Acorn Energy, Inc 10-K for FY2023
Acorn Energy, Inc. (ACFN)
About this 10-K
Acorn Energy, Inc filed this 10-K on March 7, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $8.06M
- up 15.1% from $7M a year earlier
- Net income
- $119K
- compared with a net loss of $633K a year earlier
- Diluted EPS
- $0.05
- compared with -$0.25 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
or
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
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.
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).
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.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
reporting company |
Emerging
growth company |
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As
of the last day of the second fiscal quarter of 2023, the aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant was $
DOCUMENTS INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
Certain statements contained in this report are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “should” or “anticipates”, or the negatives thereof, or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of such risks and uncertainties are discussed below under the heading “Item 1A. Risk Factors.”
OmniMetrix®, OmniView®, ScopeViewTM, SmartServiceTM, TrueGuardTM and TrueShieldTM are trademarks of OmniMetrix, LLC.
| 2 |
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 offers PG wireless monitoring and control IoT solutions encompassing wireless remote monitoring devices and applications for both residential and commercial/industrial power generation equipment. This suite includes our suite of TrueGuard products as well as our AIRGuard product, designed for remote monitoring and control of industrial air compressors, as well as a Smart Annunciator product. This Smart Annunciator product, tailored for commercial clients, provides a visual representation of a generator’s status through a touch-screen display, offering real-time updates on its current state. | |
| ● | Cathodic Protection (“CP”) monitoring. OmniMetrix specializes in CP monitoring, offering remote monitoring and control products specifically tailored for cathodic protection systems utilized in gas pipelines, serving gas utilities market and pipeline operators. Our CP product lineup, which features solutions for remote monitoring and control of rectifiers, test stations and bonds, is our Hero and Patriot lines of products. Additionally, we offer the RADTM (Remote AC Mitigation Disconnect), an industry-first innovation designed to mount onto existing Solid-state Decouplers in the field. This device enables remote disconnection/connection of AC mitigation tools, significantly reducing a customer's expenses while enhancing employee safety. |
During 2023, 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, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenues | $ | 8,059 | $ | — | $ | 8,059 | ||||||
| Cost of sales | 2,055 | — | 2,055 | |||||||||
| Gross profit | 6,004 | — | 6,004 | |||||||||
| Gross profit margin | 74 | % | 74 | % | ||||||||
| R&D expenses | 875 | — | 875 | |||||||||
| Selling, general and administrative expenses | 3,998 | 1,057 | 5,055 | |||||||||
| Operating income (loss) | $ | 1,131 | $ | (1,057 | ) | $ | 74 | |||||
| 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 | ) | ||||
| 3 |
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 within the sectors in which it operates. 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. Additionally, 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.
| 4 |
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, which allows service organizations to perform diagnostics on equipment before dispatching service. These enhanced control panels allowed the service organization to put the right person in the right truck with the right parts to affect a one-trip or even 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 regarding how customer service teams are able to work “smarter” and more efficiently by going directly to problem sites with the appropriate people, parts and solutions, thus increasing the value of their businesses.
OmniMetrix is now focused on expanding its product offerings while also executing 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 Solutions 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 by 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 efforts 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 also 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 produce the monitoring systems, but not the equipment being monitored. Aside from OmniMetrix, such companies include Ayantra, FleetZOOM, Gen-Tracker, and PowerTelematics in the high-performance power generation monitoring segment. 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, similar to lower-performance, lower-priced market competitors. |
| 5 |
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, including pursuit of the market segment requiring less technology and lower price (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 in the future than OmniMetrix has accomplished in the past.
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, 2023, OmniMetrix had a backlog of $5.6 million, primarily comprised of deferred revenue, of which $4.0 million is expected to be recognized as revenue in 2024. This compares to a backlog of $6.2 million at December 31, 2022.
RESEARCH AND DEVELOPMENT EXPENSE, NET
Research and development expense recorded for the years ended December 31, 2023 and 2022 for our OmniMetrix subsidiary is as follows (amounts in thousands of U.S. dollars):
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| OmniMetrix | $ | 875 | $ | 845 | ||||
EMPLOYEES
At December 31, 2023, we had a total of 25 employees (all of whom were employed in the United States by OmniMetrix), of whom 24 were full-time and 1 was 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 Acorn. OmniMetrix also has consultants that supplement our employed staff and provide monthly recurring services in engineering, human resources, accounting and information technology.
Eleven of OmniMetrix’s 25 employees are engaged in production, engineering and technical support, ten in marketing and sales and four in finance and IT. We consider our relationship with our employees to be positive. We have no collective bargaining agreements with any of our employees.
| 6 |
ADDITIONAL FINANCIAL INFORMATION
For additional financial information regarding our operating segments, foreign and domestic operations and sales, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 12 and 13 to our Consolidated Financial Statements included in this Annual Report.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). These filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
Our website can be found at http://www.acornenergy.com. We make available free of charge on or through our website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such material is electronically filed, or furnished, to the SEC. Our website also includes our Code of Business Conduct and Ethics, and our Board of Directors’ Committee Charter for the Audit Committee.
ITEM 1A. RISK FACTORS
We may from time to time make written or oral statements that contain forward-looking information. However, our actual results may differ materially from our expectations, statements or projections. The following risks and uncertainties, together with other factors not presently determinable, could cause actual results to differ from our expectations, statements or projections.
GENERAL FACTORS
We have a history of operating losses and have used significant amounts of cash for operations and to fund our 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 audited 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 21.02% of the Company’s stock, and Tracy Clifford, CFO of Acorn and COO of OmniMetrix. The loss of the services of either 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.
| 7 |
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. |
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.
| 8 |
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, 2023 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 of our consolidated financial statements, 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.
| 9 |
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 our 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.
| 10 |
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 $1,449,000 at December 31, 2023. We had one customer that represented 25% of the accounts receivable at December 31, 2023. 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. There has been 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 and have established a Cybersecurity Steering Committee 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 of our and/or our third-party providers’ databases or systems that could adversely affect our business.
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 $1,131,000 in 2023 and $330,000 in 2022, 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 2024, 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.
| 11 |
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 2024 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, 2023, OmniMetrix owes Acorn $2,657,000 from such funding support which includes accrued dividends of $342,000, a loan with an outstanding principal amount of $2,304,000 and accrued interest and other advances of $11,000. During 2023, the intercompany amount due to Acorn from OmniMetrix decreased by $1,020,000. This included repayments of $1,285,000 offset by interest of $164,000, dividends of $76,000 due to Acorn and $25,000 in shared expenses paid by Acorn. 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. This intercompany balance is eliminated in consolidation.
While we believe we have sufficient cash to finance our operations for at least twelve months from the issuance of the audited 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 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 any combination thereof. 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. For example, 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.
| 12 |
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 2023, on an as-adjusted basis to take into account the September 2023 1-for-16 reverse stock split, our common stock traded at prices as low as $4.00 and as high as $8.50 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.
| 13 |
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 5, 2024, 2,487,307 shares of our common stock were issued and outstanding. As of that date we had 79,168 options outstanding and exercisable with a weighted average exercise price of $6.41 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 5, 2024, there were 13,703 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 5, 2024, we had consolidated cash of $1,236,000 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 1C. CYBERSECURITY
Risk Management and Strategy
Securing our business information, intellectual property, customer and employee data and technology systems is essential for the continuity of our business, meeting applicable regulatory requirements and maintaining the trust of our stockholders. Cybersecurity is an important and integrated part of our enterprise risk management function that identifies, monitors and mitigates business, operational and legal risks.
To help protect us from a major cybersecurity incident that could have a material impact on operations or our financial results, we have implemented policies, programs and controls, including technology investments that focus on cybersecurity incident prevention, identification and mitigation. The steps we take to reduce our vulnerability to cyberattacks and to mitigate impacts from cybersecurity incidents include, but are not limited to: annual penetration testing by a third party vendor, cloud and agent based security scanning that runs continuously, establishing information security policies and standards, implementing information protection processes and technologies, monitoring our information technology systems for cybersecurity threats, assessing cybersecurity risk profiles of key third-parties, and implementing cybersecurity training. In addition, we annually purchase a cybersecurity risk insurance policy that would help defray the costs associated with a covered cybersecurity incident if it occurred.
Governance
Our Board of Directors is actively engaged in overseeing and reviewing our strategic direction and objectives, taking into account, among other considerations, our risk profile and related exposures, including oversight of risks from cybersecurity threats. As part of this oversight, the Company established a Cybersecurity Steering Committee consisting of certain members of our senior management team and a Board representative, that meets quarterly and updates the Board periodically, and at least annually, on our cybersecurity program, including with respect to particular cybersecurity threats, cybersecurity incidents, new developments in our risk profile, the status of projects to strengthen our cybersecurity systems, assessments of our cybersecurity program, and the emerging threat landscape.
| 14 |
Management has the responsibility to manage risk and bring to the Board’s attention any material near-term and long-term risks to the Company, including risks from cybersecurity threats. We actively engage with key vendors and industry participants and monitor new developments in global cybersecurity concerns as part of our continuing efforts to evaluate and enhance the effectiveness of our cybersecurity policies and procedures. Our Cybersecurity Steering Committee has developed a standard operating procedure that outlines specific steps to identify, mitigate and report on any cybersecurity-related incidents that may be discovered.
Although we did not experience a material cybersecurity incident during the year ended December 31, 2023, the scope and impact of any future incident cannot be predicted. See “Item 1A. Risk Factors” for more information on our cybersecurity-related risks.
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 $128,000 in 2023 and $124,000 in 2022. For 2024, the annual total rent payment will be $129,000. 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 plus annual escalators (the average monthly sublease payment in 2023 was $2,465), 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, 2023, after the offset of the investment in leasehold improvements and other expenses related to the sublease, the Company owes its landlord $6,500 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, 2023 is $6,500 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 $2,750 (gross of the estimated amount we expect to remit to our landlord):
| 2023 | ||||
| 2024 | $ | 28,000 | ||
| 2025 | 22,000 | |||
| Total undiscounted cash flows | $ | 50,000 | ||
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.
| 15 |
Holders
As of March 5, 2024, the last reported sales price of our common stock on the OTCQB marketplace was $6.00, there were 75 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 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 provides remote monitoring and control products for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. 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 12 and 13 to our consolidated financial statements included in this report.
OmniMetrix
Following the emergence of machine-to-machine (“M2M”) and IoT applications whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this economic ecosystem. In addition, OmniMetrix continues to see a growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, and cybersecurity threats. Residential, commercial and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly becoming monitored in IoT applications. 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.
| 16 |
Intercompany
During 2023, the intercompany amount due to Acorn from OmniMetrix decreased by $1,020,000. This included repayments of $1,285,000 offset by interest of $164,000, dividends of $76,000 due to Acorn and $25,000 in shared expenses paid by Acorn. 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. This intercompany balance is eliminated in consolidation. We believe that OmniMetrix will not need working capital support in 2024. 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 any combination thereof. 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 5, 2024, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of $1,236,000 in cash.
Other Matters
On January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services for a 36-month contract term with automatic one-year extensions, subject to termination notice. The pricing structure involves account setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services. The monthly revenue obligation is $10,000 for the first 6 months and $15,000 thereafter. We will also be eligible for volume discounts based on total monthly service revenue. Additionally, the agreement includes an IoT Enhanced Support and Priority Care Services Rate Plan with various support service types and pricing tiers based on the number of devices and terms for SIM migrations, including tiered pricing and conditions for waiver of certain charges during migration. This new agreement will allow us to migrate our customers to higher tier data plans for nominal additional cost.
On December 22, 2023, we entered into an agreement with a new Azure cloud hosting provider to move to their Cloud Reliability Platform and utilize their premium cloud operations services. The initial term of this agreement is twenty-four months with automatic renewal of successive one-year terms unless ninety days written notice is given prior to the expiration of the initial term. Through this relationship, we will have unparalleled cloud management that provides a central location to access cloud operations metrics, configure services, set up proactive monitoring, create backup policies and request access to certified cloud experts to ensure that our operating infrastructure is healthy, resilient and operating efficiently. We will also have 24 x 7 x 365 monitoring and resolution support to timely resolve any issues that may arise and reduce or potentially eliminate unplanned downtime for our customers on our data monitoring platform, OmniView. We will pay monthly recurring fees of $4,000 plus 115% of actual Azure usage costs. There may also be additional hourly fees from time to time for projects or problem resolution outside the scope of the premium cloud operations services platform. This agreement will replace our current cloud hosting service provider to whom we pay monthly recurring fees of approximately $6,000 plus 100% of actual Azure usage costs.
On November 7, 2023, we entered into a non-exclusive reseller agreement with one of the nation’s largest commercial generator dealers with regional dealerships throughout the United States. We believe this agreement could yield 2,500 to 3,000 new monitoring connections per year for OmniMetrix, which could represent hardware sales, start-up fees and monitoring revenue of $1 million to $2 million per year in the aggregate. Importantly, endpoints added from this relationship are expected to make a meaningful contribution to the growth of our base of recurring monitoring revenue. We expect initial revenue from this relationship to start in the first quarter of 2024 and to build as the program is rolled out across their dealer network.
| 17 |
On October 1, 2023, we deployed our new user interface to our customer data portal and made it available to customers. On March 17, 2021, we entered into a master services agreement for the development of a new user interface for our customer data portal. Prior to deployment on October 1, 2023, we had invested $194,000 in design, development and quality assurance services of the new user interface. Since deployment, our customers have the option to continue to use the “classic view” of our user interface, which is our original user interface, or our new user interface known as “OV2” until March 4, 2024 when we will officially terminate our original user interface. The cost of this project was capitalized, and amortization began as of October 1, 2023. We have continued to implement bug fixes and enhancements to OV2, for which any related IT costs have been expensed as incurred.
On September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation (the “Certificate of Amendment”) that provided for a 1-for-16 reverse stock split of Acorn’s Common Stock (the “Reverse Stock Split”). Acorn filed the Certificate of Amendment with the Secretary of State of the State of Delaware on September 6, 2023, and the Reverse Stock Split became effective at 5:00 p.m. EDT on September 7, 2023. The Reverse Stock Split increased the market price of Acorn’s Common Stock and makes Acorn’s shares accessible to a broader range of investors, including institutions and those unable to purchase or recommend low-priced stocks. At the effective time of the Reverse Stock Split, every sixteen issued and outstanding shares of Acorn’s Common Stock were automatically combined into one issued and outstanding share of Common Stock, without any change in the par value per share. Stockholders who would have otherwise been entitled to fractional shares of Common Stock as a result of the Reverse Stock Split received a cash payment in lieu of receiving fractional shares. The value of the fractional shares repurchased was $347 and equated to fifty-eight shares. All share and per-share amounts of common stock, options and warrants contained in this Management’s Discussion and Analysis have been restated for all periods to give retroactive effect to the Reverse Stock Split and the related fractional share repurchase for all prior periods presented.
On September 1, 2023, we launched an updated version of our products that includes new functionality in our TrueGuard, AIRGuard, Patriot and Hero products that allows our customers to have options as it relates to obtaining and utilizing the data that is provided by our hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to our over-the-air data protocol. This product update allows customers to have the option to purchase our monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire, whereas, historically, our standard products only functioned with our monitoring services. Modifications were made to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023 such that only the new versions of these products were sold subsequent to this date.
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 are currently assisting PSS to market the demand response program to generator owners and will incentivize existing generator owners who sign up and satisfy certain terms and conditions by offering a one-time rebate of $200 to anyone who signs up before March 31, 2024.
Critical Accounting Estimates
In preparing the financial statements, management is required to make estimates and assumptions that have an impact on the asset, liability, revenue and expense amounts reported. These estimates can also affect our supplemental information disclosures, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to U.S. GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. We make routine estimates and judgments in determining net realizable value of accounts receivable, inventories, property and equipment, prepaid expenses, product warranties and other reserves as well as the amortization period for deferred commissions payable. Management believes our most critical accounting estimates and assumptions are in the area of revenue recognition.
| 18 |
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. A critical estimate is the estimated life of our units in determining the period over which the hardware revenue was amortized for the units sold prior to September 1, 2023.
RESULTS OF OPERATIONS
The selected consolidated statement of operations data for the years ended December 31, 2023 and 2022 and consolidated balance sheet data as of December 31, 2023 and 2022 has been derived from our audited consolidated financial statements included in this Annual Report.
On September 1, 2023, OmniMetrix launched an updated version of its products that includes new functionality in its TrueGuard, AIRGuard, Patriot and Hero products that allows its customers to have options as it relates to obtaining and utilizing the data that is provided by its hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to OmniMetrix’s over-the-air data protocol. This product update allows customers to have the option to purchase OmniMetrix’s monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire. OmniMetrix’s prior hardware product version could not function as a distinct product from its monitoring services. This new version’s functionality results in OmniMetrix’s hardware and monitoring services being capable of being two distinct products and services. OmniMetrix recognizes revenue, COGS and commissions from the sale of the new version of its hardware products sold when the product is shipped rather than over the estimated time that the unit is in service for the customer. Monitoring revenue continues to be deferred and amortized over the period that the monitoring services are rendered. The remaining balance of deferred revenue from the prior version of these products will continue to be amortized each period until it is fully amortized. Modifications were made to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023, such that only the new versions of these products were sold subsequent to this date.
This data should be read in conjunction with our consolidated financial statements and related notes included herein.
| 19 |
Selected Consolidated Statement of Operations Data:
| For the Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands, except per share data) | ||||||||
| Revenue | $ | 8,059 | $ | 7,000 | ||||
| Cost of sales | 2,055 | 1,929 | ||||||
| Gross profit | 6,004 | 5,071 | ||||||
| Research and development expenses | 875 | 845 | ||||||
| Selling, general and administrative expenses | 5,055 | 4,804 | ||||||
| Impairment of software | — | 51 | ||||||
| Operating income (loss) | 74 | (629 | ) | |||||
| Finance income (expense), net | 64 | (2 | ) | |||||
| Income (loss) before income taxes | 138 | (631 | ) | |||||
| Income tax expense | 9 | — | ||||||
| Net income (loss) after income taxes | 129 | (631 | ) | |||||
| Non-controlling interest share of income | (10 | ) | (2 | ) | ||||
| Net income (loss) attributable to Acorn Energy, Inc. stockholders | $ | 119 | $ | (633 | ) | |||
| Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. stockholders: | ||||||||
| Net income (loss) per share attributable to Acorn Energy, Inc. stockholders – basic and diluted* | $ | 0.05 | $ | (0.25 | ) | |||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic* | 2,484 | 2,481 | ||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – diluted* | 2,503 | 2,481 | ||||||
| * | As adjusted to account for the September 2023 1-for-16 reverse stock split. |
The following table sets forth certain information with respect to revenues and profits of our reportable business segments for the years ended December 31, 2023 and 2022 (dollars in thousands), including the percentages of revenues attributable to such segments. (See Note 12 to our consolidated financial statements for the definitions of our reporting segments).
| PG | CP | Total | ||||||||||
| Year ended December 31, 2023: | ||||||||||||
| Revenues from customers | $ | 7,000 | $ | 1,059 | $ | 8,059 | ||||||
| Percentage of total revenues by segment | 87 | % | 13 | % | 100 | % | ||||||
| Segment gross profit | 5,373 | 631 | 6,004 | |||||||||
| Year ended December 31, 2022: | ||||||||||||
| Revenues from customers | $ | 5,894 | $ | 1,106 | $ | 7,000 | ||||||
| Percentage of total revenues by segment | 84 | % | 16 | % | 100 | % | ||||||
| Segment gross profit | 4,426 | 645 | 5,071 | |||||||||
2023 COMPARED TO 2022
| For the Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands, except per share data) | ||||||||
| Revenue | $ | 8,059 | $ | 7,000 | ||||
| Cost of sales | 2,055 | 1,929 | ||||||
| Gross profit | 6,004 | 5,071 | ||||||
| Research and development expenses | 875 | 845 | ||||||
| Selling, general and administrative expenses | 5,055 | 4,804 | ||||||
| Impairment of software | — | 51 | ||||||
| Operating income (loss) | $ | 74 | $ | (629 | ) | |||
| 20 |
Revenue. In 2023, OmniMetrix recorded total revenue of $8,059,000, as compared to total revenue of $7,000,000 in 2022, for an increase of $1,059,000 (15%). 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 2023, revenue of $7,000,000 was attributed to the PG segment and revenue of $1,059,000 was attributed to the CP segment, as compared to the 2022 revenue of $5,894,000 that was attributed to the PG segment and $1,106,000 that was attributed to the CP segment. Hardware revenue increased $709,000 from $3,088,000 during the year ended December 31, 2022 to $3,797,000 during the year ended December 31, 2023. During the year ended December 31, 2023, we recorded $259,000 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 hardware revenue during the years ended December 31, 2023 and 2022 is further detailed in the table below:
| Reconciliation of Hardware Revenue | 2023 | 2022 | ||||||
| Amortization of deferred revenue | $ | 2,381 | $ | 2,293 | ||||
| Sales of custom designed units and related accessories | 259 | — | ||||||
| Hardware sales (new product versions) | 475 | — | ||||||
| Other accessories, services, shipping and miscellaneous charges | 682 | 795 | ||||||
| Total hardware revenue | $ | 3,797 | $ | 3,088 | ||||
The PG hardware revenue during the year ended December 31, 2022 was $2,234,000 compared to $2,735,000, excluding the sale of custom units, during the year ended December 31, 2023; thus, the increase in PG hardware revenue excluding the custom units was 22%. We also had a decrease in CP hardware revenue of $51,000 (6%) to $803,000 during the year ended December 31, 2023 from $854,000 during the year ended December 31, 2022. The increase in total hardware revenue was due to the sale of custom PG units (as noted above) and increased sales of other PG products as well as from installation income realized, offset by a decrease in revenue from Hero products in the CP segment. Monitoring revenue increased $350,000 (9%) from $3,912,000 in the year ended December 31, 2022 to $4,262,000 in the year ended December 31, 2023. The increase in monitoring revenue was due to an increase in the number of connections being monitored and growth in our customer base.
Gross profit. Gross profit was $6,004,000, reflecting a gross margin of 74% on revenue, in 2023 compared with a gross profit of $5,071,000, reflecting a 72% gross margin on revenue, in 2022. Gross margin on hardware revenue for the year ended December 31, 2023 was 54% compared to 48% for the year ended December 31, 2022. The increase in gross margin was due to a higher gross margin realized in 2023 on a large volume of sales to two large commercial customers to whom there were no sales in 2022. Gross margin on monitoring revenue was 93% for the year ended December 31, 2023 compared to 92% for year ended December 31, 2022.
Research and development (“R&D”) expense. During 2023, OmniMetrix recorded $875,000 of R&D expense as compared to $845,000 in 2022, an increase of $30,000 (4%). The increase in R&D expense in 2023 is related to increases in wages and bonuses paid to our engineering personnel in 2023 and the expenses and materials paid to third-party consultants in the continued development of next-generation PG and CP products and exploration into potential new product lines. We expect a moderate increase in R&D expense for 2024 due to engineering salary increases granted effective October 1, 2023 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 2023 increased by $251,000 (5%), from $4,804,000 in 2022 to $5,055,000 in 2023. Corporate overhead increased by $98,000 (10%), from $959,000 in 2022 to $1,057,000 in 2023, primarily due to $102,000 in expenses related to the execution of the reverse stock split in 2023.
OmniMetrix’s SG&A expense increased $153,000 (4%), from $3,845,000 in 2022 to $3,998,000 in 2023. This increase was primarily due to increases of (i) $102,000 in personnel expenses related to staff additions, promotions, bonuses and cost of living wage increases, (ii) $101,000 in commission expenses, (iii) $42,000 in depreciation and amortization primarily related to IT assets, (iv) $16,000 in travel and trade show expenses, and offset by a decrease of $107,000 in technology expenses primarily in technology consulting and $1,000 in net aggregate decreases in other expense categories. We anticipate that our annual SG&A costs in 2024 will increase by approximately 15% due to increasing wage and benefit expenses as a result of merit increases, promotions and hiring a higher level skill set in certain roles in 2023 as well as other inflationary increases in other operational costs.
Finance income/expense, net. Interest income in the year ended December 31, 2023 was $67,000 due to high interest rates on cash balances offset by interest expense of $3,000, compared to interest expense of $2,000 in 2022. The interest expense is primarily related to insurance financing arrangements.
| 21 |
Income tax expense. State income tax expense was $9,000 for the year ended December 31, 2023 reflecting estimates for certain state taxes. There was no state income tax estimated/accrued for the year ended December 31, 2022.
Net income (loss) attributable to Acorn Energy. We had net income attributable to Acorn of $119,000 in 2023 compared to net loss attributable to Acorn of $633,000 in 2022. Our income in 2023 is comprised of net income at OmniMetrix of $1,185,000, corporate expense of $1,056,000, offset by $10,000 representing the non-controlling interest share of our income in OmniMetrix. 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. The positive change in net income (loss) was due to the increase in gross margin as described above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2023, we had a negative working capital of $571,000. Our working capital includes $1,449,000 of cash and deferred revenue of $4,034,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Total deferred revenue decreased by $587,000, from $6,171,000 at December 31, 2022 to $5,584,000 at December 31, 2023, as a result of the sales mix of products sold. Based on the current products being sold, the Company expects continued decreases in the deferred revenue balance in the foreseeable future. Net cash decreased during the year ended December 31, 2023 by $1,000, of which $72,000 was provided by operating activities, $78,000 was used in investing activities, and $5,000 was provided by financing activities.
During the year ended December 31, 2023, our operating activities provided $72,000 of net cash. Our OmniMetrix subsidiary provided $1,147,000 from its operations while our corporate headquarters used $1,075,000 in its operating activities during the period. OmniMetrix’s inventory balance increased by $173,000 at December 31, 2023 as compared to December 31, 2022, due to purchase orders placed to have sufficient safety stock on hand for anticipated growth in 2024. We expect to sell through the excess inventory in 2024. 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.
During the year ended December 31, 2023, net cash of $78,000 was used in investing activities, primarily related to the continued development of our new user interface for our customer monitoring data portal (OmniView 2.0). 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 OmniView 2.0 and hardware and software upgrades.
Net cash of $5,000 was provided by financing activities during the years ended December 31, 2023 and 2022 which represents proceeds from the exercise of warrants and proceeds from the exercise of stock options, respectively.
Other Liquidity Matters
OmniMetrix owes Acorn $2,657,000 for loans, accrued interest, dividends and expenses advanced to it by Acorn. OmniMetrix has made monthly payments to Acorn of varying amounts since the second quarter of 2019. In 2023, OmniMetrix made payments to Acorn of $1,285,000 offset by interest of $164,000, dividends of $76,000 due to Acorn and $25,000 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 $1,449,000 of cash on December 31, 2023, and $1,236,000 on March 5, 2024 . We believe that such cash, plus the cash expected to be generated from operations, will provide sufficient liquidity to finance the corporate activities of Acorn and the operating activities of OmniMetrix at their current level of operations for at least the twelve-month period from the issuance of the audited consolidated financial statements contained in this Annual Report. 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. If we decide to pursue additional financing 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 any combination thereof. Whether alternative funds, such as third-party loans or investments, will be available at the time required and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.
| 22 |
Contractual Obligations and Commitments
The table below provides information concerning obligations under certain categories of our contractual obligations as of December 31, 2023.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Years Ending December 31, (in thousands) | ||||||||||||||||
| Total | 2024 | 2025-2026 | 2027-2028 | |||||||||||||
| Software agreements | $ | 2 | $ | 2 | $ | — | $ | — | ||||||||
| Operating leases* | 229 | 130 | 99 | — | ||||||||||||
| Contractual services | 117 | 65 | 52 | — | ||||||||||||
| Purchase obligations** | 374 | 374 | — | — | ||||||||||||
| Total contractual cash obligations | $ | 722 | $ | 571 | $ | 151 | $ | — | ||||||||
*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 $1,449,000 at December 31, 2023. The Company had one customer that represented 25% of its accounts receivable at December 31, 2023. This is a large corporate customer with 90-day payment terms. 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 the risk of non-performance by these counterparties is significant.
Interest Rate Risk
OmniMetrix has no interest rate risk related to debt since the Company paid off our credit line in February 2021.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Furnished at the end of this report commencing on page F-1.
| 23 |
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, 2023.
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, 2023, 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, 2023.
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. More specifically, there were weaknesses identified in our internal control over financial reporting related to ineffective design and implementation of information technology general controls (“ITGCs”) in the areas of user access, program change management and vendor management controls.
As a result, a majority of the significant process areas management identified for the Company’s OmniMetrix subsidiary had three 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 weaknesses identified and the related risks are not uncommon in a company of our size because of the limitations in the location, size and number of our staff. The material weaknesses 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, 2023.
Remediation Actions
Management intends to continue to focus on strengthening the Company’s internal controls. Management expects to make progress towards reducing the risk that the material weakness could result in a material misstatement of the Company’s annual or interim consolidated financial statements. As business conditions allow and resources permit, management will continue to systematically build the necessary capabilities and infrastructure to implement corrective action. Our remediation actions include but are not limited to implementing change controls to document approval of changes along with required peer review and tagging of changes to an approved help desk ticket, requesting SOC reports from our vendors on a set schedule to review and address prior to year-end, and continue focused review of the COSO Framework to identify areas where we can implement manual controls or multi-level reviews of additional staff members to more effectively address segregation of duties.
| 24 |
Changes in Internal Control Over Financial Reporting
Other than the material weaknesses and remediation actions noted above there were no material changes in our internal control over financial reporting during our fourth quarter ended December 31, 2023, 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 | 65 | Director, President and Chief Executive Officer of Acorn Energy, Inc. and Acting CEO of OmniMetrix | ||
| Gary Mohr | 65 | Director and member of our Audit, Nominating and Compensation Committees | ||
| Michael F. Osterer | 78 | Director and member of our Audit, Nominating and Compensation Committees | ||
| Peter Rabover | 43 | Director | ||
| Samuel M. Zentman | 78 | Director, Chairman of our Audit Committee and member of our Nominating and Compensation Committees | ||
| Tracy S. Clifford | 55 | 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.
| 25 |
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.
Peter Rabover was appointed to the Board in March 2023. He has been an active buyside investor for over 20 years, and is currently the Managing Director of Artko Capital LP, a partnership focused on microcap investments, which is a role he has held since he founded the partnership in 2015. In such capacity, Mr. Rabover has advised on a wide range of corporate finance activities for dozens of companies. Prior to founding Artko Capital, he worked for Scharf Investments from 2012 to 2014, and Hahn Capital Management from 2005 to 2011 in an analyst capacity. He served in the United States Peace Corps in Kazakhstan from 2003 to 2005 as an Economic Development Volunteer. Mr. Rabover started his career as an auditor for United States Steel Corporation from 2001 to 2003. He holds an undergraduate degree from Duquesne University, a Master of Business Administration from the University of Virginia’s Darden School of Business and is a CFA Charterholder.
Key Attributes, Experience and Skills. Mr. Rabover brings a wide range of corporate finance, audit and capital allocation acumen and experience as well as a unique shareholder perspective gained through a long career of managing outside capital and finding successful investments.
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.
| 26 |
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 2023 our executive officers and directors complied with the filing requirements of Section 16(a).
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers and employees. This code of ethics is designed to comply with the NASDAQ marketplace rules related to codes of conduct. Our code of ethics may be accessed under “Investor Relations” on our website at www.acornenergy.com. We also 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.
| 27 |
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 | 2023 | 312,000 | (3) | — | 9,142 | (5) | — | 321,142 | ||||||||||||||||
| President and CEO of the Company and Acting CEO of OmniMetrix (1) | 2022 | 312,000 | (3) | — | 14,096 | (6) | — | 326,096 | ||||||||||||||||
| Tracy S. Clifford | 2023 | 210,000 | (4) | — | 18,000 | (7) | — | 228,000 | ||||||||||||||||
| CFO of the Company and COO of OmniMetrix (2) | 2022 | 210,000 | (4) | — | 15,949 | (8) | — | 225,949 | ||||||||||||||||
| (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 2,187 options granted on January 1, 2023 with an exercise price of $5.60 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). The fair value of the options was determined using the Black-Scholes option pricing model using the following assumptions: (i) a risk-free interest rate of 4.0% (ii) an expected term of 5.19 years (iii) an assumed volatility of 94.3% and (iv) no dividends. | |
| (6) | Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 2,187 options granted on January 1, 2022 with an exercise price of $10.08 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 1.1% (ii) an expected term of 3.69 years (iii) an assumed volatility of 94.0% and (iv) no dividends. | |
| (7) | Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 6,250 options granted on June 1, 2023 with an exercise price of $4.96 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 3.9% (ii) an expected term of 3.7 years (iii) an assumed volatility of 93.8% and (iv) no dividends. | |
| (8) | Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 3,125 options granted on June 1, 2022 with an exercise price of $7.04 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 93.0% and (iv) no dividends. |
Executive Compensation for 2023 and 2022
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 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, 2023, to purchase 2,187 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 $5.60 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested 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. The 2023 Consulting Agreement expired on December 31, 2023; the Company and Mr. Loeb have entered into a new consulting agreement for 2024 as described below under Employment Arrangements.
| 28 |
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 2,187 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 $10.08 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 entered into a new Consulting Agreement for 2023 as described above.
Tracy S. Clifford. On June 1, 2023, the Company entered into an Amended and Restated Consulting Agreement with Ms. Clifford (the “2023 Clifford Consulting Agreement”). The 2023 Clifford Consulting Agreement amended, restated and replaced in its entirety the 2022 Clifford Consulting Agreement (described below). The 2023 Clifford Consulting Agreement began on June 1, 2023, had a one-year term, and was to automatically renew for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the 2023 Clifford Consulting Agreement, Ms. Clifford received cash compensation of $17,500 per month, as well as a grant of options on June 1, 2023, to purchase 6,250 shares of our common stock, which are exercisable at an exercise price per share equal to the May 31, 2023, closing price of the common stock of $4.96 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on September 1, 2023, December 1, 2023 and March 1, 2024. On January 2, 2024, the Company entered into a new consulting agreement with Tracy Clifford Consulting, LLC, that amends, restates and replaces in its entirety the 2023 Clifford Consulting Agreement, as described below under Employment Arrangements.
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 June 1, 2021 through May 31, 2022, of $17,500 per month. On June 1, 2022, the Company entered into an Amended and Restated Consulting Agreement (the “2022 Clifford Consulting Agreement”) for the provision of Ms. Clifford’s services as both CFO of Acorn and COO of OmniMetrix. The 2022 Clifford Consulting Agreement amended, restated and replaced in its entirety the Consulting Agreement dated as of June 1, 2018. The 2022 Clifford Consulting Agreement began on June 1, 2022, had a one-year term, and was to automatically renew for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the 2022 Clifford Consulting Agreement, Ms. Clifford received cash compensation of $17,500 per month, and received a grant on June 1, 2022 of options to purchase 3,125 shares of our common stock, with an exercise price of $7.04 per share, which was the closing price of the common stock on May 31, 2022 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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.
| 29 |
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 are described below.
Jan H. Loeb
On January 2, 2024, the Company entered into a new consulting agreement (the “2024 Loeb Consulting Agreement”) extending its arrangements for compensation of Mr. Loeb. Pursuant to the 2024 Loeb Consulting Agreement, Mr. Loeb will receive cash compensation of $16,780 per month for service as President and CEO of Acorn, 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 2, 2024 to purchase 2,200 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 29, 2023, closing price of the common stock of $6.09 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments on April 1, 2024, July 1, 2024 and October 1, 2024. 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 2024 Loeb Consulting Agreement expires on December 31, 2024, unless terminated early as provided therein.
Tracy S. Clifford
On January 2, 2024, the Company entered into an Amended and Restated Consulting Agreement with Ms. Clifford (the “2024 Clifford Consulting Agreement”) for the provision of Ms. Clifford’s services as both CFO of Acorn and COO of OmniMetrix. The 2024 Clifford Consulting Agreement amends, restates and replaces in its entirety the 2023 Clifford Consulting Agreement. The 2024 Clifford Consulting Agreement has an effective date of January 1, 2024, 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 2024 Clifford Consulting Agreement, Ms. Clifford receives cash compensation of $18,025 per month. In the event of termination 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. Pursuant to the terms of the 2024 Clifford Consulting Agreement, Ms. Clifford also received a grant of options on January 2, 2024, to purchase 2,200 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 29, 2023, closing price of the common stock of $6.09 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments on April 1, 2024, July 1, 2024 and October 1, 2024. On each subsequent anniversary of January 1, 2024, so long as the 2024 Clifford Consulting Agreement has not been terminated, the Company will grant Ms. Clifford 2,200 stock options exercisable at an exercise price equal to the then-current stock price. Twenty-five percent (25%) of the options will be vested immediately as of the date of grant; the remaining options will vest in three equal increments on April 1, July 1 and October 1 during the first nine months following the date of grant. The exercise period and other terms are otherwise substantially the same as the terms of the options granted by the Company to its outside directors.
| 30 |
Outstanding Equity Awards at 2023 Fiscal Year End
The following table sets forth all outstanding equity awards (as adjusted in connection with the September 2023 1-for-16 reverse stock split) made to each of the Named Executive Officers that were outstanding at December 31, 2023.
| OPTIONS TO PURCHASE ACORN ENERGY, INC. STOCK | ||||||||||||||
| Name | Number
of Securities Underlying Unexercised Options (#) Exercisable |
Number
of Securities Underlying Unexercised Options (#) Unexercisable |
Option
Exercise Price ($) |
Option
Expiration Date | ||||||||||
| Jan H. Loeb | 2,187 | — | 5.76 | February 21, 2024 | ||||||||||
| 2,187 | — | 5.60 | January 1, 2025 | |||||||||||
| 2,187 | — | 5.92 | January 1, 2027 | |||||||||||
| 2,187 | — | 7.68 | January 1, 2028 | |||||||||||
| 2,187 | — | 10.08 | January 1, 2029 | |||||||||||
| 2,187 | — | 5.60 | January 1, 2030 | |||||||||||
| Tracy S. Clifford | 1,875 | — | 6.56 | June 1, 2025 | ||||||||||
| 1,875 | — | 4.48 | June 25, 2026 | |||||||||||
| 3,125 | — | 3.68 | June 8, 2027 | |||||||||||
| 6,250 | — | 9.92 | May 10, 2028 | |||||||||||
| 3,125 | — | 7.04 | June 1, 2029 | |||||||||||
| 4,687 | 1,563 | 4.96 | June 1, 2030 | |||||||||||
Option and Warrant Exercises
Warrants were exercised by Leap Tide Capital Management, LLC (of which Mr. Loeb is the Managing Member), on March 2, 2023, for 2,187 shares at an exercise price of $2.08 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split).
Non-qualified Deferred Compensation
There was no executive non-qualified deferred compensation activity for either of our named executive officers for the year ended December 31, 2023.
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 2023 was as follows:
| 31 |
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 625 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 1,562 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 quarterly installments beginning on the grant date. 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 $2,000.
Each Director may, in his discretion, elect by written notice delivered on or before the first day of each calendar year whether to receive, in lieu of some or all of his retainer and board fees, that number of shares of Company Common Stock as shall have a value equal to the applicable retainer and board fees, based on the closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the election shall be irrevocable for such election year and the shares subject to the election shall vest and be issued one-fourth upon the first day of the election year and one-fourth as of the first day of each of the second through fourth calendar quarters thereafter during the remainder of the election year. A newly-elected or appointed Director may, in his or her discretion, make such an election for the balance of the year in which he or she was elected/appointed by written notice delivered on or before the tenth day after his or her election/appointment to the Board, with the number of shares of Company Common Stock subject to such newly elected/appointed Director’s election to be based on closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the day of such newly elected/appointed Director’s election/appointment.
The following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year ended December 31, 2023 by each individual who served as a director at any time during the fiscal year (other than Mr. Loeb who was not separately compensated for his Board service).
DIRECTOR COMPENSATION IN 2023
| Name | Fees Earned or Paid in Cash ($) | Option Awards ($) (1) | All Other Compensation ($) | Total ($) | ||||||||||||
| Samuel M. Zentman | 25,000 | (2) | 2,306 | (1) | — | 27,306 | ||||||||||
| Gary Mohr | 17,000 | (3) | 2,306 | (1) | — | 19,306 | ||||||||||
| Peter Rabover | 11,708 | (4) | 5,389 | (5) | 17,097 | |||||||||||
| Michael F. Osterer | 17,000 | (3) | 2,306 | (1) | — | 19,306 | ||||||||||
| (1) | On January 1, 2023, Samuel M. Zentman, Gary Mohr, and Michael F. Osterer were each granted 625 options to acquire stock in the Company. The options had an exercise price of $5.60 and were to expire on January 1, 2030. The fair value of the options was determined using the Black-Scholes option pricing model using the following assumptions: (i) a risk-free interest rate of 4.14% (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. |
| 32 |
| (4) | Represents the pro-rata annual retainer of $15,000 as a non-employee director from the date that Peter Rabover joined the Board. | |
| (5) | On March 21, 2023, Peter Rabover was granted 1,562 options to acquire stock in the Company. The options had an exercise price of $4.80 and were to expire on March 21, 2030. 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 3.79% (ii) an expected term of 4.5 years (iii) an assumed volatility of 96% and (iv) no dividends. |
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 5, 2024, 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 | 525,297(3 | ) | 21.02 | % | ||||
| Gary Mohr | 73,237(4 | ) | 2.94 | % | ||||
| Michael F. Osterer | 181,433(5 | ) | 7.28 | % | ||||
| Peter Rabover | 124,051(6 | ) | 4.99 | % | ||||
| Samuel M. Zentman | 10,054(7 | ) | * | |||||
| Tracy S. Clifford | 24,725(8 | ) | * | |||||
| All executive officers and directors of the Company as a group (6 people) | 886,714(9 | ) | 34.94 | % | ||||
* 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 2,487,307 shares outstanding as of March 5, 2024. |
| (3) | Consists of 240,011 shares held by Mr. Loeb directly, 273,251 shares held by Leap Tide Capital Acorn LLC, and 12,035 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 68,238 shares beneficially held by Mr. Mohr (including 52,083 shares held by UE Systems Inc.), and 4,999 shares underlying currently exercisable options. |
| (5) | Consists of 176,107 shares beneficially held by Mr. Osterer (including 52,083 shares held by UE Systems Inc.), and 5,326 shares underlying currently exercisable options. |
| 33 |
| (6) | Consists of 123,218 shares held by Artko Capital LP and 833 shares underlying currently exercisable options held by Mr. Rabover. Mr. Rabover is Managing Director of Artko Capital LP, with sole voting and dispositive power over the securities held by such entity. Mr. Rabover disclaims beneficial ownership of the securities held by Artko Capital LP except to the extent of his pecuniary interest therein. |
| (7) | Consists of 5,992 shares and 4,062 shares underlying currently exercisable options. |
| (8) | Consists of 1,125 shares and 23,600 shares underlying currently exercisable options. |
| (9) | Consists of 835,859 shares and 50,855 shares underlying currently exercisable options. |
EQUITY COMPENSATION PLAN INFORMATION
The table below provides certain information concerning our equity compensation plans as of December 31, 2023.
| 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 | 6,263 | $ | 5.21 | — | ||||||||
| Equity Compensation Plans Not Approved by Security Holders | 65,630 | $ | 6.74 | 76,769 | ||||||||
| Total | 71,893 | $ | 6.61 | 76,769 | ||||||||
| All numbers in this table are adjusted to account for the September 2023 1-for-16 reverse stock split. |
The grants made under our equity compensation plans not approved by security holders represent 65,630 options which were granted under our 2006 Stock Incentive Plan following the original expiration of the Plan on February 8, 2017. 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. 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.
| 34 |
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, 2023 and 2022.
| 2023 | 2022 | |||||||
| Audit fees | $ | 122,990 | $ | 130,337 | ||||
| Tax fees | 13,511 | 10,859 | ||||||
| All other fees | — | — | ||||||
| Total | $ | 136,501 | $ | 141,196 | ||||
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. The audit fees per the engagement letters were $121,000 for 2023 and $99,500 for 2022 which represents a 22% increase year over year. The difference in the audit fees in the table above is due to the timing of when the audit services were performed.
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 2023 and 2022.
| 35 |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) List of Financial Statements of the Registrant
The consolidated financial statements of the Registrant and the reports thereon of the Registrant’s Independent Registered Public Accounting Firms are included in this Annual Report beginning on page F-1.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
(a)(3) List of Exhibits
| 36 |
| 37 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wilmington, State of Delaware, on March 7, 2024.
| ACORN ENERGY, INC. | ||
| By: | /s/ Jan H. Loeb | |
| Jan H. Loeb | ||
| President and Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant, in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Jan H. Loeb | President, Chief Executive Officer and | March 7, 2024 | ||
| Jan H. Loeb | Director (Principal Executive Officer) | |||
| /s/ Tracy S. Clifford | Chief Financial Officer (Principal Financial | March 7, 2024 | ||
| Tracy S. Clifford | Officer and Principal Accounting Officer) | |||
| /s/ Gary Mohr | Director | March 7, 2024 | ||
| Gary Mohr | ||||
| /s/ Michael F. Osterer | Director | March 7, 2024 | ||
| Michael F. Osterer | ||||
| /s/ Peter Rabover | Director | March 7, 2024 | ||
| Peter Rabover | ||||
| /s/ Samuel M. Zentman | Director | March 7, 2024 | ||
| Samuel M. Zentman |
| 38 |
ACORN ENERGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders Acorn Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Acorn Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders deficit, and cash flows for each of the two years in the period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum llp
We have served as the Company’s auditor since 2010.
March 7, 2024
| F-2 |
ACORN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Other current assets | ||||||||
| Deferred cost of goods sold | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred cost of goods sold | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Current operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred revenue | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Acorn Energy, Inc. stockholders | ||||||||
| Common stock - $ par value per share: | ||||||||
| Authorized – shares; issued and outstanding – and shares at December 31, 2023 and 2022, respectively* | ||||||||
| Common stock - $0.01 par value per share:Authorized – 42,000,000 shares; issued and outstanding – 2,484,791 and 2,482,604 shares at December 31, 2023 and 2022, respectively* | ||||||||
| Additional paid-in capital* | ||||||||
| Accumulated stockholders’ deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost – shares at December 31, 2023 and December 31, 2022* | ( | ) | ( | ) | ||||
| Total Acorn Energy, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interests | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
ACORN ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA)
| 2023 | 2022 | |||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development expenses | ||||||||
| Selling, general and administrative expenses | ||||||||
| Impairment of software | ||||||||
| Total operating expenses | ||||||||
| Operating income (loss) | ( | ) | ||||||
| Finance income (expense), net | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Net income (loss) | ( | ) | ||||||
| Non-controlling interest share of income | ( | ) | ( | ) | ||||
| Net income (loss) attributable to Acorn Energy, Inc. stockholders. | $ | $ | ( | ) | ||||
| Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. stockholders: | ||||||||
| Net income (loss) per share attributable to Acorn Energy, Inc. stockholders – basic and diluted | $ | $ | ) | |||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic* | ||||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – diluted* | ||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
ACORN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(IN THOUSANDS)
| Number of Shares* | Common Stock* | Additional Paid-In Capital* | Accumulated Deficit | Number of Treasury Shares* | Treasury Stock | Energy, Inc. Stockholders’ Deficit | Non- controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Acorn Energy, Inc. Stockholders | Total Acorn | |||||||||||||||||||||||||||||||||||
| Number of Shares* | Common Stock* | Additional Paid-In Capital* | Accumulated Deficit | Number of Treasury Shares* | Treasury Stock | Energy, Inc. Stockholders’ Deficit | Non- controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net (loss) income | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Proceeds from stock option exercise | ** | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | ||||||||||||||||||||||||||||||||||
| Proceeds from warrant exercise | ** | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock option compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Balances | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| * |
| ** |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
ACORN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
| 2023 | 2022 | |||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Impairment of software | ||||||||
| Impairment of inventory | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | ||||||||
| Increase in inventory | ( | ) | ( | ) | ||||
| Decrease (increase) in deferred cost of goods sold | ( | ) | ||||||
| Decrease (increase) in other current assets and other assets | ( | ) | ||||||
| (Decrease) increase in deferred revenue | ( | ) | ||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Decrease in accounts payable, accrued expenses, other current liabilities and non-current liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows used in investing activities: | ||||||||
| Investments in technology | ( | ) | ( | ) | ||||
| Other capital investments | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows provided by financing activities: | ||||||||
| Warrant exercise proceeds | ||||||||
| Stock option exercise proceeds | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at the beginning of the year | ||||||||
| Cash at the end of the year | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued preferred dividends to former CEO of OmniMetrix (see Note 3) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
ACORN ENERGY, INC.
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 offers PG wireless monitoring and control IoT solutions encompassing wireless remote monitoring devices and applications for both residential and commercial/industrial power generation equipment. This suite includes the Company's suite of TrueGuard products as well as its AIRGuard product, designed for remote monitoring and control of industrial air compressors, as well as a Smart Annunciator product. This Smart Annunciator product, tailored for commercial clients, provides a visual representation of a generator’s status through a touch-screen display, offering real-time updates on its current state. | |
| ● | Cathodic Protection (“CP”) monitoring. OmniMetrix specializes in CP monitoring, offering remote monitoring and control products specifically tailored for cathodic protection systems utilized in gas pipelines, serving gas utilities market and pipeline operators. The Company's CP product lineup, which features solutions for remote monitoring and control of rectifiers, test stations and bonds, is its Hero and Patriot lines of products. Additionally, the Company offers the RADTM (Remote AC Mitigation Disconnect), an industry-first innovation designed to mount onto existing Solid-state Decouplers in the field. This device enables remote disconnection/connection of AC mitigation tools, significantly reducing a customer's expenses while enhancing employee safety. |
Acorn’s shares are traded on the OTCQB marketplace under the symbol ACFN.
See Notes 12 and 13 for segment information and major customers.
(b) Liquidity
As
of December 31, 2023, the Company had $
At
December 31, 2023, the Company had a negative working capital of $
As
of March 5, 2024, the Company had cash of $
| F-7 |
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
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 and Credit Losses
Accounts receivable consists of trade receivables. Trade receivables are recorded at the invoiced amount, net of any allowance for credit losses.
The Company’s trade receivables primarily arise from the sale of our products to independent residential dealers, industrial distributors and dealers, national and regional retailers, equipment distributors, and certain end users with payment terms generally ranging from 30 to 60 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customer’s ability to pay. These factors include the customer’s financial condition and past payment experience.
The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on an entity-by-entity basis. The estimate of expected credit losses considers a historical loss experience rate that is adjusted for delinquency trends, collection experience, and/or economic risk where appropriate. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss.
For the Company, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” applies to its contract assets (deferred COGS and deferred sales commissions, see Note 13), lease receivables (sublease, see Note 7) and trade receivables. There are no expected or estimated credit losses on the Company’s contract assets or its lease receivable based on the Company’s implementation of ASU 2016-13. See Note 4, Allowance for Credit Losses.
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 $
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.
| F-8 |
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 $
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
The Company
capitalizes certain implementation costs incurred in a hosting arrangement that is a
service contract to develop or obtain internal-use software.
During the years ended December 31, 2023 and 2022, the Company capitalized internal-use software costs totaling $
Deferred Sales Commissions
The Company pays its employees sales commissions for sales of hardware 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 hardware 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.
Commissions earned from the sales of the new hardware products will be recognized when the product is shipped. Commissions earned from the sales of monitoring services continue to be deferred and amortized over the period of service.
The contract assets of deferred COGS and deferred sales commissions are subject to review under ASU 2016-13 (see Notes 2 and 4); however, no credit losses on contract assets are expected based on the Company’s implementation of ASU 2016-13.
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 of the Company’s real estate leases are classified as operating leases.
| F-9 |
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 $
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 ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is satisfied. The Company assesses whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. The Company’s sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size. See Note 13, Revenue, for further discussion.
Revenue from sales of the hardware products that are distinct products are recorded when shipped while the revenue from sales of the hardware products (product versions sold prior to September 1, 2023) that were not separable from the Company’s monitoring services was deferred and amortized over the estimated unit life. Revenue from the prepayment of monitoring fees (generally paid twelve months in advance) are recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period. See Notes 12 and 13 for the disaggregation of the Company’s revenue for the periods presented.
Any sales tax, value added tax, and other tax the Company collects concurrent with revenue producing activities are excluded from revenue.
Warranty Provision
OmniMetrix generally grants their customers a one-year warranty on their products. Estimated warranty obligations are provided for as a cost of sales in the period in which the related revenues are recognized, based on management’s estimate of future potential warranty obligations and historical experience. Adjustments are made to accruals as warranty claim data and historical experience warrant. The Company’s warranty obligations may be materially affected by product or service failure rates and other costs incurred in correcting a product or service failure. Should actual product or service failure rates or other related costs differ from the Company’s estimates, revisions to the accrued warranty liability would be required.
| F-10 |
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 $
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 $
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-based 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 when the services are performed.
See Note 9(b) for the assumptions used to calculate the fair value of stock-based employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.
Sales Taxes
On
June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), whereby the longstanding
Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain
circumstances. In 2020, the Company began collecting sales tax in nearly all states that have sales tax. The Company accrued sales taxes
in the states with sales tax. The Company accrued the liability from the effective date of a state’s adoption of the Wayfair decision
up to the date the Company began collecting and filing sales taxes in the various states. At December 31, 2023 and December 31, 2022,
the amount of such accrual was $
| F-11 |
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 reflect 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 10(d) 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, 2023 and 2022,
During
the years ending December 31, 2023 and 2022, the Company had
The Company is subject to U.S. Federal and state income tax. As of January 1, 2023, the Company is no longer subject to examination by U.S. Federal taxing authorities for years before 2019, or for years before 2018 for state income taxes.
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 weighted average number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was (which have a weighted average exercise price of $) and (which had a weighted average exercise price of $) for the years ending December 31, 2023 and 2022, respectively (as adjusted to account for the September 2023 1-for-16 reverse stock split).
| F-12 |
SCHEDULE OF EFFECT ON NET INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES
| 2023 | 2022 | |||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income (loss) available to common stockholders | $ | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||
| -Basic | ||||||||
| Add: Warrants | ||||||||
| Add: Stock options | ||||||||
| -Diluted | ||||||||
| Basic and diluted net income (loss) per share | $ | $ | ) | |||||
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 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.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.
Recently Adopted Accounting Standards
On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This guidance was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade and other receivables. The adoption of the standard impacts the way the Company estimates the allowance for doubtful accounts on its trade and other receivables. Refer to Note 4, “Allowance for Credit Losses,” for further information regarding the Company’s allowance for expected credit losses.
| F-13 |
NOTE 3—INVESTMENT IN OMNIMETRIX
The
Company owns
NOTE 4—ALLOWANCE FOR CREDIT LOSSES
The
Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. As of December 31,
2023, the Company had gross receivables of $
The following is a tabular reconciliation of the Company’s allowance for credit losses:
SCHEDULE OF ALLOWANCES FOR CREDIT LOSSES
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Balance at beginning of period | $ | $ | ||||||
| Provision for credit losses | ||||||||
| Net (charge-offs) credits | ( | ) | ||||||
| Balance at end of period | $ | $ | ||||||
NOTE 5—INVENTORY
SCHEDULE OF INVENTORY
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory net | $ | $ | ||||||
At
December 31, 2023 and 2022, the Company’s inventory reserve was $
| F-14 |
NOTE 6—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, | |||||||||
| 2023 | 2022 | |||||||||
| (in thousands) | ||||||||||
| Cost: | ||||||||||
| Computer hardware and software | $ | $ | ||||||||
| Equipment | ||||||||||
| Leasehold improvements | ||||||||||
| Intangible asset | ||||||||||
| Accumulated depreciation and amortization | ||||||||||
| Computer hardware and software | ||||||||||
| Equipment | ||||||||||
| Leasehold improvements | ||||||||||
| Intangible asset | ||||||||||
| Property and equipment, net | $ | $ | ||||||||
| * |
Depreciation
and amortization in respect of property and equipment amounted to $
NOTE 7—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of
Supplemental balance sheet information related to leases consisted of the following:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| 2023 | ||||
| Weighted average remaining lease terms for operating 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 consolidated balance sheet as of December 31, 2023 (in thousands):
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| 2023 | ||||
| 2024 | $ | |||
| 2025 | ||||
| Total undiscounted cash flows | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities (a) | $ | |||
| (a) |
| F-15 |
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company
SCHEDULE OF SUBLEASES
| 2023 | ||||
| 2024 | $ | |||
| 2025 | ||||
| Total undiscounted cash flows | $ | |||
NOTE 8—COMMITMENTS AND CONTINGENCIES
The
Company has $
NOTE 9—EQUITY
All
information below includes adjustments where applicable to account for the September 2023
(a) 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 option holder 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, 2023, 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 2023 and 2022, ( to directors and executive officers and to other employees) and ( to directors and executive officers and to other employees) options, respectively, were granted. In 2023 and 2022, there were no grants to non-employees (other than the non-employee directors and executive officers). The fair value of the options issued was $ and $ in 2023 and 2022, respectively.
warrants and no options were exercised in the year ended December 31, 2023. options were exercised in the year ended December 31, 2022. The intrinsic value of options outstanding and of options exercisable at December 31, 2023 was $ and $, respectively. The intrinsic value of options outstanding and of options exercisable at December 31, 2022 was $ and $, respectively.
SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES PRICING MODEL
| 2023 | 2022 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term of options, in years | ||||||||
| Expected annual volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Determined weighted average grant date fair value per option | $ | $ | ||||||
| F-16 |
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, 2023 and 2022. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
(b) Summary Option Information
SUMMARY OF STOCK OPTION ACTIVITY
| 2023 | 2022 | |||||||||||||||
Number of Options (in shares) | Weighted Average Exercise Price | Number of Options (in shares) | Weighted Average Exercise Price | |||||||||||||
| Outstanding at beginning of year | $ | $ | ||||||||||||||
| Granted at market price | $ | $ | ||||||||||||||
| Exercised | $ | ( | ) | $ | ( | ) | ||||||||||
| Forfeited or expired | $ | $ | ||||||||||||||
| Outstanding at end of year | $ | $ | ||||||||||||||
| Exercisable at end of year | $ | $ | ||||||||||||||
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) | ||||||||||||||||||
| $ – $ | $ | $ | ||||||||||||||||||
| $ – $ | $ | $ | ||||||||||||||||||
Stock-based compensation expense included in selling, general and administrative expense in the Company’s consolidated statements of operations was $ and $ for the years ending December 31, 2023 and 2022, respectively.
The total compensation cost related to non-vested awards not yet recognized was $ and $ as of December 31, 2023 and 2022, respectively.
(c) Warrants
The Company has issued warrants at exercise prices equal to or greater than the market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:
SUMMARY OF WARRANT ACTIVITY
| 2023 | 2022 | |||||||||||||||
Number of Shares Underlying Warrants | Weighted Average Exercise Price | Number of Shares Underlying Warrants | Weighted Average Exercise Price | |||||||||||||
| Outstanding at beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | ( | ) | $ | ( | ) | $ | ||||||||||
| Forfeited or expired | $ | $ | ||||||||||||||
| Outstanding and exercisable at end of year | $ | $ | ||||||||||||||
| F-17 |
NOTE 10—INCOME TAXES
(a) Composition of income (loss) before income taxes is as follows (in thousands):
COMPOSITION OF LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Domestic | $ | $ | ( | ) | ||||
Income tax expense consists of the following (in thousands):
COMPONENTS OF INCOME TAX EXPENSE
Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| 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
| 2023 | 2022 | |||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Statutory Federal rates | % | % | ||||||
| Increase (decrease) in income tax rate resulting from: | ||||||||
| Nondeductible/nontaxable items | % | ( | % | |||||
| State taxes | % | |||||||
| Rate change | % | |||||||
| Prior year rate change adjustment | % | |||||||
| Deferred true-ups | % | |||||||
| Valuation allowance | ( | % | ( | % | ||||
| Effective income tax rates | % | ( | % | |||||
(c) Analysis of Deferred Tax Assets and (Liabilities) (in thousands):
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets (liabilities) consist of the following: | ||||||||
| Employee benefits and deferred compensation | $ | $ | ||||||
| Deferred revenue | ||||||||
| Right-of-use assets | ( | ) | ||||||
| Lease liability | ||||||||
| Fixed assets | ( | ) | ( | ) | ||||
| Intangible assets | ||||||||
| Other temporary differences | ||||||||
| Section 174 expenditures | ||||||||
| Net operating loss and capital loss carryforwards | ||||||||
| Deferred tax assets, gross | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
| F-18 |
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 to asset impairments, deferred revenue,
capitalized Section 174 expenditures, and stock-based compensation expense of the Company. The Company continually evaluates the likelihood
of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the
extent the future realization of the deferred tax assets is more likely than not. The Company considers many factors when assessing the
likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction,
expectation of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other
relevant factors. As of December 31, 2023, based on the Company’s history of earnings and its assessment of future earnings, management
believes that it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets. During
the year ended December 31, 2023, the gross deferred tax asset and the valuation allowance decreased by $
(d) Summary of Tax Loss Carryforwards
As of December 31, 2023, the Company had various operating loss carryforwards expiring as follows (in thousands):
SUMMARY OF TAX LOSS CARRYFORWARDS
| Expiration | Federal | Capital Loss | State | |||||||||
| 2023 | $ | $ | $ | |||||||||
| 2025 – 2031* | ||||||||||||
| 2032 – 2037 | ||||||||||||
| Unlimited | ||||||||||||
| Total | $ | $ | $ | |||||||||
| * |
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, 2023, the Company performed an analysis based on available guidance and capitalized the required R&E costs. The Company will continue to monitor this issue for future developments.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2019 to the present in the U.S. and from 2017 to 2018 in the Company’s foreign operations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.
The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.
| F-19 |
NOTE 11—RELATED PARTY BALANCES AND TRANSACTIONS
a) Officer and Director Fees
The
Company recorded fees to officers of $
The
Company recorded fees to directors of $
The Company issued ( to directors and executive officers and to other employees) and ( to directors and executive officers and to other employees) options, in 2023 and 2022, respectively. warrants and no options were exercised in the year ended December 31, 2023. options were exercised in the year ended December 31, 2022. See Note 9 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 $
NOTE 12—SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
(a) General Information
As
of December 31, 2023, the Company continues to operate in
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.
| F-20 |
(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, 2023 and 2022 (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, 2023: | ||||||||||||
| Revenues from customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes | ( | ) | ||||||||||
| Year ended December 31, 2022: | ||||||||||||
| Revenues from customers | $ | $ | $ | |||||||||
| Segment gross profit | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Segment income (loss) before income taxes* | ( | ) | ||||||||||
| * |
(c) The following tables represent a reconciliation of the segment data to the consolidated statement of operations and balance sheet data for the years ended and as of December 31, 2023 and 2022 (in thousands):
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT OF OPERATIONS
| 2023 | 2022 | |||||||
Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Total net income before income taxes for reportable segments | $ | $ | ||||||
| Unallocated net cost of corporate headquarters | ( | ) | ( | ) | ||||
| Consolidated net income (loss) before taxes on income | $ | $ | ( | ) | ||||
SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT BALANCE SHEET
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Assets: | ||||||||
| Total assets for OmniMetrix subsidiary | $ | $ | ||||||
| Assets of corporate headquarters | ||||||||
| Total consolidated assets | $ | $ | ||||||
SCHEDULE OF REVENUE FROM CUSTOMERS BY GEOGRAPHICAL AREAS
| 2023 | 2022 | |||||||
Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues based on location of customer: | ||||||||
| United States | $ | $ | ||||||
| Other | ||||||||
| Revenues | $ | $ | ||||||
All of the Company’s long-lived assets are located in the United States.
| F-21 |
(d) Revenues and Accounts Receivable Balances from Major Customers (in thousands):
SCHEDULE OF REVENUES, ACCOUNTS RECEIVABLE FROM MAJOR CUSTOMERS
| Invoiced Sales | Accounts Receivable | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Customer | Total | % | Total | % | Balance | % | Balance | % | ||||||||||||||||||||||||
| A | $ | * | * | % | $ | * | * | % | $ | * | * | % | $ | | % | |||||||||||||||||
| B | $ | * | * | % | $ | * | * | % | $ | | % | $ | ||||||||||||||||||||
| * |
NOTE 13—REVENUE
OmniMetrix sells monitoring equipment (“HW”) and monitoring services (“Monitoring”). Prior to September 1, 2023, sales of OmniMetrix equipment typically did not qualify as a separate unit of accounting. As a result, revenue (and related costs) associated with sale of equipment was recorded to deferred revenue (and deferred cost of goods sold) upon shipment of PG and CP monitoring units. Revenue and related costs with respect to the sale of equipment were recognized over the estimated life of the units which was estimated to be three years. On September 1, 2023, OmniMetrix launched an updated version of its products that includes new functionality in its TrueGuard, AIRGuard, Patriot and Hero products that allows its customers to have options as it relates to obtaining and utilizing the data that is provided by its hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to OmniMetrix’s over-the-air data protocol. This product update allows customers to have the option to purchase OmniMetrix’s monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire. OmniMetrix’s prior hardware product version could not function as a distinct product from its monitoring services. This new version’s functionality results in OmniMetrix’s hardware and monitoring services being capable of being two distinct products and services. OmniMetrix recognizes revenue, COGS and commissions from the sale of the new version of its hardware products sold when the product is shipped rather than over the estimated time that the unit is in service for the customer. The remaining balance of deferred hardware revenue from the prior version of these products will continue to be amortized each period until it is fully amortized. The modification to the circuit boards and embedded firmware of hardware enclosures in inventory as of August 31, 2023 were made such that only the new version of these products was sold subsequent to this date.
The following table disaggregates the Company’s revenue for the years ended December 31, 2023 and 2022 (in thousands):
SCHEDULE OF DISAGGREGATES OF REVENUE
| HW | Monitoring | Total | ||||||||||
| Year ended December 31, 2023: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| HW | Monitoring | Total | ||||||||||
| Year ended December 31, 2022: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
Deferred revenue activity for the year ended December 31, 2023 can be seen in the table below (in thousands):
SCHEDULE OF DEFERRED REVENUE ACTIVITY
| HW | Monitoring | Total | ||||||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Recognized as revenue | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
| Amounts to be recognized as revenue in the year ending: | ||||||||||||
| December 31, 2024 | $ | $ | $ | |||||||||
| December 31, 2025 | ||||||||||||
| December 31, 2026 and thereafter | ||||||||||||
| Total | $ | $ | $ | |||||||||
| F-22 |
The
amount of hardware revenue recognized during the year ended December 31, 2023 that was included in deferred revenue at the beginning
of the fiscal year was $
Deferred revenue activity for the year ended December 31, 2022 can be seen in the table below (in thousands):
| HW | Monitoring | Total | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Balance | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Recognized as revenue | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Balance | $ | $ | $ | |||||||||
SCHEDULE OF RECONCILIATION OF HARDWARE REVENUE
| Reconciliation of Hardware Revenue | 2023 | 2022 | ||||||
| Amortization of deferred revenue | $ | $ | ||||||
| Sales of custom designed units and related accessories | ||||||||
| Hardware sales (new product versions) | ||||||||
| Other accessories, services, shipping and miscellaneous charges | ||||||||
| Total hardware revenue | $ | $ | ||||||
Deferred charges relate only to the sale of HW. Deferred charges activity for the year ended December 31, 2023 can be seen in the table below (in thousands):
SCHEDULE OF DEFERRED CHARGES ACTIVITY
| Balance at December 31, 2022 | $ | |||
| Additions during the period | ||||
| Recognized as cost of sales | ( | ) | ||
| Balance at December 31, 2023 | $ | |||
| Amounts to be recognized as cost of sales in the year ending: | ||||
| December 31, 2024 | $ | |||
| December 31, 2025 | ||||
| December 31, 2026 and thereafter | ||||
| $ |
Deferred charges relate only to the sale of HW. Deferred charges activity for the year ended December 31, 2022 can be seen in the table below (in thousands):
| Balance at December 31, 2021 | $ | |||
| Balance | $ | |||
| Additions during the period | ||||
| Recognized as cost of sales | ( | ) | ||
| Balance at December 31, 2022 | $ | |||
| Balance | $ |
SCHEDULE OF RECONCILIATION OF COGS EXPENSE
| Reconciliation of COGS Expense | 2023 | 2022 | ||||||
| Amortization of deferred COGS | $ | $ | ||||||
| COGS of custom designed units and related accessories | ||||||||
| COGS of hardware sales (new product versions) | ||||||||
| Data costs for monitoring | ||||||||
| Other accessories, services, shipping and miscellaneous charges | ||||||||
| Total COGS expense | $ | $ | ||||||
| F-23 |
The following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2023 (in thousands):
SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS
| HW | Monitoring | Total | ||||||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
The
capitalized sales commissions are included in other current assets ($
SCHEDULE OF SALES COMMISSIONS EXPENSE
| Amounts to be recognized as sales commissions expense in the year ending: | ||||
| December 31, 2024 | $ | |||
| December 31, 2025 | ||||
| December 31, 2026 and thereafter | ||||
| Total | $ | |||
| HW | Monitoring | Total | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Balance | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Balance | $ | $ | $ | |||||||||
The
capitalized sales commissions are included in other current assets ($
NOTE 14—SUBSEQUENT EVENTS
On
January 2, 2024, options were issued to the CEO and CFO in the
aggregate with an exercise price of $
On
January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services
for a 36-month contract term with automatic one-year extensions, subject to termination notice. The pricing structure involves account
setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services.
The monthly revenue obligation is $
| F-24 |
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
| Subsidiary | Jurisdiction | |
| OMX Holdings, Inc. | Georgia | |
| OmniMetrix, LLC | Georgia |
EXHIBIT 23.1
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in the Registration Statement of Acorn Energy, Inc. on Form S-8 (Nos. 333-140539, 333-158287 and 333-169438) of our report dated March 7, 2024, with respect to our audits of the consolidated financial statements of Acorn Energy, Inc. as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022, which report is included in this Annual Report on Form 10-K of Acorn Energy, Inc. for the year ended December 31, 2023.
/s/ Marcum llp
Marcum llp
Marlton New Jersey
March 7, 2024
Exhibit 31.1
I, Jan H. Loeb, the Chief Executive Officer of Acorn Energy, Inc., certify that:
| 1. | I have reviewed this report on Form 10-K of Acorn Energy, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: March 7, 2024 | ||
| By: | /s/ JAN H. LOEB | |
| Jan H. Loeb | ||
| Chief Executive Officer | ||
Exhibit 31.2
I, Tracy S. Clifford, the Chief Financial Officer of Acorn Energy, Inc., certify that:
| 1. | I have reviewed this report on Form 10-K of Acorn Energy, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: March 7, 2024 | ||
| By: | /s/ Tracy S. Clifford | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Acorn Energy, Inc. (the “Company”) for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan H. Loeb, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Jan H. Loeb | |
| Jan H. Loeb | |
| Chief Executive Officer | |
| March 7, 2024 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Acorn Energy, Inc. (the “Company”) for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tracy S. Clifford, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Tracy S. Clifford | |
| Tracy S. Clifford | |
| Chief Financial Officer | |
| March 7, 2024 |