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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 IoT 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 to commercial
customers that require a visual representation of the generator’s status and has a touch-screen display that indicates the
current state of that generator. |
|
|
|
|
● |
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP services provide remote monitoring and control products for
cathodic protection systems on oil and 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. OmniMetrix also offers the industry’s
first RADTM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can
remotely disconnect/connect these AC mitigation tools which can drastically reduce a company’s expense while increasing employee
safety. |
During
2022, 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, 2022 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total |
|
Revenues |
|
$ |
7,000 |
|
|
$ |
— |
|
|
$ |
7,000 |
|
Cost
of sales |
|
|
1,929 |
|
|
|
— |
|
|
|
1,929 |
|
Gross
profit |
|
|
5,071 |
|
|
|
— |
|
|
|
5,071 |
|
Gross
profit margin |
|
|
72 |
% |
|
|
|
|
|
|
72 |
% |
R&D
expenses |
|
|
845 |
|
|
|
— |
|
|
|
845 |
|
Selling,
general and administrative expenses |
|
|
3,845 |
|
|
|
959 |
|
|
|
4,804 |
|
Impairment
of software |
|
|
51 |
|
|
|
— |
|
|
|
51 |
|
Operating
income (loss) |
|
$ |
330 |
|
|
$ |
(959 |
) |
|
$ |
(629 |
) |
|
|
Year
ended December 31, 2021 |
|
|
|
OmniMetrix |
|
|
Acorn |
|
|
Total |
|
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 |
) |
OMNIMETRIX
– POWER GENERATION MONITORING AND CONTROL AND CATHODIC PROTECTION MONITORING AND CONTROL
OmniMetrix
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 being monitored in IoT applications. OmniMetrix solutions monitor critical equipment used by cell
towers, manufacturing plants, medical facilities, data centers, retail stores, public transportation systems, energy distribution
and federal, state and municipal government facilities, in addition to residential back-up generators. 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 our 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 our
AIRGuard product which remotely monitors and controls industrial air compressors and our Smart Annunciator product which is typically
sold to commercial customers that require a visual representation of the generator’s status and has a large touch-screen display.
In
the CP segment, OmniMetrix offers three primary product lines: the Hero 2 Rectifier Monitor, the Patriot Plus Test Station Monitor, and
the RADTM (Remote AC Mitigation Disconnect). All 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 Plus Test Station Monitor is also used to provide data points along
the pipeline segment powered by the rectifier including AC current density. The industry’s first and patented RAD mounts onto existing
Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools which drastically reduces company expense
while increasing employee safety.
Customers
and Markets
At
its core, the OmniMetrix family of 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 early 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 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 effect 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 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 compete in our 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) 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 in
a lower-performance, lower-price quadrant of the market typically due to the lesser 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 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 capabilities 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 four
issued valid 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 21,000 square feet of office and production space in the Hamilton Mill Business Park located in
Buford, Georgia, under a lease that expires September 30, 2025. 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, 2022, OmniMetrix had a backlog of $6.2 million, primarily comprised of deferred revenue, of which $4.0 million is expected
to be recognized as revenue in 2023. This compares to a backlog of $5.4 million at December 31, 2021.
RESEARCH
AND DEVELOPMENT EXPENSE, NET
Research
and development expense recorded for the years ended December 31, 2022 and 2021 for our OmniMetrix subsidiary is as follows (amounts
in thousands of U.S. dollars):
|
|
Years
ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
OmniMetrix |
|
$ |
845 |
|
|
$ |
739 |
|
EMPLOYEES
At
December 31, 2022, we had a total of 28 employees (all of whom were employed in the United States by OmniMetrix), of whom 26 were full-time
and 2 were part-time. 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 28 employees are engaged in production, engineering and technical support, ten in marketing and sales and seven
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 11 and 12 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 investments.
Although
we have had several consecutive quarters of profitability at our OmniMetrix subsidiary, we have had a history of losses from our OmniMetrix
subsidiary plus 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 financing.
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, CEO of Acorn
and Acting CEO of OmniMetrix, who beneficially owns approximately 20.5% of the Company’s stock, Tracy Clifford, CFO of Acorn
and COO of OmniMetrix , and Harold Jarrett, our CTO. 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 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 regulations 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 plan 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, 2022 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.
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 affordable prices 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 no longer 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 $1,450,000 at December 31, 2022. We had one customer that represented
12% of the accounts receivable at December 31, 2022. 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.
We
are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches
and data leakage.
We
rely extensively on information technology systems, networks and services, including internet sites, data hosting and processing facilities
and tools, physical security systems and other hardware, software and technical applications and platforms, some of which are managed,
hosted, provided and/or used for third-parties or their vendors, to assist in conducting our business. A significant breakdown, invasion,
corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized
access to our systems or unauthorized persons could negatively impact operations. The ever-increasing use and evolution of technology,
including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction or modification
of confidential information stored in our, or our third-party providers’ systems, portable media or storage devices. We could also
experience a business interruption, theft of confidential information or reputational damage from industrial espionage attacks, malware
or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party
providers. As the COVID-19 pandemic progressed, there was an increase in cybersecurity incidents across all industries, predominantly
ransomware and social engineering attacks. Further, government entities have also been the subject of cyberattacks. As the cyber-threat
landscape evolves, these attacks are growing in frequency, sophistication and intensity, and due to the nature of some of these attacks,
there is also a risk that they may remain undetected for a period of time. We have invested in industry-appropriate protections and monitoring
practices of our data and IT to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential
threats. While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to
any incurred losses. Moreover, as cyber-attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance
in amounts and on terms we view as appropriate for our operations. There can be no assurance that our continuing efforts will prevent
breakdowns or breaches to our or our third-party providers’ databases or systems that could adversely affect our business.
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.
As
a result of the COVID-19 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. The full extent to which the COVID-19 pandemic
may affect our results of operations, financial condition and cash flows will depend on future developments that are highly uncertain.
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 $330,000 in 2022 and $925,000 in 2021, 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 2023, 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/or 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 2023 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, 2022, OmniMetrix owes Acorn $3,677,000 from such funding support which includes accrued dividends of $266,000, a loan in the principal
amount of $2,985,000 and accrued interest and other advances of $426,000. During 2022, the intercompany amount due to Acorn from OmniMetrix
decreased by $540,000. This included repayments of $985,000 offset by interest of $179,000, dividends of $76,000 due to Acorn and $190,000
in shared expenses paid by Acorn. During 2021, the intercompany amount due to Acorn from OmniMetrix decreased by $359,000. This included
repayments of $677,000 offset by interest of $194,000, dividends of $76,000 due to Acorn and $48,000 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 2023. 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 would be 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 Microsoft Azure cloud-hosted data servers
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 2022, our common stock traded at prices as low as $0.26 and as high as $0.63 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 options.
Almost
all of our outstanding shares of common stock are, or could upon exercise of options 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 14, 2023, 39,757,589 shares of our common stock were issued and outstanding. As of that date we had 835,251 options outstanding
and exercisable with a weighted average exercise price of $0.41 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 14, 2023, there were 170,205 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 are or would be freely tradable.
We
may have to offer additional securities for sale in the near future.
As
of March 14, 2023, we had consolidated cash of $1,480,000 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 on September 30, 2025. The annual total rent payment was $124,000 in 2022 and
$118,000 in 2021. For 2023, the annual total rent payment will be $125,000. 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.
As of December 31, 2022, after the offset of the investment in leasehold improvements and other expenses related to the sublease, the
Company owes its landlord $6,000 for its share of the sublease profit since the lease commencement. The estimated amount the Company
expects to remit to the landlord each year of the sublease subsequent to December 31, 2022 is $6,100 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):
|
|
2022 |
|
2023 |
|
$ |
26,000 |
|
2024 |
|
|
26,000 |
|
2025 |
|
|
20,000 |
|
Total
undiscounted cash flows |
|
$ |
72,000 |
|
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. You should be aware that over-the-counter market
quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
Holders
As
of March 14, 2023, the last reported sales price of our common stock on the OTCQB marketplace was $0.37, there were 69 record holders
of our common stock and we estimate that there were approximately 4,000 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.”
All
dollar amounts in the discussion below are rounded to the nearest thousand and, thus, are approximate.
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 IoT 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 to commercial customers that require a visual representation of the generator’s
status and has a touch-screen display that indicates the current state of that generator; and |
|
|
|
|
● |
The
CP segment which provides remote monitoring and control products for cathodic protection systems on oil and 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. OmniMetrix also offers the industry’s first RADTM (Remote AC Mitigation
Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation
tools which can drastically reduce a company’s expense while increasing employee safety. |
The
following analysis should be read together with the segment information provided in Notes 11 and 12 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. OmniMetrix solutions monitor critical equipment used by cell towers, manufacturing plants, medical facilities, data
centers, retail stores, public transportation systems, energy distribution and federal, state and municipal government facilities, in
addition to residential back-up generators. 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.
Intercompany
During
2022, the intercompany amount due to Acorn from OmniMetrix decreased by $540,000. This included repayments of $985,000 offset by interest
of $179,000, dividends of $76,000 due to Acorn and $190,000 in shared expenses paid by Acorn. 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. We believe that
OmniMetrix will not need working capital support in 2023. 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 14, 2023, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of $1,480,000 in cash.
Other
Matters
On
March 2, 2023, 35,000 warrants that were set to expire on March 16, 2023 were exercised at an exercise price of $0.13 per share by
our Chief Executive Officer.
On
February 27, 2023, 10,000 options in the aggregate were issued to the Director of Software Development and Technology with an exercise
price of $0.41 and that vested in equal increments over three years on the anniversary date of the grant, valued at $3,000 in the aggregate.
On
January 3, 2023, 30,000 options in the aggregate were issued to directors with an exercise price of $0.35 and that vested in equal increments
on January 1, 2023, April 1, 2023, July 1, 2023 and October 1, 2023, valued at $9,000 in the aggregate.
On
January 1, 2023, 35,000 options were issued to the CEO with an exercise price of $0.35 and that vest in equal increments on January 1,
2023, April 1, 2023, July 1, 2023 and October 1, 2023 valued at $9,000.
On
November 22, 2022, 10,000 vested options were exercised by a board member with an exercise price of $0.14 per share or $1,400 in the
aggregate. These options had an expiration date of January 1, 2023.
On
August 12, 2022, 25,000 vested options were exercised by the CEO with an exercise price of $0.20 per share or $5,000 in the aggregate.
These options had an expiration date of August 13, 2022.
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 grant. These options are valued at $11,000.
On
June 1, 2022, 50,000 options were issued to the CFO with an exercise price of $0.44 and vesting in equal increments on June 1, 2022,
September 1, 2022, December 1, 2022 and March 1, 2023, valued at $16,000.
On
January 1, 2022, 30,000 options in the aggregate were issued to directors with an exercise price of $0.63 and that vested 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 vested in equal increments on January
1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at $14,000.
During
June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and
was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment
against the capitalized investment in this project of $51,000.
In
July 2022, we announced a partnership between OmniMetrix, CPower Energy Management (“CPower”), and Power Solutions
Specialists TX (“PSS”) designed to help homeowners that install next-generation standby generators to earn compensation for
offering grid relief, known as “demand response,” to the Electric Reliability Council of Texas (“ERCOT”). CPower’s
demand response solutions, combined with OmniMetrix’s remote control capabilities, allow the shifting of electricity production
to PSS’s best-in-class residential standby generators for a few hours each year when the grid is stressed or ERCOT energy pricing
is high, without the homeowner needing to take any action. Homeowners are compensated for signing up and possibly supplying grid offload
by running their generators for up to 12 hours per year. We do not expect this partnership to begin generating revenue until late 2023.
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 per-sensor monitoring fees have not yet commenced. The initial term of this agreement ended
on August 19, 2022 and would have automatically renewed for an additional year, but we delivered a written notice of termination to the
other party sixty days prior to the end of the initial term. We are currently on a month-to-month arrangement paying a monthly licensing
fee of $1,500, and are working with the software development partner to negotiate more favorable terms for future periods.
We
entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The
agreement had 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. We did not extend this agreement for an additional one-year term beyond the expiration
of the previous term on April 30, 2022 and were under a month-to-month arrangement which we terminated effective September 30, 2022.
Under the applicable data hosting services agreements, we paid $110,000 and $158,000 in the years ended December 31, 2022 and 2021, respectively.
On
March 17, 2021, we entered into a master services agreement for the development of a new user interface for our customer data portal.
The cost of this project is $126,000 in design and development services ($14,000 was paid at the commencement of this project and three
equal installments of $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 to occur
in the first half of 2023. We expect to incur additional costs to execute the launch plan for the interface and to develop the corresponding
mobile application. The cost of the design project is capitalized, and amortization will begin once the new interface is completed and
ready to deploy.
The
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 replaced our previous Peak 10 datacenter hosting environment. The new infrastructure provides a more modern, agile
and cost-effective environment in which to grow our IoT connections and services. We invested $272,000 in this initiative during the
year ended December 31, 2022 and $166,000 during the year ended December 31, 2021. The new Microsoft Azure cloud infrastructure environment
was completed and launched on May 1, 2022. The cost of this project was capitalized, and amortization over an estimated useful life of
seven years began on May 1, 2022.
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 disclosures. 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 11 and
12 for the disaggregation of our revenue for the periods presented.
Stock-based
Compensation
We
recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the
Black-Scholes option valuation method. Accordingly, we are required to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which
an employee is required to provide service in exchange for the award. Under the Black-Scholes method, we make assumptions with respect
to the expected lives of the options that have been granted and are outstanding, the expected volatility, the dividend yield percentage
of our common stock and the risk-free interest rate at the respective dates of grant.
For
our Acorn options, the expected volatility factor used to value stock options in 2022 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, 2022 and 2021, we incurred stock compensation expense with respect to options of $80,000 and $75,000, respectively.
See
Note 8 to the consolidated financial statements for the assumptions used to calculate the fair value of share-based employee compensation
for Acorn options.
RESULTS
OF OPERATIONS
The
selected consolidated statement of operations data for the years ended December 31, 2022 and 2021 and consolidated balance sheet data
as of December 31, 2022 and 2021 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, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in
thousands, except per share data) |
|
Revenue |
|
$ |
7,000 |
|
|
$ |
6,776 |
|
Cost
of sales |
|
|
1,929 |
|
|
|
1,877 |
|
Gross
profit |
|
|
5,071 |
|
|
|
4,899 |
|
Research
and development expenses |
|
|
845 |
|
|
|
739 |
|
Selling,
general and administrative expenses |
|
|
4,804 |
|
|
|
4,168 |
|
Impairment
of software |
|
|
51 |
|
|
|
— |
|
Operating
loss |
|
|
(629 |
) |
|
|
(8 |
) |
Finance
expense, net |
|
|
(2 |
) |
|
|
(5 |
)
|
Loss
before income taxes |
|
|
(631 |
)
|
|
|
(13 |
)
|
Income
tax expense |
|
|
— |
|
|
|
— |
|
Net
loss after income taxes |
|
|
(631 |
) |
|
|
(13 |
)
|
Non-controlling
interest share of loss |
|
|
(2 |
) |
|
|
(8 |
) |
Net
loss attributable to Acorn Energy, Inc. stockholders |
|
$ |
(633 |
) |
|
$ |
(21 |
)
|
Basic
and diluted net loss per share attributable to Acorn Energy, Inc. stockholders: |
|
|
|
|
|
|
|
|
Net
loss per share attributable to Acorn Energy, Inc. stockholders – basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.00 |
) |
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic |
|
|
39,698 |
|
|
|
39,688 |
|
Weighted
average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – diluted |
|
|
39,698 |
|
|
|
39,688 |
|
The
following table sets forth certain information with respect to revenues and profits of our reportable business segments for the years
ended December 31, 2022 and 2021 (dollars in thousands), including the percentages of revenues attributable to such segments. (See Note
11 to our consolidated financial statements for the definitions of our reporting segments).
| |
PG | | |
CP | | |
Total | |
Year ended December 31, 2022: | |
| | | |
| | | |
| | |
Revenues from customers | |
$ | 5,894 | | |
$ | 1,106 | | |
$ | 7,000 | |
Percentage of total revenues from customers | |
| 84 | % | |
| 16 | % | |
| 100 | % |
Segment gross profit | |
| 4,426 | | |
| 645 | | |
| 5,071 | |
| |
| | | |
| | | |
| | |
Year ended December 31, 2021: | |
| | | |
| | | |
| | |
Revenues from customers | |
$ | 5,787 | | |
$ | 989 | | |
$ | 6,776 | |
Percentage of total revenues from customers | |
| 85 | % | |
| 15 | % | |
| 100 | % |
Segment gross profit | |
| 4,328 | | |
| 571 | | |
| 4,899 | |
2022
COMPARED TO 2021
Revenue.
In 2022, OmniMetrix recorded total revenue of $7,000,000, as compared to total revenue of $6,776,000 in 2021, for an increase of
$224,000 (3%). 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 2022, revenue of $5,894,000 was attributed to the PG segment
and revenue of $1,106,000 was attributed to the CP segment, as compared to the 2021 revenue of $5,787,000 that was attributed to the
PG segment and $989,000 that was attributed to the CP segment. Increased revenue in PG was due to an increase in hardware revenue. During
the year ended December 31, 2021, we recorded $112,000 in revenue from the sale of custom TG Pro units that were designed to large customer
specifications and monitored by the customer; thus, the revenue was not deferred. We did not have any custom unit orders in the year
ended December 31, 2022. The PG hardware revenue during the year ended December 31, 2021, excluding the revenue from the sale of the
custom units, was $1,906,000 compared to $2,234,000 during the year ended December 31, 2022; thus, the increase in PG hardware revenue
excluding the custom units was 17%. We also had an increase in CP hardware revenue of $126,000 (17%) from $728,000 during the year ended
December 31, 2021 to $854,000 during the year ended December 31, 2022. The overall increase in hardware revenue was due to a higher percentage
of commercial and industrial (C&I) customers in our customer mix for which the products have a higher price point versus residential
(RESI) customers. With respect to the specific products, this increase was attributed to Hero-2 and TG Pro revenue and to a lesser extent
TG-2 revenue in addition to engineering service income realized, offset by a decrease in revenue from the Hero-1, Patriot and TG-1 products.
Monitoring revenue decreased $118,000 (3%) from $4,030,000 during the year ended December 31, 2021 to $3,912,000 during the year ended
December 31, 2022. The decrease in monitoring revenue was due to the impact of the connections for which monitoring was discontinued
as a result of sunsetting 3G technology in addition to certain monitoring rebates applied for two of our larger customers, one in CP
and one in PG.
Gross
profit. Gross profit was $5,071,000, reflecting a gross margin of 72% on revenue, in 2022 compared with a gross profit of $4,899,000,
also reflecting a 72% gross margin on revenue, in 2021. Gross margin on hardware revenue for the year ended December 31, 2022 was 48%
compared to 44% for the year ended December 31, 2021. Gross margin on monitoring revenue was 92% for the year ended December 31, 2022
compared to 91% for year ended December 31, 2021.
Research
and development (“R&D”) expense. During 2022, OmniMetrix recorded $845,000 of R&D expense as compared to $739,000
in 2021, an increase of $106,000 (14%). The increase in R&D expense in 2022 is related to increases in wages and bonuses paid to
our engineering personnel in 2022 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 a moderate increase in R&D expense for 2023 due to
engineering salary increases granted effective October 1, 2022 and for continued investment in work on certain initiatives to redesign
products and expand product lines to increase our level of innovation ahead of our competitors.
Selling,
general and administrative (“SG&A”) expense. Consolidated SG&A expense in 2022 increased by $636,000 (15%), from
$4,168,000 in 2021 to $4,804,000 in 2022. Corporate overhead increased by $26,000, from $933,000 in 2021 to $959,000 in 2022, due to
increases in audit fees and investor relations expenses offset by a decrease in tax professional fees. OmniMetrix’s SG&A expense
increased $610,000 (19%), from $3,235,000 in 2021 to $3,845,000 in 2022. This increase was primarily due to increases of (i) $248,000
in personnel expenses related to bonuses, promotional wage increases, staff additions and stock compensation expense, (ii) $212,000 in
technology expenses related to technology consulting, amortization of technology investments and increased managed services expenses,
(iii) $55,000 in sales commissions, (iv) $53,000 in travel related expenses, and (v) $45,000 increase in depreciation related to additional
office equipment and computers purchased in 2021 and 2022 and a net decrease of $3,000 in other expense accounts. We anticipate that
our annual SG&A costs in 2023 will increase by approximately 15% due to increasing wage and benefit expenses and due to our continuing
investments in technology and operations.
During
June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and
was ongoing. As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment
against the capitalized investment in this project of $51,000.
Finance
expense, net. Finance expense in 2022 was $2,000, compared to $5,000 in 2021, primarily related to insurance financing arrangements.
Net
loss attributable to Acorn Energy. We had a net loss attributable to Acorn of $633,000 in 2022 as compared to net loss attributable
to Acorn of $21,000 in 2021. Our loss in 2022 is comprised of net income at OmniMetrix of $331,000, corporate expense of $962,000, offset
by $2,000 representing the non-controlling interest share of our income in OmniMetrix. Our loss in 2021 is comprised of net income at
OmniMetrix of $921,000, corporate expense of $934,000, offset by $8,000 representing the non-controlling interest share of our income
in OmniMetrix.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2022, we had a negative working capital of $561,000. Our working capital includes $1,450,000 of cash and deferred
revenue of $3,984,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Total
deferred revenue increased by $778,000, from $5,393,000 at December 31, 2021 to $6,171,000 at December 31, 2022,
as a result of the increase in cash sales which we amortize over a three-year period in accordance with GAAP. Net cash decreased
during the year ended December 31, 2022 by $272,000, of which $31,000 was provided by operating activities, $308,000 was used in
investing activities, and $5,000 was provided by financing activities.
During
the year ended December 31, 2022, our operating activities provided $31,000 of net cash. Our OmniMetrix subsidiary provided $916,000
from its operations while our corporate headquarters used $885,000 in its operating activities during the period. OmniMetrix’s
inventory balance increased by $172,000 at December 31, 2022 as compared to December 31, 2021, due to our continuing efforts to mitigate
the supply chain challenges and have adequate safety stock on hand. During the year ended December 31, 2021, our operating activities
provided $132,000. Our OmniMetrix subsidiary provided $1,035,000 from its operations while our corporate headquarters used $903,000 in
its operating activities during the same period.
During
the year ended December 31, 2022, net cash of $308,000 was used in investing activities, primarily in our technology infrastructure.
These investments were primarily related to the design of our new Azure cloud server environment, as well as investments in the development
of our new user interface for our PG customers and hardware and software upgrades. Net cash of $324,000 was used in investing activities
in 2021 which was also related to the technology investments in which we continued to invest in 2022.
Net
cash of $5,000 was provided by financing activities during the year ended December 31, 2022 which represents proceeds from the exercise
of stock options.
Net
cash of $149,000 was used by financing activities during the year ended December 31, 2021 as repayments on our line of credit. 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 $3,677,000 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 2022, OmniMetrix made payments to Acorn of $985,000 offset by interest of $179,000,
dividends of $76,000 due to Acorn and $190,000 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 $1,450,000 of cash on December 31, 2022, and $1,480,000 on March 14, 2023. 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 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, 2022.
CASH
PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| |
Years Ending December 31, (in thousands) | |
| |
Total | | |
2023 | | |
2024-2025 | | |
2026-2027 | |
Software agreements | |
$ | 32 | | |
$ | 30 | | |
$ | 2 | | |
$ | — | |
Operating leases* | |
| 357 | | |
| 128 | | |
| 229 | | |
| — | |
Contractual services | |
| 35 | | |
| 34 | | |
| 1 | | |
| — | |
Purchase obligations** | |
| 255 | | |
| 255 | | |
| — | | |
| — | |
Total contractual cash obligations | |
$ | 679 | | |
$ | 447 | | |
$ | 232 | | |
$ | — | |
*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 $1,450,000 at December 31,
2022. The Company had one customer that represented 12% of its accounts receivable at December 31, 2022. 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
OmniMetrix
has no interest rate risk related to debt since the Company paid off our credit line in February 2021.
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, 2022.
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, 2022, 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, 2022.
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, 2022.
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
There were no changes in our internal control over financial reporting
during our fourth quarter ended December 31, 2022, that could significantly affect, that materially
affected, or are 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 |
|
64 |
|
Director,
President and Chief Executive Officer of Acorn Energy, Inc. and Acting CEO of OmniMetrix |
Gary
Mohr |
|
64 |
|
Director
and member of our Audit, Nominating and Compensation Committees |
Michael
F. Osterer |
|
77 |
|
Director
and member of our Audit, Nominating and Compensation Committees |
Samuel
M. Zentman |
|
77 |
|
Director,
Chairman of our Audit Committee and member of our Nominating and Compensation Committees |
Tracy
S. Clifford |
|
54 |
|
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. He has served as President, Executive Chairman and
board member of Novelstem International Corp since July 2018.
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 is on the Board of Directors of Fields
of Peace. 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 has served as a board member of Novelstem International Corp since
July 2018. 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 ensure 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 2022 our executive officers and directors complied
with the filing requirements of Section 16(a) other than Jan H. Loeb, who filed a late Form 4 on January 3, 2023 to report purchases
made on December 1, 2022, December 27, 2022 and December 28, 2022.
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 |
|
|
2022 |
|
|
|
312,000 |
(3) |
|
|
— |
|
|
|
14,096 |
(6) |
|
|
— |
|
|
|
326,096 |
|
President
and CEO of the Company and Acting CEO of OmniMetrix (1) |
|
|
2021 |
|
|
|
312,000 |
(3) |
|
|
— |
|
|
|
11,550 |
(5) |
|
|
— |
|
|
|
323,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy
S. Clifford |
|
|
2022 |
|
|
|
210,000 |
(4) |
|
|
— |
|
|
|
15,949 |
(8) |
|
|
— |
|
|
|
225,949 |
|
CFO
of the Company and COO of OmniMetrix (2) |
|
|
2021 |
|
|
|
205,000 |
(4) |
|
|
— |
|
|
|
43,000 |
(7) |
|
|
— |
|
|
|
248,000 |
|
|
(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 1, 2022 with an exercise price of $0.63. 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 1.07% (ii) an expected term of 3.69 years (iii) an assumed
volatility of 94% 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 1, 2022 with an exercise price of $0.44. 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 2.9% (ii) an expected term of 3.69 years (iii) an assumed
volatility of 93% and (iv) no dividends. |
Executive
Compensation for 2022 and 2021
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 received cash compensation 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 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 vested 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.
The
2022 Consulting Agreement expired on December 31, 2022; the Company and Mr. Loeb have entered into a new Consulting Agreement for 2023
as described below.
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 service 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.
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. She received cash compensation from January
1, 2021 through May 31, 2021, of $16,500 per month, and, effective June 1, 2021, $17,500 per month. On June 1, 2022, the Company entered
into an Amended and Restated Consulting Agreement (the “New Consulting Agreement”) for the provision of Ms. Clifford’s
services as both CFO of Acorn and COO of OmniMetrix. The New Consulting Agreement amends, restates and replaces in its entirety the Consulting
Agreement dated as of June 1, 2018. The New Consulting Agreement began on June 1, 2022, has a one-year term, and automatically renews
for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the New Consulting
Agreement, Ms. Clifford receives cash compensation of $17,500 per month, and received a grant on June 1, 2022 of options to purchase
50,000 shares of our common stock, with an exercise price of $0.44 per share, which was the closing price of the common stock on May
31, 2022. Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on
September 1, 2022, December 1, 2022 and March 1, 2023, and shall expire upon the earlier of (a) seven years from the date of the grant
or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the Company.
She
received 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 vested and became exercisable on the first anniversary of
the date of the 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 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, 2023, the Company entered into a new consulting agreement (the “2023 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 2023 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, 2023, to purchase 35,000 shares of the Company’s common stock, which are exercisable at an exercise
price equal to the December 30, 2022, closing price of the common stock of $0.35 per share. Twenty-five percent (25%) of the options
were vested immediately; the remaining options shall vest in three equal increments on April 1, 2023, July 1, 2023 and October 1, 2023.
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 On June 1, 2022, the Company entered into an Amended and Restated Consulting Agreement (the “New Consulting
Agreement”) for the provision of Ms. Clifford’s services as both CFO of Acorn and COO of OmniMetrix. The New Consulting Agreement
amends, restates and replaces in its entirety her original Consulting Agreement dated as of June 1, 2018. The New Consulting Agreement
began on June 1, 2022, has a one-year term, and automatically renews for an additional year upon the expiration of each one-year term
unless earlier terminated as provided therein. Pursuant to the New Consulting Agreement, Ms. Clifford receives cash compensation of $17,500
per month, and received a grant on June 1, 2022 of options to purchase 50,000 shares of our common stock, with an exercise price of $0.44
per share, which was the closing price of the common stock on May 31, 2022. Twenty-five percent (25%) of the options were vested immediately;
the remaining options vested in three equal increments on September 1, 2022, December 1, 2022 and March 1, 2023, and shall expire upon
the earlier of (a) seven years from the date of the grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the
Company.
Outstanding
Equity Awards at 2022 Fiscal Year End
The
following tables set forth all outstanding equity awards made to each of the Named Executive Officers that were outstanding at December
31, 2022.
OPTIONS
TO PURCHASE ACORN ENERGY, INC. STOCK |
Name |
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable |
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable |
|
|
Option
Exercise
Price
($) |
|
|
Option
Expiration Date |
|
|
|
|
|
|
|
|
|
|
|
|
Jan
H. Loeb |
|
|
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 |
|
|
|
35,000 |
|
|
|
— |
|
|
|
0.63 |
|
|
January
1, 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
37,500 |
|
|
|
12,500 |
|
|
|
0.44 |
|
|
June
1, 2029 |
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
($) |
|
|
Warrant
Expiration Date |
Jan
H. Loeb |
|
35,000 |
(1)
|
|
— |
|
|
0.13 |
|
|
March
16, 2023 (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracy
S. Clifford |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
| (1) | Warrants
were held by Leap Tide Capital Management, LLC. |
| (2) | Warrants were exercised in full on March 2, 2023. |
Option
and Warrant Exercises
None.
Non-qualified
Deferred Compensation
The
following table provides information on the executive non-qualified deferred compensation activity for each of our named executive officers
for the year ended December 31, 2022.
Named
Executive Officer |
|
|
Executive
Contributions in Last
Fiscal Year
($) |
|
|
|
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, in the event of termination by the Company other than for cause, Ms. Clifford
shall be entitled to a continuation, for a period of six months following the date of such termination, of the monthly cash compensation
in effect at the time of such termination. There are no other amounts due under any other termination scenario under the terms of her
consulting agreement.
Compensation
of Directors
The
Board reviews non-employee director compensation on an annual basis. Our compensation policy for non-employee Directors for 2022 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 $2,000.
Each
Director may, in his discretion, elect by written notice delivered on or before the first day of each calendar year whether to receive,
in lieu of some or all of his retainer and board fees, that number of shares of Company Common Stock as shall have a value equal to the
applicable retainer and board fees, based on the closing price of the Company’s Common Stock on its then-current trading platform
or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the election shall be irrevocable
for such election year and the shares subject to the election shall vest and be issued one-fourth upon the first day of the election
year and one-fourth as of the first day of each of the second through fourth calendar quarters thereafter during the remainder of the
election year. A newly-elected or appointed Director may, in his or her discretion, make such an election for the balance of the year
in which he or she was elected/appointed by written notice delivered on or before the tenth day after his or her election/appointment
to the Board, with the number of shares of Company Common Stock subject to such newly elected/appointed Director’s election to
be based on closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day
immediately preceding the day of such newly elected/appointed Director’s election/appointment.
The
following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year
ended December 31, 2022 by each individual (other than Mr. Loeb who was not separately compensated for his Board service) who served
as a director at any time during the fiscal year.
DIRECTOR
COMPENSATION IN 2022
Name |
|
Fees
Earned or
Paid in Cash ($) |
|
|
Option
Awards ($)
(1) |
|
|
All
Other
Compensation
($) |
|
|
Total
($) |
|
Samuel
M. Zentman |
|
|
25,000 |
(2) |
|
|
4,027 |
|
|
|
— |
|
|
|
29,027 |
|
Gary
Mohr |
|
|
17,000 |
(3) |
|
|
4,027 |
|
|
|
— |
|
|
|
21,027 |
|
Michael
F. Osterer |
|
|
17,000 |
(3) |
|
|
4,027 |
|
|
|
— |
|
|
|
21,027 |
|
|
(1) |
On
January 1, 2022, 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 $0.63 and were to expire on January 1, 2029. 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 1.07% (ii) an expected term
of 3.7 years (iii) an assumed volatility of 94% 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 14, 2023, 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 |
|
|
8,179,115 |
(3) |
|
|
20.5 |
% |
Gary
Mohr |
|
|
1,161,813 |
(4) |
|
|
2.9 |
% |
Michael
F. Osterer |
|
|
2,892,974 |
(5) |
|
|
7.3 |
% |
Samuel
M. Zentman |
|
|
155,615 |
(6) |
|
|
* |
|
Tracy
S. Clifford |
|
|
270,000 |
(7) |
|
|
* |
|
All
executive officers and directors of the Company as a group (5 people) |
|
|
11,826,185 |
(8) |
|
|
29.3 |
% |
*
Less than 1%
(1) |
Unless
otherwise indicated, the address for each of the beneficial owners listed in the table is in care of the Company, 1000 N West Street,
Suite 1200, Wilmington, Delaware 19801. |
(2) |
Unless
otherwise indicated, each person has sole investment and voting power with respect to the shares indicated. For purposes of this
table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given date which such
person has the right to acquire within 60 days after such date. Percentage information is based on the 39,757,589 shares outstanding
as of March 14, 2023. |
|
|
(3) |
Consists
of 2,247,932 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, and 192,500 shares underlying currently exercisable options held by Mr. Loeb. Mr. Loeb
is the sole manager of Leap Tide Capital Acorn LLC, with sole voting and dispositive power over the securities held by such entity.
Mr. Loeb disclaims beneficial ownership of the securities held by Leap Tide Capital Acorn LLC except to the extent of his pecuniary
interest therein. |
|
|
(4) |
Consists
of 1,091,813 shares beneficially held by Mr. Mohr (including 833,332 shares held by UE Systems Inc.), and 70,000 shares underlying
currently exercisable options. |
|
|
(5) |
Consists
of 2,817,724 shares beneficially held by Mr. Osterer (including 833,332 shares held by UE Systems Inc.), and 75,250 shares underlying
currently exercisable options. |
|
|
(6) |
Consists
of 90,615 shares and 65,000 shares underlying currently exercisable options. |
|
|
(7) |
Consists
of 10,000 shares and 260,000 shares underlying currently exercisable options. |
|
|
(8) |
Consists
of 11,163,435 shares and 662,750 shares underlying currently exercisable options. |
EQUITY
COMPENSATION PLAN INFORMATION
The
table below provides certain information concerning our equity compensation plans as of December 31, 2022.
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 |
|
|
100,250 |
|
|
$ |
.33 |
|
|
|
— |
|
Equity
Compensation Plans Not Approved by Security Holders |
|
|
878,540 |
|
|
$ |
.42 |
|
|
|
1,434,850 |
|
Total |
|
|
978,790 |
|
|
$ |
.41 |
|
|
|
1,434,850 |
|
The
grants made under our equity compensation plans not approved by security holders includes 843,540 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 include 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 and Marcum LLP
The
following table summarizes the fees billed to Acorn for professional services rendered by Friedman LLP (through September 8, 2022) and
its post-merger successor Marcum LLP (after September 8, 2022) for the years ended December 31, 2022 and 2021.
|
|
2022 |
|
|
2021 |
|
Audit
fees |
|
$ |
130,337 |
|
|
$ |
92,145 |
|
Tax
fees |
|
|
10,859 |
|
|
|
15,990 |
|
All
other fees |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
141,196 |
|
|
$ |
108,135 |
|
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 2022 and 2021.
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 our AIRGuard product, which
remotely monitors and controls industrial air compressors and our Smart Annunciator product which is typically sold to commercial
customers that require a visual representation of the generator’s status and has a touch-screen display that indicates the
current state of that generator. |
|
|
|
|
● |
Cathodic
Protection (“CP”) monitoring. OmniMetrix’s CP services provide remote monitoring and control products for
cathodic protection systems on oil and 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. OmniMetrix also offers the industry’s
first RADTM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can
remotely disconnect/connect these AC mitigation tools which can drastically reduce a company’s expense while increasing employee
safety. |
Acorn’s
shares are traded on the OTCQB marketplace under the symbol ACFN.
See
Notes 11 and 12 for segment information and major customers.
(b)
Liquidity
As
of December 31, 2022, the Company had $1,450,000 of consolidated cash.
At
December 31, 2022, the Company had a negative working capital of $561,000. Its working capital included $1,450,000 of cash and deferred
revenue of $3,984,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Net cash decreased
during the year ended December 31, 2022 by $272,000, of which $31,000 was provided by operating activities, $308,000 was used in investing
activities, and $5,000 was provided by financing activities.
As
of March 14, 2023, the Company had cash of $1,480,000. 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 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”). All dollar amounts are rounded to the nearest thousand and, thus, are approximate.
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.
Reclassifications
Certain
reclassifications have been made to the Company’s consolidated financial statements for the period ended December 31, 2021 to conform
to the current year’s consolidated financial statement presentation. Approximately $22,000 in inventory that was written off in 2021 was reclassed
to its own line item to conform with current period presentation. There was no effect on total assets, equity or net loss.
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, net of any allowance for doubtful
accounts.
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, 2022 and 2021, $3,000 and $10,000 was charged to doubtful accounts expense, respectively. At December 31,
2022 and 2021, the balance in allowance for doubtful accounts was $10,000 and $6,000, 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 $41,000 and $22,000 for the years ended December 31, 2022 and 2021, 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.
During
June 2022, the Company conducted an evaluation of the status of an ERP software customization project that had been initiated in July
2019 and was ongoing. As a result of this evaluation, the Company elected to terminate this project effective June 30, 2022 and recorded
an impairment against the capitalized investment in this project of $51,000.
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
accordance with 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, 2022 and 2021, the Company capitalized internal-use software costs totaling $279,000
and $285,000,
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 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 $336,000 and $443,000 as of December 31, 2022 and December 31, 2021, respectively, which includes the
office space lease 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 stockholders’ 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
11 and 12 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 $1,450,000 at December 31,
2022. The Company does not believe there is significant risk of non-performance by these counterparties. See Note 11(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 $16,000 and $17,000 for each of the years ended December 31,
2022 and 2021, 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 8(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, 2022 and December 31, 2021,
the amount of such accrual was $51,000 and $28,000, 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. 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 9(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, 2022 and 2021, no interest or penalties were accrued on the consolidated balance sheets related to uncertain tax positions.
During
the years ending December 31, 2022 and 2021, 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, 2022, 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 Loss Per Share
Basic
net loss per share is computed by dividing the net loss attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding
during the year, excluding treasury stock. Diluted net loss per share is computed by dividing the net 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 979,000 (which have a weighted average exercise price of $0.41) and 868,000 (which had a weighted average exercise price
of $0.38) for the years ending December 31, 2022 and 2021, respectively.
The
following data represents the amounts used in computing EPS and the effect on net loss and the weighted average number of shares of
dilutive potential common stock (in thousands):
SCHEDULE OF EFFECT ON NET
INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES
| |
| | |
| |
| |
Year ended December 31, | |
| |
2022 | | |
2021 | |
Net loss available to common stockholders | |
$ | (633 | ) | |
$ | (21 | ) |
| |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | |
-Basic | |
| 39,698 | | |
| 39,688 | |
Add: Warrants | |
| — | | |
| — | |
Add: Stock options | |
| — | | |
| — | |
-Diluted | |
| 39,698 | | |
| 39,688 | |
| |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.02 | ) | |
$ | (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.
The
carrying amounts for cash, accounts receivable, and accounts payable approximate their fair value because of
their short-term maturity. The Company determined that the carrying amount of the lease liabilities approximate fair value since the
applicable interest rate approximated fair value at the time the leases were entered into. While the Company believes the carrying
value of the assets and liabilities are reasonable, considerable judgment is used to develop estimates of fair value; thus, the
estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.
Recently
Issued Accounting Standards
Other
than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting standards during the year ended December 31, 2022, 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 Standards
In
June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee 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.
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
| |
2022 | | |
2021 | |
| |
As of December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Raw materials | |
$ | 684 | | |
$ | 577 | |
Finished goods | |
| 105 | | |
| 40 | |
inventory net | |
$ | 789 | | |
$ | 617 | |
At
December 31, 2022 and 2021, the Company’s inventory reserve was $4,000 and $0, respectively.
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, | |
| |
| |
2022 | | |
2021 | |
| |
| |
(in thousands) | |
Cost: | |
| |
| | | |
| | |
Computer hardware and software | |
3 - 5 | |
$ | 864 | | |
$ | 625 | |
Equipment | |
7 | |
| 155 | | |
| 154 | |
Leasehold improvements | |
Term of lease | |
| 355 | | |
| 346 | |
Intangible asset | |
Patent term | |
| 20 | | |
| 11 | |
| |
| |
| 1,394 | | |
| 1,136 | |
Accumulated depreciation and amortization | |
| |
| | | |
| | |
Computer hardware and software | |
| |
| 247 | | |
| 128 | |
Equipment | |
| |
| 151 | | |
| 151 | |
Leasehold improvements | |
| |
| 343 | | |
| 340 | |
Intangible asset | |
| |
| -* | | |
| -* | |
| |
| |
| 741 | | |
| 619 | |
Property and equipment, net | |
| |
$ | 653 | | |
$ | 517 | |
Depreciation
and amortization in respect of property and equipment amounted to $122,000 and $75,000 for 2022 and 2021, 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 2022 and 2021 were
$124,000 and $121,000, respectively. The future minimum lease payments on non-cancelable operating leases as of December 31, 2022 using
a discount rate of 4.5% are $336,000. The 4.5% used is the incremental borrowing rate (established at the commencement of the lease)
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
balance sheet information related to leases consisted of the following:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| |
2022 | |
Weighted average remaining lease terms for operating leases | |
| 2.73 | |
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, 2022 (in thousands):
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
|
|
2022 |
|
2023 |
|
$ |
128 |
|
2024 |
|
|
129 |
|
2025 |
|
|
99 |
|
Total
undiscounted cash flows |
|
|
356 |
|
Less:
Imputed interest |
|
|
(20 |
) |
Present
value of operating lease liabilities (a) |
|
$ |
336 |
|
|
(a) |
Includes
current portion of $116,000 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 (plus an annual escalator each year of 3%) 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. As of December 31, 2022, after the offset of the investment in leasehold improvements and other expenses related
to the sublease, the Company owes its landlord $6,000 for its share of the sublease profit since the lease commencement. The estimated
amount the Company expects to remit to the landlord each year of the sublease subsequent to December 31, 2022 is $6,100 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 expected to be remitted to our landlord):
SCHEDULE
OF SUBLEASES
|
|
2022 |
|
2023 |
|
$ |
20 |
|
2024 |
|
|
28 |
|
2025 |
|
|
29 |
|
Total
undiscounted cash flows |
|
$ |
77 |
|
NOTE
7—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 for our CP customers. 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 per-sensor monitoring fees have not yet commenced.
The initial term of this agreement ended on August 19, 2022 and would have automatically renewed for an additional year, but OmniMetrix
delivered a written notice of termination to the other party sixty days prior to the end of the initial term. OmniMetrix is currently
on a month-to-month arrangement through December 31, 2022, paying a monthly licensing fee of $1,500, and is working with the software
development partner to negotiate more favorable terms for future periods.
In
addition to the above, the Company has $336,000 in operating lease obligations payable through 2026 and $64,000 in other contractual
obligations. The Company also has $255,000 in open purchase order commitments payable through April 2023.
NOTE
8—EQUITY
(a)
General
At
December 31, 2022 the Company had issued and outstanding 39,722,589 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, 2022, 1,434,850 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 2022 and 2021, 145,770 (115,000 to directors
and executive officers and 30,770 to other employees) and 232,770 (165,000 to directors and executive officers and 67,770 to other employees)
options, respectively, were granted . In 2022 and 2021, there were no grants to non-employees (other than the non-employee directors
and executive officers). The fair value of the options issued was $54,000 and $89,000 in 2022 and 2021, respectively.
35,000
options were exercised in the year ended December 31, 2022. No options were exercised in the year ended December 31, 2021. The intrinsic
value of options outstanding and of options exercisable at December 31, 2022 was $16,000 and $13,000, respectively. The intrinsic value
of options outstanding and of options exercisable at December 31, 2021 was $291,000 and $217,000, 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
| |
2022 | | |
2021 | |
Risk-free interest rate | |
| 1.8 | % | |
| 0.5 | % |
Expected term of options, in years | |
| 3.86 | | |
| 4.41 | |
Expected annual volatility | |
| 93.7 | % | |
| 99.7 | % |
Expected dividend yield | |
| — | % | |
| — | % |
Determined weighted average grant date fair value per option | |
$ | 0.37 | | |
$ | 0.38 | |
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, 2022 and 2021. 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, 2022 and 2021, as well as changes during each of the years then ended,
is presented below:
SUMMARY OF STOCK OPTION ACTIVITY
| |
2022 | | |
2021 | |
| |
Number of Options (in
shares) | | |
Weighted Average Exercise Price | | |
Number
of Options (in
shares) | | |
Weighted Average Exercise Price | |
Outstanding at beginning of year | |
| 833,020 | | |
$ | 0.39 | | |
| 722,501 | | |
$ | 0.62 | |
Granted at market price | |
| 145,770 | | |
$ | 0.55 | | |
| 232,770 | | |
$ | 0.54 | |
Exercised | |
| (35,000 | ) | |
$ | (0.18 | ) | |
| — | | |
$ | — | |
Forfeited or expired | |
| — | | |
$ | — | | |
| (122,251 | ) | |
$ | 2.04 | |
Outstanding at end of year | |
| 943,790 | | |
$ | 0.42 | | |
| 833,020 | | |
$ | 0.39 | |
Exercisable at end of year | |
| 819,001 | | |
$ | 0.41 | | |
| 557,242 | | |
$ | 0.33 | |
Summary
information regarding the options outstanding and exercisable at December 31, 2022 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 |
|
|
456,250 |
|
|
|
3.18 |
|
|
$ |
0.32 |
|
|
|
456,250 |
|
|
$ |
0.32 |
|
$0.40
– $0.63 |
|
|
487,540 |
|
|
|
5.28 |
|
|
$ |
0.51 |
|
|
|
362,751 |
|
|
$ |
0.52 |
|
|
|
|
943,790 |
|
|
|
|
|
|
|
|
|
|
|
819,001 |
|
|
|
|
|
Stock-based
compensation expense included in selling, general and administrative expense in the Company’s consolidated statements of operations
was $80,000 and $75,000 in the years ending December 31, 2022 and 2021, respectively.
The
total compensation cost related to non-vested awards not yet recognized was $33,000 as of December 31, 2022.
(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
| |
2022 | | |
2021 | |
| |
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 | | |
| 35,000 | | |
$ | 0.13 | |
Granted | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited or expired | |
| — | | |
| — | | |
| - | | |
| — | |
Outstanding and exercisable at end of year | |
| 35,000 | | |
$ | 0.13 | | |
| 35,000 | | |
$ | 0.13 | |
The
warrants outstanding at December 31, 2022 had a weighted average remaining contractual life of 2.5 months.
NOTE
9—INCOME TAXES
(a) Composition of loss before income taxes is as follows (in thousands):
COMPOSITION OF LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
| |
Year
ended December
31, | |
| |
2022 | | |
2021 | |
Domestic | |
$ | (631 | ) | |
$ | (13 | ) |
Income
tax expense consists of the following (in thousands):
COMPONENTS OF INCOME TAX EXPENSE
|
|
Year
ended
December
31, |
|
|
|
2022 |
|
|
2021 |
|
Current: |
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
State
and local |
|
|
— |
|
|
|
— |
|
Current
income tax expense |
|
|
— |
|
|
|
— |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
State
and local |
|
|
— |
|
|
|
— |
|
Deferred
income tax expense |
|
|
— |
|
|
|
— |
|
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, |
|
|
|
2022 |
|
|
2021 |
|
Statutory
Federal rates |
|
|
21 |
% |
|
|
21 |
% |
Increase
(decrease) in income tax rate resulting from: |
|
|
|
|
|
|
|
|
Other,
net (primarily permanent differences) |
|
|
(3 |
)%
|
|
|
(121 |
)% |
Valuation
allowance |
|
|
(18 |
)% |
|
|
100 |
% |
Effective
income tax rates |
|
|
— |
% |
|
|
(— |
)% |
(c)
Analysis of Deferred Tax Assets and (Liabilities) (in thousands):
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2022 | | |
2021 | |
| |
As of December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets (liabilities) consist of the following: | |
| | |
| |
Employee benefits and deferred compensation | |
$ | 49 | | |
$ | 1,064 | |
Other temporary differences | |
| 378 | | |
| 630 | |
Section 174 Expenditures | |
| 205 | | |
| — | |
Net operating loss and capital loss carryforwards | |
| 16,021 | | |
| 15,904 | |
Deferred tax assets, gross | |
| 16,653 | | |
| 17,598 | |
Valuation allowance | |
| (16,653 | ) | |
| (17,598 | ) |
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, 2022, the gross deferred tax asset and the valuation
allowance decreased by $945,000.
(d)
Summary of Tax Loss Carryforwards
As
of December 31, 2022, the Company had various operating loss carryforwards expiring as follows (in thousands):
SUMMARY
OF TAX LOSS CARRYFORWARDS
Expiration | |
Federal | | |
Capital Loss | | |
State | |
2023 | |
$ | — | | |
$ | 556 | | |
$ | — | |
2025 – 2031* | |
| 2,580 | | |
| — | | |
| — | |
2032 – 2037 | |
| 63,180 | | |
| — | | |
| 14,898 | |
Unlimited | |
| 5,176 | | |
| — | | |
| 1,896 | |
Total | |
$ | 70,936 | | |
$ | 556 | | |
$ | 16,794 | |
* |
|
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
for separate return limitation years.
|
Effective
for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental
to research and experimentation (R&E) activities under IRC Section 174. While taxpayers historically had the option of deducting
these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses
for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized
over a 5-year period if incurred. R&E activities are broader in scope than qualified research activities considered under IRC Section
41 (relating to the research tax credit). For the year ended December 31, 2022, the Company performed an analysis based on available
guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its
R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization
and amortization to require it to pay cash taxes now or in the near future.
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
10—RELATED PARTY BALANCES AND TRANSACTIONS
a)
Officer and Director Fees
The
Company recorded fees to officers of $522,000 and $517,000 for the years ended December 31, 2022 and 2021, respectively, which is included
in selling, general and administrative expenses.
The
Company recorded fees to directors of $59,000 for the years ended December 31, 2022 and 2021, which is included in selling, general and
administrative expenses.
The
Company issued 145,770 (115,000 to directors and executive officers and 30,770 to other employees) and 232,770 (165,000 to directors
and executive officers and 67,770 to other employees) options, in 2022 and 2021, respectively. 35,000 options were exercised in the year
ended December 31, 2022. No options were exercised in the year ended December 31, 2021. See Note 8 for further discussion.
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)
Intercompany
The
intercompany balance due to Acorn from OmniMetrix is $3,677,000 for amounts loaned, accrued interest and expenses paid by Acorn on Omni’s
behalf as of December 31, 2022 as compared to $4,217,000 as of December 31, 2021. This balance is eliminated in consolidation. During
2022, the intercompany amount due to Acorn from OmniMetrix decreased by $540,000. This included repayments of $985,000 offset by interest
of $179,000, dividends of $76,000 due to Acorn and $190,000 in shared expenses paid by Acorn. During 2021, the intercompany amount due
to Acorn from OmniMetrix decreased by $359,000. This included repayments of $677,000 offset by interest of $194,000, dividends of $76,000
due to Acorn and $48,000 in shared expenses paid by Acorn.
NOTE
11—SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
(a)
General Information
As
of December 31, 2022, 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
by the Chief Decision Maker (CDM) 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, 2022 and 2021 (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 CDM does not review the assets by segment.
SUMMARY OF SEGMENTED DATA
| |
PG | | |
CP | | |
Total | |
Year ended December 31, 2022: | |
| | | |
| | | |
| | |
Revenues from customers | |
$ | 5,894 | | |
$ | 1,106 | | |
$ | 7,000 | |
Segment gross profit | |
| 4,426 | | |
| 645 | | |
| 5,071 | |
Depreciation and amortization | |
| 103 | | |
| 19 | | |
| 122 | |
Segment income (loss) before income taxes | |
| 489 | | |
| (107 | ) | |
| 382 | |
| |
| | | |
| | | |
| | |
Year ended December 31, 2021: | |
| | | |
| | | |
| | |
Revenues from 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 | |
* |
The
software impairment of $51,000
recorded during 2022 is not related to a specific segment and, thus, is not included in the
“Segment income (loss) before income taxes” for the year ended December 31, 2022. |
(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, 2022 and 2021 (in thousands):
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT OF OPERATIONS
| |
2022 | | |
2021 | |
| |
Year
ended December
31, | |
| |
2022 | | |
2021 | |
Total net income before income taxes for reportable segments | |
$ | 331 | | |
$ | 921 | |
Unallocated net cost of corporate headquarters | |
| (962 | ) | |
| (934 | ) |
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT BALANCE SHEET
|
|
2022 |
|
|
2021 |
|
|
|
As
of December 31, |
|
|
|
2022 |
|
|
2021 |
|
Assets: |
|
|
|
|
|
|
|
|
Total
assets for OmniMetrix subsidiary |
|
$ |
5,931 |
|
|
$ |
5,938 |
|
Assets
of corporate headquarters |
|
|
53 |
|
|
|
104 |
|
Total
consolidated assets |
|
$ |
5,984 |
|
|
$ |
6,042 |
|
SCHEDULE OF REVENUE FROM CUSTOMERS BY GEOGRAPHICAL AREAS
|
|
2022 |
|
|
2021 |
|
|
|
Year
ended
December
31, |
|
|
|
2022 |
|
|
2021 |
|
Revenues
based on location of customer: |
|
|
|
|
|
|
|
|
United
States |
|
$ |
6,960 |
|
|
$ |
6,729 |
|
Other |
|
|
40 |
|
|
|
47 |
|
Revenues |
|
$ |
7,000 |
|
|
$ |
6,776 |
|
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 |
|
|
|
2022 |
|
|
|
2021 |
|
|
2022 |
|
|
|
2021 |
|
Customer |
|
Total |
|
|
% |
|
|
|
Total |
|
|
% |
|
|
Balance |
|
|
% |
|
|
|
Balance |
|
|
% |
|
A |
|
$ |
|
|
|
-* |
|
|
|
-* |
% |
|
|
$ |
-* |
|
|
|
-* |
% |
|
$ |
72 |
|
|
|
12 |
% |
|
|
$ |
-* |
|
|
|
-* |
% |
* |
|
Balance
is not significant. |
NOTE
12—REVENUE
The
following table disaggregates the Company’s revenue for the years ended December 31, 2022 and 2021 (in thousands):
SCHEDULE OF DISAGGREGATES OF REVENUE
| |
HW | | |
Monitoring | | |
Total | |
Year ended December 31, 2022: | |
| | | |
| | | |
| | |
PG Segment | |
$ | 2,234 | | |
$ | 3,660 | | |
$ | 5,894 | |
CP Segment | |
| 854 | | |
| 252 | | |
| 1,106 | |
Total Revenue | |
$ | 3,088 | | |
$ | 3,912 | | |
$ | 7,000 | |
|
|
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 |
|
Deferred
revenue activity for the year ended December 31, 2022 can be seen in the table below (in thousands):
SCHEDULE OF DEFERRED REVENUE ACTIVITY
|
|
HW |
|
|
Monitoring |
|
|
Total |
|
Balance
at December 31, 2021 |
|
$ |
3,268 |
|
|
$ |
2,125 |
|
|
$ |
5,393 |
|
Additions
during the period |
|
|
2,776 |
|
|
|
4,207 |
|
|
|
6,983 |
|
Recognized
as revenue |
|
|
(2,293 |
) |
|
|
(3,912 |
) |
|
|
(6,205 |
) |
Balance
at December 31, 2022 |
|
$ |
3,751 |
|
|
$ |
2,420 |
|
|
$ |
6,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
to be recognized as revenue in the year ending: |
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
|
$ |
1,963 |
|
|
$ |
2,021 |
|
|
$ |
3,984 |
|
December
31, 2024 |
|
|
1,359 |
|
|
|
396 |
|
|
|
1,755 |
|
December
31, 2025 and thereafter |
|
|
429 |
|
|
|
3 |
|
|
|
432 |
|
|
|
$ |
3,751 |
|
|
$ |
2,420 |
|
|
$ |
6,171 |
|
Other
revenue of $780,000 is related to custom design hardware, accessories, repairs, and other miscellaneous charges that are recognized to
revenue when sold and are not deferred.
Deferred
revenue activity for the year ended December 31, 2021 can be seen in the table below (in thousands):
Other
revenue of $890,000 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, 2022 can be seen in the table
below (in thousands):
SCHEDULE OF DEFERRED CHARGES ACTIVITY
|
|
|
|
|
Balance
at December 31, 2021 |
|
$ |
1,513 |
|
Additions
during the period |
|
|
1,267 |
|
Recognized
as cost of sales |
|
|
(1,086 |
) |
Balance
at December 31, 2022 |
|
$ |
1,694 |
|
|
|
|
|
|
Amounts
to be recognized as cost of sales in the year ending: |
|
|
|
|
December
31, 2023 |
|
$ |
887 |
|
December
31, 2024 |
|
|
616 |
|
December
31, 2025 and thereafter |
|
|
191 |
|
|
|
$ |
1,694 |
|
Data
costs paid to AT&T and the COGS related to sales of upgrade kits, accessories and repairs of $843,000 in the aggregate are expensed
as incurred and are not deferred.
Deferred
charges activity for the year ended December 31, 2021 can be seen in the table below (in thousands):
Data
costs paid to AT&T and the COGS related to sales of custom design hardware, accessories and repairs of $929,000 in the aggregate
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, 2022
(in thousands):
SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS
|
|
HW |
|
|
Monitoring |
|
|
Total |
|
Balance
at December 31, 2021 |
|
$ |
242 |
|
|
$ |
53 |
|
|
$ |
295 |
|
Additions
during the period |
|
|
233 |
|
|
|
55 |
|
|
|
288 |
|
Amortization
of sales commissions |
|
|
(156 |
) |
|
|
(28 |
) |
|
|
(184 |
) |
Balance
at December 31, 2022 |
|
$ |
319 |
|
|
$ |
80 |
|
|
$ |
399 |
|
The
capitalized sales commissions are included in other current assets ($196,000) and other assets ($203,000) in the Company’s Consolidated
Balance Sheets at December 31, 2022.
The
following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2021
(in thousands):
The
capitalized sales commissions are included in other current assets ($138,000) and other assets ($157,000) in the Company’s Consolidated
Balance Sheets at December 31, 2021.
NOTE
13—SUBSEQUENT EVENTS
On
January 1, 2023, 35,000 options were issued to the CEO with an exercise price of $0.35 and that vest in equal increments on January 1,
2023, April 1, 2023, July 1, 2023 and October 1, 2023 valued at $9,000.
On
January 3, 2023, 30,000 options in the aggregate were issued to directors with an exercise price of $0.35 and that vest in equal increments
on January 1, 2023, April 1, 2023, July 1, 2023 and October 1, 2023 valued at $9,000 in the aggregate.
On
February 27, 2023, 10,000 options were issued to the new Director of Software Development and Technology with an exercise price of $0.41
and that vest in equal increments over three years on the anniversary date of the issuance with the last tranche vesting on February
27, 2026. These options are valued at $3,000.
On
March 2, 2023, 35,000 warrants that were set to expire on March 16, 2023 were exercised at an exercise price of $0.13 per share by the
Company’s
Chief Executive Officer.