of $419,800, has 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. This loan was repaid to the lender effective October 22, 2020.
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 $148,000 in the aggregate.
This represents an increase of $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 $1,018,000 expired in accordance with their terms.
OVERVIEW
AND TREND INFORMATION
Acorn
Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology driven solutions for
energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC
(“OmniMetrix”) subsidiary:
|
●
|
Power
Generation (“PG”) monitoring. OmniMetrix’s PG segment provides wireless remote monitoring and control
systems and services for critical assets as well as Internet of Things applications. The PG segments includes our monitoring
device for industrial air compressors and dryers, and a new line of annunciators.
|
|
|
|
|
●
|
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP segment provides remote monitoring of cathodic protection
systems on gas pipelines for gas utilities and pipeline companies.
|
Each
of our PG and CP activities represents a reportable segment. The following analysis should be read together with the segment information
provided in Note 9 to the interim unaudited condensed consolidated financial statements included in this quarterly report.
OmniMetrix
OmniMetrix
LLC is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control
systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including
stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, as well as other industrial equipment) as well
as cathodic protection for the pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix with 1%
owned by the former CEO of OmniMetrix.
Following
the emergence of machine-to-machine (M2M) and Internet of Things (IoT) applications whereby companies aggregate multiple sensors
and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem.
In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and
private sector assets against emergency events including terrorist attacks, natural disasters, and cybersecurity threats. As residential
and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part
of the critical infrastructure increasingly becoming monitored in Internet of Things applications, and given that OmniMetrix monitors
all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this new market.
Sales
of OmniMetrix monitoring systems include the sale of equipment and of monitoring services. Revenue (and related costs) associated
with sale of equipment are recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. Revenue
and related costs with respect to the sale of equipment are recognized over the estimated life of the units which are currently
estimated to be three years. Revenues from the prepayment of monitoring fees (generally paid twelve months in advance) are initially
recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service
period.
Results
of Operations
The
following table sets forth certain information with respect to the consolidated results of operations of the Company for the three-month
periods ended September 30, 2020 and 2019, including the percentage of total revenues during each period attributable to selected
components of the operations statement data and for the period-to-period percentage changes in such components. For segment data,
see Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
|
|
Three
months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
($,000)
|
|
|
%
of revenues
|
|
|
($,000)
|
|
|
%
of revenues
|
|
|
from
2019
to 2020
|
|
Revenue
|
|
$
|
1,517
|
|
|
|
100
|
%
|
|
$
|
1,386
|
|
|
|
100
|
%
|
|
|
9
|
%
|
Cost of sales
|
|
|
440
|
|
|
|
29
|
%
|
|
|
464
|
|
|
|
33
|
%
|
|
|
(5
|
)%
|
Gross profit
|
|
|
1,077
|
|
|
|
71
|
%
|
|
|
922
|
|
|
|
67
|
%
|
|
|
17
|
%
|
R&D expenses
|
|
|
160
|
|
|
|
11
|
%
|
|
|
137
|
|
|
|
10
|
%
|
|
|
17
|
%
|
SG&A expenses
|
|
|
940
|
|
|
|
62
|
%
|
|
|
906
|
|
|
|
65
|
%
|
|
|
4
|
%
|
Operating loss
|
|
|
(23
|
)
|
|
|
(2
|
)%
|
|
|
(121
|
)
|
|
|
(9
|
)%
|
|
|
(81
|
)%
|
Finance expense, net
|
|
|
(8
|
)
|
|
|
(1
|
)%
|
|
|
—
|
|
|
|
*
|
|
|
|
700
|
%
|
Loss before income taxes
|
|
|
(31
|
)
|
|
|
(2
|
)%
|
|
|
(121
|
)
|
|
|
(9
|
)%
|
|
|
(74
|
)%
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
Net loss
|
|
|
(31
|
)
|
|
|
(2
|
)%
|
|
|
(121
|
)
|
|
|
(9
|
)%
|
|
|
(74
|
)%
|
Non-controlling interests
share of net loss
|
|
|
(1
|
)
|
|
|
*
|
%
|
|
|
—
|
|
|
|
*
|
|
|
|
(100
|
)%
|
Net loss
attributable to Acorn Energy, Inc.
|
|
$
|
(32
|
)
|
|
|
(2
|
)%
|
|
$
|
(121
|
)
|
|
|
(9
|
)%
|
|
|
(74
|
)%
|
*result
is less than 1%.
The
following table sets forth certain information with respect to the consolidated results of operations of the Company for the nine-month
periods ended September 30, 2020 and 2019, including the percentage of total revenues during each period attributable to selected
components of the operations statement data and for the period-to-period percentage changes in such components. For segment data,
see Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
|
|
Nine
months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
($,000)
|
|
|
%
of revenues
|
|
|
($,000)
|
|
|
%
of revenues
|
|
|
from
2019
to 2020
|
|
Revenue
|
|
$
|
4,323
|
|
|
|
100
|
%
|
|
$
|
4,090
|
|
|
|
100
|
%
|
|
|
6
|
%
|
Cost
of sales
|
|
|
1,302
|
|
|
|
30
|
%
|
|
|
1,446
|
|
|
|
35
|
%
|
|
|
(10
|
)%
|
Gross
profit
|
|
|
3,021
|
|
|
|
70
|
%
|
|
|
2,644
|
|
|
|
65
|
%
|
|
|
14
|
%
|
R&D
expense
|
|
|
453
|
|
|
|
10
|
%
|
|
|
420
|
|
|
|
10
|
%
|
|
|
8
|
%
|
SG&A
expense
|
|
|
2,887
|
|
|
|
67
|
%
|
|
|
2,815
|
|
|
|
69
|
%
|
|
|
3
|
%
|
Operating
loss
|
|
|
(319
|
)
|
|
|
(7
|
)%
|
|
|
(591
|
)
|
|
|
(14
|
)%
|
|
|
(45
|
)%
|
Finance
expense, net
|
|
|
(28
|
)
|
|
|
(1
|
)%
|
|
|
5
|
|
|
|
*
|
|
|
|
(2,700
|
)%
|
Loss
before income taxes
|
|
|
(347
|
)
|
|
|
(8
|
)%
|
|
|
(586
|
)
|
|
|
(14
|
)%
|
|
|
(41
|
)%
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
Net
loss
|
|
|
(347
|
)
|
|
|
(8
|
)%
|
|
|
(586
|
)
|
|
|
(14
|
)%
|
|
|
(41
|
)%
|
Non-controlling
interests share of net loss
|
|
|
(1
|
)
|
|
|
—
|
%
|
|
|
29
|
|
|
|
1
|
%
|
|
|
(103
|
)%
|
Net
loss attributable to Acorn Energy, Inc.
|
|
$
|
(348
|
)
|
|
|
(8
|
)%
|
|
$
|
(557
|
)
|
|
|
(14
|
)%
|
|
|
(38
|
)%
|
*result
is less than 1%.
Revenue.
Revenue increased by $131,000 or 9%, from $1,386,000 in the third quarter of 2019 to $1,517,000 in the third quarter of
2020. OmniMetrix’s increased revenue during the quarter was primarily attributable to increased monitoring, which increased
$123,000, or 15%, from $847,000 in the third quarter of 2019 to $970,000 in the third quarter of 2020. This increase was offset
by a decrease in hardware revenue of $8,000, or 1%. These fluctuations are attributed to the same reasons as the increase in the
nine-month period ended September 30, 2020 discussed below. OmniMetrix has two divisions: PG and CP.
In the nine months
ended September 30, 2020, OmniMetrix recorded revenue of $4,323,000 ($3,633,000 in its PG activities and $690,000 in its CP activities)
as compared to revenue of $4,090,000 recorded in the nine months ended September 30, 2019 ($3,143,000 in its PG activities and
$947,000 in its CP activities). The period-over-period
increase in revenue of $233,000, or 6%, in the nine months ended September 30, 2020 was due to an increase in monitoring revenue
of $406,000, or 17%, offset by a decrease in hardware revenue of $173,000, or 10%. The increase in monitoring revenue from $2,417,000
in the first nine months of 2019 to $2,823,000 in the first nine months of 2020 is the result of an increase in the number of
units being monitored. The period-over-period decrease in hardware revenue from $1,673,000 to $1,500,000 is primarily due to a
decrease in the CP segment of $266,000 as a result of the longer sales and closing cycle of a CP sale compared to a PG sale and
the impact of COVID-19 on our ability to meet with potential customers and to act timely and effectively on sales leads. A CP
sales cycle can typically take twelve to eighteen months from customer introduction to closing.
Gross
Profit. Gross margin on hardware revenue for the three months ended September 30, 2020 was 44%, which was a 5%
improvement as compared to 39% for the three months ended September 30, 2019. Gross margin on monitoring revenue remained
strong at 84% during the three months ended September 30, 2020, which was flat as compared to 84% for the three months ended
September 30, 2019.
Gross profit during the nine months ended September 30, 2020 was $3,021,000, reflecting a gross
margin of 70% on revenue, compared with a gross profit of $2,644,000, reflecting a 65% gross margin, in the nine months ended
September 30, 2019. The increased gross profit period-over-period in 2020 was due to a change in the revenue mix, with a
higher percentage of our total revenue being monitoring revenue which has a higher gross margin. Gross margin on hardware
revenue for the nine months ended September 30, 2020 was 42%, compared to 39% for the nine months ended September 30, 2019.
Gross margin on monitoring revenue remained strong at 84% during the nine months ended September 30, 2020 which was flat as
compared to 84% for the nine months ended September 30, 2019. OmniMetrix’s gross profit increased $155,000, or 17%,
from $922,000 in the three months ended September 30, 2019 to $1,077,000 in the three months ended September 30,
2020.
Research
and development expenses. During the three months ended September 30, 2020 and 2019, R&D expense was $160,000 and $137,000,
respectively. During the nine months ended September 30, 2020, OmniMetrix recorded $453,000 of R&D expense, as compared
to $420,000 in the nine months ended September 30, 2019. The period-over-period increases in R&D expense in 2020 are 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 during the remainder of 2020 as we continue to work on certain initiatives to redesign
products and expand product lines to increase the level of innovation and to reduce their costs in order to increase our future
margins.
Selling,
general and administrative (“SG&A”) expenses. SG&A expenses increased
$28,000, or 4%, to $707,000 for the three months ended September 30, 2020, from $679,000 for the three months ended September
30, 2019, primarily due to an increase in personnel costs. We gave performance-based salary increases to our employees effective
September 1, 2020, our sales team has resumed travel where customers and potential customers are open and willing to receive outside
guests, and we continue to make investments in our IT infrastructure.
During the nine months ended September 30, 2020, OmniMetrix
recorded $2,209,000 of SG&A costs, compared to SG&A costs of $2,136,000 in the nine months ended September 30, 2019,
an increase of $73,000 or 3%. This increase was primarily due to increases in occupancy expense (in 2019 these expenses were
primarily applied to a restructuring accrual), and personnel costs offset by a reduction in sales tax expenses. We
anticipate that our annual SG&A costs throughout 2020 will increase approximately 10% as a result of these
actions.
Corporate
Corporate SG&A
expense for the three months ended September 30, 2020 increased $6,000, or 3%, to $233,000 from $227,000 for the three months
ended September 30, 2019, primarily due to the timing of certain expenses. Third quarter 2020 SG&A expense was $233,000, compared
to second quarter 2020 SG&A expense of $222,000. SG&A expense of $678,000 in the first nine months of 2020 was flat as
compared to SG&A expense of $679,000 in the first nine months of 2019. We do not expect the quarterly corporate overhead to
change materially except as may be required to support the growth of our OmniMetrix subsidiary.
Net
loss attributable to Acorn Energy. We recognized a net loss attributable to Acorn shareholders of $32,000 in the three
months ended September 30, 2020, compared to a net loss of $121,000 in the three months ended September 30, 2019. Our loss in
the third quarter 2020 is comprised of net income at OmniMetrix of $203,000 offset by corporate expense of $233,000 and $1,000
attributed to the non-controlling interest share of our income in OmniMetrix.
We recognized a net loss attributable to Acorn shareholders of $348,000 in the first nine
months of 2020, compared to a net loss of $557,000 in the first nine months of 2019. Our loss in 2020 is comprised of net
income at OmniMetrix of $334,000 plus corporate expense of $682,000.
Liquidity
and Capital Resources
At
September 30, 2020, we had negative working capital of $364,000. Our working capital includes approximately $1,966,000 of cash,
deferred revenue of approximately $3,289,000 and $256,000 representing the current portion of our PPP loans which we expect to
be substantially forgiven. The deferred revenue does not require significant cash outlay for the revenue to be recognized.
During
the first nine months of 2020, our OmniMetrix subsidiary provided $976,000 from operations while our corporate headquarters used
$676,000 during the same period.
Also,
during the first nine months of 2020, we invested $90,000 in software and $7,000 in patent related expenses.
Net
cash of $516,000 was provided by financing activities during the first nine months of 2020, comprising $19,000 in proceeds from
the exercise of stock options, net proceeds from borrowings on our line of credit of $35,000 and proceeds from our PPP loans of
$462,000.
See
discussion of the proceeds we received from the PPP loans above under Recent Developments.
OmniMetrix Line of Credit
In
March 2019, OmniMetrix reinstated its Loan and Security Agreement providing OmniMetrix with access to accounts receivable formula-based
financing of the lesser of 75% of eligible receivables or $1 million. Debt incurred under this financing arrangement bears interest
at the greater of 6% and prime (3.25% at November 9, 2020) plus 1.5% per year. In addition, OmniMetrix is to pay a monthly service
charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for a current effective rate of interest
on advances of 15%. OmniMetrix also agreed to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender
for a minimum of two years beginning March 1, 2019. The monthly service charge and interest is calculated on the greater of the
outstanding balance or $150,000. From time to time, the balance outstanding may fall below $150,000 based on collections applied
against the loan balance and the timing of loan draws.
OmniMetrix
had an outstanding balance of $171,000 at September 30, 2020, pursuant to the Loan and Security Agreement.
Rights
Offering
On
June 28, 2019, we completed a rights offering, raising $2,186,000 in proceeds, net of $210,000 in expenses. Pursuant to the rights
offering, our securityholders and parties to a backstop agreement purchased 9,975,553 shares of our common stock for $0.24 per
share.
Under
the terms of the rights offering, each right entitled securityholders as of June 3, 2019, the record date for the rights offering,
to purchase 0.312 shares of our common stock at a subscription price of $0.24 per whole share. No fractional shares were issued.
The closing price of our common stock on the record date of the rights offering was $0.2925. Distribution of the rights commenced
on June 6, 2019 and were exercisable through June 24, 2019.
In
connection with the rights offering, we entered into a backstop agreement with certain of our directors and Leap Tide Capital
Management LLC, the sole manager of which is our President and CEO, pursuant to which they agreed to purchase from us any and
all unsubscribed shares of common stock in the rights offering, subject to the terms, conditions and limitations of the backstop
agreement. The backstop purchasers did not receive any compensation or other consideration for entering into or consummating the
backstop agreement.
On
July 1, 2019, we utilized a portion of the rights offering proceeds to complete the planned reacquisition of a 19% interest in
our OMX Holdings, Inc. subsidiary for $1,273,000 discussed below.
The
balance of the rights offering net proceeds provided OmniMetrix with additional sales and marketing resources to facilitate expansion
into additional geographic markets and new product applications, to support next-generation product development and for general
working capital purposes.
Purchase
of Non-Controlling Interest
In
2015, one of our then-current directors (the “Investor”) acquired a 20% interest in our OMX Holdings, Inc. subsidiary
(“Holdings”) through the purchase of $1,000,000 of OmniMetrix Preferred Stock (“Preferred Stock”). Holdings
is the holder of 100% of the membership interests of OmniMetrix, LLC through which we operate our Power Generation and Cathodic
Protection monitoring activities. The $1,000,000 investment by the Investor was recorded as an increase in non-controlling interests.
On
July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company utilized a portion
of the rights offering proceeds 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 $4,604,000 for loans, accrued interest, dividends and expenses advanced to it by Acorn. Such amounts
will only be repaid to Acorn when OmniMetrix is generating sufficient cash to allow such repayment.
We
had approximately $1,966,000 of cash on September 30, 2020, and approximately $2,006,000 on November 9, 2020. On November
9, 2020, we had $136,000 outstanding on our line of credit and $165,000 available to borrow. We believe that
our current cash plus the cash expected to be generated from operations and borrowing from available lines of credit will provide
sufficient liquidity to finance the operating activities of Acorn and the operations of its operating subsidiaries for at least
the next twelve months.
Contractual
Obligations and Commitments
The
table below provides information concerning obligations under certain categories of our contractual obligations as of September
30, 2020.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
|
|
Twelve Month Periods Ending September 30,
(in thousands)
|
|
|
|
Total
|
|
|
2020
|
|
|
2021-2022
|
|
|
2023-2024
|
|
|
2025 and thereafter
|
|
Debt *
|
|
$
|
634
|
|
|
$
|
427
|
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Software agreements
|
|
|
128
|
|
|
|
71
|
|
|
|
57
|
|
|
|
—
|
|
|
|
—
|
|
Operating leases
|
|
|
632
|
|
|
|
120
|
|
|
|
251
|
|
|
|
261
|
|
|
|
—
|
|
Contractual services
|
|
|
110
|
|
|
|
105
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual cash obligations
|
|
$
|
1,504
|
|
|
$
|
723
|
|
|
$
|
520
|
|
|
$
|
261
|
|
|
$
|
—
|
|
* Includes $461,400 in proceeds from
the PPP loans of which $419,800 was formally forgiven by the SBA and $41,600 was repaid subsequent to September 30, 2020.