ACORN ENERGY, INC. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

Commission file number: 001-33886

ACORN ENERGY, INC.

(Exact name of registrant as specified in charter)

410-654-3315

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

ACORN ENERGY, INC.

Quarterly Report on Form 10-Q

for the Quarterly Period Ended June 30, 2021

TABLE OF CONTENTS

Certain statements contained in this report are forward-looking in nature. These statements are generally identified by the inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of similar meaning. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Many of these factors are described in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

PART I

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

(UNAUDITED)

(IN THOUSANDS)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ACORN ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

NOTE 1— BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries, OmniMetrix, LLC and OMX Holdings, Inc. (collectively, “Acorn” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six- and three-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $1,955,000 at June 30, 2021. The Company does not believe there is significant risk of non-performance by these counterparties. For the six-month period ended June 30, 2021, one customer represented approximately 10% of total invoiced sales. Approximately 18% and 11% of the accounts receivable at June 30, 2021 was due from two different customers both of whom pay their receivables over usual credit periods. As of August 5, 2021, the Company had collected 90% of the outstanding amount of approximately $207,000 due from these customers as of June 30, 2021. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising the Company’s customer base.

Basic and Diluted Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net loss per share if doing so would be antidilutive. The number of options that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately 286,000 (which have a weighted average exercise price of $0.79) and approximately 321,000 (which have a weighted average exercise price of $0.76) for the six- and three-month periods ending June 30, 2021, respectively. There were no anti-dilutive warrants. For both the six- and three-month periods ending June 30, 2020, the number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was approximately 858,000 options (which had a weighted average exercise price of $1.51) and approximately 35,000 warrants (which had a weighted average exercise price of $0.13).

The following data represents the amounts used in computing EPS and the effect on net income (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 

NOTE 2—RECENT AUTHORITATIVE GUIDANCE

Recently Issued Accounting Principles

Other than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six- and three-month periods ended June 30, 2021, that are of material significance, or have potential material significance, to the Company.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.

NOTE 3—LIQUIDITY

At June 30, 2021, the Company had working capital of approximately $40,000. The Company’s working capital includes approximately $1,955,000 of cash and deferred revenue of approximately $3,239,000. The deferred revenue does not require significant cash outlay for the revenue to be recognized. During the first six months of 2021, the Company’s OmniMetrix, LLC subsidiary provided approximately $529,000 from operations while the Company’s corporate headquarters used approximately $446,000 during the same period.

OmniMetrix is considered an essential business because it provides infrastructure support to both government and commercial sectors and across key industries. The Company has experienced minimal negative impacts due to the COVID-19 pandemic to date. Throughout the pandemic, the Company continued to realize new equipment sales (although not at the anticipated growth rate due to travel restrictions which have negatively impacted the sales closing timeline), has continued to collect its monthly recurring monitoring revenues and has retained its customer base. While the impacts of COVID-19 in the future are uncertain, the Company believes that due to the need for backup power and the desirability of remote monitoring services, it should be positioned for stable financial performance. Business travel has now started to resume and sales are returning to projected levels.

As of August 5, 2021, the Company had cash of approximately $2,039,000. The Company believes that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for the twelve months from the issuance of these unaudited condensed consolidated financial statements in particular. The Company may, at some point, elect to obtain a new line of credit to fund additional investments in the business.

NOTE 4—LEASES

OmniMetrix leases office space and office equipment under operating lease agreements. The office lease expires on September 30, 2025. The office equipment lease commenced in April 2019 and has a sixty-month term. Operating lease payments for the six months ended June 30, 2021 and 2020 were approximately $60,000 and $38,000, respectively. Operating lease payments for the three months ended June 30, 2021 and 2020 were approximately $30,000 and $10,000, respectively. The future minimum lease payments on non-cancellable operating leases as of June 30, 2021 using a discount rate of 4.5% are $494,000. Supplemental balance sheet information related to leases consisted of the following:

Supplemental cash flow information related to leases consisted of the following (in thousands):

SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES 

Supplemental balance sheet information related to leases consisted of the following:

SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES 

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 unaudited condensed consolidated balance sheet as of June 30, 2021 (in thousands):

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS 

NOTE 5—DEBT

In March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable formula-based financing of the lesser of 75% of eligible receivables or $1,000,000. Debt incurred under this financing arrangement bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances of 15% at February 28, 2021. OmniMetrix also agreed to continue to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two years beginning March 1, 2019. From time to time, the balance outstanding fell below $150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly service charge and interest was calculated on the greater of the outstanding balance or $150,000. Interest expense for the period January 1, 2021 to February 28, 2021, when the line expired, was approximately $4,000 compared to approximately $16,000 and approximately $9,000 for the six months and three months ended June 30, 2020, respectively.

OmniMetrix paid off the outstanding balance of approximately $149,000 in February 2021 and decided not to renew this line of credit, which expired in accordance with its terms on February 28, 2021.

NOTE 6—COMMITMENTS AND CONTINGENCIES

On August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix a new software platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over the first seven months of the term of the agreement equal to $200,000 in the aggregate. In addition, OmniMetrix will 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 oil and gas applications only. Commencing on January 1, 2021, OmniMetrix pays the partner an annual licensing fee of $50,000 which is paid in quarterly increments of $12,500. The per-sensor monitoring fees have not yet commenced. The initial term of this agreement ends on August 19, 2022 but will automatically renew for one-year periods unless either party delivers a written notice of termination to the other party sixty days prior to the end of the respective term.

The Company entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor. The agreement has a twelve-month term and the total payments under this agreement are approximately $148,000 in the aggregate. In January 2021, the Company elected to renew this agreement for an additional twelve months under the same terms extending the agreement to April 30, 2022. Under the data hosting services agreement applicable during the respective periods, the Company paid approximately $79,000 and $66,000 in the six months ended June 30, 2021 and 2020, respectively, and approximately $42,000 and $30,000 in the three months ended June 30, 2021 and 2020, respectively.

On March 17, 2021, the Company entered into a master services agreement for the development of a new user interface for its customer data portal. The cost of this project will be approximately $106,000 ($14,000 was paid at the commencement of this project and four equal installments of approximately $23,000 are due monthly starting in July 2021 and ending in October 2021). This project is expected to be completed by the end of 2021. This master services agreement also covers strategic enhancements to the Company’s technology infrastructure for an investment in the initial phase of approximately $21,000. These enhancements are expected to be completed by year-end. These costs are capitalized and amortization will begin once the new interface and the new infrastructure environment are launched.

In addition to the above, the Company has approximately $563,000 in other contractual obligations related to software agreements, operating leases and contractual services, payable through 2026.

NOTE 7—EQUITY

(a) General

At June 30, 2021 the Company had issued and outstanding 39,687,589 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when 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 June 30, 2021, 1,576,394 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the three months ended June 30, 2021, 100,000 options were issued to the Company’s CFO. During the six months ended June 30, 2021, 30,000 options were issued to directors, 35,000 options were issued to the Company’s CEO and 100,000 options were issued to the Company’s CFO. In the six and three months ended June 30, 2021, there were no grants to non-employees. The fair value of the options issued was approximately $62,000.

No options were exercised in the six and three months ended June 30, 2021. The intrinsic value of options outstanding and of options exercisable at June 30, 2021 was approximately $177,000 and $134,000, 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):

 SUMMARY OF BLACK-SCHOLES OPTION PRICING TO ESTIMATE FAIR VALUE

The fair value of the options granted of approximately $62,000 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES PRICING MODEL

(c) Stock-based Compensation Expense

Stock-based compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations was approximately $36,000 and $19,000 for the six-month periods ended June 30, 2021 and 2020, respectively and approximately $21,000 and $13,000 for the three-month periods ended June 30, 2021 and 2020, respectively.

The total compensation cost related to non-vested awards not yet recognized was approximately $73,000 as of June 30, 2021.

(d) Warrants

The Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:

 SUMMARY OF WARRANT ACTIVITY

NOTE 8— SEGMENT REPORTING

As of June 30, 2021, the Company operates in two reportable operating segments, both of which are performed through the Company’s OmniMetrix subsidiary:

The Company’s reportable segments are strategic business units, offering different products and services, and are managed separately as each business requires different technology and marketing strategies.

The following tables represent segmented data for the three-month and six-month periods ended June 30, 2021 and 2020 (in thousands):

 SUMMARY OF SEGMENTED DATA

The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments. Further, the Chief Decision Maker does not review the assets by segment.

Reconciliation of Segment Income (Loss) to Consolidated Net Income (Loss) Before Income Taxes

 SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED NET INCOME LOSS BEFORE INCOME TAXES

NOTE 9—REVENUE

The following table disaggregates the Company’s revenue for the three-and-six-month periods ended June 30, 2021 and 2020 (in thousands):

 SCHEDULE OF DISAGGREGATES OF REVENUE