| Equity | NOTE 8—EQUITY (a) General At June 30, 2020, the Company
had issued and outstanding 39,687,589 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock
are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally
available for distribution in the event of a liquidation, dissolution or winding up of the Company. Holders of common stock do
not have subscription, redemption, conversion or other preemptive rights. Holders of the common stock are entitled to elect all
the Directors on the Company’s Board. Holders of the common stock do not have cumulative voting rights, meaning that the
holders of more than 50% of the common stock can elect all the Company’s Directors. Except as otherwise required by Delaware
General Corporation Law, all stockholder action is taken by vote of a majority of shares of common stock present at a meeting of
stockholders at which a quorum (a majority of the issued and outstanding shares of common stock) is present in person or by proxy
or by written consent pursuant to Delaware law (other than the election of Directors, who are elected by a plurality vote). The Company is not authorized
to issue preferred stock. Accordingly, no preferred stock is issued or outstanding. (b) Rights Offering On June 28, 2019, the Company
completed a rights offering, raising $2,184,000 in proceeds of which $1,628,000 was from related parties, net of $210,000 in expenses.
Pursuant to the rights offering, Acorn securityholders and parties to a backstop agreement purchased 9,975,553 shares of Acorn
common stock for $0.24 per share. Under the terms of the
rights offering, each right entitled securityholders as of June 3, 2019, the record date for the rights offering, to purchase 0.312
shares of Acorn common stock at a subscription price of $0.24 per whole share. No fractional shares were issued. The closing price
of Acorn’s common stock on the record date of the rights offering was $0.2925. Distribution of the rights commenced on June
6, 2019 and were exercisable through June 24, 2019. In connection with the
rights offering, Acorn entered into a backstop agreement with certain of its directors and Leap Tide Capital Management LLC, the
sole manager of which is Acorn’s President and CEO, pursuant to which they agreed to purchase from Acorn any and all unsubscribed
shares of common stock in the rights offering, subject to the terms, conditions and limitations of the backstop agreement. The
backstop purchasers did not receive any compensation or other consideration for entering into or consummating the backstop agreement. On July 1, 2019, the Company
utilized a portion of the rights offering proceeds to complete the planned reacquisition of a 19% interest in its OMX Holdings,
Inc. subsidiary (“Holdings”) for $1,273,000, including accrued dividends. Holdings owns 100% of the membership interests
of OmniMetrix, LLC. The purchase price was based on terms established in November 2015 at the time of the original investment.
The purchase raised Acorn’s ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix,
LLC. See Note 4 for further discussion. The balance of the rights
offering net proceeds provided OmniMetrix with additional sales and marketing resources to facilitate expansion into additional
geographic markets and new product applications, to support next-generation product development and for general working capital
purposes. (c) Summary Employee Option Information The Company’s stock
option plans provide for the grant to officers, directors and other key employees of options to purchase shares of common stock.
The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically
exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the
option from the optionee, but reduces the number of shares of common stock issued upon the exercise of the option by the smallest
number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option
shares covered by the option exercised. Each option is exercisable to 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 three-year period from the date of the grant.
At the annual meeting of stockholders on September 11, 2012, the Company’s stockholders approved an Amendment to the Company’s
2006 Stock Incentive Plan to increase the number of available shares by 1,000,000 and an Amendment to the Company’s 2006
Stock Incentive Plan for Non-Employee Directors to increase the number of available shares by 200,000. In February 2019, the Company’s
Board extended the expiration date of the 2006 Stock Incentive Plan until December 31, 2024. At June 30, 2020, 1,716,719
options were available for grant under the 2006 Amended and Restated Stock Incentive Plan and no options were available for grant
under the 2006 Director Plan. During the six months ended June 30, 2020, an aggregate of 30,000 options was issued to non-employee
directors, 35,000 options were issued to the Company’s CEO and 50,000 options were issued to the Company’s CFO. The
fair value of the options issued was $23,000. 96,250 options were exercised
during the six months ended June 30, 2020. The intrinsic value of options outstanding and of options exercisable at June 30, 2020
was approximately $2,000. A summary of stock option
activity for the six months ended June 30, 2020 is as follows:
Number of Options (in shares)
Weighted Average Exercise Price Per Weighted Aggregate
Outstanding at December 31, 2019 1,364,490 $ 1.87 1.81 years $ 46,000
Granted 115,000 0.31
Exercised (96,250 ) 0.19
Forfeited or expired (524,430 ) 2.43
Outstanding at June 30, 2020 858,810 $ 1.51 3.3 years $ 2,000
Exercisable at June 30, 2020 631,976 $ 1.94 2.3 years $ 2,000 The fair value of the options
granted of $23,000 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average
assumptions:
Risk-free interest rate 1.05 %
Expected term of options 3.8 years
Expected annual volatility 110 %
Expected dividend yield — % (d) Stock-based Compensation Expense Stock-based compensation
expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements
of operations was $19,000 and $12,000 for the six-month periods and $13,000 and $6,000 for the three-month-periods ended June 30,
2020 and 2019, respectively. The total compensation
cost related to non-vested awards not yet recognized was $39,000 as of June 30, 2020. (e) Warrants The Company previously
issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance.
A summary of warrant activity follows:
Number of Warrants (in shares) Weighted Weighted
Outstanding at December 31, 2019 2,177,857 $ 1.28 4 months
Granted — —
Exercised — —
Forfeited or expired 2,142,857 1.30
Outstanding at June 30, 2020 35,000 $ .13 2.7 years On May 5, 2020, 2,142,857
warrants with a fair value of $1,018,000 expired in accordance with their terms. |
