What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-16 · 286 added, 269 removed, 104 unchanged (84% of the section changed)

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currently operate in two reportable operating segments, both of which are performed through our OmniMetrix subsidiary:

PG segment which provides wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial

PG segment provides wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial

power generation equipment.

This includes our AIRGuard product, which remotely monitors and controls industrial air compressors and

our Smart Annunciator product which is typically sold to commercial customers that require a visual representation of the generator’s

This includes our AIRGuard product, which remotely monitors and controls industrial air compressors,

and our Smart Annunciator product which is typically sold to commercial customers that require a visual representation of the generator’s

status and has a touch-screen display that indicates the current state of that generator;

CP segment which provides remote monitoring and control products for cathodic protection systems on oil and gas pipelines serving

the gas utilities market and pipeline operators.

The CP product lineup includes solutions to remotely monitor and control

rectifiers, test stations and bonds.

OmniMetrix also offers the industry’s first RAD TM (Remote AC Mitigation

Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation

tools which can drastically reduce a company’s expense while increasing employee safety.

CP segment provides remote monitoring and control products for cathodic protection systems on gas pipelines serving the gas utilities

market and pipeline operators.

The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations

OmniMetrix also offers the industry’s first RAD TM (Remote AC Mitigation Disconnect) that mounts onto

existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools which can drastically

reduce a company’s expense while increasing employee safety.

following analysis should be read together with the segment information provided in Notes 12 and 13 to our consolidated financial statements

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increasingly becoming monitored in IoT applications.

OmniMetrix solutions monitor critical equipment used by cell towers, manufacturing plants, medical facilities, data

centers, retail stores, public transportation systems, energy distribution and federal, state and municipal government facilities, in

addition to residential back-up generators.

Given that OmniMetrix monitors all major brands of critical equipment and continues

to invest in research and development in response to customer and potential customer feedback, OmniMetrix remains well-positioned as

a competitive participant in this market to continue to grow its customer base and expand its product offerings.

OmniMetrix solutions monitor critical equipment used by cell towers, manufacturing

plants, medical facilities, data centers, retail stores, public transportation systems, energy distribution and federal, state and municipal

government facilities, in addition to residential back-up generators.

Given that OmniMetrix monitors all major brands of critical equipment

and continues to invest in research and development in response to customer and potential customer feedback, OmniMetrix remains well-positioned

as a competitive participant in this market to continue to grow its customer base and expand its product offerings.

2023, the intercompany amount due to Acorn from OmniMetrix decreased by $1,020,000.

This included repayments of $985,000 offset by interest

of $179,000, dividends of $76,000 due to Acorn and $190,000 in shared expenses paid by Acorn.

During 2021, the intercompany amount due

to Acorn from OmniMetrix decreased by approximately $359,000.

This included repayments of approximately $677,000 offset by interest of

approximately $194,000, dividends of $76,000 due to Acorn and approximately $48,000 in shared expenses paid by Acorn.

We believe that

OmniMetrix will not need working capital support in 2023.

However, we have no assurance that this will be the case.

Additional financing

for OmniMetrix may be in the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate

a loan by Acorn to OmniMetrix, or a combination of the above.

The availability and amount of any additional loans from Acorn to OmniMetrix

may be limited by the working capital needs of our corporate activities.

Whether Acorn will have the resources necessary to provide funding,

or whether alternative funds, such as third-party loans or investments, will be available at the time and on terms acceptable to Acorn

and OmniMetrix cannot be determined at this time.

This included repayments of $1,285,000 offset by

interest of $164,000, dividends of $76,000 due to Acorn and $25,000 in shared expenses paid by Acorn.

During 2022, the intercompany

amount due to Acorn from OmniMetrix decreased by $540,000.

This included repayments of $985,000 offset by interest of $179,000,

dividends of $76,000 due to Acorn and $190,000 in shared expenses paid by Acorn.

This intercompany balance is eliminated in

consolidation.

We believe that OmniMetrix will not need working capital support in 2024.

However, we have no assurance that this

will be the case.

Additional financing for OmniMetrix may be in the form of a bank line, a new loan or investment by others, an

equity raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or any combination thereof.

The availability and

amount of any additional loans from Acorn to OmniMetrix may be limited by the working capital needs of our corporate activities.

Whether Acorn will have the resources necessary to provide funding, or whether alternative funds, such as third-party loans or

investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this

of March 5, 2024, Acorn’s corporate operations (excluding cash at our OmniMetrix subsidiary) held a total of $1,236,000 in cash.

March 2, 2023, 35,000 warrants that were set to expire on March 16, 2023 were exercised at an exercise price of $0.13 per share by

our Chief Executive Officer.

February 27, 2023, 10,000 options in the aggregate were issued to the Director of Software Development and Technology with an exercise

price of $0.41 and that vested in equal increments over three years on the anniversary date of the grant, valued at $3,000 in the aggregate.

January 3, 2023, 30,000 options in the aggregate were issued to directors with an exercise price of $0.35 and that vested in equal increments

on January 1, 2023, April 1, 2023, July 1, 2023 and October 1, 2023, valued at $9,000 in the aggregate.

January 1, 2023, 35,000 options were issued to the CEO with an exercise price of $0.35 and that vest in equal increments on January 1,

2023, April 1, 2023, July 1, 2023 and October 1, 2023 valued at $9,000.

November 22, 2022, 10,000 vested options were exercised by a board member with an exercise price of $0.14 per share or $1,400 in the

These options had an expiration date of January 1, 2023.

August 12, 2022, 25,000 vested options were exercised by the CEO with an exercise price of $0.20 per share or $5,000 in the aggregate.

These options had an expiration date of August 13, 2022.

March 4, 2022, 30,770 options were issued to the Vice President of Sales with an exercise price of $0.55 and that vest in equal increments

over three years on the anniversary date of the grant.

These options are valued at $11,000.

June 1, 2022, 50,000 options were issued to the CFO with an exercise price of $0.44 and vesting in equal increments on June 1, 2022,

September 1, 2022, December 1, 2022 and March 1, 2023, valued at $16,000.

January 1, 2022, 30,000 options in the aggregate were issued to directors with an exercise price of $0.63 and that vested in equal increments

on January 1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at $12,000 in the aggregate.

January 1, 2022, 35,000 options were issued to the CEO with an exercise price of $0.63 and that vested in equal increments on January

1, 2022, April 1, 2022, July 1, 2022 and October 1, 2022, valued at $14,000.

June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and

As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment

against the capitalized investment in this project of $51,000.

January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services

for a 36-month contract term with automatic one-year extensions, subject to termination notice.

The pricing structure involves account

setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services.

The monthly revenue obligation is $10,000 for the first 6 months and $15,000 thereafter.

We will also be eligible for volume discounts

based on total monthly service revenue.

Additionally, the agreement includes an IoT Enhanced Support and Priority Care Services Rate

Plan with various support service types and pricing tiers based on the number of devices and terms for SIM migrations, including tiered

pricing and conditions for waiver of certain charges during migration.

This new agreement will allow us to migrate our customers to higher

tier data plans for nominal additional cost.

December 22, 2023, we entered into an agreement with a new Azure cloud hosting provider to move to their Cloud Reliability Platform and

utilize their premium cloud operations services.

The initial term of this agreement is twenty-four months with automatic renewal of successive

one-year terms unless ninety days written notice is given prior to the expiration of the initial term.

Through this relationship, we

will have unparalleled cloud management that provides a central location to access cloud operations metrics, configure services, set

up proactive monitoring, create backup policies and request access to certified cloud experts to ensure that our operating infrastructure

is healthy, resilient and operating efficiently.

We will also have 24 x 7 x 365 monitoring and resolution support to timely resolve any

issues that may arise and reduce or potentially eliminate unplanned downtime for our customers on our data monitoring platform, OmniView.

We will pay monthly recurring fees of $4,000 plus 115% of actual Azure usage costs.

There may also be additional hourly fees from time

to time for projects or problem resolution outside the scope of the premium cloud operations services platform.

This agreement will replace

our current cloud hosting service provider to whom we pay monthly recurring fees of approximately $6,000 plus 100% of actual Azure usage

November 7, 2023, we entered into a non-exclusive reseller agreement with one of the nation’s largest commercial generator dealers

with regional dealerships throughout the United States.

We believe this agreement could yield 2,500 to 3,000 new monitoring connections

per year for OmniMetrix, which could represent hardware sales, start-up fees and monitoring revenue of $1 million to $2 million per year

in the aggregate.

Importantly, endpoints added from this relationship are expected to make a meaningful contribution to the growth of

our base of recurring monitoring revenue.

We expect initial revenue from this relationship to start in the first quarter of 2024 and

to build as the program is rolled out across their dealer network.

On October 1, 2023, we deployed our

new user interface to our customer data portal and made it available to customers.

On March 17, 2021, we entered into a master services

agreement for the development of a new user interface for our customer data portal.

Prior to deployment on October 1, 2023, we had invested

$194,000 in design, development and quality assurance services of the new user interface.

Since deployment, our customers have the option

to continue to use the “classic view” of our user interface, which is our original user interface, or our new user interface

known as “OV2” until March 4, 2024 when we will officially terminate our original user interface.

The cost of this project

was capitalized, and amortization began as of October 1, 2023.

We have continued to implement bug fixes and enhancements to OV2 , for which

any related IT costs have been expensed as incurred.

September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation

(the “Certificate of Amendment”) that provided for a 1-for-16 reverse stock split of Acorn’s Common Stock (the “Reverse

Stock Split”).

Acorn filed the Certificate of Amendment with the Secretary of State of the State of Delaware on September 6, 2023,

and the Reverse Stock Split became effective at 5:00 p.m.

EDT on September 7, 2023.

The Reverse Stock Split increased the market price

of Acorn’s Common Stock and makes Acorn’s shares accessible to a broader range of investors, including institutions and those

unable to purchase or recommend low-priced stocks.

At the effective time of the Reverse Stock Split, every sixteen issued and outstanding

shares of Acorn’s Common Stock were automatically combined into one issued and outstanding share of Common Stock, without any change

in the par value per share.

Stockholders who would have otherwise been entitled to fractional shares of Common Stock as a result of the

Reverse Stock Split received a cash payment in lieu of receiving fractional shares.

The value of the fractional shares repurchased was

$347 and equated to fifty-eight shares.

All share and per-share amounts of common stock, options and warrants contained in this Management’s

Discussion and Analysis have been restated for all periods to give retroactive effect to the Reverse Stock Split and the related fractional

share repurchase for all prior periods presented.

September 1, 2023, we launched an updated version of our products that includes new functionality in our TrueGuard, AIRGuard,

Patriot and Hero products that allows our customers to have options as it relates to obtaining and utilizing the data that is

provided by our hardware devices.

This new functionality allows for SIM card options, configuration options regarding IP address

endpoints and DNS routes, and access to our over-the-air data protocol.

This product update allows customers to have the option to

purchase our monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring

provider if they so desire, whereas, historically, our standard products only functioned with our monitoring services.

Modifications

were made to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023 such that only the new

versions of these products were sold subsequent to this date.

July 2022, we announced a partnership between OmniMetrix, CPower Energy Management (“ CPower ”), and Power Solutions

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by running their generators for up to 12 hours per year.

We do not expect this partnership to begin generating revenue until late 2023.

August 19, 2019, we entered into an agreement with a software development partner to create and license to us a new software platform

and application.

Pursuant to this agreement, we paid this partner equal monthly payments over the first seven months of the term of the

agreement equal to $200,000 in the aggregate.

We will also pay the partner (i) 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

gas applications only.

Commencing on January 1, 2021, we paid the partner a quarterly licensing fee of $12,500 which was renegotiated

to $4,450 effective October 1, 2021.

The per-sensor monitoring fees have not yet commenced.

The initial term of this agreement ended

on August 19, 2022 and would have automatically renewed for an additional year, but we delivered a written notice of termination to the

other party sixty days prior to the end of the initial term.

We are currently on a month-to-month arrangement paying a monthly licensing

fee of $1,500, and are working with the software development partner to negotiate more favorable terms for future periods.

entered into a new agreement effective May 1, 2020 for data hosting services, replacing an expiring agreement with the same vendor.

agreement had a twelve-month term.

In January 2021, we elected to renew this agreement for an additional twelve months under the same

terms, extending the agreement to April 30, 2022.

We did not extend this agreement for an additional one-year term beyond the expiration

of the previous term on April 30, 2022 and were under a month-to-month arrangement which we terminated effective September 30, 2022.

Under the applicable data hosting services agreements, we paid $110,000 and $158,000 in the years ended December 31, 2022 and 2021, respectively.

March 17, 2021, we entered into a master services agreement for the development of a new user interface for our customer data portal.

The cost of this project is $126,000 in design and development services ($14,000 was paid at the commencement of this project and three

equal installments of $23,000 were paid monthly starting in July 2021 with the fourth and final installment to be paid upon completion

and launch of the new interface).

This project is substantially completed and the launch of the new customer portal is expected to occur

in the first half of 2023.

We expect to incur additional costs to execute the launch plan for the interface and to develop the corresponding

mobile application.

The cost of the design project is capitalized, and amortization will begin once the new interface is completed and

ready to deploy.

master services agreement also covers the design, set-up and deployment of a new Microsoft Azure cloud infrastructure to host our OmniView

data servers, which replaced our previous Peak 10 datacenter hosting environment.

The new infrastructure provides a more modern, agile

and cost-effective environment in which to grow our IoT connections and services.

We invested $272,000 in this initiative during the

year ended December 31, 2022 and $166,000 during the year ended December 31, 2021.

The new Microsoft Azure cloud infrastructure environment

was completed and launched on May 1, 2022.

The cost of this project was capitalized, and amortization over an estimated useful life of

seven years began on May 1, 2022.

ACCOUNTING POLICIES

SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective

or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may

change in subsequent periods.

following discussion of critical accounting policies represents our attempt to report on those accounting policies, which we believe

are critical to our consolidated financial statements and other financial disclosures.

It is not intended to be a comprehensive list

of all of our significant accounting policies, which are more fully described in Note 2 of the Notes to the Consolidated Financial Statements

included in this Annual Report.

In many cases, the accounting treatment of a particular transaction is specifically dictated by generally

accepted accounting principles, with no need for management’s judgment in their application.

There are also areas in which the

selection of an available alternative policy would not produce a materially different result.

have identified the following as critical accounting policies affecting our Company:

revenue recognition and stock-based compensation.

We are currently assisting PSS to market the demand response program to generator

owners and will incentivize existing generator owners who sign up and satisfy certain terms and conditions by offering a one-time rebate

of $200 to anyone who signs up before March 31, 2024.

Accounting Estimates

preparing the financial statements, management is required to make estimates and assumptions that have an impact on the asset, liability,

revenue and expense amounts reported.

These estimates can also affect our supplemental information disclosures, including information

about contingencies, risk and financial condition.

We believe, given current facts and circumstances, that our estimates and assumptions

are reasonable, adhere to U.S.

GAAP, and are consistently applied.

Inherent in the nature of an estimate or assumption is the fact that

actual results may differ from estimates and estimates may vary as new facts and circumstances arise.

We make routine estimates and judgments

in determining net realizable value of accounts receivable, inventories, property and equipment, prepaid expenses, product warranties and other reserves as well

as the amortization period for deferred commissions payable.

Management believes our most critical accounting estimates and assumptions

are in the area of revenue recognition.

revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations.

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type, product mix or arrangement size.

revenue recognition criteria are not satisfied, amounts received from customers are classified as deferred revenue on the consolidated

balance sheets until such time as the revenue recognition criteria are met.

of OmniMetrix monitoring systems include the sale of equipment (“HW”) and of monitoring services (“Monitoring”).

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

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 11 and

12 for the disaggregation of our revenue for the periods presented.

recognize stock-based compensation expense based on the fair value recognition provision of applicable accounting principles, using the

Black-Scholes option valuation method.

Accordingly, we are required to measure the cost of employee services received in exchange for

an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which

an employee is required to provide service in exchange for the award.

Under the Black-Scholes method, we make assumptions with respect

to the expected lives of the options that have been granted and are outstanding, the expected volatility, the dividend yield percentage

of our common stock and the risk-free interest rate at the respective dates of grant.

our Acorn options, the expected volatility factor used to value stock options in 2022 was based on the historical volatility of the market

price of our common stock over a period equal to the expected term of the options.

For the expected term of the option, we used an estimate

of the expected option life based on historical experience.

The risk-free interest rate used is based upon U.S.

Treasury yields for a

period consistent with the expected term of the options.

We assumed no quarterly dividend rate.

We recognize stock-based compensation

expense on an accelerated basis over the requisite service period.

Due to the numerous assumptions involved in calculating share-based

compensation expense, the expense recognized in our consolidated financial statements may differ significantly from the value realized

by employees on exercise of the share-based instruments.

In accordance with the prescribed methodology, we do not adjust our recognized

compensation expense to reflect these differences.

the years ended December 31, 2022 and 2021, we incurred stock compensation expense with respect to options of $80,000 and $75,000, respectively.

Note 8 to the consolidated financial statements for the assumptions used to calculate the fair value of share-based employee compensation

for Acorn options.

A critical estimate is the estimated life of our units in determining the period over which the

hardware revenue was amortized for the units sold prior to September 1, 2023.

OF OPERATIONS

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as of December 31, 2023 and 2022 has been derived from our audited consolidated financial statements included in this Annual Report.

September 1, 2023, OmniMetrix launched an updated version of its products that includes new functionality in its TrueGuard,

AIRGuard, Patriot and Hero products that allows its customers to have options as it relates to obtaining and utilizing the data that

is provided by its hardware devices.

This new functionality allows for SIM card options, configuration options regarding IP address

endpoints and DNS routes, and access to OmniMetrix’s over-the-air data protocol.

This product update allows customers to have

the option to purchase OmniMetrix’s monitoring service, monitor the products themselves if they have the ability in-house, or

choose another monitoring provider if they so desire.

OmniMetrix’s prior hardware product version could not function as a

distinct product from its monitoring services.

This new version’s functionality results in OmniMetrix’s hardware and

monitoring services being capable of being two distinct products and services.

OmniMetrix recognizes revenue, COGS and commissions

from the sale of the new version of its hardware products sold when the product is shipped rather than over the estimated time that

the unit is in service for the customer.

Monitoring revenue continues to be deferred and amortized over the period that the

monitoring services are rendered.

The remaining balance of deferred revenue from the prior version of these products will continue

to be amortized each period until it is fully amortized.

Modifications were made to the circuit boards and embedded firmware of

hardware enclosures in stock as of August 31, 2023, such that only the new versions of these products were sold subsequent to this

data should be read in conjunction with our consolidated financial statements and related notes included herein.

Consolidated Statement of Operations Data:

the Years Ended December 31,

thousands, except per share data)

and development expenses

general and administrative expenses

before income taxes

loss after income taxes

Non-controlling

interest share of loss

loss attributable to Acorn Energy, Inc.

and diluted net loss per share attributable to Acorn Energy, Inc.

For the Years Ended December 31,

(in thousands, except per share data)

Cost of sales

Research and development expenses

Selling, general and administrative expenses

Impairment of software

Operating income (loss)

Finance income (expense), net

Income (loss) before income taxes

Income tax expense

Net income (loss) after income taxes

Non-controlling interest share of income

Net income (loss) attributable to Acorn Energy, Inc.

Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc.

stockholders:

loss per share attributable to Acorn Energy, Inc.

Net income (loss) per share attributable to Acorn Energy, Inc.

stockholders – basic and diluted*

average number of shares outstanding attributable to Acorn Energy, Inc.

Weighted average number of shares outstanding attributable to Acorn Energy, Inc.

stockholders – basic*

average number of shares outstanding attributable to Acorn Energy, Inc.

Weighted average number of shares outstanding attributable to Acorn Energy, Inc.

stockholders – diluted*

adjusted to account for the September 2023 1-for-16 reverse stock split.

following table sets forth certain information with respect to revenues and profits of our reportable business segments for the years

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Revenues from customers

Percentage of total revenues from customers

Percentage of total revenues by segment

Segment gross profit

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Revenues from customers

Percentage of total revenues from customers

Percentage of total revenues by segment

Segment gross profit

COMPARED TO 2022

For the Years Ended December 31,

(in thousands, except per share data)

Cost of sales

Research and development expenses

Selling, general and administrative expenses

Impairment of software

Operating income (loss)

In 2023, OmniMetrix recorded total revenue of $8,059,000, as compared to total revenue of $7,000,000 in 2022, for an increase of

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PG segment and $1,106,000 that was attributed to the CP segment.

Increased revenue in PG was due to an increase in hardware revenue.

the year ended December 31, 2021, we recorded $112,000 in revenue from the sale of custom TG Pro units that were designed to large customer

specifications and monitored by the customer;

thus, the revenue was not deferred.

We did not have any custom unit orders in the year

ended December 31, 2022.

The PG hardware revenue during the year ended December 31, 2021, excluding the revenue from the sale of the

custom units, was $1,906,000 compared to $2,234,000 during the year ended December 31, 2022;

thus, the increase in PG hardware revenue

excluding the custom units was 17%.

We also had an increase in CP hardware revenue of $126,000 (17%) from $728,000 during the year ended

December 31, 2021 to $854,000 during the year ended December 31, 2022.

The overall increase in hardware revenue was due to a higher percentage

of commercial and industrial (C&I) customers in our customer mix for which the products have a higher price point versus residential

(RESI) customers.

With respect to the specific products, this increase was attributed to Hero-2 and TG Pro revenue and to a lesser extent

TG-2 revenue in addition to engineering service income realized, offset by a decrease in revenue from the Hero-1, Patriot and TG-1 products.

Monitoring revenue decreased $118,000 (3%) from $4,030,000 during the year ended December 31, 2021 to $3,912,000 during the year ended

Hardware revenue increased $709,000 from $3,088,000 during the year

ended December 31, 2022 to $3,797,000 during the year ended December 31, 2023.

During the year ended December 31, 2023, we recorded $259,000

in revenue from the sale of custom TG Pro units that were designed to large customer specifications and monitored by the customer;

the revenue was not deferred.

We did not have any custom unit orders in the year ended December 31, 2022.

The hardware revenue during

the years ended December 31, 2023 and 2022 is further detailed in the table below:

Reconciliation of Hardware Revenue

Amortization of deferred revenue

Sales of custom designed units and related accessories

Hardware sales (new product versions)

Other accessories, services, shipping and miscellaneous charges

Total hardware revenue

PG hardware revenue during the year ended December 31, 2022 was $2,234,000 compared to $2,735,000, excluding the sale of custom units,

during the year ended December 31, 2023;

thus, the increase in PG hardware revenue excluding the custom units was 22%.

We also had a

decrease in CP hardware revenue of $51,000 (6%) to $803,000 during the year ended December 31, 2023 from $854,000 during the year ended

December 31, 2022.

The decrease in monitoring revenue was due to the impact of the connections for which monitoring was discontinued

as a result of sunsetting 3G technology in addition to certain monitoring rebates applied for two of our larger customers, one in CP

and one in PG.

Gross profit was $5,071,000, reflecting a gross margin of 72% on revenue, in 2022 compared with a gross profit of $4,899,000,

also reflecting a 72% gross margin on revenue, in 2021.

Gross margin on hardware revenue for the year ended December 31, 2022 was 48%

compared to 44% for the year ended December 31, 2021.

Gross margin on monitoring revenue was 92% for the year ended December 31, 2022

compared to 91% for year ended December 31, 2021.

The increase in total hardware revenue was due to the sale of custom PG units (as noted above) and increased sales

of other PG products as well as from installation income realized, offset by a decrease in revenue from Hero products in the CP segment.

Monitoring revenue increased $350,000 (9%) from $3,912,000 in the year ended December 31, 2022

to $4,262,000 in the year ended December 31, 2023.

The increase in monitoring revenue was due to an increase in the number of connections

being monitored and growth in our c ustomer base.

Gross profit was $6,004,000, reflecting a gross margin of 74% on revenue, in 2023 compared with a gross profit

of $5,071,000, reflecting a 72% gross margin on revenue, in 2022.

Gross margin on hardware revenue for the year ended December 31, 2023

was 54% compared to 48% for the year ended December 31, 2022.

The increase in gross margin was due to a higher gross margin realized

in 2023 on a large volume of sales to two large commercial customers to whom there were no sales in 2022.

Gross margin on monitoring

revenue was 93% for the year ended December 31, 2023 compared to 92% for year ended December 31, 2022.

and development (“R&D”) expense.

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$845,000 in 2022, an increase of $30,000 (4%).

The increase in R&D expense in 2022 is related to increases in wages and bonuses paid to

our engineering personnel in 2022 and the expenses and materials paid to third-party consultants in the continued development of next-generation

PG and CP products and exploration into new possible product lines.

We expect a moderate increase in R&D expense for 2023 due to

engineering salary increases granted effective October 1, 2022 and for continued investment in work on certain initiatives to redesign

products and expand product lines to increase our level of innovation ahead of our competitors.

The increase in R&D expense in 2023 is related to increases in wages and bonuses

paid to our engineering personnel in 2023 and the expenses and materials paid to third-party consultants in the continued

development of next-generation PG and CP products and exploration into potential new product lines.

We expect a moderate

increase in R&D expense for 2024 due to engineering salary increases granted effective October 1, 2023 and for continued

investment in work on certain initiatives to redesign products and expand product lines to increase our level of innovation ahead of

our competitors.

general and administrative (“SG&A”) expense.

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$4,804,000 in 2022 to $5,055,000 in 2023.

Corporate overhead increased by $26,000, from $933,000 in 2021 to $959,000 in 2022, due to

increases in audit fees and investor relations expenses offset by a decrease in tax professional fees.

OmniMetrix’s SG&A expense

increased $610,000 (19%), from $3,235,000 in 2021 to $3,845,000 in 2022.

This increase was primarily due to increases of (i) $248,000

in personnel expenses related to bonuses, promotional wage increases, staff additions and stock compensation expense, (ii) $212,000 in

technology expenses related to technology consulting, amortization of technology investments and increased managed services expenses,

(iii) $55,000 in sales commissions, (iv) $53,000 in travel related expenses, and (v) $45,000 increase in depreciation related to additional

office equipment and computers purchased in 2021 and 2022 and a net decrease of $3,000 in other expense accounts.

We anticipate that

our annual SG&A costs in 2023 will increase by approximately 15% due to increasing wage and benefit expenses and due to our continuing

investments in technology and operations.

June 2022, we conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and

As a result of this evaluation, we elected to terminate this project effective June 30, 2022 and recorded an impairment

against the capitalized investment in this project of $51,000.

expense, net.

Finance expense in 2022 was $2,000, compared to $5,000 in 2021, primarily related to insurance financing arrangements.

loss attributable to Acorn Energy.

We had a net loss attributable to Acorn of $633,000 in 2022 as compared to net loss attributable

Corporate overhead increased by $98,000 (10%), from $959,000 in 2022 to $1,057,000 in 2023,

primarily due to $102,000 in expenses related to the execution of the reverse stock split in 2023.

SG&A expense increased $153,000 (4%), from $3,845,000 in 2022 to $3,998,000 in 2023.

This increase was primarily due to increases

of (i) $102,000 in personnel expenses related to staff additions, promotions, bonuses and cost of living wage increases, (ii) $101,000

in commission expenses, (iii) $42,000 in depreciation and amortization primarily related to IT assets, (iv) $16,000 in travel and trade

show expenses, and offset by a decrease of $107,000 in technology expenses primarily in technology consulting and $1,000 in net aggregate

decreases in other expense categories.

We anticipate that our annual SG&A costs in 2024 will increase by approximately 15% due to

increasing wage and benefit expenses as a result of merit increases, promotions and hiring a higher level skill

set in certain roles in 2023 as well as other inflationary increases in other operational costs.

income/expense, net.

Interest income in the year ended December 31, 2023 was $67,000 due to high interest rates on cash balances

offset by interest expense of $3,000, compared to interest expense of $2,000 in 2022.

The interest expense is primarily related

to insurance financing arrangements.

State income tax expense was $9,000 for the year ended December 31, 2023 reflecting estimates for certain state taxes.

There was no state income tax estimated/accrued for the year ended December 31, 2022.

income (loss) attributable to Acorn Energy.

We had net income attributable to Acorn of $119,000 in 2023 compared to net loss attributable

to Acorn of $633,000 in 2022.

Our loss in 2022 is comprised of net income at OmniMetrix of $331,000, corporate expense of $962,000, offset

by $2,000 representing the non-controlling interest share of our income in OmniMetrix.

Our loss in 2021 is comprised of net income at

OmniMetrix of $921,000, corporate expense of $934,000, offset by $8,000 representing the non-controlling interest share of our income

Our income in 2023 is comprised of net income at OmniMetrix of $1,185,000, corporate expense of $1,056,000,

offset by $10,000 representing the non-controlling interest share of our income in OmniMetrix.

Our loss in 2022 is comprised of net income

at OmniMetrix of $331,000, corporate expense of $962,000, offset by $2,000 representing the non-controlling interest share of our income

in OmniMetrix.

The positive change in net income (loss) was due to the increase in gross margin as described above.

AND CAPITAL RESOURCES

December 31, 2023, we had a negative working capital of $571,000.

Our working capital includes $1,450,000 of cash and deferred

revenue of $3,984,000.

Our working capital includes $1,449,000 of cash and deferred revenue

of $4,034,000.

Such deferred revenue does not require a significant cash outlay for the revenue to be recognized.

deferred revenue increased by $778,000, from $5,393,000 at December 31, 2021 to $6,171,000 at December 31, 2022,

as a result of the increase in cash sales which we amortize over a three-year period in accordance with GAAP.

Net cash decreased

during the year ended December 31, 2022 by $272,000, of which $31,000 was provided by operating activities, $308,000 was used in

investing activities, and $5,000 was provided by financing activities.

Total deferred revenue

decreased by $587,000, from $6,171,000 at December 31, 2022 to $5,584,000 at December 31, 2023, as a result of the sales mix of products

Based on the current products being sold, the Company expects continued decreases in the deferred revenue balance in the foreseeable

Net cash decreased during the year ended December 31, 2023 by $1,000, of which $72,000 was provided by operating activities,

$78,000 was used in investing activities, and $5,000 was provided by financing activities.

the year ended December 31, 2023, our operating activities provided $72,000 of net cash.

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from its operations while our corporate headquarters used $1,075,000 in its operating activities during the period.

inventory balance increased by $172,000 at December 31, 2022 as compared to December 31, 2021, due to our continuing efforts to mitigate

the supply chain challenges and have adequate safety stock on hand.

During the year ended December 31, 2021, our operating activities

provided $132,000.

Our OmniMetrix subsidiary provided $1,035,000 from its operations while our corporate headquarters used $903,000 in

its operating activities during the same period.

the year ended December 31, 2022, net cash of $308,000 was used in investing activities, primarily in our technology infrastructure.

These investments were primarily related to the design of our new Azure cloud server environment, as well as investments in the development

of our new user interface for our PG customers and hardware and software upgrades.

Net cash of $324,000 was used in investing activities

in 2021 which was also related to the technology investments in which we continued to invest in 2022.

cash of $5,000 was provided by financing activities during the year ended December 31, 2022 which represents proceeds from the exercise

of stock options.

cash of $149,000 was used by financing activities during the year ended December 31, 2021 as repayments on our line of credit.

not to renew OmniMetrix’s line of credit and it expired in accordance with its terms on February 28, 2021.

If we decide to pursue

additional financing for OmniMetrix in the future, it may be in the form of a bank line, a new loan or investment by others, an equity

raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or a combination of the above.

The availability and amount

of any additional loans from Acorn to OmniMetrix may be limited by the working capital needs of our corporate activities.

Whether Acorn

will have the resources necessary to provide funding, or whether alternative funds, such as third-party loans or investments, will be

available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.

inventory balance increased by $173,000 at December 31, 2023 as compared to December 31, 2022, due to purchase orders placed to have

sufficient safety stock on hand for anticipated growth in 2024.

We expect to sell through the excess inventory in 2024.

During the year

ended December 31, 2022, our operating activities provided $31,000 of net cash.

Our OmniMetrix subsidiary provided $916,000 from its

operations while our corporate headquarters used $885,000 in its operating activities during the period.

the year ended December 31, 2023, net cash of $78,000 was used in investing activities, primarily related to the continued development

of our new user interface for our customer monitoring data portal (OmniView 2.0).

During the year ended December 31, 2022, net cash of

$308,000 was used in investing activities, primarily in our technology infrastructure.

These investments were primarily related to the

design of our new Azure cloud server environment, as well as investments in the development of OmniView 2.0 and hardware and software

cash of $5,000 was provided by financing activities during the years ended December 31, 2023 and 2022 which represents proceeds from

the exercise of warrants and proceeds from the exercise of stock options, respectively.

Liquidity Matters

owes Acorn $3,677,000 for loans, accrued interest and expenses advanced to it by Acorn.

OmniMetrix has made monthly payments to Acorn

of varying amounts since the second quarter of 2019.

In 2022, OmniMetrix made payments to Acorn of $985,000 offset by interest of $179,000,

dividends of $76,000 due to Acorn and $190,000 in shared expenses paid by Acorn.

OmniMetrix will continue to make payments to Acorn against

this balance as long as OmniMetrix is generating sufficient cash to allow such repayments.

This intercompany balance is eliminated in

consolidation.

owes Acorn $2,657,000 for loans, accrued interest, dividends and expenses advanced to it by Acorn.

OmniMetrix has made monthly payments

to Acorn of varying amounts since the second quarter of 2019.

In 2023, OmniMetrix made payments to Acorn of $1,285,000 offset by interest

of $164,000, dividends of $76,000 due to Acorn and $25,000 in shared expenses paid by Acorn.

OmniMetrix will continue to make payments

to Acorn against this balance as long as OmniMetrix is generating sufficient cash to allow such repayments.

This intercompany balance

is eliminated in consolidation.

had $1,449,000 of cash on December 31, 2023, and $1,236,000 on March 5, 2024 .

We believe that such cash, plus the cash expected to

be generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their

current level of operations for the twelve months from the issuance of these consolidated financial statements

in particular.

We may, at some point, elect to obtain a new line of credit or other source of financing to fund additional investments

in the business.

We believe that such cash, plus the cash

expected to be generated from operations, will provide sufficient liquidity to finance the corporate activities of Acorn and the

operating activities of OmniMetrix at their current level of operations for at least the twelve-month period from the issuance of

the audited consolidated financial statements contained in this Annual Report.

We may, at some point, elect to obtain a new line of credit or other source

of financing to fund additional investments in the business.

If we decide to pursue additional financing in the future, it may be in

the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate a loan by Acorn to

OmniMetrix, or any combination thereof.

Whether alternative funds, such as third-party loans or investments, will be available at

the time required and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.

Obligations and Commitments

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What changed 10-K

Item 7. Management’s Discussion and Analysis