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PART
I
ITEM
1. BUSINESS
OVERVIEW
Acorn
Energy, Inc. and its subsidiaries, OMX Holdings, Inc. and OmniMetrix, LLC (collectively, “Acorn” or “the Company”)
is a Delaware corporation which is a holding company focused on technology driven solutions for energy infrastructure asset management.
We provide the following products and Internet of Things (“IoT”) applications and services through our OmniMetrix, LLC (“OmniMetrix”)
subsidiary:
|
● |
Power
Generation (“PG”) monitoring. OmniMetrix’s PG services provide wireless remote monitoring and control systems
and IIoT applications for residential and commercial/industrial power generation equipment. This includes our AIRGuard product, which
remotely monitors and controls industrial air compressors and our Smart Annunciator product which is typically sold with a new commercial
or industrial generator and has a display screen that indicates the current status of that generator. |
|
|
|
|
● |
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP services provide remote monitoring and control products for cathodic
protection systems on gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions
to remotely monitor and control rectifiers, test stations and bonds, and offers a 21st century data management platform
with OmniPRO. |
During
2021, 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.
| |
Year ended December 31, 2021 | |
| |
OmniMetrix | | |
Acorn | | |
Total Continuing Operations | |
Revenues | |
$ | 6,776 | | |
$ | — | | |
$ | 6,776 | |
Cost of sales | |
| 1,877 | | |
| — | | |
| 1,877 | |
Gross profit | |
| 4,899 | | |
| — | | |
| 4,899 | |
Gross profit margin | |
| 72 | % | |
| | | |
| 72 | % |
R&D expenses | |
| 739 | | |
| — | | |
| 739 | |
Selling, general and administrative expenses | |
| 3,235 | | |
| 933 | | |
| 4,168 | |
Operating income (loss) | |
$ | 925 | | |
$ | (933 | ) | |
$ | (8 | ) |
| |
Year
ended December 31, 2020 | |
| |
OmniMetrix | | |
Acorn | | |
Total
Continuing Operations | |
Revenues | |
$ | 5,922 | | |
$ | — | | |
$ | 5,922 | |
Cost of sales | |
| 1,791 | | |
| — | | |
| 1,791 | |
Gross profit | |
| 4,131 | | |
| — | | |
| 4,131 | |
Gross profit margin | |
| 70 | % | |
| | | |
| 70 | % |
R&D expenses | |
| 619 | | |
| — | | |
| 619 | |
Selling, general and
administrative expenses | |
| 2,932 | | |
| 890 | | |
| 3,822 | |
Operating income (loss) | |
$ | 580 | | |
$ | (890 | ) | |
$ | (310 | ) |
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,
fire pumps and other industrial equipment) and multiple markets in the IoT ecosystem, as well as cathodic protection solutions for the
pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix, with the remaining 1% owned by OmniMetrix’s
former CEO.
Following
the emergence of 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, demand response and cybersecurity threats. 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. 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 is well-positioned to grow its customer base and expand its product
offerings in this market.
Products
& Services
In
the PG segment, OmniMetrix sells a line of devices and services built on its baseline TrueGuard wireless remote monitor. These devices
are 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 also sells its
AIRGuard product which remotely monitors and controls industrial air compressors and our Smart Annunciator product which is typically
sold with a new commercial or industrial generator and indicates the current status of that generator on a large touch screen display.
In
the CP segment, OmniMetrix offers two primary product lines: the Hero 2 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 pipelines used to transport
natural gas. As the name suggests, the Hero 2 Rectifier Monitor product monitors and controls 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 TrueGuard 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 reactive 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 equipment before
dispatching service. These enhanced control panels allowed the service organization to put the right person in the right truck with the
right parts to affect a one-trip or a zero-trip solution. At this phase, service organizations could be efficient, proactive, and provide
a higher level of customer satisfaction. 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. For example, 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, Briggs & Stratton, 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 analyzing the remote machines before dispatching a service
truck. Since the majority of service and warranty costs are incurred from the service providers, 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, 95% of machine failures can be avoided completely. This migration from failure reporting to failure prevention is fundamentally
OmniMetrix’s 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, in part, 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, 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 and project partners over the years has resulted in product offerings that are highly competitive.
There
are two types of competitors in the PG marketplace:
|
(1) |
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. These competitors position themselves at
a lower-performance, lower-price quadrant of the market typically due to reduced amount of data their products can collect from the
generator’s control panel compared to OmniMetrix |
|
|
|
|
(2) |
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 broad applications like the OmniMetrix products that service all brands. They are also
generally designed for the machine owners’ use, in a reactive application. |
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 companies that provide monitoring companies similar to OmniMetrix
such as Mobiltex Solutions, 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” and
“trade secrets”. 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 six
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. On July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company
1,900 square feet of unused office space. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is
the end of the Company’s lease term with its landlord.
BACKLOG
As
of December 31, 2021, OmniMetrix had a backlog of approximately $5.4 million, primarily comprised of deferred revenue, of which approximately
$3.5 million is expected to be recognized as revenue in 2022. This compares to a backlog of approximately $4.5 million at December 31,
2020.
RESEARCH
AND DEVELOPMENT EXPENSE, NET
Research
and development expense recorded for the years ended December 31, 2021 and 2020 for our OmniMetrix subsidiary is as follows (amounts
in thousands of U.S. dollars):
| |
Years
ended December 31, | |
| |
2021 | | |
2020 | |
OmniMetrix | |
$ | 739 | | |
$ | 619 | |
EMPLOYEES
At
December 31, 2021, we employed a total of 25 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 our CFO, who also serves as COO of OmniMetrix, are hired as consultants to
us. OmniMetrix also has consultants that supplement our employed staff and provide monthly recurring services in human resources, accounting
and information technology.
Eleven
of OmniMetrix’s 25 employees are engaged in production, engineering and technical support, ten in marketing and sales and four
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 Notes 12 and 13 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 have had several consecutive quarters of profitability at our OmniMetrix subsidiary and also were able to cover corporate overhead
in the fourth quarter of 2021, we have 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.
While
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, 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, who beneficially
owns approximately 20.1% of the Company’s stock, 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 Market 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:
|
● |
the
liquidity of our common stock; |
|
● |
the
market price of shares of our common stock; |
|
● |
our
ability to obtain financing for the continuation of our operations; |
|
● |
the
number of institutional and other investors that will consider investing in shares of our common stock; |
|
● |
the
number of market markers in shares of our common stock; |
|
● |
the
availability of information concerning the trading prices and volume of shares of our common stock; and |
|
● |
the
number of broker-dealers willing to execute trades in shares of our common stock. |
In
addition, the market price of our common stock could be subject to wide fluctuations in response to:
|
● |
quarterly
variations in our revenues and operating expenses; |
|
● |
announcements
of new products or services by us; |
|
● |
fluctuations
in interest rates; |
|
● |
significant
sales of our common stock; |
|
● |
the
operating and stock price performance of other companies that investors may deem comparable to us; and |
|
● |
news
reports relating to trends in our markets or general economic conditions. |
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:
|
● |
failure
of the acquired companies to achieve the results we expect; |
|
● |
inability
to retain key personnel of the acquired companies; |
|
● |
dilution
of existing stockholders; |
|
● |
potential
disruption of our ongoing business activities and distraction of our management; |
|
● |
difficulties
in retaining business relationships with suppliers and customers of the acquired companies; |
|
● |
difficulties
in coordinating and integrating overall business strategies, sales and marketing, and research and development efforts; and |
|
● |
difficulties
in establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and procedures. |
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, 2021 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 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 $1,722,000 at December 31, 2021. We did not have any
customers that represented 10% or greater of the accounts receivable at December 31, 2021. 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 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
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 $940,000 in 2021 and $580,000 in 2020, OmniMetrix has a history of incurring
operating losses since it 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 2022, we can provide no assurance that OmniMetrix will be able to generate
sufficient revenues to allow it to sustain profitability and to have sustained positive cash flows.
An
increase in customer terminations would negatively affect our business by reducing OmniMetrix’s 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 certain 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 2022 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. As of December
31, 2021, OmniMetrix owes Acorn approximately $4,217,000 from such funding support which includes accrued dividends of $190,000, a loan
in the principal amount of $2,985,000 and accrued interest and other advances of approximately $1,042,000. During 2021, the intercompany
amount due to Acorn from OmniMetrix decreased by approximately $359,000. This included repayments of approximately $677,000 offset by
interest of approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses paid by Acorn. During
2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately $70,000. This included repayments of approximately
$435,000 offset by interest of approximately $253,000, dividends of $76,000 due to Acorn and approximately $176,000 in shared expenses
paid by Acorn.
We
have no assurance that current cash balances plus cash flow from operations will provide sufficient liquidity for OmniMetrix’s
working capital needs in 2022. 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 or investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix
cannot be determined at this time.
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 “3G” to “4G LTE” service have resulted in only limited service interruptions.
OmniMetrix anticipates, however, that as 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 is 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 paid on a timely basis and/or 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 warrantee 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 2021, our common stock traded at prices as low as $0.38 and as high as $0.70 per share. Fluctuations in
our stock price may continue to occur in response to various factors, many of which we cannot control, including:
|
● |
general
economic and political conditions and specific conditions in the markets we address; |
|
● |
quarter-to-quarter
variations in our operating results; |
|
● |
strategic
investments or divestments; |
|
● |
announcements
of changes in our senior management; |
|
● |
the
gain or loss of one or more significant customers or suppliers; |
|
● |
announcements
of technological innovations or new products by our competitors, customers or us; |
|
● |
the
gain or loss of market share in any of our markets; |
|
● |
changes
in accounting rules; |
|
● |
changes
in investor perceptions; or |
|
● |
changes
in expectations relating to our products, plans and strategic position or those of our competitors or customers. |
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, investors will need to rely on sales of your common stock after price appreciation, which
may never occur, in order to realize a return on their 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 28, 2022, 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 573,492 options outstanding and exercisable with
a weighted average exercise price of $0.34 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 28, 2022, there were 355,298 options outstanding that
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 28, 2022, we had consolidated cash of approximately $1,825,000 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 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 expires, unless otherwise extended, on September 30, 2025. The annual total of rent payments
in 2021 was approximately $118,000. For 2022, the annual rent payments will be approximately $121,000. OmniMetrix is currently utilizing
only a portion of these leased facilities and expects to grow into a portion of the currently unused space.
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc. to sublease from the Company 1,900 square feet
of the unused office space for a monthly sublease payment of $2,375 which includes the base rent plus a pro-rata share of utilities,
property taxes and insurance. Fifty percent of any excess rent received above the per square foot amount that the Company pays will be
remitted to the Company’s landlord less the allocation of any shared expenses and leasehold improvements specific to the sublease.
The Company invested approximately $7,000 on leasehold improvements related to the sublease. Due to the offset of the capital expenditures,
the Company does not expect to have any net rent due to its landlord for the first twelve months of the sublease. The estimated amount
the Company expects to remit to the landlord each year of the sublease subsequent to the first twelve months is approximately $6,700
per year. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is the end of the Company’s lease
term with its landlord. Below are the future payments expected under the sublease net of the estimated annual service cost of $2,220
(gross of the estimated amount we expect to remit to our landlord):
|
|
2021 |
|
2022 |
|
$ |
26,000 |
|
2023 |
|
|
26,000 |
|
2024 |
|
|
26,000 |
|
2025 |
|
|
20,000 |
|
Total
undiscounted cash flows |
|
$ |
98,000 |
|
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.
| |
High | | |
Low | |
2021: | |
| | | |
| | |
First Quarter | |
$ | 0.69 | | |
$ | 0.38 | |
Second Quarter | |
| 0.68 | | |
| 0.55 | |
Third Quarter | |
| 0.70 | | |
| 0.52 | |
Fourth Quarter | |
| 0.65 | | |
| 0.55 | |
2020: | |
| | | |
| | |
First Quarter | |
$ | 0.40 | | |
$ | 0.11 | |
Second Quarter | |
| 0.28 | | |
| 0.16 | |
Third Quarter | |
| 0.40 | | |
| 0.20 | |
Fourth Quarter | |
| 0.50 | | |
| 0.29 | |
As
of March 28, 2022, the last reported sales price of our common stock on the OTCQB marketplace was $0.51, there were
73 record holders of our common stock and we estimate that there were approximately 3,600 beneficial owners of our common stock.
ITEM
6. [RESERVED.]
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 through our OmniMetrix subsidiary:
|
● |
The
PG segment which provides wireless remote monitoring and control systems and services for critical assets as well as Internet of
Things applications; and |
|
|
|
|
● |
The
CP segment which provides for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. |
The
following analysis should be read together with the segment information provided in Notes 12 and 13 to our consolidated financial statements
included in this report.
OmniMetrix
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 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. 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. 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 remains 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 “CARES 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 CARES Act and any rule, regulation, or guidance issued by the SBA pursuant
to the CARES 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 CARES 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 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
2021, the intercompany amount due to Acorn from OmniMetrix decreased by approximately $359,000. This included repayments of approximately
$677,000 offset by interest of approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses
paid by Acorn. During 2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately $70,000. This included repayments
of approximately $435,000 offset by interest of approximately $253,000, dividends of $76,000 due to Acorn and approximately $176,000
in shared expenses paid by Acorn. We believe that OmniMetrix will not need working capital support in 2022. 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,
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 Acorn 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 or investments, will
be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.
As
of March 28, 2022, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of approximately
$64,000 in cash.
Other
Matters
On
August 19, 2019, we entered into an agreement with a software development partner to create and license to us a new software platform
and application. Pursuant to this agreement, we paid this partner equal monthly payments over the first seven months of the term of the
agreement equal to $200,000 in the aggregate. We will also pay the partner (i) a per-sensor monitoring fee for each sensor connected
to the developed technology, or (ii) a percentage of any revenue received above a specified amount per sensor monitored per month, in
gas applications only. Commencing on January 1, 2021, we paid the partner a quarterly licensing fee of $12,500 which was renegotiated
to $4,450 effective October 1, 2021. The annual licensing fee moving forward will be $17,800, which will be paid in quarterly increments
of $4,450. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but will
automatically renew for one-year periods unless either party delivers a written notice of termination to the other party sixty days prior
to the end of the respective term.
We
entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The
agreement has a twelve-month term. In January 2021, we elected to renew this agreement for an additional twelve months under the same
terms, extending the agreement to April 30, 2022. Under the applicable data hosting services agreements, we paid approximately $158,000
and $137,000 in the years ended December 31, 2021 and 2020, respectively.
On
March 17, 2021, we entered into a master services agreement for the development of a new user interface for its customer data portal.
The cost of this project will be approximately $119,000 in design and development services ($14,000 was paid at the commencement of this
project and four equal installments of approximately $23,000 were paid monthly starting in July 2021 with the fourth and final installment
to be paid upon completion and launch of the new interface). This project is substantially completed and the launch of the new customer
portal is expected in the second quarter of 2022.
This
master services agreement also covers the design, set-up and deployment of a new Microsoft Azure cloud infrastructure to host our OmniView
data servers which will replace our existing Peak 10 datacenter hosting environment. The new infrastructure will provide a more modern,
agile and cost effective environment in which to grow our IoT connections and services. The new Microsoft Azure cloud infrastructure
environment is expected to be completed and deployed on or about May 1, 2022. We invested approximately $166,000 in this initiative during
the year ended December 31, 2021. Additional investment in this project is ongoing and the total investment is dependent on the professional
hours required to complete, test and successfully deploy the new environment.
The
cost of these projects are capitalized and amortization will begin once the new interface and the new infrastructure environment are
completed and ready to deploy.
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: revenue recognition and stock-based compensation.
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 12 and
13 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 2021 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, 2021 and 2020, we incurred stock compensation expense with respect to options of approximately $75,000 and
$35,000, respectively.
See
Note 9 to the consolidated financial statements for the assumptions used to calculate the fair value of share-based employee compensation
for Acorn options.
RESULTS
OF OPERATIONS
The
selected consolidated statement of operations data for the years ended December 31, 2021 and 2020 and consolidated balance sheet data
as of December 31, 2021 and 2020 has been derived from our audited consolidated financial statements included in this Annual Report.
This
data should be read in conjunction with our consolidated financial statements and related notes included herein.
Selected
Consolidated Statement of Operations Data:
| |
For
the Years Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(in thousands,
except per share data) | |
Revenue | |
$ | 6,776 | | |
$ | 5,922 | |
Cost of sales | |
| 1,877 | | |
| 1,791 | |
Gross profit | |
| 4,899 | | |
| 4,131 | |
Research and development expenses, net | |
| 739 | | |
| 619 | |
Selling, general and
administrative expenses | |
| 4,168 | | |
| 3,822 | |
Operating
loss | |
| (8 | ) | |
| (310 | ) |
Finance expense, net | |
| (5 | ) | |
| (35 | ) |
Gain on SBA loan extinguishment | |
| — | | |
| 421 | |
(Loss)
Income before income taxes | |
| (13 | ) | |
| 76 | |
Income tax expense | |
| — | | |
| — | |
Net
(loss) income | |
| (13 | ) | |
| 76 | |
Non-controlling interest share of income | |
| (8 | ) | |
| (7 | ) |
Net
(loss) income attributable to Acorn Energy, Inc. shareholders | |
$ | (21 | ) | |
$ | 69 | |
Basic and diluted net (loss) income per share
attributable to Acorn Energy, Inc. shareholders: | |
| | | |
| | |
Net (loss) income per
share attributable to Acorn Energy, Inc. shareholders – basic and diluted | |
$ | (0.00 | ) | |
$ | 0.00 | |
Weighted average number
of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic | |
| 39,688 | | |
| 39,674 | |
Weighted average number
of shares outstanding attributable to Acorn Energy, Inc. shareholders – diluted | |
| 39,688 | | |
| 39,713 | |
The
following table sets forth certain information with respect to revenues and profits of our reportable business segments for the years
ended December 31, 2021 and 2020 (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, 2021: | |
| | | |
| | | |
| | |
Revenues from
external customers | |
$ | 5,787 | | |
$ | 989 | | |
$ | 6,776 | |
Percentage of total revenues
from external customers | |
| 85 | % | |
| 15 | % | |
| 100 | % |
Segment gross profit | |
| 4,328 | | |
| 571 | | |
| 4,899 | |
| |
| | | |
| | | |
| | |
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 | |
2021
COMPARED TO 2020
Revenue.
In 2021, OmniMetrix recorded total revenue of approximately $6,776,000, as compared to total revenue of approximately $5,922,000
in 2020, for an increase of approximately $854,000 (14%). As previously stated, OmniMetrix has two divisions: PG and CP. The PG segment
includes our monitoring device for generators, industrial air compressors and our annunciator products. The CP segment includes our monitoring
device for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. In 2021, revenue of
approximately $5,787,000 was attributed to the PG segment and revenue of approximately $989,000 was attributed to the CP segment, as
compared to the 2020 revenue of approximately $4,988,000 that was attributed to the PG segment and approximately $934,000 that was attributed
to the CP segment. Increased revenue in PG was due to an increase in hardware revenue of 31% from approximately $2,103,000 in 2020 to
approximately $2,746,000 in 2021. In addition to the increase in hardware revenue, monitoring revenue increased 6% from approximately
$3,819,000 in 2020 to approximately $4,030,000 in 2021. The increase in hardware revenue is primarily due to an increase of hardware
sales in the PG segment. However, we also had an increase in CP hardware revenue of approximately $48,000 (7%). The overall increase
in hardware revenue was due to a higher percentage of commercial and industrial (C&I) customers versus residential (RESI) customers
in our customer mix and an increase in the number of monitoring devices sold on a consolidated segment basis in 2021, when compared to
2020, which is, in part, as a result of the sunsetting of 3G units which are replaced with LTE units. The C&I products have a higher
price point than the RESI products; thus, the customer concentration of increasing C&I customers has a positive impact on our revenue
per unit. Monitoring revenue did not increase ratably with hardware revenue due to the sale of hardware units that replace sunsetting
3G units and our dealers focus on the impact to their business of the 3G sunsetting. These replacement units assume the remaining prepaid
monitoring plan of the sunsetting unit at the time of the physical replacement of the unit.
Gross
profit. Gross profit for 2021 was approximately $4,899,000 reflecting a gross margin of 72% on revenue, compared with a gross profit
of approximately $4,131,000 reflecting a 70% gross margin on revenue in 2020. The 2021 gross margin slightly outpaced the 2020 gross
margin despite increases in our cost of sales due to supply chain constraints, as we implemented a price increase to help offset the
increasing cost of sales, in addition to the impact of the strengthening margin on our monitoring revenue, which increased from 84% to
91%. The increase in our margin on monitoring revenue is a result of the successful negotiation with our carrier of a more favorably-structured
cellular data rate plan for our business in the first quarter of 2021.
Research
and development (“R&D”) expense. During 2021, OmniMetrix recorded approximately $739,000 of R&D expense as compared
to approximately $619,000 in 2020, an increase of approximately $120,000 (19%). The increase in R&D expense in 2021 is related to
increases in wages and bonuses paid to our engineering personnel in 2021 and the expenses and materials paid to third party consultants
in the continued development of next generation PG and CP products and exploration into new possible product lines. We expect an increase
of approximately 15% in R&D expense in 2022 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 (“SG&A”) expense. Consolidated SG&A expense in 2021 increased by approximately $346,000
(9%) from approximately $3,822,000 in 2020 to approximately $4,168,000 in 2021. Corporate overhead increased by approximately
$43,000 from approximately $890,000 in 2020 to approximately $933,000 in 2021, due to increases in the cost of insurance and audit fees.
OmniMetrix’s SG&A expense increased approximately $303,000 (10%) from approximately $2,932,000 in 2020 to approximately
$3,235,000 in 2021. This increase was primarily due to increases of (i) $151,000 in personnel expenses related to bonuses, promotional
wage increases, staff additions and stock compensation expense, (ii) $83,000 in software license fees due to the launch of our enhanced
customer interface software for CP customers in 2021 and additional fees from the increase in the number of users of certain accounting
and operations software, (iii) $53,000 in depreciation and amortization expenses attributed to the launch of the customer interface software
for CP customers and also the depreciation of new office equipment and computers purchased in 2021 and (iv) $38,000 in commissions
due to the increase in cash-basis sales in 2021 and the achievement of established sales targets. The increases in these categories were offset by decreases in occupancy expense, travel and entertainment expenses
and dues and subscription expenses. We anticipate that our annual SG&A costs in 2022 will increase approximately 15% due to increasing
wage and benefit expenses and due to our continuing investments in technology and operations.
Finance
expense, net. Finance expense in 2021 was comprised of interest expense and service charges of approximately $4,000 associated with
OmniMetrix’s line of credit and miscellaneous net interest expense of approximately $1,000. Finance expense in 2020 was 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.
Gain
on SBA PPP loan extinguishment. 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 PPP of the CARES 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 CARES Act
and any rule, regulation, or guidance issued by the SBA pursuant to the CARES 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 CARES 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 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.
Net
loss attributable to Acorn Energy. We had net loss attributable to Acorn Energy of approximately $21,000 in 2021 as compared
to net income of approximately $69,000 in 2020. Our income in 2021 is comprised of net income at OmniMetrix of approximately $921,000,
corporate expense of approximately $934,000, offset by approximately $8,000 representing the non-controlling interest share of our
income in OmniMetrix.
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.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2021, we had a negative working capital of approximately $60,000. Our working capital includes approximately $1,722,000
of cash and deferred revenue of approximately $3,541,000. Such deferred revenue does not require significant cash outlay for the revenue
to be recognized. Total deferred revenue increased approximately $839,000 at December 31, 2021 from approximately $4,554,000 at December
31, 2020 as a result of a significant increase in cash sales which we have to amortize over a three-year period in accordance with GAAP.
Net cash decreased during the year ended December 31, 2021 by approximately $341,000, of which approximately $132,000 was provided by
operating activities, approximately $324,000 was used in investing activities, and approximately $149,000 was used in financing activities.
During
the year ended December 31, 2021, our operating activities provided approximately $132,000 of net cash. Our OmniMetrix subsidiary provided
approximately $1,035,000 from its operations while our corporate headquarters used approximately $903,000 in its operating activities
during the period. OmniMetrix’s inventory balance increased $381,000 at December 31, 2021 due to our efforts to mitigate the
supply chain challenges and have adequate safety stock on hand. 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.
During
the year ended December 31, 2021, net cash of approximately $324,000 was used in investment activities, primarily in our technology infrastructure.
These investments include the development of a new user interface for our PG customers and the design of a new cloud server environment,
as well as investments in hardware and software upgrades. In addition, we had capital expenditures of approximately $7,000 related to
minor leasehold improvements. Net cash of approximately $101,000 was used in investing activities in 2020 which was primarily investments
in software.
Net
cash of approximately $149,000 was used by financing activities during the year ended December 31, 2021 as repayments on our line of
credit. 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 SBA 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 Acorn 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 or investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.
Other
Liquidity Matters
OmniMetrix
owes Acorn approximately $4,217,000 for loans, accrued interest and expenses advanced to it by Acorn. OmniMetrix has made monthly payments
to Acorn of varying amounts since the second quarter of 2019. In 2021, OmniMetrix made payments to Acorn of $677,000 offset by interest
of approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses paid by Acorn. OmniMetrix will
continue to make payments to Acorn against this balance as long as OmniMetrix is generating sufficient cash to allow such repayments.
This intercompany balance is eliminated in consolidation.
We
had approximately $1,722,000 of cash on December 31, 2021, and approximately $1,825,000 on March 28, 2022. We believe
that such cash, plus the cash expected to be 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. We may, at some point, elect to obtain a new line of credit or other source of
financing to fund additional investments in the business.
Contractual
Obligations and Commitments
The
table below provides information concerning obligations under certain categories of our contractual obligations as of December 31, 2021.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| |
Years
Ending December 31, (in thousands) | |
| |
Total | | |
2022 | | |
2023-2024 | | |
2025-2026 | |
Software agreements | |
$ | 58 | | |
$ | 56 | | |
$ | 2 | | |
$ | — | |
Operating leases* | |
| 481 | | |
| 124 | | |
| 258 | | |
| 99 | |
Contractual services | |
| 93 | | |
| 84 | | |
| 9 | | |
| — | |
Purchase
obligations** | |
| 1,217 | | |
| 1,217 | | |
| — | | |
| — | |
Total contractual cash
obligations | |
$ | 1,849 | | |
$ | 1,481 | | |
$ | 269 | | |
$ | 99 | |
*Reflects
the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease.
**Reflects open purchase orders for components/parts to be delivered
over the next twelve months as sales forecast requires.
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 $1,722,000
at December 31, 2021. The Company did not have any one customer that represented at least 10% of its accounts receivable at December
31, 2021. 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; and 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, 2021.
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, 2021, 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, 2021.
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.
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. The material weakness identified, however, 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, 2021.
Remediation
Actions
Management
intends 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.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
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 |
|
63 |
|
Director,
President and Chief Executive Officer of Acorn Energy, Inc. and Acting CEO of OmniMetrix |
Gary
Mohr |
|
63 |
|
Director
and member of our Audit, Nominating and Compensation Committees |
Michael
F. Osterer |
|
76 |
|
Director
and member of our Audit, Nominating and Compensation Committees |
Samuel
M. Zentman |
|
76 |
|
Director,
Chairman of our Audit Committee and member of our Nominating and Compensation Committees |
Tracy
S. Clifford |
|
53 |
|
Chief
Financial Officer of Acorn Energy, Inc. 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.
Key
Attributes, Experience and Skills. Ms. Clifford brings to the Company over 20+ years as a public company chief financial/accounting
officer together with Big 4 public accounting experience and a broad scope of operational experience.
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. 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 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 2021 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 | |
| 2021 | | |
| 312,000 | (3) | |
| — | | |
| 11,550 | (5) | |
| — | | |
| 323,550 | |
President and CEO of the
Company and Acting CEO of OmniMetrix (1) | |
| 2020 | | |
| 312,000 | (3) | |
| — | | |
| 7,974 | (6) | |
| — | | |
| 319,974 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tracy S. Clifford | |
| 2021 | | |
| 205,000 | (4) | |
| — | | |
| 43,000 | (7) | |
| — | | |
| 248,000 | |
CFO of the Company and
COO of OmniMetrix (2) | |
| 2020 | | |
| 198,000 | (4) | |
| — | | |
| 8,319 | (8) | |
| — | | |
| 206,319 | |
|
(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
February 2, 2021 with an exercise price of $0.48. 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 0.26% (ii) an expected term of 3.61 years (iii) an assumed
volatility of 102% and (iv) no dividends. |
|
(6) |
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. |
|
(7) |
Represents
the grant date fair value calculated in accordance with applicable accounting principles with respect to 100,000 options granted
on May 10, 2021 with an exercise price of $0.62. 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 0.6% (ii) an expected term of 4.0 years (iii) an assumed
volatility of 100% and (iv) no dividends. |
|
(8) |
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. |
Executive
Compensation for 2020 and 2021
Jan
H. Loeb. On January 30, 2020, the Company entered into a new consulting agreement (the “2020 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 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.
On
February 2, 2021, the Company entered into a new consulting agreement (the “2021 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 2021 Consulting Agreement, Mr. Loeb received 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 vested 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.
The
2021 Consulting Agreement expired on December 31, 2021; the Company and Mr. Loeb have entered into a new Consulting Agreement for 2022
as described below.
Tracy
S. Clifford. On June 1, 2018, Tracy S. Clifford was appointed CFO of the Company. Concurrent with the appointment of Ms. Clifford
as CFO, the Company entered into a consulting arrangement for the provision of her services as described below. She received cash
compensation in 2020 and through May 31, 2021, of $16,500 per month, and, effective June 1, 2021, $17,500 per month. She 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 a grant on May 10, 2021 of options to purchase 100,000 shares of our common
stock, with an exercise price of $0.62 per share, which was the closing price of the common stock on May 9, 2021. The options 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
the grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the Company.
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 January 1, 2022, the Company entered into a new consulting agreement (the “2022 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 2022 Consulting Agreement, Mr. Loeb will continue to receive cash compensation 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 January 1, 2022, to purchase 35,000 shares of the Company’s common stock, which are exercisable at an exercise
price equal to the December 31, 2021, closing price of the common stock of $0.63 per share. Twenty-five percent (25%) of the options
were vested immediately; the remaining options shall vest in three equal increments on April 1, 2022, July 1, 2022 and October 1, 2022.
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 Consulting Agreement began on June 1, 2018, and automatically renews for an additional year upon the expiration of each
one-year term. The current term expires on June 1, 2022. Pursuant to the Consulting Agreement, Ms. Clifford currently receives cash compensation
of $17,500 per month. At the beginning of each one-year term of the Consulting Agreement, Ms. Clifford also receives a grant of options
(50,000 were granted in June 2020 and 100,000 were granted in May 2021) to purchase shares of the Company’s common stock, with
an exercise price equal to the closing price of the common stock on trading day immediately preceding the commencement of such one-year
term. The options vest and become exercisable on the first anniversary of the date of grant and shall expire upon the earlier of (a)
seven years from the date of grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the Company.
Outstanding
Equity Awards at 2021 Fiscal Year End
The
following tables set forth all outstanding equity awards made to each of the Named Executive Officers that were outstanding at December
31, 2021.
OPTIONS
TO PURCHASE ACORN ENERGY, INC. STOCK |
Name |
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable |
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable |
|
|
Option
Exercise
Price
($) |
|
|
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 |
|
|
|
35,000 |
|
|
|
— |
|
|
|
0.48 |
|
|
January
1, 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy
S. Clifford |
|
|
30,000 |
|
|
|
— |
|
|
|
0.41 |
|
|
June
1, 2025 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
0.28 |
|
|
June
24, 2026 |
|
|
|
50,000 |
|
|
|
— |
|
|
|
0.23 |
|
|
June
8, 2027 |
|
|
|
— |
|
|
|
100,000 |
|
|
|
0.62 |
|
|
May
10, 2028 |
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
($) |
|
|
Warrant
Expiration Date |
Jan
H. Loeb |
|
35,000 |
(1) |
|
— |
|
|
0.13 |
|
|
March
16, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy
S. Clifford |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
(1)
Warrants held by Leap Tide Capital Management, LLC.
Option
and Warrant Exercises
None.
Non-qualified
Deferred Compensation
The
following table provides information on the executive non-qualified deferred compensation activity for each of our named executive officers
for the year ended December 31, 2021.
Named
Executive Officer |
|
|
Executive
Contributions in Last
Fiscal Year
($) |
|
|
|
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 2021 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 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 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 $2,000.
Each
Director may, in his discretion, elect by written notice delivered on or before the first day of each calendar year whether to receive,
in lieu of some or all of his retainer and board fees, that number of shares of Company Common Stock as shall have a value equal to the
applicable retainer and board fees, based on the closing price of the Company’s Common Stock on its then-current trading platform
or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the election shall be irrevocable
for such election year and the shares subject to the election shall vest and be issued one-fourth upon the first day of the election
year and one-fourth as of the first day of each of the second through fourth calendar quarters thereafter during the remainder of the
election year. A newly-elected or appointed Director may, in his or her discretion, make such an election for the balance of the year
in which he or she was elected/appointed by written notice delivered on or before the tenth day after his or her election/appointment
to the Board, with the number of shares of Company Common Stock subject to such newly elected/appointed Director’s election to
be based on closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day
immediately preceding the day of such newly elected/appointed Director’s election/appointment.
The
following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year
ended December 31, 2021 by each individual (other than Mr. Loeb who was not separately compensated for his Board service) who served
as a director at any time during the fiscal year.
DIRECTOR
COMPENSATION IN 2021
Name | |
Fees
Earned or Paid in Cash ($) | | |
Option
Awards ($)
(1) | | |
All
Other Compensation
($) | | |
Total
($) | |
Samuel M. Zentman | |
| 25,000 | (2) | |
| 2,500 | | |
| — | | |
| 27,500 | |
Gary Mohr | |
| 17,000 | (3) | |
| 2,500 | | |
| — | | |
| 19,500 | |
Michael F. Osterer | |
| 17,000 | (3) | |
| 2,500 | | |
| — | | |
| 19,500 | |
|
(1) |
On
January 1, 2021, 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 $0.37 and were to expire on January 1, 2028. 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 0.24% (ii) an expected term
of 3.7 years (iii) an assumed volatility of 103% 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 28, 2022, 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 | |
| 8,025,737 | (3) | |
| 20.1 | % |
Gary Mohr | |
| 1,151,813 | (4) | |
| 2.9 | % |
Michael F. Osterer | |
| 2,882,974 | (5) | |
| 7.3 | % |
Samuel M. Zentman | |
| 145,615 | (6) | |
| * | |
Tracy S. Clifford | |
| 110,000 | (7) | |
| * | |
All executive officers and directors of the
Company as a group (5 people) | |
| 11,482,807 | (8) | |
| 28.4 | % |
*
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 28, 2022. |
|
|
(3) |
Consists
of 2,069,554 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, 182,500 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 60,000 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 65,250 shares underlying currently exercisable
options. |
|
|
(6) |
Consists
of 80,615 shares and 65,000 shares underlying currently exercisable options. |
|
|
(7) |
Consists
solely of currently exercisable options. |
|
|
(8) |
Consists
of 10,965,057 shares, 482,750 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, 2021.
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 | |
| 133,371 | | |
$ | .28 | | |
| — | |
Equity Compensation
Plans Not Approved by Security Holders | |
| 734,649 | | |
$ | .39 | | |
| 1,580,620 | |
Total | |
| 868,020 | | |
$ | .38 | | |
| 1,580,620 | |
The
grants made under our equity compensation plans not approved by security holders includes 697,770 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
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,
2021 and 2020.
| |
2021 | | |
2020 | |
Audit fees | |
$ | 92,145 | | |
$ | 77,455 | |
Tax fees | |
| 15,990 | | |
| 15,249 | |
All other fees | |
| — | | |
| — | |
Total | |
$ | 108,135 | | |
$ | 92,704 | |
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.
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 2021 and 2020.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
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 a holding company focused on technology-driven solutions for energy infrastructure asset management.
The Company provides the following products and Internet of Things (“IoT”) applications and services through its OmniMetrix,
LLC (“OmniMetrix”) subsidiary:
|
● |
Power
Generation (“PG”) monitoring. OmniMetrix’s PG services provide wireless remote monitoring and control systems
and IoT applications for residential and commercial/industrial power generation equipment. This includes the Company’s AIRGuard
product, which remotely monitors and controls air compressors, and its Smart Annunciator product which is typically sold with
a new commercial or industrial generator and has a display screen that indicates the current status of that generator. |
|
|
|
|
● |
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, 2021, the Company had approximately $1,722,000 of consolidated cash.
At
December 31, 2021, the Company had a negative working capital of approximately $60,000.
Its working capital included approximately $1,722,000
of cash and deferred revenue of approximately $3,541,000.
Such deferred revenue does not require significant cash outlay for the revenue to be recognized. Net cash decreased during the year ended
December 31, 2021 by approximately $341,000,
of which approximately $132,000
was provided by operating activities, approximately $324,000
was used in investing activities, and approximately $149,000
was used in financing activities.
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. Throughout the pandemic, the Company
has continued to realize new equipment sales (although not at the anticipated growth rate due to travel and meeting 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 continue to be positioned for stable financial performance.
As
of March 28, 2022, the Company had cash of approximately $1,825,000. The Company believes that such cash, plus the
cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their
current level of operations for the foreseeable future and for the twelve months from the issuance of these audited consolidated financial
statements in particular. The Company may, at some point, elect to obtain a new line of credit or other source of financing to fund additional
investments in the business.
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.
Intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales are also eliminated; non-controlling
interests are included in equity.
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, 2021 and 2020, approximately $10,000 and $21,000 was charged to doubtful accounts expense, respectively.
At December 31, 2021 and 2020, the balance in allowance for doubtful accounts was approximately $6,000 and $9,000, 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 to identify slow-moving and obsolete inventory. Management conducted an assessment and wrote-off
inventory valued at approximately $22,000 and $17,000 for the years ended December 31, 2021 and 2020, respectively.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, such as property and equipment, intangible assets subject to amortization, and right-of-use assets
on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance relative
to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for
the overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining useful life
of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated as the excess
of the carrying value over the fair value.
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 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. During the years ended December 31, 2021 and 2020, the Company capitalized internal-use software costs totaling
approximately $285,000 and $87,000, respectively.
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 $443,000 and $542,000 as of December 31, 2021 and December 31, 2020, 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 Accounting Standards Codification (“ASC”) 606: Revenue from Contracts with Customers 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 OmniMetrix 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.
Any
sales tax, value added tax, and other tax, the Company collects concurrent with revenue producing activities are excluded from revenue.
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 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 and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $1,722,000 at
December 31, 2021. 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 $17,000 and $15,000 for each of the years ended
December 31, 2021 and 2020, 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(b) 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.
Sales Taxes
On June 21, 2018, the U.S.
Supreme Court issued an opinion in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), whereby the longstanding Quill Corp v. North
Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. In 2020,
the Company began collecting sales tax in nearly all states that have sales tax. The Company accrued sales taxes in the states with sales
tax. The Company accrued the liability from the effective date of a state’s adoption of the Wayfair decision up to the date the Company
began collecting and filing sales taxes in the various states. At December 31, 2021 and December 31, 2020, the amount of such accrual
was approximately $28,000 and $8,000, respectively.
The Company accrues sales
taxes based on determination of which of its products/services are subject to sales tax, and in which states and jurisdictions the
tax applies. Further, the Company must determine which of its customers are exempt from the Company charging sales tax because the customer
is a reseller or self-assesses and direct pays to states and other jurisdictions on purchases the customer makes from the Company. These
determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions,
which could result in recognizing materially different amounts in future periods.
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, 2021 and 2020, no interest or penalties were accrued on the consolidated balance sheets related to uncertain
tax positions.
During
the years ending December 31, 2021 and 2020, 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 operations.
The
Company is subject to U.S. Federal and state income tax. As of January 1, 2021, the Company is no longer subject to examination by U.S.
Federal taxing authorities for years before 2018, or for years before 2017 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 combined 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 868,000 (which have a weighted average exercise price of $0.38)
and 409,626 (which had a weighted average exercise price of $0.84) for the years ending December 31, 2021 and 2020, 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):
SCHEDULE
OF EFFECT ON NET INCOME AND WEIGHTED AVERAGE NUMBER OF SHARES
|
|
2021 |
|
|
2020 |
|
|
|
Year ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Net income (loss) available to common stockholders |
|
$ |
(21 |
) |
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
-Basic |
|
|
39,688 |
|
|
|
39,674 |
|
Add: Warrants |
|
|
— |
|
|
|
19 |
|
Add: Stock options |
|
|
— |
|
|
|
20 |
|
-Diluted |
|
|
39,688 |
|
|
|
39,713 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net (loss) income per share |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
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, 2021, that are of material significance, or have potential material significance, to the Company.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how
entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through
net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected
losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently
evaluating the impact of the new guidance on its 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.
There
are no recently issued accounting updates that are expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3—INVESTMENT
IN OMNIMETRIX
The
Company owns 99% of the Company’s OMX Holdings, Inc. subsidiary (“Holdings”) and the former CEO of OmniMetrix, LLC owns
the remaining 1%.
NOTE 4—INVENTORY
SCHEDULE
OF INVENTORY
|
|
2021 |
|
|
2020 |
|
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(in thousands) |
|
Raw materials |
|
$ |
577 |
|
|
$ |
216 |
|
Finished goods |
|
|
40 |
|
|
|
20 |
|
inventory net |
|
$ |
617 |
|
|
$ |
236 |
|
At
December 31, 2021 and 2020, the Company’s inventory reserve was $0.
NOTE 5—PROPERTY
AND EQUIPMENT, NET
Property
and equipment consists of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
|
|
Estimated Useful Life (in years) |
|
As of December 31, |
|
|
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
(in thousands) |
|
Cost: |
|
|
|
|
|
|
|
|
|
|
Computer hardware and software |
|
3 - 5 |
|
$ |
625 |
|
|
$ |
311 |
|
Equipment |
|
7 |
|
|
154 |
|
|
|
151 |
|
Leasehold improvements |
|
Term of lease |
|
|
346 |
|
|
|
339 |
|
Intangible asset |
|
Patent term |
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
1,136 |
|
|
|
812 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
Computer hardware and software |
|
|
|
|
128 |
|
|
|
55 |
|
Equipment |
|
|
|
|
151 |
|
|
|
150 |
|
Leasehold improvements |
|
|
|
|
340 |
|
|
|
339 |
|
Intangible asset |
|
|
|
|
-* |
|
|
|
-* |
|
|
|
|
|
|
619 |
|
|
|
544 |
|
Property and equipment, net |
|
|
|
$ |
517 |
|
|
$ |
268 |
|
Depreciation
and amortization in respect of property and equipment amounted to approximately $75,000 and $22,000 for 2021 and 2020, respectively.
NOTE 6—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of September 30, 2025.
The office equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for 2021 and 2020 were
approximately $121,000 and $78,000, respectively. The future minimum lease payments on non-cancelable operating leases as of December
31, 2021 using a discount rate of 4.5% are approximately $443,000. 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):
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
|
|
2021 |
|
|
2020 |
|
Cash paid for operating lease liabilities |
|
$ |
121 |
|
|
$ |
78 |
|
Supplemental
balance sheet information related to leases consisted of the following:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
|
|
2021 |
|
Weighted average remaining lease terms for operating leases |
|
|
3.73 |
|
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, 2021 (in thousands):
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
|
|
2021 |
|
2022 |
|
$ |
125 |
|
2023 |
|
|
128 |
|
2024 |
|
|
129 |
|
2025 |
|
|
99 |
|
Total undiscounted cash flows |
|
|
481 |
|
Less: Imputed interest |
|
|
(38 |
) |
Present value of operating lease liabilities (a) |
|
$ |
443 |
|
|
(a) |
Includes current portion of approximately $107,000 for operating leases. |
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc. to sublease from the Company 1,900
square feet of office space of the Company’s 21,000
square feet of office and production space in the Hamilton Mill Business Park located in Buford, Georgia for a monthly sublease
payment of $2,375 which includes the base
rent plus a pro-rata share of utilities, property taxes and insurance. Fifty percent of any excess rent received above the per square
foot amount that the Company pays will be remitted to the Company’s landlord less the allocation of any shared expenses and leasehold
improvements specific to the sublease. The Company invested approximately $7,000
on leasehold improvements related to the sublease. Due to the offset of the capital expenditures, the Company does not expect
to have any net rent due to its landlord for the first twelve months of the sublease. The estimated amount the Company expects to remit
to the landlord each year of the sublease subsequent to the first twelve months is approximately $6,700
per year. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is the end of the Company’s
lease term with its landlord. Below are the future payments expected under the sublease (in thousands) net of the estimated annual service
cost of $2,220 (gross of the estimated amount the Company expects
to remit to its landlord):
SCHEDULE
OF SUBLEASES
|
|
2021 |
|
2022 |
|
$ |
26 |
|
2023 |
|
|
26 |
|
2024 |
|
|
26 |
|
2025 |
|
|
20 |
|
Total undiscounted cash flows |
|
$ |
98 |
|
NOTE 7—DEBT
(a) 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 $1,000,000. Debt incurred under this financing arrangement bore interest at
the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of 0.75% of the average aggregate
principal amount outstanding for the prior month, for an effective rate of interest on advances of 15% at February 28, 2021. OmniMetrix
also agreed to continue to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two years
beginning March 1, 2019. From time to time, the balance outstanding fell below $150,000 based on collections applied against the loan
balance and the timing of loan draws. The monthly service charge and interest was calculated on the greater of the outstanding balance
or $150,000. Interest expense for the period January 1, 2021 to February 28, 2021, when the line expired, was approximately $4,000 compared
to approximately $28,000 for the year ended December 31, 2020.
OmniMetrix
paid off the outstanding balance of approximately $149,000 in February 2021 and decided not to renew this line of credit, which expired
in accordance with its terms on February 28, 2021.
(b) 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.
NOTE 8—COMMITMENTS AND CONTINGENCIES
On
August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix a new software
platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over the first seven months
of the term of the agreement equal to $200,000 in the aggregate. OmniMetrix will also pay the partner (i) a per-sensor monitoring fee
for each sensor connected to the developed technology, or (ii) a percentage of any revenue received above a specified amount per sensor
monitored per month in gas applications only. Commencing on January 1, 2021, OmniMetrix paid the partner a quarterly licensing fee of
$12,500 which was renegotiated to $4,450 effective October 1, 2021. The annual licensing fee moving forward will be $17,800, which will
be paid in quarterly increments of $4,450. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends
on August 19, 2022 but will automatically renew for one-year periods unless either party delivers a written notice of termination to the
other party sixty days prior to the end of the respective term.
In
addition to the above, the Company has approximately $443,000 in operating lease obligations payable through 2026 and approximately $151,000
in other contractual obligations. The Company also has approximately $1.2 million in open purchase order commitments payable through 2022.
NOTE 9—EQUITY
(a) General
At
December 31, 2021 the Company had issued and outstanding 39,687,589 shares of its common stock, par value $0.01 per share. Holders of
outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of
the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
The
Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.
(b) Summary
Employee Option Information
The
Company’s stock option plans provide for the grant to officers, directors and employees of options to purchase shares of common
stock. The purchase price may be paid in cash or, if the option is “in-the-money” at the end of the option term, it is automatically
exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option
from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole
shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by
the option exercised. Each option is exercisable for one share of the Company’s common stock. Most options expire within five to
ten years from the date of the grant, and generally vest over a three-year period from the date of the grant.
At
December 31, 2021, 1,580,620 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 2021 and 2020, 232,770 and 230,000 options, respectively,
were granted to directors, executive officers and employees. In 2021 and 2020, 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 $89,000 and $59,000 in 2021 and 2020, respectively.
No
options were exercised in the year ended December 31, 2021. 96,250 options were exercised in the year ended December 31, 2020. The intrinsic
value of options outstanding and of options exercisable at December 31, 2021 was approximately $291,000 and $217,000, respectively. 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):
SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES PRICING MODEL
|
|
2021 |
|
|
2020 |
|
Risk-free interest rate |
|
|
0.5 |
% |
|
|
0.6 |
% |
Expected term of options, in years |
|
|
4.1 |
|
|
|
4.4 |
|
Expected annual volatility |
|
|
99.7 |
% |
|
|
115.2 |
% |
Expected dividend yield |
|
|
— |
% |
|
|
— |
% |
Determined weighted average grant date fair value per option |
|
$ |
0.38 |
|
|
$ |
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, 2021 and 2020. Estimates
of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
(c) Summary
Option Information
A
summary of the Company’s option plans as of December 31, 2021 and 2020, as well as changes during each of the years then ended,
is presented below:
SUMMARY OF STOCK OPTION ACTIVITY
|
|
2021 |
|
|
2020 |
|
|
|
Number
of
Options
(in shares) |
|
|
Weighted
Average
Exercise
Price |
|
|
Number of
Options
(in shares) |
|
|
Weighted
Average
Exercise
Price |
|
Outstanding at beginning of year |
|
|
722,501 |
|
|
$ |
0.62 |
|
|
|
1,364,490 |
|
|
$ |
1.87 |
|
Granted at market price |
|
|
232,770 |
|
|
$ |
0.54 |
|
|
|
230,000 |
|
|
$ |
0.36 |
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
(96,250 |
) |
|
$ |
0.19 |
|
Forfeited or expired |
|
|
(122,251 |
) |
|
$ |
2.04 |
|
|
|
(775,739 |
) |
|
$ |
2.80 |
|
Outstanding at end of year |
|
|
833,020 |
|
|
$ |
0.39 |
|
|
|
722,501 |
|
|
$ |
0.62 |
|
Exercisable at end of year |
|
|
557,242 |
|
|
$ |
0.33 |
|
|
|
429,833 |
|
|
$ |
0.81 |
|
Summary
information regarding the options outstanding and exercisable at December 31, 2021 is as follows:
SUMMARY OF INFORMATION REGARDING TO OPTIONS OUTSTANDING AND EXERCISABLE
|
|
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 – $0.38 |
|
|
491,250 |
|
|
|
3.93 |
|
|
$ |
0.31 |
|
|
|
455,913 |
|
|
$ |
0.31 |
|
$0.40 – $0.62 |
|
|
341,770 |
|
|
|
5.90 |
|
|
$ |
.50 |
|
|
|
101,329 |
|
|
$ |
0.43 |
|
|
|
|
833,020 |
|
|
|
|
|
|
|
|
|
|
|
557,242 |
|
|
|
|
|
Stock-based
compensation expense included in selling, general and administrative expense in the Company’s consolidated statements of operations
was approximately $75,000 and $35,000 in the years ending December 31, 2021 and 2020, respectively.
The
total compensation cost related to non-vested awards not yet recognized was approximately $59,000 as of December 31, 2021.
(d) 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:
SUMMARY OF WARRANT ACTIVITY
|
|
2021 |
|
|
2020 |
|
|
|
Number of
shares
underlying
warrants |
|
|
Weighted
Average
Exercise
Price |
|
|
Number of
shares
underlying
warrants |
|
|
Weighted
Average
Exercise
Price |
|
Outstanding at beginning of year |
|
|
35,000 |
|
|
$ |
0.13 |
|
|
|
2,177,857 |
|
|
$ |
1.28 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
(2,142,857 |
) |
|
$ |
1.30 |
|
Outstanding and exercisable at end of year |
|
|
35,000 |
|
|
$ |
0.13 |
|
|
|
35,000 |
|
|
$ |
0.13 |
|
The
warrants outstanding at December 31, 2021 have a weighted average remaining contractual life of approximately 14.5 months.
NOTE 10—INCOME
TAXES
(a) Composition
of loss from continuing operations before income taxes is as follows (in thousands):
COMPOSITION OF LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
Year ended
December 31,
|
|
|
|
2021 |
|
|
2020 |
|
Domestic |
|
$ |
2 |
|
|
$ |
76 |
|
Income tax expense
consists of the following (in thousands):
COMPONENTS OF INCOME TAX EXPENSE
|
|
Year ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Current: |
|
|
|
|
|
|
Federal |
|
$ |
-* |
|
|
$ |
16 |
|
State and local |
|
|
-* |
|
|
|
5 |
|
Current Income Tax Expense |
|
|
-* |
|
|
|
21 |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
-* |
|
|
|
(16 |
) |
State and local |
|
|
-* |
|
|
|
(5 |
) |
Deferred Income Tax Expense |
|
|
-* |
|
|
|
(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:
SUMMARY OF RECONCILIATION BETWEEN FEDERAL TAX RATE
|
|
Year ended December 31, |
|
|
|
2021 |
|
|
2020 |
|
Statutory Federal rates |
|
|
21 |
% |
|
|
21 |
% |
Increase (decrease) in income tax rate resulting from: |
|
|
|
|
|
|
|
|
Other, net (primarily permanent differences) |
|
|
788 |
|
|
|
12 |
|
Valuation allowance |
|
|
(809 |
) |
|
|
(33 |
) |
Effective income tax rates |
|
|
— |
% |
|
|
(— |
)% |
(c) Analysis
of Deferred Tax Assets and (Liabilities) (in thousands):
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
|
|
2021 |
|
|
2020 |
|
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
Deferred tax assets (liabilities) consist of the following: |
|
|
|
|
|
|
Employee benefits and deferred compensation |
|
$ |
1,064 |
|
|
$ |
1,076 |
|
Investments and asset impairments |
|
|
1,818 |
|
|
|
1,818 |
|
Other temporary differences |
|
|
(1,188 |
) |
|
|
(1,002 |
) |
Net operating loss and capital loss carryforwards |
|
|
15,904 |
|
|
|
15,739 |
|
Deferred tax assets, gross |
|
|
17,598 |
|
|
|
17,631 |
|
Valuation allowance |
|
|
(17,598 |
) |
|
|
(17,631 |
) |
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, 2021, the valuation allowance decreased by approximately $33,000.
(d) Summary
of Tax Loss Carryforwards
SUMMARY OF TAX LOSS CARRYFORWARDS
As
of December 31, 2021, the Company had various operating loss carryforwards expiring as follows (in thousands):
Expiration |
|
|
Federal |
|
|
Capital Loss |
|
|
State |
|
2023 |
|
|
$ |
— |
|
|
$ |
556 |
|
|
$ |
— |
|
2025 – 2031* |
|
|
|
2,580 |
|
|
|
— |
|
|
|
— |
|
2032 – 2039 |
|
|
|
63,180 |
|
|
|
— |
|
|
|
14,898 |
|
Unlimited |
|
|
|
4,616 |
|
|
|
— |
|
|
|
1,909 |
|
Total |
|
|
$ |
70,376 |
|
|
$ |
556 |
|
|
$ |
16,807 |
|
* | | 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) Officer
and Director Fees
The Company recorded fees
to officers of approximately $517,000
and $510,000 for the years ended December 31, 2021 and 2020, respectively, which is included in selling, general and administrative
expenses.
The
Company recorded fees to directors of approximately $59,000 for the years ended December 31, 2021 and 2020, 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 in 2015 and the subsequent
repurchase of this Preferred Stock on July 1, 2019.
c) The related
party balance due to Acorn from OmniMetrix is approximately $4,217,000 for amounts loaned, accrued interest and expenses paid by Acorn
on Omni’s behalf as of December 31, 2021 as compared to approximately $4,575,000 as of December 31, 2020. This balance is eliminated
in consolidation. During 2021, the intercompany amount due to Acorn from OmniMetrix decreased by approximately $359,000. This included
repayments of approximately $677,000 offset by interest of approximately $194,000, dividends of $76,000 due to Acorn and approximately
$48,000 in shared expenses paid by Acorn. During 2020, the intercompany amount due to Acorn from OmniMetrix increased by approximately
$70,000. This included repayments of approximately $435,000 offset by interest of approximately $253,000, dividends of $76,000 due to
Acorn and approximately $176,000 in shared expenses paid by Acorn.
NOTE 12—SEGMENT
REPORTING AND GEOGRAPHIC INFORMATION
(a) General
Information
As
of December 31, 2021, the Company continues to operate in two reportable operating segments, both of which are performed through 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, 2021 and 2020 (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.
SUMMARY OF SEGMENTED DATA
|
|
PG |
|
|
CP |
|
|
Total |
|
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
5,787 |
|
|
|
989 |
|
|
|
6,776 |
|
Segment gross profit |
|
|
4,328 |
|
|
|
571 |
|
|
|
4,899 |
|
Depreciation and amortization |
|
|
64 |
|
|
|
11 |
|
|
|
75 |
|
Segment income (loss) before income taxes |
|
|
963 |
|
|
|
(27 |
) |
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
4,988 |
|
|
$ |
934 |
|
|
$ |
5,922 |
|
Segment gross profit |
|
|
3,626 |
|
|
|
505 |
|
|
|
4,131 |
|
Depreciation and amortization |
|
|
19 |
|
|
|
3 |
|
|
|
22 |
|
Segment income (loss) before income taxes |
|
|
624 |
|
|
|
(75 |
) |
|
|
549 |
|
(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, 2021 and 2020 (in thousands):
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT OF OPERATIONS
|
|
2021 |
|
|
2020 |
|
|
|
Year ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Total net income before income taxes for reportable segments |
|
$ |
921 |
|
|
$ |
549 |
|
Gain on PPP loan extinguishment |
|
|
— |
|
|
|
421 |
|
Unallocated
net cost of corporate headquarters |
|
|
(934 |
) |
|
|
(894 |
) |
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT BALANCE SHEET
|
|
2021 |
|
|
2020 |
|
|
|
As of December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Total assets for OmniMetrix subsidiary |
|
$ |
5,938 |
|
|
$ |
4,870 |
|
Assets of corporate headquarters |
|
|
104 |
|
|
|
331 |
|
Total consolidated assets |
|
$ |
6,042 |
|
|
$ |
5,201 |
|
SCHEDULE OF REVENUE FROM CUSTOMERS BY GEOGRAPHICAL AREAS
|
|
2021 |
|
|
2020 |
|
|
|
Year ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(in thousands) |
|
Revenues based on location of customer : |
|
|
|
|
|
|
|
|
United States |
|
$ |
6,729 |
|
|
$ |
5,887 |
|
Other |
|
|
47 |
|
|
|
35 |
|
Revenues |
|
$ |
6,776 |
|
|
$ |
5,922 |
|
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):
SCHEDULE OF REVENUES, ACCOUNTS RECEIVABLE FROM MAJOR CUSTOMERS
|
|
Invoiced Sales |
|
|
Accounts Receivable |
|
|
|
2021 |
|
|
|
2020 |
|
|
2021 |
|
|
|
2020 |
|
Customer |
|
Total |
|
|
% |
|
|
|
Total |
|
|
% |
|
|
Balance |
|
|
% |
|
|
|
Balance |
|
|
% |
|
A |
|
$ |
|
|
|
-* |
|
|
|
-* |
% |
|
|
$ |
776 |
|
|
|
13 |
% |
|
$ |
-* |
|
|
|
-* |
% |
|
|
$ |
124 |
|
|
|
20 |
% |
B |
|
|
|
|
|
-* |
|
|
|
-* |
|
|
|
|
-* |
|
|
|
-* |
|
|
|
-* |
|
|
|
-* |
|
|
|
$ |
71 |
|
|
|
12 |
% |
* | | Balance is not significant. |
NOTE 13—REVENUE
The
following table disaggregates the Company’s revenue for the years ended December 31, 2021 and 2020 (in thousands):
SCHEDULE OF DISAGGREGATES OF REVENUE
|
|
HW |
|
|
Monitoring |
|
|
Total |
|
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
PG Segment |
|
$ |
2,018 |
|
|
$ |
3,769 |
|
|
$ |
5,787 |
|
CP Segment |
|
|
728 |
|
|
|
261 |
|
|
|
989 |
|
Total Revenue |
|
$ |
2,746 |
|
|
$ |
4,030 |
|
|
$ |
6,776 |
|
|
|
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 |
|
Deferred
revenue activity for the year ended December 31, 2021 can be seen in the table below (in thousands):
SCHEDULE OF DEFERRED REVENUE ACTIVITY
|
|
HW |
|
|
Monitoring |
|
|
Total |
|
Balance at December 31, 2020 |
|
$ |
2,576 |
|
|
$ |
1,978 |
|
|
$ |
4,554 |
|
Additions during the period |
|
|
2,548 |
|
|
|
4,177 |
|
|
|
6,725 |
|
Recognized as revenue |
|
|
(1,856 |
) |
|
|
(4,030 |
) |
|
|
(5,886 |
) |
Balance at December 31, 2021 |
|
$ |
3,268 |
|
|
$ |
2,125 |
|
|
$ |
5,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be recognized as revenue in the year ending: |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
$ |
1,695 |
|
|
$ |
1,846 |
|
|
$ |
3,541 |
|
December 31, 2023 |
|
|
1,116 |
|
|
|
275 |
|
|
|
1,391 |
|
December 31, 2024 and thereafter |
|
|
457 |
|
|
|
4 |
|
|
|
461 |
|
|
|
$ |
3,268 |
|
|
$ |
2,125 |
|
|
$ |
5,393 |
|
Other
revenue of approximately $890,000 is related to custom design hardware, accessories, repairs, and other miscellaneous charges that are
recognized to revenue when sold and are not deferred.
Other
revenue of approximately $414,000 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, 2021 can be seen in the table
below (in thousands):
SCHEDULE OF DEFERRED CHARGES ACTIVITY
|
|
|
|
|
Balance at December 31, 2020 |
|
$ |
1,306 |
|
Additions during the period |
|
|
1,155 |
|
Recognized as cost of sales |
|
|
(948 |
) |
Balance at December 31, 2021 |
|
$ |
1,513 |
|
|
|
|
|
|
Amounts to be recognized as cost of sales in the year ending: |
|
|
|
|
December 31, 2022 |
|
$ |
799 |
|
December 31, 2023 |
|
|
507 |
* |
December 31, 2024 and thereafter |
|
|
207 |
* |
|
|
$ |
1,513 |
|
* | | Amounts
included in other assets in the Company’s Consolidated Balance Sheets at December
31, 2021. |
Data
costs (COGS) for monitoring services of approximately $349,000 and the COGS for the miscellaneous revenue from sales of custom design
hardware, upgrade kits, accessories and repairs of approximately $580,000 are expensed as incurred and are not deferred.
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.
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, 2021
(in thousands):
SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS
|
|
HW |
|
|
Monitoring |
|
|
Total |
|
Balance at December 31, 2020 |
|
$ |
136 |
|
|
$ |
41 |
|
|
$ |
177 |
|
Additions during the period |
|
|
212 |
|
|
|
34 |
|
|
|
246 |
|
Amortization of sales commissions |
|
|
(106 |
) |
|
|
(22 |
) |
|
|
(128 |
) |
Balance at December 31, 2021 |
|
$ |
242 |
|
|
$ |
53 |
|
|
$ |
295 |
|
The
capitalized sales commissions are included in other current assets (approximately $138,000) and other assets (approximately $157,000)
in the Company’s Consolidated Balance Sheets at December 31, 2021.
The
capitalized sales commissions are included in other current assets (approximately $90,000) and other assets (approximately $87,000) in
the Company’s Consolidated Balance Sheets at December 31, 2020.
NOTE 14—SUBSEQUENT
EVENTS
On
January 1, 2022, 30,000 options in the aggregate were issued to directors with an exercise price of $0.63 and that vest in equal increments
on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022 valued at $12,000 in the aggregate.
On
January 1, 2022, 35,000 options were issued to the CEO with an exercise price of $0.63 and that vest in equal increments on January 1,
2022, April 1, 2022, July 1, 2022 and October 1, 2022 valued at approximately $14,000.
On
February 1, 2022, the Company’s agreement with Sales Force renewed for an additional one-year term. The monthly payments during
the term of this agreement are approximately $2,000.
On
February 7, 2022, the Company entered into a Mobile Business Agreement with AT&T for business communications services including new
phone equipment for all office-based employees. The agreement has a term of two years. The monthly recurring charges under this agreement
are $675 and the total nonrecurring fee paid at the inception of the agreement was $2,475.
On
March 4, 2022, 30,770
options were issued to the Vice President of Sales with an exercise price of $0.55
and that vest
in equal increments over three years on the anniversary date of the issuance with the last tranche vesting on March 4, 2025. These
options are valued at approximately $10,000.