| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America (“GAAP”). All dollar amounts are rounded to the nearest thousand and, thus, are approximate. Principles
of Consolidation and Presentation The
consolidated financial statements include the accounts of the Company and its subsidiaries. In these consolidated financial statements,
“subsidiaries” are companies that are over 50 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 $ 8,000 41,000 Impairment
of Long-Lived Assets The
Company reviews long-lived assets, such as property and equipment, intangible assets subject to amortization, and right-of-use assets
on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance
relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the
strategy for the overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining
useful life of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated
as the excess of the carrying value over the fair value. During
June 2022, the Company conducted an evaluation of the status of an ERP software customization project that had been initiated in July
2019 and was ongoing. As a result of this evaluation, the Company elected to terminate this project effective June 30, 2022 and recorded
an impairment against the capitalized investment in this project of $ 51,000 Non-Controlling
Interests The
Financial Accounting Standards Board (“FASB”) requires that non-controlling interests be reported as a component of equity,
changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions,
and upon a loss of control, retained ownership interest be re-measured at fair value, with any gain or loss recognized in earnings. The
Company attributes the applicable percentage of income and losses to the non-controlling interests associated with OmniMetrix (see Note
3). Property
and Equipment Property
and equipment are presented at cost at the date of acquisition. Depreciation and amortization are calculated based on the straight-line
method over the estimated useful lives of the depreciable assets, or in the case of leasehold improvements, the shorter of the lease
term or the estimated useful life of the asset, a portion of which is allocated to cost of sales. Improvements are capitalized while
repairs and maintenance are charged to operations as incurred. Capitalization
of Software 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 $ 29,000 279,000 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. 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 $ 221,000 336,000 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. Concentration
of Credit Risk The
Company’s financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of
cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to $ 1,449,000 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 $ 24,000 16,000 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 $ 13,000 51,000 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, no During
the years ending December 31, 2023 and 2022, the Company had no 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
and Diluted Net Income (Loss) Per Share Basic
net loss per share is computed by dividing the net loss attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding
during the year, excluding treasury stock. Diluted net loss per share is computed by dividing the net loss by the weighted average number
of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants.
The dilutive effects of stock options and warrants are excluded from the computation of diluted net loss per share if doing so would
be antidilutive. The
combined 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 17,000 9.42 62,000 6.29 The
following data represents the amounts used in computing earnings per share and the effect on net loss and the weighted average number of shares of dilutive
potential common stock (as adjusted to account for the September 2023 1-for-16 reverse stock split) (in thousands): 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 $ 119 $ (633 )
Weighted average shares outstanding:
-Basic 2,484 2,481
Add: Warrants — —
Add: Stock options 19 —
-Diluted 2,503 2,481
Basic and diluted net income (loss) per share $ 0.05 $ (0.25 ) 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. |
