| Summary of Significant Accounting Policies | NOTE 2—SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Principles of Consolidation and Presentation The consolidated
financial statements include the accounts of the Company and its subsidiaries. In these consolidated financial statements, “subsidiaries”
are companies that are over 50% controlled, the accounts of which are consolidated with those of the Company. Significant intercompany
transactions and balances are eliminated in consolidation; profits from intercompany sales, are also eliminated; non-controlling
interests are included in equity. When the Company does not have a controlling interest in an entity, but exerts significant influence
over the entity’s operating and financial decisions, the Company applies the equity method of accounting in which it records
in earnings its share of income or losses of the entity. On April 21, 2016
(the “Closing Date”), the Company closed on a transaction (the “DSIT Transaction”) initially entered into
on January 28, 2016 for the sale of a portion of its interests DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems
Ltd. (“Rafael”), a major Israeli defense company (see Note 3). As a result of the DSIT Transaction, the Company’s
holdings in DSIT were reduced from 78.7% to 41.2%, and subsequent to the DSIT Transaction, the Company has limited representation
on the DSIT Board of directors. Accordingly, after the Closing Date, the Company no longer consolidates the results of DSIT. Discontinued Operations In April 2016,
the Company announced that it decided to cease operations of its GridSense subsidiary and initiate the liquidation of the GridSense
assets. Following the decision to cease GridSense operations, the Company wrote down all GridSense assets to their estimated realizable
values at the time and accrued for estimated severance costs and lease commitments. As a result of this decision, GridSense is
reported as a discontinued operation in its consolidated financial statements for all periods presented (see Note 4(a)). In March 2015,
the Company announced that it stopped funding USSI and that USSI had effectively suspended operations and terminated substantially
all employees. On September 28, 2015, the Board of Directors of USSI approved a motion to file a voluntary petition for protection
under Chapter 7 of the United States Bankruptcy Code (a “Chapter 7 Bankruptcy”). On September 30, 2015, USSI filed
for a Chapter 7 Bankruptcy. Accordingly, effective September 30, 2015, the Company no longer consolidates the assets, liabilities
or operating results of USSI (see Note 4(b)). Functional Currency and Foreign Currency
Transactions The currency of
the primary economic environment in which the operations of Acorn and its U.S. subsidiaries are conducted is the United States
dollar (“dollar”). Accordingly, the Company and all of its U.S. subsidiaries use the dollar as their functional currency.
The financial statements of DSIT whose functional currency is the New Israeli Shekel (“NIS”) have been translated in
accordance with applicable accounting principles. Assets and liabilities are translated at year-end exchange rates, while revenues
and expenses are translated at average exchange rates during the year. Differences resulting from translation are presented in
equity as Accumulated Other Comprehensive Income. Gains and losses on foreign currency transactions and exchange gains and losses
denominated in non-functional currencies are reflected in finance income (expense), net, in the Consolidated Statements of Operations
when they arise. Cash Equivalents The Company considers
all highly liquid investments, which include money market funds and short-term bank deposits (up to three months from date of deposit
or with maturity of three months from date of purchase) that are not restricted as to withdrawal or use, to be cash equivalents. Accounts Receivable Accounts receivable
consists of trade receivables. Trade receivables are recorded at the invoiced amount. Allowance for Doubtful Accounts The Company maintains
allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. This
allowance is based on specific customer account reviews and historical collections experience. If the financial condition of the
Company’s funding parties or customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company performs ongoing credit evaluations of its customers and does not require collateral. During the years
ended December 31, 2016 and 2015, $28 and $44 was charged to expense, respectively. Following the DSIT Transaction (see Note 3),
the Company no longer consolidates the operating results of DSIT. At December 31, 2016 and 2015, the balance in allowance for doubtful
accounts was $11 and $20, respectively. Following the DSIT Transaction (see Note 3), the Company no longer consolidates the allowance
for doubtful accounts of DSIT. Inventory Inventories are
comprised of components (raw materials), work-in-process and finished goods, which are measured at the lower of cost or market. OmniMetrix - 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. DSIT - Raw materials
inventory is comprised of arrays and receivers related to diver detection sonar (“DDS”) and portable diver detection
sonar (“PDDS”) systems. Work-in-process inventory is primarily comprised of PDDS systems that have commenced with assembly
as well as capitalized labor and overhead. Costs are determined at cost of acquisition on a weighted average basis and include
all outside production and shipping costs. Following the DSIT Transaction (see Note 3), the Company no longer consolidates the
inventory of DSIT. All inventories
are periodically reviewed for impairment related to slow-moving and obsolete inventory. 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 income and losses to the non-controlling interests associated with DSIT (up to the DSIT Transaction –
see Note 3), OmniMetrix and USSI (up through its deconsolidation in September 2015 – See Note 4(b)). Property and Equipment Property and equipment
are presented at cost at the date of acquisition. Depreciation and amortization is 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. Goodwill The Company assesses
annually whether there is an indication that goodwill is impaired, or more frequently if events and circumstances indicate that
the asset might be impaired during the year. The Company performs its annual impairment test in the fourth quarter of each year. Application of the
goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities
to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The
Company identified its operating segments as its reporting units for purposes of the impairment test. The Company’s goodwill
at December 31, 2015 was associated with its Energy & Security Sonar Solutions segment. Following the DSIT Transaction (see
Note 3), the Company no longer consolidates the results of DSIT, but rather reports its investment in DSIT using the equity method.
Accordingly, the Company eliminated this goodwill as part of the deconsolidation of DSIT. Treasury Stock Shares of common
stock repurchased are recorded at cost as treasury stock. When shares are reissued, the cost method is used for determining cost.
In accordance with GAAP, the excess of the acquisition cost over the reissuance price of the treasury stock, if any, is charged
to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged
to accumulated deficit. Revenue Recognition The Company’s
revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The Company recognizes
revenue when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. The Company assesses
whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is
occurring. The Company’s sales arrangements generally include standard payment terms. These terms effectively relate to all
customers, products, and arrangements regardless of customer type, product mix or arrangement size. If revenue recognition
criteria are not satisfied, amounts received from customers are classified as deferred revenue on the balance sheet until such
time as the revenue recognition criteria are met. Sales of OmniMetrix
monitoring systems have multiple elements which include the sale of equipment and of monitoring services. Sales of OmniMetrix equipment
do not qualify as a separate unit of accounting. As a result, revenues (and related costs) associated with sale of equipment are
recorded to deferred revenue (and deferred charges) upon shipment for PG and CP units. Revenue and related costs with respect to
the sale of equipment are recognized over the estimated life of the customer relationship which is estimated to be 24 months. Revenues
from the prepayment of monitoring fees (generally paid 12 months in advance) are initially recorded as deferred revenue upon receipt
of payment from the customer and then amortized to revenue over the monitoring service period. Revenue from fixed-price
contracts at DSIT which require significant production, modification and/or customization to customer specifications are recognized
using the percentage-of-completion method. Percentage-of-completion estimates are in man-months of labor and are reviewed periodically,
and any adjustments required are reflected in the period when such estimates are revised. Losses on contracts, if any, are recognized
in the period in which the loss is determined. Revenue from DSIT’s consulting, time-and-materials service contracts, maintenance
agreements and other services are recognized as services are provided. Following the DSIT Transaction (see Note 3), the Company
no longer consolidates the revenue of DSIT. Unbilled Revenue Revenue may be
earned by DSIT for those services in advance of amounts billable to the customer and are recognized when the service is performed.
Revenues recognized in excess of amounts billed for projects in process are recorded as unbilled revenue. Such amounts are generally
billed upon the completion of a project milestone. Following the DSIT Transaction (see Note 3), the Company no longer consolidates
the unbilled revenue of DSIT. Warranty Provision The Company’s
OmniMetrix subsidiary generally grants their customers a one-year warranty on their respective products. DSIT generally grants
its customers a one-to-two-year warranty on its projects. Following the DSIT Transaction (see Note 3), the Company no longer consolidates
the warranty provision of DSIT. 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 limited historical experience. Adjustments are made to accruals as warranty
claim data and historical experience warrant. The Company’s
warranty obligations may be materially affected by product or service failure rates and other costs incurred in correcting a product
or service failure. Should actual product or service failure rates or other related costs differ from the Company’s estimates,
revisions to the accrued warranty liability would be required. Concentration of Credit Risk Financial instruments,
which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, escrow
deposits and trade accounts receivable. The Company’s cash, cash equivalents and escrow deposits were deposited primarily
with U.S. banks and brokerage firms and amounted to $801 at December 31, 2016. The Company does not believe there is significant
risk of non-performance by these counterparties. See Note 20(d) with respect to revenue from significant customers and concentrations
of trade accounts receivables and unbilled revenue. 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. Participation by third parties
in the Company’s research and development costs as well as credits arising from qualifying research and experimental development
expenditures are netted against research and development. Following the DSIT Transaction (see Note 3), the Company no longer consolidates
the research and development expenses of DSIT. Advertising Expenses Advertising expenses
are charged to operations as incurred. Advertising expense was $9 and $20 for each of the years ended December 31, 2016 and 2015,
respectively. Following the DSIT Transaction (see Note 3), the Company no longer consolidates the advertising expenses of DSIT. 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 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, we recognize 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).
The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price
volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based
compensation expense. Options awarded
to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance
with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model. See Note 16(d)
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. Deferred Income Taxes Deferred income
taxes reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss and tax credit carryforwards.
Deferred tax assets and liabilities are classified as current or non-current based on the classification of the related assets
or liabilities for financial reporting, or according to the expected reversal dates of the specific temporary differences, if not
related to an asset or liability for financial reporting. 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. At December 31, 2015, U.S. income taxes were not provided on undistributed earnings of the Company’s
then DSIT subsidiary because such earnings were reinvested in foreign operations. If those earnings were repatriated to the U.S.,
the Company would not expect to owe additional U.S. income taxes due to the utilization of net operating loss carryovers. 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. Basic and Diluted Net Income (Loss)
Per Share Basic net income
(loss) per share is computed by dividing the net income (loss) attributable to Acorn Energy, Inc. by the weighted average number
of shares outstanding during the year, excluding treasury stock. Diluted net income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of shares outstanding plus the dilutive potential of common shares which would
result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the
computation of diluted net loss per share if doing so would be antidilutive. The 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 approximately 4,904,000
and 5,001,000 for the years ending December 31, 2016 and 2015, respectively. The following data
represents the amounts used in computing EPS and the effect on net income and the weighted average number of shares of dilutive
potential common stock:
Year ended December 31,
2016 2015
Net income (loss) available to common stockholders $ 145 $ (10,599 )
Weighted average shares outstanding:
-Basic 28,488 26,803
Add: Warrants 24 —
Add: Stock options 19 —
-Diluted 28,531 26,803
Basic and diluted net income (loss) per share $ 0.01 $ (0.40 ) Fair Value Measurement The Company follows
the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair value and enhances
fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants
at the measurement date. The standard establishes
a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants
would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1: Quoted
prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs. Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. See Notes 16, 21
and 22. Recently Issued Accounting Principles Other than the
announcement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the
year ended December 31, 2016, that are of material significance, or have potential material significance, to the Company. In May 2014, the
FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The comprehensive new standard will supersede existing
revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers
in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services.
Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation
approaches, one requiring retrospective application of the new standard with adjustment of prior years and one requiring prospective
application of the new standard with disclosure of results under old standards. The FASB issued several subsequent standards in
2016 containing implementation guidance related to the new standard. These standards provide additional guidance related to principal
versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope
improvements and practical expedients as well as technical corrections and improvements. Overall, the new guidance is to be effective
for the fiscal year beginning after December 15, 2017. Companies are able to early adopt the pronouncement, however not before
fiscal years beginning after December 15, 2016. The Company currently anticipates that it will adopt this standard using the modified
retrospective method. The Company is creating an implementation team to provide training and to review contracts to assess the
impact, if any, the new revenue standard will have on its consolidated financial statements. The Company is monitoring for any
additional implementation or other guidance that may be issued in 2017 with respect to the new revenue standard and adjust its
assessment and implementation plans accordingly. In August 2014,
the FASB issued ASU No. 2014-15 —Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU requires management to evaluate whether there
are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one
year after the financial statements are issued and if management’s plans will alleviate that doubt. Management will be required
to make this evaluation for both annual and interim reporting periods. The Company adopted this guidance for the fiscal year ended
December 31, 2016. This adoption did not have a material impact on the Company’s consolidated financial statements. In July 2015, the
FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This accounting standard that requires
inventory be measured at the lower of cost and net realizable value and options that currently exist for measuring inventory at
market value be eliminated. The standard defines net realizable value as estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation and is effective for reporting periods beginning
after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The guidance should be applied
prospectively. The Company is evaluating the impact the adoption of this guidance will have on the determination or reporting of
its consolidated financial statements. In November 2015,
the FASB issued ASU 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which simplifies
the balance sheet classification of deferred taxes. The new guidance requires that all deferred taxes be presented as noncurrent,
rather than separated into current and noncurrent amounts. The guidance is effective for reporting periods beginning after December
15, 2016 and early adoption is permitted. In addition, the adoption of guidance can be applied either prospectively or retrospectively
to all periods presented. The Company does not believe that this new accounting pronouncement will have a material impact on its
consolidated financial statements. In January 2016,
the FASB issued ASU 2016-01 “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities,” which revises an entity’s accounting related to (1) the classification and measurement
of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at
fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01
is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption
permitted under certain circumstances.” The Company is currently assessing the impact of ASU 2016-01 on its financial statements. In February 2016,
the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2018 with early adoption permitted. Under Accounting Standards Update 2016-02, lessees will be required to recognize
for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising
from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right
to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new
guidance will have on its financial statements and related disclosures. In March 2016, the
FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,
which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including treatment
of excess tax benefits and forfeitures, as well as consideration of minimum statutory tax withholding requirements. The ASU will
take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2016, with early application permitted in any interim or annual period. The Company is evaluating the future impact of this ASU
on the consolidated financial statements. In August 2016,
the FASB issued ASU No. 2016-15 Cash Flow Statement (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This
new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including:
debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent
consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement
of corporate owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization
transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for
public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and
is not expected to have a material impact on the Company’s consolidated financial statements. In November 2016,
the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash a consensus of the FASB Emerging Issues
Task Force. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal
years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019 and is not expected
to have a material impact on the Company’s consolidated financial statements. Reclassifications Certain reclassifications
have been made to the Company’s prior year’s consolidated financial statements to conform to the current year’s
consolidated financial statement presentation. |
