ACORN ENERGY, INC. 10-K

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, 2020. 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, 2020 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, 2020. 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. 25 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. As a result, a majority of the significant process areas management identified for the Company’s OmniMetrix subsidiary had one or more 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. Although 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, this material weakness 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, 2020. Remediation Actions Management will 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. Changes in Internal Control Over Financial Reporting Other than those changes associated with our material weakness described above and the corresponding remediation actions, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended), during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 26 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 62 Director, President and Chief Executive Officer of the Company and Acting CEO of OmniMetrix Gary Mohr 62 Director and member of our Audit, Nominating and Compensation Committees Michael F. Osterer 75 Director and member of our Audit, Nominating and Compensation Committees Samuel M. Zentman 75 Director, Chairman of our Audit Committee and member of our Nominating and Compensation Committees Tracy S. Clifford 52 Chief Financial Officer of the Company 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. 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. 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. 27 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 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. 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 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. 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, which was reconstituted in 2017. 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. 28 Nominating Committee The Nominating Committee of our Board of Directors, which was reconstituted in 2017, 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 assure 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 2020 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 on the Internet under “Investor Relations” on our website at www.acornenergy.com. We 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 . 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 2020 312,000 (3) — 7,974 (5) — 199,974 President and CEO of the Company and Acting CEO of OmniMetrix (1) 2019 174,000 (3) — — — 174,000 Tracy S. Clifford 2020 198,000 (4) — 8,319 (6) — 146,319 CFO of the Company and COO of OmniMetrix (2) 2019 129,000 (4) — 6,353 (7) — 135,353 (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. 29 (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 35,000 options granted on January 30, 2020 with an exercise price of $0.37. 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 1.38% (ii) an expected term of 3.62 years (iii) an assumed volatility of 109% and (iv) no dividends. (6) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 50,000 options granted on June 8, 2020 with an exercise price of $0.23. 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% (ii) an expected term of 4.0 years (iii) an assumed volatility of 109% and (iv) no dividends. (7) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 30,000 options granted on June 25, 2019 with an exercise price of $0.28. 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 1.7% (ii) an expected term of 4.0 years (iii) an assumed volatility of 122% and (iv) no dividends. Executive Compensation for 2019 and 2020 Jan H. Loeb. On April 9, 2018, the Company entered into a consulting agreement (the “2018 Consulting Agreement”) with Mr. Loeb extending its arrangements for compensation of Mr. Loeb for his services as President and CEO of the Company. Pursuant to the 2018 Consulting Agreement, Mr. Loeb received cash compensation of $12,000 per month commencing May 1, 2018, and $16,000 per month commencing August 15, 2019. When he assumed the additional position of Acting CEO of OmniMetrix, his monthly cash compensation was increased to $26,000 effective December 1, 2019. He was eligible for bonuses during the term of the 2018 Consulting Agreement: $150,000 upon consummation of a corporate acquisition transaction approved by the Company’s Board, and $150,000 upon consummation of a corporate financing/funding transaction approved by the Company’s Board. On August 13, 2019, Mr. Loeb waived his right to receive the $150,000 bonus otherwise due to him under the terms of the 2018 Consulting Agreement in connection with the consummation of the Company’s June 2019 Rights Offering. The 2018 Consulting Agreement expired on December 31, 2019. On January 30, 2020, the Company entered into a new consulting agreement (the “2020 Consulting Agreement”) with Mr. 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 2020 Consulting Agreement, Mr. Loeb received cash compensation, effective retroactively as of January 1, 2020, 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 30, 2020, to purchase 35,000 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 31, 2019, closing price of the common stock of $0.37 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on April 1, 2020, July 1, 2020 and October 1, 2020. 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 2020 Consulting Agreement expired on December 31, 2020; the Company and Mr. Loeb have entered into a new Consulting Agreement for 2021 as described below. 30 Tracy S. Clifford. On June 1, 2018, Tracy S. Clifford was appointed CFO of the Company, replacing outgoing CFO, Michael Barth, who resigned from this position as of that date. Concurrent with the appointment of Ms. Clifford as CFO, the Company entered into a consulting arrangement with Ms. Clifford pursuant to which she initially received a monthly fee of $8,500, increased to $9,500 effective November 1, 2018 as allowed by the agreement for the additional hours worked in excess of the average monthly hours covered by the original retainer, in exchange for her services as CFO. Her monthly fee was increased to $11,500 effective August 15, 2019. Ms. Clifford was appointed to the additional position of COO of OmniMetrix on November 18, 2019 and her monthly fee was increased to $16,500 effective December 1, 2019. Ms. Clifford received a grant on June 25, 2019 of options to purchase 30,000 shares of our common stock, with an exercise price of $0.28 per share, which was the closing price of the common stock on June 24, 2019. The options vested and became exercisable on the first anniversary of the date of grant 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. She also received a grant on June 8, 2020 of options to purchase 50,000 shares of our common stock, with an exercise price of $0.23 per share, which was the closing price of the common stock on June 23, 2020, and similar vesting and expiration terms as her 2019 option grant. 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 to samzentman@yahoo.com to express their views on executive compensation matters. Employment Arrangements The employment arrangements of each named executive officer and certain other officers are described below. From time to time, the Company has made discretionary awards of management options as reflected in the table above. Jan H. Loeb. On February 2, 2021, the Company entered into a new consulting agreement (the “2021 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 2021 Consulting Agreement, Mr. Loeb will receive cash compensation, effective retroactively as of January 1, 2021, of $16,000 per month for service as President and CEO of the Company, 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 February 2, 2021, to purchase 35,000 shares of the Company’s common stock, which are exercisable at an exercise price equal to the February 1, 2021, closing price of the common stock of $0.48 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments on April 1, 2021, July 1, 2021 and October 1, 2021. 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. Tracy S. Clifford serves as both CFO of the Company and COO of OmniMetrix pursuant to a Consulting Agreement with Tracy Clifford Consulting, LLC, for the provision of Ms. Clifford’s services. In such capacity, Ms. Clifford acts as a consultant to, and not an employee of, Acorn. The current term of the Consulting Agreement began on June 1, 2020, and expires on June 1, 2021. The Consulting Agreement automatically renews for an additional year upon the expiration of each one-year term. Pursuant to the Consulting Agreement, Ms. Clifford currently receives cash compensation of $16,500 per month. At the beginning of each one-year term of the Consulting Agreement, Ms. Clifford also receives a grant of options to purchase 30,000 shares of the Company’s common stock, with an exercise price equal to the closing price of the common stock on trading day immediately preceding the commencement of such one-year term. The options will vest and become exercisable on the first anniversary of the date of grant and shall expire upon the earlier of (a) seven years from the date of grant or (b) 18 months from the date Ms. Clifford ceases to be a consultant to the Company. 31 Outstanding Equity Awards at 2020 Fiscal Year End The following tables set forth all outstanding equity awards made to each of the Named Executive Officers that were outstanding at December 31, 2020. OPTIONS TO PURCHASE ACORN ENERGY, INC. STOCK Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Jan H. Loeb 25,000 — 0.20 August 13, 2022 35,000 — 0.36 January 8, 2024 35,000 — 0.35 January 1, 2025 35,000 — 0.37 January 1,2027 Tracy S. Clifford 30,000 — 0.41 June 1, 2025 30,000 — 0.28 June 24, 2026 — 50,000 0.23 June 8, 2027 WARRANTS TO PURCHASE ACORN ENERGY, INC. STOCK Name Number of Securities Underlying Unexercised Warrants (#) Exercisable Number of Securities Underlying Unexercised Warrants (#) Unexercisable Warrant Exercise Price ($) Warrant Expiration Date Jan H. Loeb 35,000(1) — 0.13 March 16, 2023 Tracy S. Clifford — — — — (1) Warrants held by Leap Tide Capital Management, LLC. Option and Warrant Exercises None. Non-qualified Deferred Compensation The following table provides information on the executive non-qualified deferred compensation activity for each of our named executive officers for the year ended December 31, 2020. Named Executive Officer Executive Contributions in Last Fiscal Year ($) Registrant Contributions in Last Fiscal Year ($) Aggregate Earnings (Losses) in Last Fiscal Year ($) Aggregate Withdrawals/ Distributions ($) Aggregate Balance at Last Fiscal Year End ($) Jan H. Loeb $ — $ — $ — $ — $ — Tracy S. Clifford — — — — — 32 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, there are no amounts due under any termination scenario. Compensation of Directors The Board reviews non-employee director compensation on an annual basis. Our compensation policy for non-employee Directors for 2020 was as follows: 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 10,000 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 25,000 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 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 installments quarterly in advance. 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 $2,000. Each Director may, in his or her discretion, elect by written notice delivered on or before the first day of each calendar year whether to receive, in lieu of some or all of his or her retainer and board fees, that number of shares of Company Common Stock as shall have a value equal to the applicable retainer and board fees, based on the closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the election shall be irrevocable for such election year and the shares subject to the election shall vest and be issued one-fourth upon the first day of the election year and one-fourth as of the first day of each of the second through fourth calendar quarters thereafter during the remainder of the election year. A newly-elected or appointed Director may, in his or her discretion, make such an election for the balance of the year in which he or she was elected/appointed by written notice delivered on or before the tenth day after his or her election/appointment to the Board, with the number of shares of Company Common Stock subject to such newly elected/appointed Director’s election to be based on closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the day of such newly elected/appointed Director’s election/appointment. The following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year ended December 31, 2020 by each individual (other than Mr. Loeb who was not separately compensated for his Board service) who served as a Director at any time during the fiscal year. 33 DIRECTOR COMPENSATION IN 2020 Name Fees Earned or Paid in Cash ($) Option Awards ($) (1) All Other Compensation ($) Total ($) Samuel M. Zentman 25,000 (2) 2,383 — 27,383 Gary Mohr 17,000 (3) 2,383 — 19,383 Michael F. Osterer 17,000 (3) 2,383 — 10,883 (1) On January 8, 2020, Samuel M. Zentman, Gary Mohr, and Michael F. Osterer were each granted 10,000 options to acquire stock in the Company. The options had an exercise price of $0.38 and were to expire on January 8, 2027. 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 1.6% (ii) an expected term of 3.7 years (iii) an assumed volatility of 111% 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. 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 11, 2021, 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 7,943,014 (3) 19.9 % Gary Mohr 1,133,480 (4) 2.9 % Michael F. Osterer 2,864,641 (5) 7.2 % Samuel M. Zentman 193,278 (6) * Tracy S. Clifford 60,000 (7) * All executive officers and directors of the Company as a group (5 people) 11,361,081 (8) 28.3 % * 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 39,687,589 shares outstanding as of March 11, 2021. 34 (3) Consists of 2,021,831 shares held by Mr. Loeb directly, 1,366,666 shares held by PENSCO Trust Company Custodian FBO JAN LOEB IRA, 4,372,017 shares held by Leap Tide Capital Acorn LLC, 147,500 shares underlying currently exercisable options held by Mr.Loeb, and 35,000 currently exercisable warrants held by Leap Tide Capital Management LLC. Mr. Loeb is the sole manager of each of Leap Tide Capital Acorn LLC and Leap Tide Capital Management LLC, with sole voting and dispositive power over the securities held by such entities. Mr. Loeb disclaims beneficial ownership of the securities held by Leap Tide Capital Acorn LLC and Leap Tide Capital Management LLC except to the extent of his pecuniary interest therein. (4) Consists of 258,481 shares held by Mr. Mohr, 833,332 shares held by UE Systems Inc., and 41,667 shares underlying currently exercisable options. (5) Consists of 1,984,392 shares held by Mr. Osterer, 833,332 shares held by UE Systems Inc., and 46,917 shares underlying currently exercisable options. (6) Consists of 80,615 shares and 112,663 shares underlying currently exercisable options. (7) Consists solely of currently exercisable options. (8) Consists of 10,917,334 shares, 408,747 shares underlying currently exercisable options and 35,000 shares underlying currently exercisable warrants. EQUITY COMPENSATION PLAN INFORMATION The table below provides certain information concerning our equity compensation plans as of December 31, 2020. 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 244,622 $ 1.16 — Equity Compensation Plans Not Approved by Security Holders 512,879 $ .33 1,717,394 Total 757,501 $ .60 1,717,394 The grants made under our equity compensation plans not approved by security holders includes 476,000 options which were granted under our 2006 Stock Incentive Plan following the original expiration of the Plan on February 8, 2017, and 1,879 options granted in 2015 under our 2006 Stock Option Plan for Non-Employee Directors but in excess of the maximum number of options available for grant under such plan as approved by stockholders. 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. The grants made under our equity compensation plans not approved by security holders also includes 35,000 warrants issued as compensation to underwriters for services provided in connection capital raise transactions. 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. 35 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Transactions With Related Persons Rights Offering On June 28, 2019, we completed a rights offering, raising approximately $2,184,000 in proceeds, net of approximately $210,000 in expenses. Pursuant to the rights offering, our securityholders and parties to a backstop agreement purchased 9,975,553 shares of our 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 our common stock at a subscription price of $0.24 per whole share. No fractional shares were issued. The closing price of our 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, we entered into a backstop agreement with certain of our directors and Leap Tide Capital Management LLC, the sole manager of which is our President and CEO, pursuant to which they agreed to purchase from us 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, we utilized a portion of the rights offering proceeds to complete the planned reacquisition of a 19% interest in our OMX Holdings, Inc. subsidiary (“Holdings”) for $1,273,000. 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 our ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix, LLC. 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. Purchase of Non-Controlling Interest On May 14, 2018, Holdings and one of our then current directors (the “Investor”) entered into an agreement whereby effective May 1, 2018, the dividend on the Preferred Stock was reduced to 8%. In addition, all the amounts due to the Investor (accrued dividends, loan and accrued interest) and all future dividends that would accrue on the Preferred Stock through June 30, 2020, were to be paid by Holdings pursuant to an agreed-upon payment schedule which was scheduled to end on June 30, 2020. During the three months ended June 30, 2019, the Company accrued $20,000 for the quarterly dividend. During the six months ended June 30, 2019, the Company accrued $40,000 in quarterly dividends in the aggregate. At June 30, 2019, the obligation to the Investor was $323,000, representing unpaid accrued dividends. On July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company repurchased from the Investor the shares of Preferred Stock then held by the Investor for a purchase price of $1,273,000 (which included the $323,000 of unpaid accrued dividends through June 30, 2019). The repurchase raised the Company’s ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix, LLC. 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. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Accounting Fees Friedman LLP The following table summarized the fees billed to Acorn for professional services rendered by Friedman LLP for the years ended December 31, 2020 and 2019. 2020 2019 Audit fees $ 77,455 $ 115,600 Audit – related fees — 400 Tax fees 15,249 10,500 All other fees — — Total $ 92,704 $ 126,500 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. Audit-Related Fees were for travel costs and administrative fees associated with our audit. 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 2020 and 2019. 36 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 report thereon of the Registrant’s Independent Registered Public Accounting Firm is included in this Annual Report beginning on page F-1. Report of Friedman LLP F-1 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in (Deficit)/Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 ITEM 16. FORM 10-K SUMMARY Not applicable. (a)(3) List of Exhibits No. 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015). 3.2 By laws of the Registrant (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S 1 (File No. 33 44027) (the “1992 Registration Statement”)). 3.3 Amendments to the By Laws of the Registrant adopted December 27, 1994 (incorporated herein by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K dated January 10, 1995). 4.1 Specimen certificate for the common stock (incorporated herein by reference to Exhibit 4.2 to the 1992 Registration Statement). 4.2 Form of Representative Warrant (incorporated herein by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed October 15, 2013) 4.3 Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed December 20, 2010). 4.4 Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.01 of the Registrant’s Current Report on Form 8-K/A filed November 6, 2014). 4.5 Form of Investor Warrant (incorporated herein by reference to Exhibit 4.02 of the Registrant’s Current Report on Form 8-K/A filed November 6, 2014). 4.6 Registration Rights Agreement, dated as of October 31, 2014 (incorporated herein by reference to Exhibit 4.03 of the Registrant’s Current Report on Form 8-K/A filed November 6, 2014). 4.7 Amended and Restated Articles of Incorporation of OMX Holdings, Inc. (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016) 4.8 Form of Warrant, dated as of March 16, 2016, of Acorn Energy, Inc., issued to Leap Tide Capital Management LLC (incorporated herein by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016). 37 10.1* Acorn Energy, Inc. 2006 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to the appendix to the Registrant’s Definitive Proxy Statement on Schedule 14A filed July 26, 2012, and the Registrant’s Additional Definitive Proxy Soliciting Materials on Schedule 14A filed August 28, 2012). 10.2* Acorn Energy, Inc. Amended and Restated 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual report on Form 10-K for the year ended December 31, 2018). 10.3* Forms of Option Award Certificate and Option Award Agreement under the Registrant’s Amended and Restated 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual report on Form 10-K for the year ended December 31, 2018). 10.4* Forms of Option Award Certificate and Option Award Agreement under the Registrant’s Amended and Restated 2006 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.53 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009). 10.5* Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.47 to the Registrant’s Annual report on Form 10-K for the year ended December 31, 2011). 10.6 Form of Registration Rights Agreement between Acorn Energy, Inc. and the Backstop Purchasers (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A filed on June 4, 2019). #10.7* Consulting Agreement, dated as of January 1, 2021, by and between Acorn Energy, Inc. and Jan H. Loeb. 10.8* Consulting Agreement, dated as of June 1, 2018, by and between Acorn Energy, Inc. and Tracy Clifford Consulting, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018). #21.1 List of subsidiaries. #23.1 Consent of Friedman LLP. #31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #101.1 The following financial statements from Acorn Energy’s Form 10-K for the year ended December 31, 2020, filed on March 16, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text. * This exhibit includes a management contract, compensatory plan or arrangement in which one or more directors or executive officers of the Registrant participate. # This exhibit is filed or furnished herewith. 38 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 16, 2021. 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 16, 2021 Jan H. Loeb Director (Principal Executive Officer) /s/ Tracy S. Clifford Chief Financial Officer (Principal Financial March 16, 2021 Tracy S. Clifford Officer and Principal Accounting Officer) /s/ Gary Mohr Director March 16, 2021 Gary Mohr /s/ Michael F. Osterer Director March 16, 2021 Michael F. Osterer /s/ Samuel M. Zentman Director March 16, 2021 Samuel M. Zentman 39 ACORN ENERGY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in Deficit F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 40 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of 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, 2020 and 2019, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, 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 The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the board of directors 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. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Identifying and evaluating the timing of revenue recognition Description of the Matter As described in Note 2 of the financial statements, the Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. Since the Company’s products are typically associated with a subscription based service, revenue related to those products is deferred and recognized over the applicable service period. The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of the timing of revenue recognition, is a critical audit matter are that there was a significant amount of judgment exercised by management in identifying and evaluating whether hardware sold has a standalone value and the period over which monitoring and hardware sales should be recognized. Auditor judgement is involved in performing our audit procedures to evaluate whether the timing of revenue recognition on hardware and monitoring sales was appropriately stated. F- 1 How We Addressed the Matter in Our Audit Our audit procedures over determining the time period over which revenue is recognized involved, among others, review over management’s analysis of estimated customer life, substantive testing of account balances through obtaining invoices, customer contracts and bill of ladings, in order to evaluate whether revenue was recognized in the appropriate period. Other procedures performed included the evaluation of terms and conditions in contracts, obtaining an understanding of the technology behind the Company’s hardware, and the determination of the appropriate amount and timing of revenue recognition based on the contractual terms, assessing the recognition term and evaluated the appropriateness of management’s application of their accounting policies, testing the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. Going concern – Assessing the probability of the Company’s ability to continue as a going concern Description of the Matter As described in Note 1 of the financial statements, the Company has adequate cash on hand in addition to cash generated from operations, which will provide sufficient liquidity to finance the operating activities of the Company at its current level of operations for twelve months from the issuance of these financial statements. We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and execution uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows. How We Addressed the Matter in Our Audit Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others; we reviewed the design and underlying factors relating to the preparation of forecasted information and considerations of the Company’s obligations; we tested the reasonableness of the forecasted revenue, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the financial statement issuance date. This testing included inquiries with management, comparison of prior period forecasts to actual results, consideration of positive and negative evidence impacting management’s forecasts, the Company’s financing arrangements in place as of the report date, market and industry factors. /s/ Friedman LLP We have served as the Company’s auditor since 2010. Marlton, New Jersey March 16, 2021 F- 2 ACORN ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) As of December 31, 2020 2019 ASSETS Current assets: Cash $ 2,063 $ 1,247 Accounts receivable, net 608 962 Inventory, net 236 291 Other current assets 126 189 Deferred charges 764 741 Total current assets 3,797 3,430 Property and equipment, net 268 189 Right-of-use assets, net 494 587 Other assets 642 778 Total assets $ 5,201 $ 4,984 LIABILITIES AND DEFICIT Current liabilities: Short-term bank credit $ 149 $ 136 Accounts payable 229 197 Accrued expenses 168 136 Deferred revenue 3,214 3,004 Current operating lease liabilities 99 53 Other current liabilities 33 68 Total current liabilities 3,892 3,594 Long-term liabilities: Deferred revenue 1,340 1,491 Noncurrent operating lease liabilities 443 542 Other long-term liabilities 45 2 Total long-term liabilities 1,828 2,035 Commitments and contingencies (Note 8) Deficit: Acorn Energy, Inc. shareholders Common stock - $0.01 par value per share: Authorized – 42,000,000 shares; Issued – 39,687,589 and 39,591,339 shares at December 31, 2020 and 2019, respectively 397 396 Additional paid-in capital 102,726 101,655 Warrants 3 1,021 Accumulated deficit (100,613 ) (100,682 ) Treasury stock, at cost – 801,920 shares at December 31, 2020 and 2019 (3,036 ) (3,036 ) Total Acorn Energy, Inc. shareholders’ deficit (523 ) (646 ) Non-controlling interests 4 1 Total deficit (519 ) (645 ) Total liabilities and deficit $ 5,201 $ 4,984 The accompanying notes are an integral part of these consolidated financial statements. F- 3 ACORN ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA) Year ended December 31, 2020 2019 Revenue $ 5,922 $ 5,490 Cost of sales 1,791 1,900 Gross profit 4,131 3,590 Operating expenses: Research and development expenses 619 559 Selling, general and administrative expenses 3,822 3,730 Total operating expenses 4,441 4,289 Operating loss (310 ) (699 ) Finance expense, net (35 ) 2 Gain on SBA PPP loan extinguishment 421 — Income (loss) before income taxes 76 (697 ) Income tax expense — — Net income (loss) after income taxes 76 (697 ) Gain on sale of interest in DSIT, net of transaction costs — 50 Net income (loss) 76 (647 ) Non-controlling interest share of (income) loss (7 ) 29 Net income (loss) attributable to Acorn Energy, Inc. shareholders. $ 69 $ (618 ) Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. shareholders: Net income (loss) per share attributable to Acorn Energy, Inc. shareholders – basic and diluted $ 0.00 $ (0.02 ) Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic 39,674 35,495 Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – diluted 39,713 35,495 The accompanying notes are an integral part of these consolidated financial statements. F- 4 ACORN ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT (IN THOUSANDS) Acorn Energy, Inc. Shareholders Number of Shares Common Stock Additional Paid-In Capital Warrants Accumulated Deficit Number of Treasury Shares Treasury Stock Total Acorn Energy, Inc. Shareholders’ Deficit Non- controlling interests Total Deficit Balances as of December 31, 2018 29,556 $ 296 $ 100,348 $ 1,118 $ (100,064 ) 802 $ (3,036 ) $ (1,338 ) $ 108 $ (1,230 ) Net loss — — — — (618 ) — — (618 ) (29 ) (647 ) Purchase of non-controlling interest — — (914 ) — — — — (914 ) (36 ) (950 ) Rights offering, proceeds net of expenses (see Note 9) 9,975 100 2,084 — — — — 2,184 — 2,184 Shares issued in lieu of professional fees 60 * 18 — — — — 18 — 18 Accrued dividend in OmniMetrix preferred shares — — — — — — — — (42 ) (42 ) Value of expired warrants — — 97 (97 ) — — — — — — Stock option compensation — — 22 — — — — 22 — 22 Balances as of December 31, 2019 39,591 396 101,655 1,021 (100,682 ) 802 (3,036 ) (646 ) 1 (645 ) Net income — — — — 69 — — 69 7 76 Proceeds from stock option exercise 96 1 18 — — — — 19 — 19 Accrued dividend in OmniMetrix preferred shares — — — — — — — — (4 ) (4 ) Value of expired warrants — — 1,018 (1,018 ) — — — — — — Stock option compensation — — 35 — — — — 35 — 35 Balances as of December 31, 2020 39,687 $ 397 $ 102,726 $ 3 $ (100,613 ) 802 $ (3,036 ) $ (523 ) $ 4 $ (519 ) * Less than $1 The accompanying notes are an integral part of these consolidated financial statements. F- 5 ACORN ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year ended December 31, 2020 2019 Cash flows provided by (used in) operating activities: Net income (loss) $ 76 $ (647 ) Depreciation and amortization 22 56 Non-cash lease expense 118 28 Gain on sale of investment in DSIT, net of income taxes and transaction costs — (50 ) Forgiveness of SBA PPP loan (421 ) — Stock-based compensation 35 22 Professional fees paid in common stock — 18 Change in operating assets and liabilities: Decrease (increase) in accounts receivable 354 (297 ) Decrease (increase) in inventory 55 (30 ) Increase in deferred charges, other current assets and other assets 176 24 Increase in deferred revenue 59 434 Decrease in amounts due to former directors — (323 ) Increase in operating lease liability (78 ) (47 ) Increase (decrease) in accounts payable, accrued expenses, other current liabilities and non-current liabilities 68 (409 ) Net cash provided by (used in) operating activities 464 (1,221 ) Cash flows used in investing activities: Purchases of software (93 ) (162 ) Payments made for patent filings (8 ) (3 ) Purchase of non-controlling interest in OmniMetrix — (950 ) Net cash provided by (used in) investing activities (101 ) (1,115 ) Cash flows provided by financing activities: Short-term credit, net 13 136 Proceeds from rights offering, net of expenses of $208 — 2,184 Proceeds from SBA PPP loans, net of repayments 421 — Stock option exercise proceeds 19 — Net cash provided by financing activities 453 2,320 Net increase (decrease) in cash, cash equivalents and restricted cash 816 (16 ) Cash, cash equivalents and restricted cash at the beginning of the year 1,247 1,263 Cash, cash equivalents and restricted cash at the end of the year $ 2,063 $ 1,247 Cash, cash equivalents and restricted cash consist of the following: End of year Cash and cash equivalents $ 2,063 $ 1,247 Restricted cash — — $ 2,063 $ 1,247 Cash, cash equivalents and restricted cash consist of the following: Beginning of year Cash and cash equivalents $ 1,247 $ 973 Restricted cash — 290 $ 1,247 $ 1,263 Supplemental cash flow information: Cash paid during the year for: Interest $ 30 $ 21 Income taxes — — Non-cash investing and financing activities: Purchase of equipment under installment agreement $ — $ 7 Forgiveness of SBA PPP loan $ 421 $ — Right-of-use assets, net of deferred rent $ — $ 641 Operating lease liability $ — $ 634 Accrued preferred dividends to former Acorn director and former CEO of OmniMetrix (see Note 3) $ 4 $ 42 The accompanying notes are an integral part of these consolidated financial statements. F- 6 ACORN ENERGY, INC. AND SUBSIDIARIES 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 holding company focused on technology-driven solutions for energy infrastructure asset management. The Company provides the following services and products through its OmniMetrix , LLC (“OmniMetrix”) subsidiary: ● Power Generation (“PG”) monitoring. OmniMetrix’s PG activities provide wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. This includes our AIRGuard product, which remotely monitor and controls air compressors. In 2020, the Company expanded its product offering to its generator dealers with the introduction of an Annunciator. The annunciator is typically sold with a new commercial or industrial generator and indicates the current status of that generator. In many instances having a generator annunciator onsite is mandated by law. ● Cathodic Protection (“CP”) monitoring. OmniMetrix’s CP activities provide for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. 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, 2020, the Company had approximately $2,063,000 of corporate cash and cash equivalents. At December 31, 2020, we had a negative working capital of approximately $95,000. Our working capital included approximately $2,063,000 of cash and deferred revenue of approximately $3,214,000. Such deferred revenue does not require significant cash outlay for the revenue to be recognized. Net cash increased during the year ended December 31, 2020 by approximately $816,000, of which approximately $464,000 was provided by operating activities, approximately $101,000 was used in investing activities, and approximately $453,000 was provided by financing activities, of which approximately $421,000 was net proceeds from the SBA PPP loan. The Company’s operations may be affected by the ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company, including inventories, property and equipment, and marketable securities. As of March 11, 2021, the Company had corporate cash of approximately $1,812,000. Such cash plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the foreseeable future and for the twelve months from the issuance of these consolidated financial statements in particular. 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”). 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. Reclassification Certain reclassifications have been made to the Company’s consolidated financial statements for the year ended December 31, 2019 to conform to the current period’s consolidated financial statement presentation. There was no effect on total assets, equity and net loss. A reclassification of approximately $6,000 from finance expense to SG&A expense was recorded to reclass the Intuit processing fees for customer payments made through the Intuit portal via credit card or bank draft that was previously included in finance expense and is included in SG&A as of December 31, 2019. 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 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, 2020 and 2019, approximately $21,000 and $14,000 was charged to expense, respectively. At December 31, 2020 and 2019, the balance in allowance for doubtful accounts was approximately $9,000 and $11,000, respectively. Inventory Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at net realizable value. F- 8 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 for impairment related to slow-moving and obsolete inventory. Management conducted an assessment and there were no impairment charges for the years ended December 31, 2020 or 2019. 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 In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 (“ASU 2018-15”), Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company elected to early adopt ASU 2018-15 for the period beginning in the second quarter of 2019, applying the guidance under ASU 2018-15 prospectively. During the years ended December 31, 2020 and 2019, the Company capitalized costs totaling approximately $87,000 and $163,000, respectively, related to such contracts. 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 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 subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. F- 9 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 approximately $542,000 and $595,000 as of December 31, 2020 and December 31, 2019, respectively, which includes the original office space lease, an amendment to this lease entered into in November 2019 that became effective with the period beginning May 1, 2020, and an office equipment lease entered into in April 2019. 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 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. 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 include the sale of equipment (“HW”) and of monitoring services (“Monitoring”). The majority of the sales of OmniMetrix equipment do not qualify as a separate unit of accounting. As a result, revenue (and related costs) associated with sale of equipment are recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. Revenue and related costs with respect to the sale of equipment are recognized over the estimated life of the units which are currently estimated to be three years. In the rare instance that a specific sale of OmnMetrix equipment does qualify as a separate unit of accounting (the unit is custom designed and sold without monitoring), the revenue is recognized when the unit is shipped to the customer and not deferred. Revenues from the prepayment of monitoring fees (generally paid twelve 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. See Notes 12 and 13 for the disaggregation of the Company’s revenue for the periods presented. 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 limited historical experience. Adjustments are made to accruals as warranty claim data and historical experience warrant. F- 10 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, escrow deposits and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to approximately $2,063,000 at December 31, 2020. The Company does not believe there is significant risk of non-performance by these counterparties. See Note 12(d) with respect to revenue from significant customers and concentrations of trade accounts receivables. 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 approximately $15,000 and $17,000 for each of the years ended December 31, 2020 and 2019, respectively, and are included in selling, general and administrative expenses on the consolidated statements of operations. 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 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. See Note 9(c) 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 non-current in accordance with ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. 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(e) for the impact of the Tax Cuts and Jobs Act of 2017. F- 11 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, 2020 and 2019, no interest or penalties were accrued on the consolidated balance sheets related to uncertain tax positions. During the years ending December 31, 2020 and 2019, the Company had no changes in unrecognized tax benefits or associated interest and penalties as a result of tax positions made during the current or prior periods with respect to its continuing or discontinued operations. The Company is subject to U.S. Federal and state income tax. As of January 1, 2020, the Company is no longer subject to examination by U.S. Federal taxing authorities for years before 2017, or for years before 2016 for state income taxes. 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 409,626 (which have a weighted average exercise price of $0.84) and 3,368,013 for the years ending December 31, 2020 and 2019, 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 (in thousands): Year ended December 31, 2020 2019 Net income (loss) available to common stockholders $ 69 $ (618 ) Weighted average shares outstanding: -Basic 39,674 35,495 Add: Warrants 19 — Add: Stock options 20 — -Diluted 39,713 35,495 Basic and diluted net loss per share $ 0.00 $ (0.02 ) F- 12 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. Recently Issued Accounting Principles Other than the pronouncement noted below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2020, that are of material significance, or have potential material significance, to the Company. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. Recently Adopted Accounting Principles In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This standard was effective in the first quarter of fiscal year 2020, and the adoption did not have a material impact on the consolidated financial statements. Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements. NOTE 3—INVESTMENT IN OMNIMETRIX In 2015, one of the Company’s then-current directors (the “Investor”) acquired a 20% interest in the Company’s OMX Holdings, Inc. subsidiary (“Holdings”) through the purchase of $1,000,000 of OmniMetrix Preferred Stock (“Preferred Stock”). Holdings is the holder of 100% of the membership interests of OmniMetrix, LLC through which the Company operates its PG and CP monitoring activities. The $1,000,000 investment by the Investor was recorded as an increase in non-controlling interests. F- 13 On July 1, 2019, in accordance with terms established in 2015 at the time of the original investment, the Company repurchased from the Investor the shares of Preferred Stock then held by the Investor for a purchase price of $1,273,000 in cash (which included $323,000 of unpaid accrued dividends through June 30, 2019). The repurchase raised the Company’s ownership in Holdings from 80% to 99%, with the remaining 1% owned by the former CEO of OmniMetrix, LLC. NOTE 4—INVENTORY As of December 31, 2020 2019 (in thousands) Raw materials $ 216 $ 260 Finished goods 20 31 $ 236 $ 291 At December 31, 2020 and 2019, the Company’s inventory reserve was $0. NOTE 5—PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following: Estimated Useful Life (in years) As of December 31, 2020 2019 (in thousands) Cost: Computer hardware and software 3 - 5 $ 311 $ 218 Equipment 7 151 151 Leasehold improvements Term of lease 339 339 Intangible asset Patent term 11 3 812 711 Accumulated depreciation and amortization Computer hardware and software 55 55 Equipment 150 142 Leasehold improvements 339 325 Intangible asset * * 544 522 Property and equipment, net $ 268 $ 189 *less than $1,000 Depreciation and amortization in respect of property and equipment amounted to approximately $22,000 and $56,000 for 2020 and 2019, respectively. F- 14 NOTE 6—LEASES OmniMetrix leases office space and office equipment under operating lease agreements. The office lease, which had an expiration date of April 30, 2020, was amended in November 2019 and the term was extended to September 30, 2025. The office equipment lease was entered into in April 2019, previously it was month-to-month, and has a sixty-month term. Operating lease payments for 2020 and 2019 were approximately $78,000 and $109,000, respectively. The future minimum lease payments on non-cancelable operating leases as of December 31, 2020 using a discount rate of 4.5% are approximately $542,000. The 4.5% used is the incremental borrowing rate which, as defined in ASC 842, is the rate of interest that a lessee would have to pay to borrow, on a collateralized basis, over a similar term and in a similar economic environment, an amount equal to the lease payments. Supplemental cash flow information related to leases consisted of the following (in thousands): 2020 2019 Cash paid for operating lease liabilities $ 78 $ 47 Supplemental balance sheet information related to leases consisted of the following: 2020 Weighted average remaining lease terms for operating leases 4.72 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, 2020 (in thousands): 2020 2021 $ 121 2022 125 2022 128 2024 129 2025 99 Thereafter — Total undiscounted cash flows 602 Less: Imputed interest (60 ) Present value of operating lease liabilities (a) $ 542 (a) Includes current portion of approximately $99,000 for operating leases. NOTE 7—DEBT (a) Loans payable On April 24, 2020, Acorn Energy, Inc. received Paycheck Protection Program (“PPP”) loan proceeds in the amount of $41,600. On April 30, 2020, OmniMetrix, LLC received PPP loan proceeds in the amount $419,800. Under the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “Act”), up to the full principal amount of a loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll, benefits, lease/mortgage payments and/or utilities) required under the Act and any rule, regulation, or guidance issued by the Small Business Administration (the “SBA”) pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note. F- 15 On October 20, 2020, OmniMetrix submitted its PPP Loan Forgiveness Application to the SBA. On November 5, 2020, the SBA confirmed that OmniMetrix’s application for forgiveness had been approved and that its PPP loan, in the amount of $419,800 plus accrued interest of $2,162, had been forgiven. The Company elected not to apply for forgiveness of the PPP loan proceeds received by its parent entity, Acorn Energy, Inc., in the amount of $41,600 plus accrued interest of $206. This loan was repaid to the lender effective October 22, 2020. Aggregate interest expense on these loans at the time of forgiveness/repayment was approximately $1,000. (b) Line of credit In March 2019, OmniMetrix reinstated its loan and security agreement which provided OmniMetrix with access to accounts receivable formula-based financing of the lesser of 75% of eligible receivables or $1,000. Debt incurred under this financing arrangement bore interest at the greater of 6% and prime plus 1.5% per year. In addition, OmniMetrix was to pay a monthly service charge of 0.75% of the average aggregate principal amount outstanding for the prior month, for an effective rate of interest on advances of 15% at December 31, 2020. OmniMetrix also agreed to continue to maintain a minimum loan balance of $150,000 in its line-of-credit with the lender for a minimum of two years beginning March 1, 2019. From time to time, the balance outstanding could fall below $150,000 based on collections applied against the loan balance and the timing of loan draws. The monthly service charge and interest was calculated on the greater of the outstanding balance or $150,000. Interest expense for the year ended December 31, 2020 and 2019 was approximately $28,000 and $21,000, respectively. OmniMetrix had an outstanding balance of approximately $149,000 and $136,000 as of December 31, 2020 and 2019, respectively, pursuant to the loan and security agreement and approximately $191,000 was available to borrow. OmniMetrix paid off the outstanding balance in February 2021 and decided not to renew this line of credit, which expired in accordance with its terms on February 28, 2021. NOTE 8—COMMITMENTS AND CONTINGENCIES On April 28, 2020, the Company entered into a new agreement for data hosting services, replacing an expiring agreement with the same vendor, effective May 1, 2020. The agreement has a twelve-month term and the total payments under this agreement are approximately $148,000 in the aggregate. This represents an increase of approximately $21,000 from the prior twelve-month term for additional services including enhanced business continuity and disaster recovery services. See Note 14-Subsequent Events. On August 19, 2019, OmniMetrix entered into an agreement with a software development partner to create and license to OmniMetrix a new software platform and application. Pursuant to this agreement, OmniMetrix paid this partner equal monthly payments over the first seven months of the term of the agreement equal to $200,000 in the aggregate. In addition, OmniMetrix will pay the partner a per sensor monitoring fee for each sensor connected to the developed technology, or (ii) a percentage of any revenue received above a specified amount per sensor monitored per month in oil and gas applications only. Commencing on January 1, 2021, OmniMetrix will pay the partner an annual licensing fee of $50,000 to be paid out on a monthly or quarterly basis as determined by OmniMetrix. No sensor monitoring fees or license fees were paid in 2019 or 2020. These fees commenced in 2021. NOTE 9—EQUITY (a) General At December 31, 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. F- 16 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 approximately $2,184,000 in proceeds of which approximately $1,628,000 was from related parties, net of approximately $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 3 for further discussion. The balance of the rights offering net proceeds provides 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 Option 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 Amended and Restated 2006 Stock Incentive Plan until December 31, 2024. At December 31, 2020, 1,717,394 options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. In 2020 and 2019, 230,000 and 227,500 options, respectively, were granted to directors, executive officers and employees. In 2020 and 2019, there were no grants to non-employees (other than the non-employee directors and executive officers). The fair value of the options issued was approximately $59,000 and $58,000 in 2020 and 2019, respectively. F- 17 96,250 options were exercised in the year ended December 31, 2020. No options were exercised in the year ended December 31, 2019. The intrinsic value of options outstanding and of options exercisable at December 31, 2020 was approximately $29,000 and $46,000, respectively. The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years (all in weighted averages): 2020 2019 Risk-free interest rate 0.6 % 2.3 % Expected term of options, in years 4.4 4.7 Expected annual volatility 115.2 % 118.7 % Expected dividend yield — % — % Determined weighted average grant date fair value per option $ 0.25 $ 0.25 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, 2020 and 2019. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. (d) Summary Option Information A summary of the Company’s option plans as of December 31, 2020 and 2019, as well as changes during each of the years then ended, is presented below: 2020 2019 Number of Options (in shares) Weighted Average Exercise Price Number of Options (in shares) Weighted Average Exercise Price Outstanding at beginning of year 1,364,490 1.87 1,466,489 $ 3.01 Granted at market price 230,000 0.36 227,500 0.31 Exercised 96,250 0.19 — — Forfeited or expired 775,739 2.80 (329,499 ) 5.86 Outstanding at end of year 722,501 0.62 1,364,490 1.87 Exercisable at end of year 429,833 0.81 1,190,156 $ 2.10 Summary information regarding the options outstanding and exercisable at December 31, 2020 is as follows: 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) $0.14 – $0.41 611,250 5.13 $ 0.33 318,582 $ 0.32 $1.68 70,996 .73 $ 1.68 70,996 $ 1.68 $2.49 24,000 .32 $ 2.49 24,000 $ 2.49 $4.07 16,255 — $ 4.07 16,255 $ 4.07 722,501 429,833 F- 18 Stock-based compensation expense included in selling, general and administrative expense in the Company’s Consolidated Statements of Operations was approximately $35,000 and $22,000 in the years ending December 31, 2020 and 2019, respectively. The total compensation cost related to non-vested awards not yet recognized was approximately 61,000 as of December 31, 2020. (e) Warrants The Company has 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: 2020 2019 Number of shares underlying warrants Weighted Average Exercise Price Number of shares underlying warrants Weighted Average Exercise Price Outstanding at beginning of year 2,177,857 1.28 2,392,142 $ 1.28 Granted — — — — Exercised — — — — Forfeited or expired 2,142,857 1.30 (214,285 ) 1.26 Outstanding and exercisable at end of year 35,000 0.13 2,177,857 $ 1.28 The warrants outstanding at December 31, 2020 have a weighted average remaining contractual life of approximately 26.5 months. NOTE 10—INCOME TAXES (a) Composition of loss from continuing operations before income taxes is as follows (in thousands): Year ended December 31, 2020 2019 Domestic $ 76 $ (697 ) Income tax expense consists of the following (in thousands): Year ended December 31, 2020 2019 Current: Federal $ 16 $ — State and local 5 — 21 — Deferred: Federal (16 ) — State and local (5 ) — (21 ) — Total income tax expense $ — $ — F- 19 (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: Year ended December 31, 2020 2019 Statutory Federal rates 21 % 21 % Increase (decrease) in income tax rate resulting from: Other, net (primarily permanent differences) 12 (2 ) Valuation allowance (33 ) (19 ) Effective income tax rates — % (— )% (c) Analysis of Deferred Tax Assets and (Liabilities) (in thousands): As of December 31, 2020 2019 Deferred tax assets (liabilities) consist of the following: Employee benefits and deferred compensation $ 1,076 $ 1,040 Investments and asset impairments 1,818 1,818 Other temporary differences (1,002 ) (871 ) Net operating loss and capital loss carryforwards 15,739 15,591 17,631 17,578 Valuation allowance (17,631 ) (17,578 ) Net deferred tax assets $ — $ — 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 asset impairments and stock compensation expense of the Company. During the year ended December 31, 2020, the valuation allowance increased by approximately $52,000. (d) Summary of Tax Loss Carryforwards As of December 31, 2020, the Company had various operating loss carryforwards expiring as follows (in thousands): Expiration Federal Capital Loss State 2023 $ — $ 556 $ — 2025 – 2031* 2,579 — — 2032 – 2039 63,180 — 14,898 Unlimited 3,882 — 1,721 Total $ 69,641 $ 556 $ 16,619 * The utilization of a portion of these net operating loss carryforwards is limited due to limits on utilizing net operating loss carryforwards under Internal Revenue Service regulations when or if a change of control were to occur F- 20 (e) Taxation in the United States The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The most significant impact of the legislation for the Company was a reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits) as a result of lowering the U.S. corporate income tax rate from 35% to 21%. The Act also includes a requirement to pay a one-time transition tax (the “Transition Tax”) on the cumulative value of earnings and profits that were previously not repatriated for U.S. income tax purposes. The Company does not believe that it will be required to pay any Transition Tax on its previously unrepatriated earnings and profits of its previously consolidated foreign subsidiaries. As a holding company without other business activity in Delaware, the Company is exempt from Delaware state income tax. Thus, the Company’s statutory income tax rate on domestic earnings is the federal rate of 21%. NOTE 11—RELATED PARTY BALANCES AND TRANSACTIONS a) Director Fees The Company recorded fees to directors of approximately $59,000 and $50,000 for the years ended December 31, 2020 and 2019, respectively, which is included in Selling, general and administrative expenses. 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) See Note 3 for information related to the sale of OmniMetrix Preferred Stock to one of the Company’s former directors and a loan from the director to OmniMetrix and the subsequent repurchase of this Preferred Stock on July 1, 2019. c) The related party balance due to Acorn from OmniMetrix is approximately $4,575,000 for amounts loaned, accrued interest and expenses paid by Acorn on Omni’s behalf as of December 31, 2020 as compared to approximately $4,506,000 as of December 31, 2019. OmniMetrix made gross repayments in the aggregate of $435,000 and $135,000 in the years ended December 31, 2020 and 2019, respectively. This balance is eliminated in consolidation. NOTE 12—SEGMENT REPORTING AND GEOGRAPHIC INFORMATION (a) General Information As of December 31, 2020, the Company operates in two reportable operating segments, both of which are performed though the Company’s OmniMetrix subsidiary: ● The PG segment provides wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. ● The CP segment provides for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies. The Company’s reportable segments are strategic business units, offering different products and services and are managed separately as each business requires different technology and marketing strategies. (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. F- 21 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, 2020 and 2019 (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 Chief Decision Maker (CDM) does not review the assets by segment. PG CP Total Year ended December 31, 2020: Revenues from external customers $ 4,988 934 5,922 Intersegment revenues — — — Segment gross profit 3,626 505 4,131 Depreciation and amortization 19 3 22 Segment income (loss) before income taxes 624 (75 ) 549 Year ended December 31, 2019: Revenues from external customers $ 4,282 $ 1,208 $ 5,490 Intersegment revenues — — — Segment gross profit 3,030 560 3,590 Depreciation and amortization 43 13 56 Segment income (loss) before income taxes 353 (198 ) 155 (c) The following tables represent a reconciliation of the segment data to consolidated statement of operations and balance sheet data for the years ended and as of December 31, 2020 and 2019 (in thousands): Year ended December 31, 2020 2019 Total net income before income taxes for reportable segments $ 549 $ 155 Gain on PPP loan extinguishment 421 — Gain on sale of interest in DSIT — 50 Unallocated net cost of corporate headquarters* (894 ) (852 ) Consolidated net income (loss) before taxes on income $ 76 $ (647 ) * Includes approximately $35,000 and $22,000 of stock compensation expense for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020 2019 (in thousands) Assets: Total assets for OmniMetrix subsidiary $ 4,870 $ 3,965 Assets of corporate headquarters 331 1,019 Total consolidated assets $ 5,201 $ 4,984 F- 22 Year ended December 31, 2020 2019 Revenues based on location of customer (in thousands): United States $ 5,887 $ 5,423 Other 35 67 $ 5,922 $ 5,490 All of the Company’s long-lived assets are located in the United States. (d) Revenues and Accounts Receivable Balances from Major Customers (in thousands): Invoiced Sales Accounts Receivable 2020 2019 2020 2019 Customer Total % Total % Balance % Balance % A $ 776 13 % $ 700 12 % $ 124 20 % $ 139 14 % B * * * * * * $ 172 18 % C * * * * $ 71 12 % * * * Balance is not significant. NOTE 13—REVENUE The following table disaggregates the Company’s revenue for the years ended December 31, 2020 and 2019 (in thousands): HW Monitoring Total Year ended December 31, 2020: PG Segment $ 1,423 $ 3,565 $ 4,988 CP Segment 680 254 934 Total Revenue $ 2,103 $ 3,819 $ 5,922 HW Monitoring Total Year ended December 31, 2019: PG Segment $ 1,193 $ 3,089 $ 4,282 CP Segment 970 238 1,208 Total Revenue $ 2,163 $ 3,327 $ 5,490 Deferred revenue activity for the year ended December 31, 2020 can be seen in the table below (in thousands): HW Monitoring Total Balance at December 31, 2019 $ 2,663 $ 1,832 $ 4,495 Additions during the period 1,602 3,965 5,567 Recognized as revenue (1,689 ) (3,819 ) (5,508 ) Balance at December 31, 2020 2,576 1,978 4,554 Amounts to be recognized as revenue in the year ending: December 31, 2021 1,471 1,743 3,214 December 31, 2022 846 226 1,072 December 31, 2023 and thereafter 259 9 268 $ 2,576 $ 1,978 $ 4,554 Other revenue of approximately $414,000 is related to custom design hardware, accessories, repairs, and other miscellaneous charges that are recognized to revenue when sold and are not deferred. F- 23 Deferred revenue activity for the year ended December 31, 2019 can be seen in the table below (in thousands): HW Monitoring Total Balance at December 31, 2018 $ 2,432 $ 1,629 $ 4,061 Additions during the period 2,199 3,529 5,728 Recognized as revenue (1,968 ) (3,326 ) (5,294 ) Balance at December 31, 2019 $ 2,663 $ 1,832 $ 4,495 Amounts to be recognized as revenue in the year ending: December 31, 2020 $ 1,350 $ 1,654 $ 2,732 December 31, 2021 990 174 975 December 31, 2022 and thereafter 323 4 354 $ 2,663 $ 1,832 $ 4,495 Other revenue of approximately $196,000 is related to revenue from sales of custom design hardware, accessories, repairs, and other miscellaneous charges that are recognized to revenue when sold and are not deferred. Deferred charges relate only to the sale of equipment. Deferred charges activity for the year ended December 31, 2020 can be seen in the table below (in thousands): Balance at December 31, 2019 $ 1,433 Additions during the period 794 Recognized as cost of sales (921 ) Balance at December 31, 2020 $ 1,306 Amounts to be recognized as cost of sales in the year ending: December 31, 2021 $ 764 December 31, 2022 420 * December 31, 2023 and thereafter 122 * $ 1,306 * Amounts included in Other Assets in the Company’s Consolidated Balance Sheets at December 31, 2020. Data costs (COGS) for monitoring services of approximately $608,000 and the COGS for the miscellaneous revenue from sales of custom design hardware, accessories and repairs of approximately $262,000 are expensed as incurred and are not deferred. Deferred charges activity for the year ended December 31, 2019 can be seen in the table below (in thousands): Balance at December 31, 2018 $ 1,438 Additions during the period 1,241 Recognized as cost of sales (1,246 ) Balance at December 31, 2019 $ 1,433 Amounts to be recognized as cost of sales in the year ending: December 31, 2020 $ 741 December 31, 2021 531 * December 31, 2022 and thereafter 161 * $ 1,433 * Amounts included in Other Assets in the Company’s Consolidated Balance Sheets at December 31, 2019. Data costs (COGS) for monitoring services of approximately $544,000 and the COGS for the miscellaneous revenue from sales of accessories and repairs of approximately $110,000 are expensed as incurred and are not deferred. The Company pays its employees sales commissions for sales of HW 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 HW 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. F- 24 The following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2020 (in thousands): HW Monitoring Total Balance at December 31, 2019 $ 101 $ 37 $ 138 Additions during the period 106 23 129 Amortization of sales commissions (71 ) (19 ) (90 ) Balance at December 31, 2020 $ 136 $ 41 $ 177 The capitalized sales commissions are included in Other Current Assets (approximately $90,000) and Other Assets (approximately $87,000) in the Company’s Consolidated Balance Sheets at December 31, 2020. The following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2019 (in thousands): HW Monitoring Total Balance at December 31, 2018 $ 107 $ 36 $ 143 Additions during the period 69 18 87 Amortization of sales commissions (75 ) (17 ) (92 ) Balance at December 31, 2019 $ 101 $ 37 $ 138 The capitalized sales commissions are included in Other Current Assets (approximately $60,000) and Other Assets (approximately $78,000) in the Company’s Consolidated Balance Sheets at December 31, 2019. NOTE 14—SUBSEQUENT EVENTS On January 1, 2021, 30,000 options in the aggregate were issued to directors with an exercise price of $0.37 and that vest in equal increments on January 1, 2021, April 1, 2021, July 1, 2021 and October 1, 2021 valued at $7,400 in the aggregate. On February 2, 2021, 35,000 options were issued to the CEO with an exercise price of $0.48 and that vest in equal increments on February 2, 2021, April 1, 2021, July 1, 2021 and October 1, 2021 valued at approximately $11,500. The Company paid off the outstanding balance of $7,974 under the OmniMetrix loan and security agreement on February 26, 2021 and elected not to renew this line of credit, which expired in accordance with its terms on February 28, 2021. The Company’s data hosting agreement that was due to expire on April 28, 2021 was renewed at its existing terms for an additional one-year term. F- 25