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, 2023. 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, 2023, 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, 2023. 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. 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. More specifically, there were weaknesses identified in our internal control over financial reporting related to ineffective design and implementation of information technology general controls (“ITGCs”) in the areas of user access, program change management and vendor management controls. As a result, a majority of the significant process areas management identified for the Company’s OmniMetrix subsidiary had three 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. 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. The material weaknesses identified and the related risks are not uncommon in a company of our size because of the limitations in the location, size and number of our staff. The material weaknesses identified, however, 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, 2023. Remediation Actions Management intends to 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. Our remediation actions include but are not limited to implementing change controls to document approval of changes along with required peer review and tagging of changes to an approved help desk ticket, requesting SOC reports from our vendors on a set schedule to review and address prior to year-end, and continue focused review of the COSO Framework to identify areas where we can implement manual controls or multi-level reviews of additional staff members to more effectively address segregation of duties. 24 Changes in Internal Control Over Financial Reporting Other than the material weaknesses and remediation actions noted above there were no material changes in our internal control over financial reporting during our fourth quarter ended December 31, 2023, that could significantly affect, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 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 65 Director, President and Chief Executive Officer of Acorn Energy, Inc. and Acting CEO of OmniMetrix Gary Mohr 65 Director and member of our Audit, Nominating and Compensation Committees Michael F. Osterer 78 Director and member of our Audit, Nominating and Compensation Committees Peter Rabover 43 Director Samuel M. Zentman 78 Director, Chairman of our Audit Committee and member of our Nominating and Compensation Committees Tracy S. Clifford 55 Chief Financial Officer of Acorn Energy, Inc. 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. He has served as President, Executive Chairman and board member of NovelStem International Corp since July 2018. 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. 25 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. 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 is on the Board of Directors of Fields of Peace. 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. Peter Rabover was appointed to the Board in March 2023. He has been an active buyside investor for over 20 years, and is currently the Managing Director of Artko Capital LP, a partnership focused on microcap investments, which is a role he has held since he founded the partnership in 2015. In such capacity, Mr. Rabover has advised on a wide range of corporate finance activities for dozens of companies. Prior to founding Artko Capital, he worked for Scharf Investments from 2012 to 2014, and Hahn Capital Management from 2005 to 2011 in an analyst capacity. He served in the United States Peace Corps in Kazakhstan from 2003 to 2005 as an Economic Development Volunteer. Mr. Rabover started his career as an auditor for United States Steel Corporation from 2001 to 2003. He holds an undergraduate degree from Duquesne University, a Master of Business Administration from the University of Virginia’s Darden School of Business and is a CFA Charterholder. Key Attributes, Experience and Skills. Mr. Rabover brings a wide range of corporate finance, audit and capital allocation acumen and experience as well as a unique shareholder perspective gained through a long career of managing outside capital and finding successful investments. 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 has served as a board member of NovelStem International Corp since July 2018. 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. 26 Key Attributes, Experience and Skills. Ms. Clifford brings to the Company over 20+ years as a public company chief financial/accounting officer together with Big 4 public accounting experience and a broad scope of operational experience. 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. 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. Nominating Committee The Nominating Committee of our Board of Directors 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 ensure 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 2023 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 under “Investor Relations” on our website at www.acornenergy.com. We also 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. 27 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 2023 312,000 (3) — 9,142 (5) — 321,142 President and CEO of the Company and Acting CEO of OmniMetrix (1) 2022 312,000 (3) — 14,096 (6) — 326,096 Tracy S. Clifford 2023 210,000 (4) — 18,000 (7) — 228,000 CFO of the Company and COO of OmniMetrix (2) 2022 210,000 (4) — 15,949 (8) — 225,949 (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. (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 2,187 options granted on January 1, 2023 with an exercise price of $5.60 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 4.0% (ii) an expected term of 5.19 years (iii) an assumed volatility of 94.3% and (iv) no dividends. (6) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 2,187 options granted on January 1, 2022 with an exercise price of $10.08 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 1.1% (ii) an expected term of 3.69 years (iii) an assumed volatility of 94.0% and (iv) no dividends. (7) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 6,250 options granted on June 1, 2023 with an exercise price of $4.96 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 3.9% (ii) an expected term of 3.7 years (iii) an assumed volatility of 93.8% and (iv) no dividends. (8) Represents the grant date fair value calculated in accordance with applicable accounting principles with respect to 3,125 options granted on June 1, 2022 with an exercise price of $7.04 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). 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 2.9% (ii) an expected term of 3.69 years (iii) an assumed volatility of 93.0% and (iv) no dividends. Executive Compensation for 2023 and 2022 Jan H. Loeb. On January 1, 2023, the Company entered into a new consulting agreement (the “2023 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 2023 Consulting Agreement, Mr. Loeb received cash compensation 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 1, 2023, to purchase 2,187 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 30, 2022, closing price of the common stock of $5.60 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on April 1, 2023, July 1, 2023 and October 1, 2023. 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 2023 Consulting Agreement expired on December 31, 2023; the Company and Mr. Loeb have entered into a new consulting agreement for 2024 as described below under Employment Arrangements . 28 On January 1, 2022, the Company entered into a new consulting agreement (the “2022 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 2022 Consulting Agreement, Mr. Loeb received cash compensation 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 1, 2022, to purchase 2,187 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 31, 2021, closing price of the common stock of $10.08 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on April 1, 2022, July 1, 2022 and October 1, 2022. 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 2022 Consulting Agreement expired on December 31, 2022; the Company and Mr. Loeb entered into a new Consulting Agreement for 2023 as described above. Tracy S. Clifford. On June 1, 2023, the Company entered into an Amended and Restated Consulting Agreement with Ms. Clifford (the “2023 Clifford Consulting Agreement”). The 2023 Clifford Consulting Agreement amended, restated and replaced in its entirety the 2022 Clifford Consulting Agreement (described below). The 2023 Clifford Consulting Agreement began on June 1, 2023, had a one-year term, and was to automatically renew for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the 2023 Clifford Consulting Agreement, Ms. Clifford received cash compensation of $17,500 per month, as well as a grant of options on June 1, 2023, to purchase 6,250 shares of our common stock, which are exercisable at an exercise price per share equal to the May 31, 2023, closing price of the common stock of $4.96 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on September 1, 2023, December 1, 2023 and March 1, 2024. On January 2, 2024, the Company entered into a new consulting agreement with Tracy Clifford Consulting, LLC, that amends, restates and replaces in its entirety the 2023 Clifford Consulting Agreement, as described below under Employment Arrangements . On June 1, 2018, Tracy S. Clifford was appointed CFO of the Company. Concurrent with the appointment of Ms. Clifford as CFO, the Company entered into a consulting arrangement for the provision of her services. She received cash compensation from June 1, 2021 through May 31, 2022, of $17,500 per month. On June 1, 2022, the Company entered into an Amended and Restated Consulting Agreement (the “2022 Clifford Consulting Agreement”) for the provision of Ms. Clifford’s services as both CFO of Acorn and COO of OmniMetrix. The 2022 Clifford Consulting Agreement amended, restated and replaced in its entirety the Consulting Agreement dated as of June 1, 2018. The 2022 Clifford Consulting Agreement began on June 1, 2022, had a one-year term, and was to automatically renew for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the 2022 Clifford Consulting Agreement, Ms. Clifford received cash compensation of $17,500 per month, and received a grant on June 1, 2022 of options to purchase 3,125 shares of our common stock, with an exercise price of $7.04 per share, which was the closing price of the common stock on May 31, 2022 (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Twenty-five percent (25%) of the options were vested immediately; the remaining options vested in three equal increments on September 1, 2022, December 1, 2022 and March 1, 2023, 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. 29 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 samzentman@yahoo.com to express their views on executive compensation matters. Employment Arrangements The employment arrangements of each named executive officer are described below. Jan H. Loeb On January 2, 2024, the Company entered into a new consulting agreement (the “2024 Loeb Consulting Agreement”) extending its arrangements for compensation of Mr. Loeb. Pursuant to the 2024 Loeb Consulting Agreement, Mr. Loeb will receive cash compensation of $16,780 per month for service as President and CEO of Acorn, 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 January 2, 2024 to purchase 2,200 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 29, 2023, closing price of the common stock of $6.09 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments on April 1, 2024, July 1, 2024 and October 1, 2024. 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 2024 Loeb Consulting Agreement expires on December 31, 2024, unless terminated early as provided therein. Tracy S. Clifford On January 2, 2024, the Company entered into an Amended and Restated Consulting Agreement with Ms. Clifford (the “2024 Clifford Consulting Agreement”) for the provision of Ms. Clifford’s services as both CFO of Acorn and COO of OmniMetrix . The 2024 Clifford Consulting Agreement amends, restates and replaces in its entirety the 2023 Clifford Consulting Agreement. The 2024 Clifford Consulting Agreement has an effective date of January 1, 2024, has a one-year term, and automatically renews for an additional year upon the expiration of each one-year term unless earlier terminated as provided therein. Pursuant to the 2024 Clifford Consulting Agreement, Ms. Clifford receives cash compensation of $18,025 per month. In the event of termination other than for cause, Ms. Clifford shall be entitled to a continuation, for a period of six months following the date of such termination, of the monthly cash compensation in effect at the time of such termination. Pursuant to the terms of the 2024 Clifford Consulting Agreement, Ms. Clifford also received a grant of options on January 2, 2024, to purchase 2,200 shares of the Company’s common stock, which are exercisable at an exercise price equal to the December 29, 2023, closing price of the common stock of $6.09 per share. Twenty-five percent (25%) of the options were vested immediately; the remaining options shall vest in three equal increments on April 1, 2024, July 1, 2024 and October 1, 2024. On each subsequent anniversary of January 1, 2024, so long as the 2024 Clifford Consulting Agreement has not been terminated, the Company will grant Ms. Clifford 2,200 stock options exercisable at an exercise price equal to the then-current stock price. Twenty-five percent (25%) of the options will be vested immediately as of the date of grant; the remaining options will vest in three equal increments on April 1, July 1 and October 1 during the first nine months following the date of grant. The exercise period and other terms are otherwise substantially the same as the terms of the options granted by the Company to its outside directors. 30 Outstanding Equity Awards at 2023 Fiscal Year End The following table sets forth all outstanding equity awards (as adjusted in connection with the September 2023 1-for-16 reverse stock split) made to each of the Named Executive Officers that were outstanding at December 31, 2023. OPTIONS TO PURCHASE ACORN ENERGY, INC. STOCK Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Jan H. Loeb 2,187 — 5.76 February 21, 2024 2,187 — 5.60 January 1, 2025 2,187 — 5.92 January 1, 2027 2,187 — 7.68 January 1, 2028 2,187 — 10.08 January 1, 2029 2,187 — 5.60 January 1, 2030 Tracy S. Clifford 1,875 — 6.56 June 1, 2025 1,875 — 4.48 June 25, 2026 3,125 — 3.68 June 8, 2027 6,250 — 9.92 May 10, 2028 3,125 — 7.04 June 1, 2029 4,687 1,563 4.96 June 1, 2030 Option and Warrant Exercises Warrants were exercised by Leap Tide Capital Management, LLC (of which Mr. Loeb is the Managing Member), on March 2, 2023, for 2,187 shares at an exercise price of $2.08 per share (as adjusted in connection with the September 2023 1-for-16 reverse stock split). Non-qualified Deferred Compensation There was no executive non-qualified deferred compensation activity for either of our named executive officers for the year ended December 31, 2023. 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, in the event of termination by the Company other than for cause, Ms. Clifford shall be entitled to a continuation, for a period of six months following the date of such termination, of the monthly cash compensation in effect at the time of such termination. There are no other amounts due under any other termination scenario under the terms of her consulting agreement. Compensation of Directors The Board reviews non-employee director compensation on an annual basis. Our compensation policy for non-employee Directors for 2023 was as follows: 31 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 625 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 1,562 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 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 date of grant, and shall, except as described in the preceding paragraph, vest in four quarterly installments beginning on the grant date. 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 $2,000. Each Director may, in his discretion, elect by written notice delivered on or before the first day of each calendar year whether to receive, in lieu of some or all of his retainer and board fees, that number of shares of Company Common Stock as shall have a value equal to the applicable retainer and board fees, based on the closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the first day of the applicable year. Once made, the election shall be irrevocable for such election year and the shares subject to the election shall vest and be issued one-fourth upon the first day of the election year and one-fourth as of the first day of each of the second through fourth calendar quarters thereafter during the remainder of the election year. A newly-elected or appointed Director may, in his or her discretion, make such an election for the balance of the year in which he or she was elected/appointed by written notice delivered on or before the tenth day after his or her election/appointment to the Board, with the number of shares of Company Common Stock subject to such newly elected/appointed Director’s election to be based on closing price of the Company’s Common Stock on its then-current trading platform or exchange on the last trading day immediately preceding the day of such newly elected/appointed Director’s election/appointment. The following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year ended December 31, 2023 by each individual who served as a director at any time during the fiscal year (other than Mr. Loeb who was not separately compensated for his Board service). DIRECTOR COMPENSATION IN 2023 Name Fees Earned or Paid in Cash ($) Option Awards ($) (1) All Other Compensation ($) Total ($) Samuel M. Zentman 25,000 (2) 2,306 (1) — 27,306 Gary Mohr 17,000 (3) 2,306 (1) — 19,306 Peter Rabover 11,708 (4) 5,389 (5) 17,097 Michael F. Osterer 17,000 (3) 2,306 (1) — 19,306 (1) On January 1, 2023, Samuel M. Zentman, Gary Mohr, and Michael F. Osterer were each granted 625 options to acquire stock in the Company. The options had an exercise price of $5.60 and were to expire on January 1, 2030. 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 4.14% (ii) an expected term of 3.7 years (iii) an assumed volatility of 94% 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. 32 (4) Represents the pro-rata annual retainer of $15,000 as a non-employee director from the date that Peter Rabover joined the Board. (5) On March 21, 2023, Peter Rabover was granted 1,562 options to acquire stock in the Company. The options had an exercise price of $4.80 and were to expire on March 21, 2030. 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 3.79% (ii) an expected term of 4.5 years (iii) an assumed volatility of 96% and (iv) no dividends. 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 5, 2024, 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 525,297(3 ) 21.02 % Gary Mohr 73,237(4 ) 2.94 % Michael F. Osterer 181,433(5 ) 7.28 % Peter Rabover 124,051(6 ) 4.99 % Samuel M. Zentman 10,054(7 ) * Tracy S. Clifford 24,725(8 ) * All executive officers and directors of the Company as a group (6 people) 886,714(9 ) 34.94 % * 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 2,487,307 shares outstanding as of March 5, 2024. (3) Consists of 240,011 shares held by Mr. Loeb directly, 273,251 shares held by Leap Tide Capital Acorn LLC, and 12,035 shares underlying currently exercisable options held by Mr. Loeb. Mr. Loeb is the sole manager of Leap Tide Capital Acorn LLC, with sole voting and dispositive power over the securities held by such entity. Mr. Loeb disclaims beneficial ownership of the securities held by Leap Tide Capital Acorn LLC except to the extent of his pecuniary interest therein. (4) Consists of 68,238 shares beneficially held by Mr. Mohr (including 52,083 shares held by UE Systems Inc.), and 4,999 shares underlying currently exercisable options. (5) Consists of 176,107 shares beneficially held by Mr. Osterer (including 52,083 shares held by UE Systems Inc.), and 5,326 shares underlying currently exercisable options. 33 (6) Consists of 123,218 shares held by Artko Capital LP and 833 shares underlying currently exercisable options held by Mr. Rabover. Mr. Rabover is Managing Director of Artko Capital LP, with sole voting and dispositive power over the securities held by such entity. Mr. Rabover disclaims beneficial ownership of the securities held by Artko Capital LP except to the extent of his pecuniary interest therein. (7) Consists of 5,992 shares and 4,062 shares underlying currently exercisable options. (8) Consists of 1,125 shares and 23,600 shares underlying currently exercisable options. (9) Consists of 835,859 shares and 50,855 shares underlying currently exercisable options. EQUITY COMPENSATION PLAN INFORMATION The table below provides certain information concerning our equity compensation plans as of December 31, 2023. 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 6,263 $ 5.21 — Equity Compensation Plans Not Approved by Security Holders 65,630 $ 6.74 76,769 Total 71,893 $ 6.61 76,769 All numbers in this table are adjusted to account for the September 2023 1-for-16 reverse stock split. The grants made under our equity compensation plans not approved by security holders represent 65,630 options which were granted under our 2006 Stock Incentive Plan following the original expiration of the Plan on February 8, 2017. 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. 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. ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 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. 34 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Accounting Fees Friedman LLP and Marcum LLP The following table summarizes the fees billed to Acorn for professional services rendered by Friedman LLP (through September 8, 2022) and its post-merger successor Marcum LLP (after September 8, 2022) for the years ended December 31, 2023 and 2022. 2023 2022 Audit fees $ 122,990 $ 130,337 Tax fees 13,511 10,859 All other fees — — Total $ 136,501 $ 141,196 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. The audit fees per the engagement letters were $121,000 for 2023 and $99,500 for 2022 which represents a 22% increase year over year. The difference in the audit fees in the table above is due to the timing of when the audit services were performed. 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 2023 and 2022. 35 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 reports thereon of the Registrant’s Independent Registered Public Accounting Firms are included in this Annual Report beginning on page F-1. Report of Independent Registered Public Accounting Firm (PCAOB ID 688) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in Stockholders’ Deficit 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 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 Certificate of Amendment to Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed September 8, 2023). 3.3 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”)). 3.4 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). 3.5 Amendment to By-laws of the Registrant (incorporated herein by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed September 8, 2023). 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). 36 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). 10.1* 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). 10.2* 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). 10.3* 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). 10.4 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). 10.5* Consulting Agreement, dated January 2, 2024, by and between the Registrant and Jan H. Loeb (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed January 5, 2024). 10.6* Amended and Restated Consulting Agreement, dated January 2, 2024, by and between the Registrant and Tracy Clifford Consulting, LLC (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed January 5, 2024). #21.1 List of subsidiaries. #23.1 Consent of Marcum 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, 2023, filed on March 7, 2024, formatted in Inline 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. #104.1 Cover Page Interactive Data File (embedded within the Inline XBRL document). * 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. 37 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 7, 2024. 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 7, 2024 Jan H. Loeb Director (Principal Executive Officer) /s/ Tracy S. Clifford Chief Financial Officer (Principal Financial March 7, 2024 Tracy S. Clifford Officer and Principal Accounting Officer) /s/ Gary Mohr Director March 7, 2024 Gary Mohr /s/ Michael F. Osterer Director March 7, 2024 Michael F. Osterer /s/ Peter Rabover Director March 7, 2024 Peter Rabover /s/ Samuel M. Zentman Director March 7, 2024 Samuel M. Zentman 38 ACORN ENERGY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 688 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders’ Changes in Deficit F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders 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, 2023 and 2022, the related consolidated statements of operations, changes in stockholders deficit , and cash flows for each of the two years in the period ended December 31, 2023 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 audit s in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit s 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 audit s 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 audit s 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 audit s 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 audit s provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee 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. We determined that there are no critical audit matters. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2010. Marlton, New Jersey March 7, 2024 F- 2 ACORN ENERGY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2023 2022 As of December 31, 2023 2022 ASSETS Current assets: Cash $ 1,449 $ 1,450 Accounts receivable, net 536 597 Inventory, net 962 789 Other current assets 280 288 Deferred cost of goods sold 809 887 Total current assets 4,036 4,011 Property and equipment, net 570 653 Right-of-use assets, net 193 298 Deferred cost of goods sold 476 807 Other assets 174 215 Total assets $ 5,449 $ 5,984 LIABILITIES AND DEFICIT Current liabilities: Accounts payable $ 288 $ 243 Accrued expenses 132 171 Deferred revenue 4,034 3,984 Current operating lease liabilities 123 116 Other current liabilities 30 58 Total current liabilities 4,607 4,572 Long-term liabilities: Deferred revenue 1,550 2,187 Noncurrent operating lease liabilities 98 220 Other long-term liabilities 20 16 Total liabilities 6,275 6,995 Commitments and contingencies (Note 8) - Stockholders’ Deficit: Acorn Energy, Inc. stockholders Common stock - $ 0.01 par value per share: Authorized – 42,000,000 shares; issued and outstanding – 2,484,791 and 2,482,604 shares at December 31, 2023 and 2022, respectively * 25 25 Common stock - $0.01 par value per share:Authorized – 42,000,000 shares; issued and outstanding – 2,484,791 and 2,482,604 shares at December 31, 2023 and 2022, respectively* 25 25 Additional paid-in capital * 103,321 103,261 Accumulated stockholders’ deficit ( 101,148 ) ( 101,267 ) Treasury stock, at cost – 50,178 shares at December 31, 2023 and December 31, 2022 * ( 3,036 ) ( 3,036 ) Total Acorn Energy, Inc. stockholders’ deficit ( 838 ) ( 1,017 ) Non-controlling interests 12 6 Total stockholders’ deficit ( 826 ) ( 1,011 ) Total liabilities and stockholders’ deficit $ 5,449 $ 5,984 * As adjusted to reflect the September 2023 1-for-16 reverse stock split. The accompanying notes are an integral part of these consolidated financial statements. F- 3 ACORN ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA) 2023 2022 Year ended December 31, 2023 2022 Revenue $ 8,059 $ 7,000 Cost of sales 2,055 1,929 Gross profit 6,004 5,071 Operating expenses: Research and development expenses 875 845 Selling, general and administrative expenses 5,055 4,804 Impairment of software — 51 Total operating expenses 5,930 5,700 Operating income (loss) 74 ( 629 ) Finance income (expense), net 64 ( 2 ) Income (loss) before income taxes 138 ( 631 ) Income tax expense 9 — Net income (loss) 129 ( 631 ) Non-controlling interest share of income ( 10 ) ( 2 ) Net income (loss) attributable to Acorn Energy, Inc. stockholders. $ 119 $ ( 633 ) Basic and diluted net income (loss) per share attributable to Acorn Energy, Inc. stockholders: Net income (loss) per share attributable to Acorn Energy, Inc. stockholders – basic and diluted $ 0.05 $ ( 0.25 ) Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic * 2,484 2,481 Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – diluted * 2,503 2,481 * As adjusted to account for the September 2023 1-for-16 reverse stock split. The accompanying notes are an integral part of these consolidated financial statements. F- 4 ACORN ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (IN THOUSANDS) Number of Shares * Common Stock * Additional Paid-In Capital * Accumulated Deficit Number of Treasury Shares * Treasury Stock Energy, Inc. Stockholders’ Deficit Non- controlling interests Total Deficit Acorn Energy, Inc. Stockholders Total Acorn Number of Shares* Common Stock* Additional Paid-In Capital* Accumulated Deficit Number of Treasury Shares* Treasury Stock Energy, Inc. Stockholders’ Deficit Non- controlling interests Total Deficit Balances as of December 31, 2021 2,480 $ 25 $ 103,176 $ ( 100,634 ) 50 $ ( 3,036 ) $ ( 469 ) $ 8 $ ( 461 ) Net (loss) income — — — ( 633 ) — — ( 633 ) 2 ( 631 ) Proceeds from stock option exercise 2 - ** 5 — — — 5 — 5 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 4 ) ( 4 ) Stock option compensation — — 80 — — — 80 — 80 Balances as of December 31, 2022 2,482 25 103,261 ( 101,267 ) 50 ( 3,036 ) ( 1,017 ) 6 ( 1,011 ) Balances 2,482 25 103,261 ( 101,267 ) 50 ( 3,036 ) ( 1,017 ) 6 ( 1,011 ) Net income — — — 119 — — 119 10 129 Net (loss) income — — — 119 — — 119 10 129 Proceeds from warrant exercise 2 - ** 5 — — — 5 — 5 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 4 ) ( 4 ) Stock option compensation — — 55 — — — 55 — 55 Balances as of December 31, 2023 2,484 $ 25 $ 103,321 $ ( 101,148 ) 50 $ ( 3,036 ) $ ( 838 ) $ 12 $ ( 826 ) Balances 2,484 $ 25 $ 103,321 $ ( 101,148 ) 50 $ ( 3,036 ) $ ( 838 ) $ 12 $ ( 826 ) * As adjusted to account for the September 2023 1-for-16 reverse stock split. ** less than $1 The accompanying notes are an integral part of these consolidated financial statements. F- 5 ACORN ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) 2023 2022 Year ended December 31, 2023 2022 Cash flows provided by operating activities: Net income (loss) $ 129 $ ( 631 ) Depreciation and amortization 161 122 Impairment of software — 51 Impairment of inventory 8 41 Non-cash lease expense 128 124 Stock-based compensation 55 80 Change in operating assets and liabilities: Decrease in accounts receivable 61 279 Increase in inventory ( 181 ) ( 213 ) Decrease (increase) in deferred cost of goods sold 409 ( 181 ) Decrease (increase) in other current assets and other assets 49 ( 105 ) (Decrease) increase in deferred revenue ( 587 ) 778 Decrease in operating lease liability ( 138 ) ( 130 ) Decrease in accounts payable, accrued expenses, other current liabilities and non-current liabilities ( 22 ) ( 184 ) Net cash provided by operating activities 72 31 Cash flows used in investing activities: Investments in technology ( 76 ) ( 292 ) Other capital investments ( 2 ) ( 16 ) Net cash used in investing activities ( 78 ) ( 308 ) Cash flows provided by financing activities: Warrant exercise proceeds 5 — Stock option exercise proceeds — 5 Net cash provided by financing activities 5 5 Net decrease in cash ( 1 ) ( 272 ) Cash at the beginning of the year 1,450 1,722 Cash at the end of the year $ 1,449 $ 1,450 Supplemental cash flow information: Cash paid during the year for: Interest $ 3 $ 2 Income taxes $ — $ — Non-cash investing and financing activities: Accrued preferred dividends to former CEO of OmniMetrix (see Note 3) $ 4 $ 4 The accompanying notes are an integral part of these consolidated financial statements. F- 6 ACORN ENERGY, INC. 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 a holding company focused on technology-driven solutions for energy infrastructure asset management. The Company provides the following products and Internet of Things (“IoT”) applications and services through its OmniMetrix, LLC (“OmniMetrix”) subsidiary: ● Power Generation (“PG”) monitoring. OmniMetrix offers PG wireless monitoring and control IoT solutions encompassing wireless remote monitoring devices and applications for both residential and commercial/industrial power generation equipment. This suite includes the Company's suite of TrueGuard products as well as its AIRGuard product, designed for remote monitoring and control of industrial air compressors, as well as a Smart Annunciator product. This Smart Annunciator product, tailored for commercial clients, provides a visual representation of a generator’s status through a touch-screen display, offering real-time updates on its current state. ● Cathodic Protection (“CP”) monitoring. OmniMetrix specializes in CP monitoring, offering remote monitoring and control products specifically tailored for cathodic protection systems utilized in gas pipelines, serving gas utilities market and pipeline operators. The Company's CP product lineup, which features solutions for remote monitoring and control of rectifiers, test stations and bonds, is its Hero and Patriot lines of products. Additionally, the Company offers the RAD TM (Remote AC Mitigation Disconnect), an industry-first innovation designed to mount onto existing Solid-state Decouplers in the field. This device enables remote disconnection/connection of AC mitigation tools, significantly reducing a customer's expenses while enhancing employee safety. 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, 2023, the Company had $ 1,449,000 of consolidated cash. At December 31, 2023, the Company had a negative working capital of $ 571,000 . Its 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. 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 sold. Based on the current products being sold, the Company expects continued decreases in the deferred revenue balance in the foreseeable future. The balance of deferred hardware revenue at December 31, 2023 will continue to be amortized over the months remaining in the three-year period since the hardware’s original date of shipment. Net cash decreased during the year ended December 31, 2023 by $ 1,000 , with $ 72,000 provided by operating activities, $ 78,000 used in investing activities, and $ 5,000 provided by financing activities. As of March 5, 2024, the Company had cash of $ 1,236,000 . The Company believes that such cash, plus the cash expected to be generated from operations, will provide sufficient liquidity to finance the corporate activities of Acorn and operating activities of OmniMetrix at their current level of operations for at least the twelve-month period from the issuance of these audited consolidated financial statements. The Company 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 the Company decides 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 and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time. 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”). All dollar amounts are rounded to the nearest thousand and, thus, are approximate. Principles of Consolidation and Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. In these consolidated financial statements, “subsidiaries” are companies that are over 50 % controlled, the accounts of which are consolidated with those of the Company. Intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales are also eliminated; non-controlling interests are included in equity. Use of Estimates in Preparation of Financial Statements The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to uncertainties with respect to income taxes, inventories, account receivable allowances, contingencies, revenue recognition, management’s projections and analyses of the possible impairments. Accounts Receivable and Credit Losses Accounts receivable consists of trade receivables. Trade receivables are recorded at the invoiced amount, net of any allowance for credit losses. The Company’s trade receivables primarily arise from the sale of our products to independent residential dealers, industrial distributors and dealers, national and regional retailers, equipment distributors, and certain end users with payment terms generally ranging from 30 to 60 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customer’s ability to pay. These factors include the customer’s financial condition and past payment experience. The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on an entity-by-entity basis. The estimate of expected credit losses considers a historical loss experience rate that is adjusted for delinquency trends, collection experience, and/or economic risk where appropriate. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss. For the Company, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” applies to its contract assets (deferred COGS and deferred sales commissions, see Note 13), lease receivables (sublease, see Note 7) and trade receivables. There are no expected or estimated credit losses on the Company’s contract assets or its lease receivable based on the Company’s implementation of ASU 2016-13. See Note 4, Allowance for Credit Losses. Inventory Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at net realizable value. Raw materials inventory is generally comprised of radios, cables, antennas, and electrical components. Finished goods inventory consists of fully assembled systems ready for final shipment to the customer. Costs are determined at cost of acquisition on a weighted average basis and include all outside production and applicable shipping costs. All inventories are periodically reviewed to identify slow-moving and obsolete inventory. Management conducted an assessment and wrote-off inventory valued at $ 8,000 and $ 41,000 for the years ended December 31, 2023 and 2022, respectively. Impairment of Long-Lived Assets The Company reviews long-lived assets, such as property and equipment, intangible assets subject to amortization, and right-of-use assets on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining useful life of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value. F- 8 During June 2022, the Company conducted an evaluation of the status of an ERP software customization project that had been initiated in July 2019 and was ongoing. As a result of this evaluation, the Company elected to terminate this project effective June 30, 2022 and recorded an impairment against the capitalized investment in this project of $ 51,000 . Non-Controlling Interests The Financial Accounting Standards Board (“FASB”) requires that non-controlling interests be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest be re-measured at fair value, with any gain or loss recognized in earnings. The Company attributes the applicable percentage of income and losses to the non-controlling interests associated with OmniMetrix (see Note 3). Property and Equipment Property and equipment are presented at cost at the date of acquisition. Depreciation and amortization are calculated based on the straight-line method over the estimated useful lives of the depreciable assets, or in the case of leasehold improvements, the shorter of the lease term or the estimated useful life of the asset, a portion of which is allocated to cost of sales. Improvements are capitalized while repairs and maintenance are charged to operations as incurred. Capitalization of Software The Company capitalizes certain implementation costs incurred in a hosting arrangement that is a service contract to develop or obtain internal-use software. During the years ended December 31, 2023 and 2022, the Company capitalized internal-use software costs totaling $ 29,000 and $ 279,000 , respectively. Deferred Sales Commissions The Company pays its employees sales commissions for sales of hardware and for first sales of monitoring services (not for renewals). In accordance with Topic 606, Revenue from Contracts with Customers, of the FASB Accounting Standards Codification (“ASC 606”), the Company capitalizes as a contract asset the sales commissions on these sales. Contract assets associated with hardware are amortized over the estimated life of the units which are currently estimated to be three years. Contract assets associated with monitoring services are amortized over the expected monitoring life, including renewals. Commissions earned from the sales of the new hardware products will be recognized when the product is shipped. Commissions earned from the sales of monitoring services continue to be deferred and amortized over the period of service. The contract assets of deferred COGS and deferred sales commissions are subject to review under ASU 2016-13 (see Notes 2 and 4); however, no credit losses on contract assets are expected based on the Company’s implementation of ASU 2016-13. Leases The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheets. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of the Company’s real estate leases are classified as operating leases. F- 9 ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of the lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have residual value guarantees or restrictive covenants in its leases. The Company also made accounting policy elections by class of underlying asset to not apply the recognition requirements of the standard to leases with terms of 12 months or less and to not separate non-lease components from lease components. Consequently, each separate lease component and the non-lease components associated with that lease component will be accounted for as a single lease component for lease classification, recognition, and measurement purposes. The lease obligation liability was $ 221,000 and $ 336,000 as of December 31, 2023 and December 31, 2022, respectively, which includes the office space lease 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 stockholders’ deficit. Revenue Recognition The Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is satisfied. The Company assesses whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. The Company’s sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size. See Note 13, Revenue, for further discussion. Revenue from sales of the hardware products that are distinct products are recorded when shipped while the revenue from sales of the hardware products (product versions sold prior to September 1, 2023) that were not separable from the Company’s monitoring services was deferred and amortized over the estimated unit life. Revenue from the prepayment of monitoring fees (generally paid twelve months in advance) are recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period. See Notes 12 and 13 for the disaggregation of the Company’s revenue for the periods presented. Any sales tax, value added tax, and other tax the Company collects concurrent with revenue producing activities are excluded from revenue. Warranty Provision OmniMetrix generally grants their customers a one-year warranty on their products. Estimated warranty obligations are provided for as a cost of sales in the period in which the related revenues are recognized, based on management’s estimate of future potential warranty obligations and historical experience. Adjustments are made to accruals as warranty claim data and historical experience warrant. The Company’s warranty obligations may be materially affected by product or service failure rates and other costs incurred in correcting a product or service failure. Should actual product or service failure rates or other related costs differ from the Company’s estimates, revisions to the accrued warranty liability would be required. F- 10 Concentration of Credit Risk The Company’s financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company’s cash was deposited with a U.S. bank and amounted to $ 1,449,000 at December 31, 2023. 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 $ 24,000 and $ 16,000 for each of the years ended December 31, 2023 and 2022, 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-based compensation expense is included in selling, general and administrative expenses. The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model when the services are performed. See Note 9(b) for the assumptions used to calculate the fair value of stock-based employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares. Sales Taxes On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), whereby the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. In 2020, the Company began collecting sales tax in nearly all states that have sales tax. The Company accrued sales taxes in the states with sales tax. The Company accrued the liability from the effective date of a state’s adoption of the Wayfair decision up to the date the Company began collecting and filing sales taxes in the various states. At December 31, 2023 and December 31, 2022, the amount of such accrual was $ 13,000 and $ 51,000 , respectively. F- 11 The Company accrues sales taxes based on determination of which of its products/services are subject to sales tax, and in which states and jurisdictions the tax applies. Further, the Company must determine which of its customers are exempt from the Company charging sales tax because the customer is a reseller or self-assesses and direct pays to states and other jurisdictions on purchases the customer makes from the Company. These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods. Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are classified as non-current. Valuation allowances are established against deferred tax assets if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the period that includes the enactment date. See Note 10(d) for the impact of the Tax Cuts and Jobs Act of 2017. Income Tax Uncertainties The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed by applicable accounting principles. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more likely than not being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The Company recognizes interest and penalties as incurred in finance income (expense), net in the consolidated statements of operations. As of December 31, 2023 and 2022, no interest or penalties were accrued on the consolidated balance sheets related to uncertain tax positions. During the years ending December 31, 2023 and 2022, 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 operations. The Company is subject to U.S. Federal and state income tax. As of January 1, 2023, the Company is no longer subject to examination by U.S. Federal taxing authorities for years before 2019, or for years before 2018 for state income taxes. Basic and Diluted Net Income (Loss) Per Share Basic net loss per share is computed by dividing the net loss attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the year, excluding treasury stock. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net loss per share if doing so would be antidilutive. The combined weighted average number of options and warrants that were excluded from the computation of diluted net loss per share, as they had an antidilutive effect, was 17,000 (which have a weighted average exercise price of $ 9.42 ) and 62,000 (which had a weighted average exercise price of $ 6.29 ) for the years ending December 31, 2023 and 2022, respectively (as adjusted to account for the September 2023 1-for-16 reverse stock split). F- 12 The following data represents the amounts used in computing earnings per share and the effect on net loss and the weighted average number of shares of dilutive potential common stock (as adjusted to account for the September 2023 1-for-16 reverse stock split) (in thousands): SCHEDULE OF EFFECT ON NET INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES 2023 2022 Year ended December 31, 2023 2022 Net income (loss) available to common stockholders $ 119 $ ( 633 ) Weighted average shares outstanding: -Basic 2,484 2,481 Add: Warrants — — Add: Stock options 19 — -Diluted 2,503 2,481 Basic and diluted net income (loss) per share $ 0.05 $ ( 0.25 ) Fair Value Measurement The Company follows the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. The carrying amounts for cash, accounts receivable, and accounts payable approximate their fair value because of their short-term maturity. The Company determined that the carrying amount of the lease liabilities approximate fair value since the applicable interest rate approximated fair value at the time the leases were entered into. While the Company believes the carrying value of the assets and liabilities are reasonable, considerable judgment is used to develop estimates of fair value; thus, the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU. Recently Adopted Accounting Standards On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This guidance was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade and other receivables. The adoption of the standard impacts the way the Company estimates the allowance for doubtful accounts on its trade and other receivables. Refer to Note 4, “Allowance for Credit Losses,” for further information regarding the Company’s allowance for expected credit losses. F- 13 NOTE 3— INVESTMENT IN OMNIMETRIX The Company owns 99 % of the Company’s OMX Holdings, Inc. subsidiary (“Holdings”) and the former CEO of OmniMetrix, LLC owns the remaining 1 %. NOTE 4— ALLOWANCE FOR CREDIT LOSSES The Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. As of December 31, 2023, the Company had gross receivables of $ 546,000 and an allowance for credit losses of $ 10,000 . The following is a tabular reconciliation of the Company’s allowance for credit losses: SCHEDULE OF ALLOWANCES FOR CREDIT LOSSES 2023 2022 As of December 31, 2023 2022 (in thousands) Balance at beginning of period $ 10 $ 6 Provision for credit losses 2 3 Net (charge-offs) credits ( 2 ) 1 Balance at end of period $ 10 $ 10 NOTE 5— INVENTORY SCHEDULE OF INVENTORY 2023 2022 As of December 31, 2023 2022 (in thousands) Raw materials $ 904 $ 684 Finished goods 58 105 Inventory net $ 962 $ 789 At December 31, 2023 and 2022, the Company’s inventory reserve was $ 8,000 and $ 4,000 , respectively. F- 14 NOTE 6— PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following: SCHEDULE OF PROPERTY AND EQUIPMENT Estimated Useful Life (in years) As of December 31, 2023 2022 (in thousands) Cost: Computer hardware and software 3 - 5 $ 938 $ 864 Equipment 7 157 155 Leasehold improvements Term of lease 356 355 Intangible asset Patent term 21 20 1,472 1,394 Accumulated depreciation and amortization Computer hardware and software 403 247 Equipment 153 151 Leasehold improvements 346 343 Intangible asset * * 902 741 Property and equipment, net $ 570 $ 653 * less than $1,000 Depreciation and amortization in respect of property and equipment amounted to $ 161,000 and $ 122,000 for 2023 and 2022, respectively. NOTE 7— LEASES OmniMetrix leases office space and office equipment under operating lease agreements. The office lease has an expiration date of September 30, 2025 . The office equipment lease was entered into in April 2019 and has a sixty-month term. Operating lease payments for 2023 and 2022 were $ 128,000 and $ 124,000 , respectively. The future minimum lease payments on non-cancelable operating leases as of December 31, 2023 using a discount rate of 4.5 % are $ 221,000 . The 4.5 % used is the incremental borrowing rate (established at the commencement of the lease) 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 balance sheet information related to leases consisted of the following: SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES 2023 Weighted average remaining lease terms for operating leases 1.75 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, 2023 (in thousands): SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS 2023 2024 $ 129 2025 99 Total undiscounted cash flows 228 Less: Imputed interest ( 7 ) Present value of operating lease liabilities ( a ) $ 221 (a) Includes current portion of $ 123,000 for operating leases. F- 15 On July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company 1,900 square feet of office space of the Company’s 21,000 square feet of office and production space in the Hamilton Mill Business Park located in Buford, Georgia, for a monthly sublease payment of $ 2,375 (plus an annual escalator each year of 3%) which includes the base rent plus a pro-rata share of utilities, property taxes and insurance. Fifty percent of any excess rent received above the per square foot amount that the Company pays will be remitted to the Company’s landlord less the allocation of any shared expenses and leasehold improvements specific to the sublease. As of December 31, 2023, after the offset of the investment in leasehold improvements and other expenses related to the sublease, the Company paid its landlord $ 12,000 for its share of the sublease profit since the lease commencement. The estimated amount the Company expects to remit to the landlord each year of the sublease subsequent to December 31, 2023 is $ 6,500 per year. The sublease commenced on October 1, 2021 and will run through September 30, 2025 which is the end of the Company’s lease term with its landlord. Below are the future payments expected under the sublease net of the estimated annual service cost of $ 2,750 (gross of the estimated amount expected to be remitted to our landlord): SCHEDULE OF SUBLEASES 2023 2024 $ 28 2025 22 Total undiscounted cash flows $ 50 NOTE 8— COMMITMENTS AND CONTINGENCIES The Company has $ 221,000 in operating lease obligations payable through 2026 and $ 119,000 in other contractual obligations. The Company also has $ 374,000 in open purchase order commitments payable through December 31, 2024. See Note 14, Subsequent Events, for contractual obligations entered into and effective subsequent to December 31, 2023. NOTE 9— EQUITY All information below includes adjustments where applicable to account for the September 2023 1-for-16 reverse stock split. (a) Summary Employee Option Information The Company’s stock option plans provide for the grant to officers, directors and employees of options to purchase shares of common stock. The purchase price may be paid in cash or, if the option is “in-the-money” at the end of the option term, 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 option holder 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 for 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 a three-year period from the date of the grant. At December 31, 2023, 76,769 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 2023 and 2022, 14,936 ( 11,874 to directors and executive officers and 3,062 to other employees) and 9,110 ( 7,187 to directors and executive officers and 1,923 to other employees) options, respectively, were granted. In 2023 and 2022, there were no grants to non-employees (other than the non-employee directors and executive officers). The fair value of the options issued was $ 47,000 and $ 54,000 in 2023 and 2022, respectively. 2,187 warrants and no options were exercised in the year ended December 31, 2023. 2,187 options were exercised in the year ended December 31, 2022. The intrinsic value of options outstanding and of options exercisable at December 31, 2023 was $ 40,000 and $ 35,000 , respectively. The intrinsic value of options outstanding and of options exercisable at December 31, 2022 was $ 16,000 and $ 13,000 , 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): SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES PRICING MODEL 2023 2022 Risk-free interest rate 4.0 % 1.8 % Expected term of options, in years 4.01 3.86 Expected annual volatility 85.0 % 93.7 % Expected dividend yield — % — % Determined weighted average grant date fair value per option $ 3.16 $ 5.85 F- 16 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, 2023 and 2022. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. (b) Summary Option Information A summary of the Company’s option plans as of December 31, 2023 and 2022, as well as changes during each of the years then ended, is presented below: SUMMARY OF STOCK OPTION ACTIVITY 2023 2022 Number of Options (in shares) Weighted Average Exercise Price Number of Options (in shares) Weighted Average Exercise Price Outstanding at beginning of year 58,966 $ 6.72 52,044 $ 6.24 Granted at market price 14,936 $ 5.33 9,110 $ 8.80 Exercised — $ — ( 2,188 ) $ ( 2.88 ) Forfeited or expired 2,009 $ 7.15 — $ — Outstanding at end of year 71,893 $ 6.41 58,966 $ 6.72 Exercisable at end of year 64,366 $ 6.44 51,166 $ 6.55 Summary information regarding the options outstanding and exercisable at December 31, 2023 is as follows: SUMMARY OF INFORMATION REGARDING TO OPTIONS OUTSTANDING AND EXERCISABLE 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) $ 2.88 – $ 6.08 41,316 3.60 $ 5.13 37,254 $ 5.15 $ 6.10 – $ 10.08 30,577 3.98 $ 8.14 27,112 $ 8.21 71,893 64,366 Stock-based compensation expense included in selling, general and administrative expense in the Company’s consolidated statements of operations was $ 55,000 and $ 80,000 for the years ending December 31, 2023 and 2022, respectively. The total compensation cost related to non-vested awards not yet recognized was $ 18,000 and $ 33,000 as of December 31, 2023 and 2022, respectively. (c) Warrants The Company has issued warrants at exercise prices equal to or greater than the market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows: SUMMARY OF WARRANT ACTIVITY 2023 2022 Number of Shares Underlying Warrants Weighted Average Exercise Price Number of Shares Underlying Warrants Weighted Average Exercise Price Outstanding at beginning of year 2,187 $ 2.08 2,187 $ 2.08 Granted — $ — — $ — Exercised ( 2,187 ) $ ( 2.08 ) — $ — Forfeited or expired — $ — — $ — Outstanding and exercisable at end of year — $ — 2,187 $ 2.08 F- 17 NOTE 10— INCOME TAXES (a) Composition of income (loss) before income taxes is as follows (in thousands): COMPOSITION OF LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Year ended December 31, 2023 2022 Domestic $ 138 $ ( 631 ) Income tax expense consists of the following (in thousands): COMPONENTS OF INCOME TAX EXPENSE Year ended December 31, 2023 2022 Current: Federal $ — $ — State and local 9 — Current income tax expense — — Deferred: Federal — — State and local — — Deferred income tax expense — — Total income tax expense $ 9 $ — (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: SUMMARY OF RECONCILIATION BETWEEN FEDERAL TAX RATE 2023 2022 Year ended December 31, 2023 2022 Statutory Federal rates 21 % 21 % Increase (decrease) in income tax rate resulting from: Nondeductible/nontaxable items 2 % ( 3 ) % State taxes 4 % — Rate change 69 % — Prior year rate change adjustment 173 % — Deferred true-ups 147 % — Valuation allowance ( 409 ) % ( 18 ) % Effective income tax rates 7 % ( — ) % (c) Analysis of Deferred Tax Assets and (Liabilities) (in thousands): SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2023 2022 As of December 31, 2023 2022 Deferred tax assets (liabilities) consist of the following: Employee benefits and deferred compensation $ 61 $ 49 Deferred revenue 202 — Right-of-use assets ( 41 ) — Lease liability 47 — Fixed assets ( 88 ) ( 154 ) Intangible assets 311 529 Other temporary differences 46 3 Section 174 expenditures 290 205 Net operating loss and capital loss carryforwards 15,258 16,021 Deferred tax assets, gross 16,086 16,653 Valuation allowance ( 16,086 ) ( 16,653 ) Net deferred tax assets $ — $ — F- 18 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 to asset impairments, deferred revenue, capitalized Section 174 expenditures, and stock-based compensation expense of the Company. The Company continually evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectation of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors. As of December 31, 2023, based on the Company’s history of earnings and its assessment of future earnings, management believes that it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets. During the year ended December 31, 2023, the gross deferred tax asset and the valuation allowance decreased by $ 567,000 . (d) Summary of Tax Loss Carryforwards As of December 31, 2023, the Company had various operating loss carryforwards expiring as follows (in thousands): SUMMARY OF TAX LOSS CARRYFORWARDS Expiration Federal Capital Loss State 2023 $ — $ 556 $ — 2025 – 2031 * 2,579 2032 – 2037 61,351 — 14,818 Unlimited 4,958 — 1,877 Total $ 68,888 $ 556 $ 16,695 * 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 for separate return limitation years. Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (R&E) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2023, the Company performed an analysis based on available guidance and capitalized the required R&E costs. The Company will continue to monitor this issue for future developments. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2019 to the present in the U.S. and from 2017 to 2018 in the Company’s foreign operations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period. The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities. F- 19 NOTE 11— RELATED PARTY BALANCES AND TRANSACTIONS a) Officer and Director Fees The Company recorded fees to officers of $ 522,000 and $ 522,000 for the years ended December 31, 2023 and 2022, respectively, which is included in selling, general and administrative expenses. The Company recorded fees to directors of $ 71,000 and $ 59,000 for the years ended December 31, 2023 and 2022, which is included in selling, general and administrative expenses. The Company issued 14,936 ( 11,874 to directors and executive officers and 3,062 to other employees) and 9,110 ( 7,187 to directors and executive officers and 1,923 to other employees) options, in 2023 and 2022, respectively. 2,187 warrants and no options were exercised in the year ended December 31, 2023. 2,188 options were exercised in the year ended December 31, 2022. See Note 9 for further discussion. 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) Intercompany The intercompany balance due to Acorn from OmniMetrix is $ 2,657,000 for amounts loaned, accrued interest and expenses paid by Acorn on Omni’s behalf as of December 31, 2023 as compared to $ 3,677,000 as of December 31, 2022. This balance is eliminated in consolidation. During 2023, the intercompany amount due to Acorn from OmniMetrix decreased by $ 1,020,000 . 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. NOTE 12— SEGMENT REPORTING AND GEOGRAPHIC INFORMATION (a) General Information As of December 31, 2023, the Company continues to operate in two reportable operating segments, PG and CP, both of which are performed through the Company’s OmniMetrix subsidiary. See Note 1, Nature of Operations , for a description of these segments. The Company’s reportable segments are strategic business units, offering different products and services and are managed separately by the Chief Decision Maker (CDM) as each business requires different technology and marketing strategies. F- 20 (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. 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, 2023 and 2022 (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 CDM does not review the assets by segment. SUMMARY OF SEGMENTED DATA PG CP Total Year ended December 31, 2023: Revenues from customers $ 7,000 $ 1,059 $ 8,059 Segment gross profit 5,373 631 6,004 Depreciation and amortization 140 21 161 Segment income (loss) before income taxes 1,220 ( 26 ) 1,194 Year ended December 31, 2022: Revenues from customers $ 5,894 $ 1,106 $ 7,000 Segment gross profit 4,426 645 5,071 Depreciation and amortization 103 19 122 Segment income (loss) before income taxes* 489 ( 107 ) 382 * The software impairment of $ 51,000 recorded during 2022 is not related to a specific segment and, thus, is not included in the “Segment income (loss) before income taxes” for the year ended December 31, 2022. (c) The following tables represent a reconciliation of the segment data to the consolidated statement of operations and balance sheet data for the years ended and as of December 31, 2023 and 2022 (in thousands): SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT OF OPERATIONS 2023 2022 Year ended December 31, 2023 2022 Total net income before income taxes for reportable segments $ 1,194 $ 331 Unallocated net cost of corporate headquarters ( 1,056 ) ( 962 ) Consolidated net income (loss) before taxes on income $ 138 $ ( 631 ) SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT BALANCE SHEET 2023 2022 As of December 31, 2023 2022 Assets: Total assets for OmniMetrix subsidiary $ 5,163 $ 5,931 Assets of corporate headquarters 286 53 Total consolidated assets $ 5,449 $ 5,984 SCHEDULE OF REVENUE FROM CUSTOMERS BY GEOGRAPHICAL AREAS 2023 2022 Year ended December 31, 2023 2022 Revenues based on location of customer: United States $ 7,992 $ 6,960 Other 67 40 Revenues $ 8,059 $ 7,000 All of the Company’s long-lived assets are located in the United States. F- 21 (d) Revenues and Accounts Receivable Balances from Major Customers (in thousands): SCHEDULE OF REVENUES, ACCOUNTS RECEIVABLE FROM MAJOR CUSTOMERS Invoiced Sales Accounts Receivable 2023 2022 2023 2022 Customer Total % Total % Balance % Balance % A $ - * - * % $ - * - * % $ - * - * % $ 72 12 % B $ - * - * % $ - * - * % $ 134 25 % $ — — * Balance is not significant. NOTE 13— REVENUE OmniMetrix sells monitoring equipment (“HW”) and monitoring services (“Monitoring”). Prior to September 1, 2023, sales of OmniMetrix equipment typically did not qualify as a separate unit of accounting. As a result, revenue (and related costs) associated with sale of equipment was recorded to deferred revenue (and deferred cost of goods sold) upon shipment of PG and CP monitoring units. Revenue and related costs with respect to the sale of equipment were recognized over the estimated life of the units which was estimated to be three years. On 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. The remaining balance of deferred hardware revenue from the prior version of these products will continue to be amortized each period until it is fully amortized. The modification to the circuit boards and embedded firmware of hardware enclosures in inventory as of August 31, 2023 were made such that only the new version of these products was sold subsequent to this date. The following table disaggregates the Company’s revenue for the years ended December 31, 2023 and 2022 (in thousands): SCHEDULE OF DISAGGREGATES OF REVENUE HW Monitoring Total Year ended December 31, 2023: PG Segment $ 2,994 $ 4,006 $ 7,000 CP Segment 803 256 1,059 Total Revenue $ 3,797 $ 4,262 $ 8,059 HW Monitoring Total Year ended December 31, 2022: PG Segment $ 2,234 $ 3,660 $ 5,894 CP Segment 854 252 1,106 Total Revenue $ 3,088 $ 3,912 $ 7,000 Deferred revenue activity for the year ended December 31, 2023 can be seen in the table below (in thousands): SCHEDULE OF DEFERRED REVENUE ACTIVITY HW Monitoring Total Balance at December 31, 2022 $ 3,751 $ 2,420 $ 6,171 Additions during the period 1,595 4,461 6,056 Recognized as revenue ( 2,381 ) ( 4,262 ) ( 6,643 ) Balance at December 31, 2023 $ 2,965 $ 2,619 $ 5,584 Amounts to be recognized as revenue in the year ending: December 31, 2024 $ 1,841 $ 2,193 $ 4,034 December 31, 2025 956 424 1,380 December 31, 2026 and thereafter 168 2 170 Total $ 2,965 $ 2,619 $ 5,584 F- 22 The amount of hardware revenue recognized during the year ended December 31, 2023 that was included in deferred revenue at the beginning of the fiscal year was $ 1,890,000 . The amount of monitoring revenue during the year ended December 31, 2023 that was included in deferred revenue at the beginning of the fiscal year was $ 2,054,000 . Deferred revenue activity for the year ended December 31, 2022 can be seen in the table below (in thousands): HW Monitoring Total Balance at December 31, 2021 $ 3,268 $ 2,125 $ 5,393 Balance $ 3,268 $ 2,125 $ 5,393 Additions during the period 2,776 4,207 6,983 Recognized as revenue ( 2,293 ) ( 3,912 ) ( 6,205 ) Balance at December 31, 2022 $ 3,751 $ 2,420 $ 6,171 Balance $ 3,751 $ 2,420 $ 6,171 SCHEDULE OF RECONCILIATION OF HARDWARE REVENUE Reconciliation of Hardware Revenue 2023 2022 Amortization of deferred revenue $ 2,381 $ 2,293 Sales of custom designed units and related accessories 259 — Hardware sales (new product versions) 475 — Other accessories, services, shipping and miscellaneous charges 682 795 Total hardware revenue $ 3,797 $ 3,088 Deferred charges relate only to the sale of HW. Deferred charges activity for the year ended December 31, 2023 can be seen in the table below (in thousands): SCHEDULE OF DEFERRED CHARGES ACTIVITY Balance at December 31, 2022 $ 1,694 Additions during the period 655 Recognized as cost of sales ( 1,064 ) Balance at December 31, 2023 $ 1,285 Amounts to be recognized as cost of sales in the year ending: December 31, 2024 $ 809 December 31, 2025 406 December 31, 2026 and thereafter 70 $ 1,285 Deferred charges relate only to the sale of HW. Deferred charges activity for the year ended December 31, 2022 can be seen in the table below (in thousands): Balance at December 31, 2021 $ 1,513 Balance $ 1,513 Additions during the period 1,267 Recognized as cost of sales ( 1,086 ) Balance at December 31, 2022 $ 1,694 Balance $ 1,694 SCHEDULE OF RECONCILIATION OF COGS EXPENSE Reconciliation of COGS Expense 2023 2022 Amortization of deferred COGS $ 1,064 $ 1,086 COGS of custom designed units and related accessories 67 — COGS of hardware sales (new product versions) 215 — Data costs for monitoring 299 325 Other accessories, services, shipping and miscellaneous charges 410 518 Total COGS expense $ 2,055 $ 1,929 F- 23 The following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2023 (in thousands): SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS HW Monitoring Total Balance at December 31, 2022 $ 319 $ 80 $ 399 Additions during the period 148 53 201 Amortization of sales commissions ( 199 ) ( 37 ) ( 236 ) Balance at December 31, 2023 $ 268 $ 96 $ 364 The capitalized sales commissions are included in other current assets ($ 202,000 ) and other assets ($ 162,000 ) in the Company’s Consolidated Balance Sheets at December 31, 2023. SCHEDULE OF SALES COMMISSIONS EXPENSE Amounts to be recognized as sales commissions expense in the year ending: December 31, 2024 $ 202 December 31, 2025 119 December 31, 2026 and thereafter 43 Total $ 364 The following table provides a reconciliation of the Company’s sales commissions contract assets for the year ended December 31, 2022 (in thousands): HW Monitoring Total Balance at December 31, 2021 $ 242 $ 53 $ 295 Balance $ 242 $ 53 $ 295 Additions during the period 233 55 288 Amortization of sales commissions ( 156 ) ( 28 ) ( 184 ) Balance at December 31, 2022 $ 319 $ 80 $ 399 Balance $ 319 $ 80 $ 399 The capitalized sales commissions are included in other current assets ($ 196,000 ) and other assets ($ 203,000 ) in the Company’s Consolidated Balance Sheets at December 31, 2022. NOTE 14— SUBSEQUENT EVENTS On January 2, 2024, 4,400 options were issued to the CEO and CFO in the aggregate with an exercise price of $ 6.09 and that vest in equal increments on January 2, 2024, April 1, 2024, July 1, 2024 and October 1, 2024 with a fair value of $ 1,000 in the aggregate. On January 1, 2024, 2,500 options in the aggregate were issued to directors with an exercise price of $ 6.09 and that vest in equal increments on January 1, 2024, April 1, 2024, July 1, 2024 and October 1, 2024 with a fair value of $ 600 in the aggregate. On January 31, 2024, 1,000 options were issued to the Company’s Director of Business Development with an exercise price of $ 6.00 and that vest in equal increments over three years on the anniversary date of the issuance with the last tranche vesting on January 31, 2027 with a fair value of $ 700 . On January 1, 2024, 625 options that were set to expire on January 1, 2024 were exercised at an exercise price of $ 2.88 per share by one of the Company’s directors. The transaction was a cashless exercise in which 296 shares were deposited to treasury stock in payment of the exercise price and 329 shares were issued to the director. On February 21, 2024, 2,187 options that were set to expire that day were exercised at an exercise price of $ 5.76 per share by the CEO. On 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. F- 24