ACORN ENERGY, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ACORN ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) As of June 30, 2024 As of December 31, 2023 (Unaudited) ASSETS Current assets: Cash $ 1,463 $ 1,449 Accounts receivable, net 540 536 Inventory, net 731 962 Deferred cost of goods sold (COGS) 608 809 Other current assets 392 280 Total current assets 3,734 4,036 Property and equipment, net 552 570 Right-of-use assets, net 139 193 Deferred COGS 226 476 Other assets 118 174 Total assets $ 4,769 $ 5,449 LIABILITIES AND DEFICIT Current liabilities: Accounts payable $ 288 $ 288 Accrued expenses 123 132 Deferred revenue 3,590 4,034 Current operating lease liabilities 127 123 Other current liabilities 29 30 Total current liabilities 4,157 4,607 Long-term liabilities: Deferred revenue 990 1,550 Noncurrent operating lease liabilities 33 98 Other long-term liabilities 22 20 Total liabilities 5,202 6,275 Commitments and contingencies (Note 7) - - Deficit: Acorn Energy, Inc. stockholders Common stock - $ 0.01 par value per share: 42,000,000 shares authorized, 2,537,485 and 2,534,969 shares issued at June 30, 2024 and December 31, 2023, respectively, and 2,487,307 and 2,484,791 shares outstanding at June 30, 2024 and December 31, 2023, respectively 25 25 Additional paid-in capital 103,372 103,321 Accumulated stockholders’ deficit ( 100,812 ) ( 101,148 ) Treasury stock, at cost – 50,178 shares at June 30, 2024 and December 31, 2023 ( 3,036 ) ( 3,036 ) Total Acorn Energy, Inc. stockholders’ deficit ( 451 ) ( 838 ) Non-controlling interest 18 12 Total deficit ( 433 ) ( 826 ) Total liabilities and deficit $ 4,769 $ 5,449 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 ACORN ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 2024 2023 2024 2023 Six months ended June 30, Three months ended June 30, 2024 2023 2024 2023 Revenue $ 4,407 $ 3,722 $ 2,275 $ 1,973 COGS 1,151 916 610 483 Gross profit 3,256 2,806 1,665 1,490 Operating expenses: Research and development expenses (R&D) 464 402 226 188 Selling, general and administrative (SG&A) expenses 2,456 2,416 1,181 1,219 Total operating expenses 2,920 2,818 1,407 1,407 Operating income (loss) 336 ( 12 ) 258 83 Interest income, net 33 27 18 16 Income before income taxes 369 15 276 99 Income tax expense 25 — — — Net income 344 15 276 99 Non-controlling interest share of income ( 8 ) ( 4 ) ( 5 ) ( 3 ) Net income attributable to Acorn Energy, Inc. stockholders $ 336 $ 11 $ 271 $ 96 Basic and diluted net income per share attributable to Acorn Energy, Inc stockholders – basic and diluted Basic * $ 0.14 $ 0.00 $ 0.11 $ 0.04 Diluted * $ 0.13 $ 0.00 $ 0.11 $ 0.04 Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic and diluted Basic * 2,487 2,484 2,487 2,485 Diluted * 2,501 2,486 2,507 2,487 * As adjusted to reflect the September 2023 1-for-16 reverse stock split. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 ACORN ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT (UNAUDITED) (IN THOUSANDS) Number of Shares Outstanding * Common Stock * Additional Paid-In Capital * Accumulated Deficit Number of Treasury Shares * Treasury Stock Total Acorn Energy, Inc. Stockholders’ Deficit Non- controlling interest Total Deficit Three and Six Months Ended June 30, 2024 Number of Shares Outstanding* Common Stock* Additional Paid-In Capital* Accumulated Deficit Number of Treasury Shares* Treasury Stock Total Acorn Energy, Inc. Stockholders’ Deficit Non- controlling interest Total Deficit Balances as of December 31, 2023 2,484 $ 25 $ 103,321 $ ( 101,148 ) 50 $ ( 3,036 ) $ ( 838 ) $ 12 $ ( 826 ) Net income — — — 65 — — 65 3 68 Proceeds from warrant exercise Proceeds from warrant exercise, shares Proceeds from stock option exercise 3 - ** 13 — — — 13 — 13 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 27 — — — 27 — 27 Balances as of March 31, 2024 2,487 $ 25 $ 103,361 $ ( 101,083 ) 50 $ ( 3,036 ) $ ( 733 ) $ 14 $ ( 719 ) Net income — — — 271 — — 271 5 276 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 11 — — — 11 — 11 Balances as of June 30, 2024 2,487 $ 25 $ 103,372 $ ( 100,812 ) 50 $ ( 3,036 ) $ ( 451 ) $ 18 $ ( 433 ) Three and Six Months Ended June 30, 2023 Number of Shares Outstanding* Common Stock* Additional Paid-In Capital* Accumulated Deficit Number of Treasury Shares* Treasury Stock Total Acorn Energy, Inc. Stockholders’ Deficit Non- controlling interest Total Deficit Balances as of December 31, 2022 2,482 $ 25 $ 103,261 $ ( 101,267 ) 50 $ ( 3,036 ) $ ( 1,017 ) $ 6 $ ( 1,011 ) Net loss — — — ( 85 ) — — ( 85 ) 1 ( 84 ) Proceeds from warrant exercise 2 - ** 5 — — — 5 — 5 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 17 — — — 17 — 17 Balances as of March 31, 2023 2,484 $ 25 $ 103,283 $ ( 101,352 ) 50 $ ( 3,036 ) $ ( 1,080 ) $ 6 $ ( 1,074 ) Balance 2,484 $ 25 $ 103,283 $ ( 101,352 ) 50 $ ( 3,036 ) $ ( 1,080 ) $ 6 $ ( 1,074 ) Net income — — — 96 — — 96 3 99 Net income (loss) — — — 96 — — 96 3 99 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 13 — — — 13 — 13 Balances as of June 30, 2023 2,484 $ 25 $ 103,296 $ ( 101,256 ) 50 $ ( 3,036 ) $ ( 971 ) $ 8 $ ( 963 ) Balance 2,484 $ 25 $ 103,296 $ ( 101,256 ) 50 $ ( 3,036 ) $ ( 971 ) $ 8 $ ( 963 ) * 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 unaudited condensed consolidated financial statements. 5 ACORN ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) 2024 2023 Six months ended June 30, 2024 2023 Cash flows provided by operating activities: Net income $ 344 $ 15 Depreciation and amortization 58 76 (Decrease) increase in the provision for credit loss ( 7 ) — Impairment of inventory 19 8 Non-cash lease expense 64 63 Stock-based compensation 38 30 Change in operating assets and liabilities: Decrease (increase) in accounts receivable 3 ( 104 ) Decrease (increase) in inventory 212 ( 22 ) Decrease in deferred COGS 451 44 Increase in other current assets and other assets ( 56 ) ( 119 ) (Decrease) increase in deferred revenue ( 1,004 ) 196 Decrease in operating lease liability ( 71 ) ( 67 ) Decrease in accounts payable, accrued expenses, other current liabilities and non-current liabilities ( 10 ) 35 Net cash provided by operating activities 41 155 Cash flows used in investing activities: Investments in technology ( 36 ) ( 37 ) Equipment purchases ( 4 ) — Net cash used in investing activities ( 40 ) ( 37 ) Cash flows provided by financing activities: Stock option exercise proceeds 13 — Warrant exercise proceeds — 5 Net cash provided by financing activities 13 5 Net increase in cash 14 123 Cash at the beginning of the period 1,449 1,450 Cash at the end of the period $ 1,463 $ 1,573 Supplemental cash flow information: Cash paid during the year for: Interest $ 1 $ 1 Income Taxes $ 2 $ — Non-cash investing and financing activities: Accrued preferred dividends to former CEO of OmniMetrix $ 2 $ 2 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 ACORN ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED) NOTE 1— BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. (“Acorn”) and its subsidiaries, OmniMetrix, LLC (“OmniMetrix”) and OMX Holdings, Inc. (collectively, with Acorn and OmniMetrix, “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The December 31, 2023 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six- and three-month periods ended June 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. All dollar amounts, except per share data, are rounded to the nearest thousand and, thus, are approximate. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 7, 2024. Reverse Stock Split On September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation (the “Certificate of Amendment”) that provided for a 1-for-16 reverse stock split of Acorn’s Common Stock (the “Reverse Stock Split”). Acorn filed the Certificate of Amendment with the Secretary of State of the State of Delaware on September 6, 2023, and the Reverse Stock Split became effective at 5:00 p.m. EDT on September 7, 2023. At the effective time of the Reverse Stock Split, every sixteen issued and outstanding shares of Acorn’s Common Stock were automatically combined into one issued and outstanding share of Common Stock, without any change in the par value per share. Stockholders who would have otherwise been entitled to fractional shares of Common Stock, as a result of the Reverse Stock Split, received a cash payment in lieu of receiving fractional shares. The value of the fractional shares repurchased was $ 347 and equated to fifty-eight shares. All share and per share amounts of common stock, options and warrants contained in this Quarterly Report on Form 10-Q and the accompanying unaudited condensed consolidated financial statements and related footnotes have been restated for all periods to give retroactive effect to the Reverse Stock Split and the related fractional share repurchase for all prior periods presented. Accordingly, the unaudited Condensed Consolidated Statement of Deficit reflects the impact of the Reverse Stock Split by reclassifying from “Common Stock” to “Additional paid-in capital” an amount equal to the aggregate par value of the number of shares by which the total number of shares outstanding decreased as a result of the Reverse Stock Split. NOTE 2— ACCOUNTING POLICIES Use of Estimates in Preparation of Financial Statements The preparation of unaudited condensed 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 unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 Concentrations of Credit Risk 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 $ 1,463,000 at June 30, 2024. The Company does not believe there is a significant risk of non-performance by its counterparties. For the six- and three-month periods, one customer represented 10 % and 12 % of the Company’s total invoiced sales, respectively. At June 30, 2024, the Company did not have any customers that represented 10 % or greater of our total accounts receivable. Approximately 25 % of the accounts receivable at December 31, 2023 was due from one customer which was subsequently collected in full. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising the Company’s customer base. Although we do not believe there is significant risk of non-performance by these counterparties, any failures or defaults on their part could negatively impact the value of our financial instruments and could have a material adverse effect on our business, operations or financial condition. Inventory Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at the lower of cost or 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 conducts an assessment at each reporting period of the Company’s inventory reserve and writes off any inventory items that are deemed obsolete. Revenue Recognition The Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, 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 10, 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) is recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period. See Notes 9 and 10 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. 8 Income Taxes The Company is subject to U.S. federal income tax and income taxes imposed in the state and local jurisdictions where it operates its businesses. Deferred income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will be realized. The income tax expense in the six-month period ended June 30, 2024 represents the estimated state tax of various states on the 2023 income of OmniMetrix. Basic and Diluted Net Income Per Share Basic net income per share is computed by dividing the net income attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income per share is computed by dividing the net income 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 income per share if doing so would be antidilutive. The combined weighted average number of options (as adjusted to account for the September 2023 1-for-16 reverse stock split) that were excluded from the computation of diluted net income per share, as they had an antidilutive effect, was 26,000 (with a weighted average exercise price of $ 8.13 ) and 15,000 (with a weighted average exercise price of $ 9.17 ) for the six- and three-month periods ended June 30, 2024, respectively. The combined weighted average number of options excluded from the computation of diluted net income per share was 50,000 (with a weighted average exercise price of $ 7.20 ) and 58,000 (with a weighted average exercise price of $ 6.89 ) for the six- and three-month periods ended June 30, 2023, respectively. The following table represents the amounts used in computing earnings per share and the effect on net income 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) and is in thousands, except per share data: SCHEDULE OF EFFECT ON NET INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES 2024 2023 2024 2023 Six months ended June 30, Three months ended June 30, 2024 2023 2024 2023 Net income attributable to common stockholders $ 336 $ 11 $ 271 $ 96 Weighted average share outstanding: -Basic 2,487 2,484 2,487 2,485 Add: Stock options 14 2 20 2 -Diluted 2,501 2,486 2,507 2,487 Basic net income per share $ 0.14 $ 0.00 $ 0.11 $ 0.04 Diluted net income per share $ 0.13 $ 0.00 $ 0.11 $ 0.04 Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, and early application is permitted. The Company is currently assessing the impact the adoption of ASU 2023-07 will have on its segment reporting disclosures. 9 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. NOTE 3— LIQUIDITY As of June 30, 2024, the Company had $ 1,463,000 of consolidated cash. At June 30, 2024, the Company had a negative working capital of $ 423,000 . Its working capital includes $ 1,463,000 of cash and deferred revenue of $ 3,590,000 . Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Total deferred revenue decreased by $ 1,004,000 , from $ 5,584,000 at December 31, 2023 to $ 4,580,000 at June 30, 2024, 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 June 30, 2024 will continue to be amortized over the months remaining in the three-year period since the hardware’s original date of shipment. Net cash increased during the six-month period ended June 30, 2024 by $ 14,000 , with $ 41,000 provided by operating activities, $ 40,000 used in investing activities, and $ 13,000 provided by financing activities. As of August 6, 2024, the Company had cash of $ 1,546,000 . 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 unaudited condensed consolidated financial statements. The Company may, at some point, elect to obtain 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. NOTE 4— ALLOWANCE FOR CREDIT LOSSES 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), lease receivables (sublease, see Note 6) 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. 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, solar installers, 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 customers’ ability to pay. These factors include the customers’ 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. The Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. As of June 30, 2024, the Company had gross receivables of $ 545,000 and an allowance for credit losses of $ 5,000 . 10 The following is a tabular reconciliation of the Company’s allowance for credit losses: SCHEDULE OF ALLOWANCES FOR CREDIT LOSSES June 30, 2024 December 31, 2023 As of June 30, 2024 December 31, 2023 (in thousands) Balance at beginning of period $ 10 $ 10 Provision for credit losses adjustment ( 7 ) 2 Net credits (charge-offs) 2 ( 2 ) Balance at end of period $ 5 $ 10 NOTE 5— INVENTORY SCHEDULE OF INVENTORY June 30, 2024 December 31, 2023 As of June 30, 2024 December 31, 2023 (in thousands) Raw materials $ 683 $ 904 Finished goods 48 58 Inventory net $ 731 $ 962 At June 30, 2024 and December 31, 2023, the Company’s inventory reserve was $ 10,000 and $ 8,000 respectively. NOTE 6— 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 had a sixty-month term. This lease is currently month-to-month until the Company negotiates a new term. Operating lease payments for the six-month periods ended June 30, 2024 and 2023 were $ 64,000 and $ 63,000 , respectively. Operating lease payments for the three-month periods ended June 30, 2024 and 2023 were $ 32,000 and $ 32,000 , respectively. The present value of future minimum lease payments on non-cancelable operating leases as of June 30, 2024 using a discount rate of 4.5 % is $ 160,000 . The 4.5 % discount rate used was the estimated incremental borrowing rate when the lease was entered into, which, as defined in ASC 842: Leases , is the rate of interest that a lessee would have had to pay to borrow, on a collateralized basis, over a similar term and in a similar economic environment, an amount equal to the lease payments. Supplemental cash flow information related to leases consisted of the following (in thousands): SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES For the Six Months Ending June 30, 2024 2023 Cash paid for operating lease liabilities $ 64 $ 63 Supplemental balance sheet information related to leases consisted of the following: SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES 2024 Weighted average remaining lease terms for operating leases 1.25 years 11 The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms of more than one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2024 (in thousands): SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Year ended June 30, 2025 $ 131 2026 33 Total undiscounted cash flows 164 Less: Imputed interest ( 4 ) Present value of operating lease liabilities ( a ) $ 160 (a) Includes current portion of $ 127,000 for operating leases. 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. During each of the six- and three-month periods ended June 30, 2024 and 2023, after the offset of the investment in leasehold improvements and other expenses related to the sublease, the Company paid its landlord $ 7,000 and $ 3,000 , respectively. The Company has paid a total of $ 16,000 for its share of the sublease profit since the lease commencement. 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 (in thousands) expected under the sublease net of the estimated annual service cost of $ 2,220 (gross of the estimated amount expected to be remitted to our landlord): SCHEDULE OF SUBLEASES Year ended June 30, 2025 $ 29 2026 7 Total undiscounted cash flows $ 36 NOTE 7— COMMITMENTS AND CONTINGENCIES The Company has $ 160,000 in operating lease obligations payable through 2026 and $ 565,000 in other contractual obligations. The contractual services include $ 242,000 payable through June 30, 2025, $ 208,000 payable through June 30, 2026, and $ 105,000 payable through June 30, 2027. The Company also has $ 468,000 in open purchase order commitments payable through June 30, 2025. NOTE 8— STOCKHOLDERS’ DEFICIT (a) General At June 30, 2024, Acorn had 2,537,485 shares issued and 2,487,307 shares outstanding of its common stock, par value $ 0.01 per share. Holders of outstanding common stock are entitled to receive dividends when and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company. The Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding. 12 (b) 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 optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable 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 June 30, 2024, 68,869 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. During the six-month period ended June 30, 2024, 7,900 options were issued of which all were issued in the three-month period ended March 31, 2024. No options were issued in the three-month period ended June 30, 2024. The options were issued as follows: an aggregate of 2,500 to directors (excluding the CEO), 2,200 to the CEO, 2,200 to the CFO and an aggregate of 1,000 to employees. In the six- and three-month periods ended June 30, 2024, there were no grants to non-employees (other than the directors, CEO and CFO). During the six- and three-month periods ended June 30, 2024, 2,812 options were exercised of which all were exercised in the three-month period ended March 31, 2024. No options were exercised in the three-month period ended June 30, 2024. 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 BLACK-SCHOLES OPTION PRICING ESTIMATE FAIR VALUE Number of Options (in shares) Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2023 71,893 $ 6.41 3.8 years $ 40,000 Granted 7,900 6.08 Exercised ( 2,812 ) 5.12 Forfeited or expired — — Outstanding at June 30, 2024 76,981 $ 6.42 3.7 years $ 258,000 Exercisable at June 30, 2024 68,038 $ 6.45 3.4 years $ 227,000 The fair value of the options granted of $ 47,000 during the six-month period ended June 30, 2024 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS ESTIMATED USING BLACK-SCHOLES Risk-free interest rate 3.9 % Expected term of options 4.9 years Expected annual volatility 194.1 % Expected dividend yield — % (c) Stock Option Compensation Expense Stock option compensation expense included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations was $ 38,000 and $ 30,000 for the six-month periods ended June 30, 2024 and 2023, respectively, and $ 11,000 and $ 13,000 for the three-month periods ended June 30, 2024 and 2023, respectively. The total compensation cost related to non-vested awards not yet recognized was $ 31,000 as of June 30, 2024 which will be recognized over the next thirty-one months. 13 NOTE 9— SEGMENT REPORTING As of June 30, 2024, the Company operates in two reportable operating segments, both of which are performed through the Company’s OmniMetrix subsidiary: ● Power Generation (“PG”). OmniMetrix’s PG services provide wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial power generation equipment. This includes OmniMetrix’s AIRGuard product, which remotely monitors and controls industrial air compressors, and its Smart Annunciator product, which is typically sold to commercial customers that require a visual representation of the generator’s status and has a touchscreen display that indicates the current state of that generator. ● Cathodic Protection (“CP”). OmniMetrix’s CP services provide remote monitoring and control products for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. OmniMetrix also offers the industry’s first RAD TM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools, which can drastically reduce a company’s expense while increasing employee safety. The Company’s reportable segments are strategic business units, offering different products and services, and are managed separately as each business requires different technology and marketing strategies. The following tables represent segmented data for the six- and three-month periods ended June 30, 2024 and 2023 (in thousands): SUMMARY OF SEGMENTED DATA PG CP Total Six months ended June 30, 2024: Revenues from external customers $ 3,855 $ 552 $ 4,407 Segment gross profit $ 2,934 $ 322 $ 3,256 Depreciation and amortization $ 51 $ 7 $ 58 Segment income (loss) before income taxes $ 936 $ ( 33 ) $ 903 Six months ended June 30, 2023: Revenues from external customers $ 3,196 $ 526 $ 3,722 Segment gross profit $ 2,495 $ 311 $ 2,806 Depreciation and amortization $ 65 $ 11 $ 76 Segment income (loss) before income taxes $ 530 $ ( 40 ) $ 490 Three months ended June 30, 2024: Revenues from external customers $ 2,061 $ 214 $ 2,275 Segment gross profit $ 1,536 $ 129 $ 1,665 Depreciation and amortization $ 27 $ 3 $ 30 Segment income (loss) before income taxes $ 520 $ ( 15 ) $ 505 Three months ended June 30, 2023: Revenues from external customers $ 1,689 $ 284 $ 1,973 Segment gross profit $ 1,316 $ 174 $ 1,490 Depreciation and amortization $ 32 $ 6 $ 38 Segment income before income taxes $ 331 $ 8 $ 339 The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments. Further, the Chief Decision Maker does not review the assets by segment. 14 Reconciliation of Segment Income to Consolidated Net Income Before Income Taxes SCHEDULE OF RECONCILIATION OF SEGMENT DATA TO CONSOLIDATED STATEMENT OF OPERATIONS 2024 2023 2024 2023 Six months ended June 30, Three months ended June 30, 2024 2023 2024 2023 (in thousands) Total net income before income taxes for reportable segments $ 903 $ 490 $ 505 $ 339 Unallocated cost of corporate headquarters ( 534 ) ( 475 ) ( 229 ) ( 240 ) Consolidated net income before income taxes $ 369 $ 15 $ 276 $ 99 NOTE 10— REVENUE The following table disaggregates the Company’s revenue for the six- and three-month periods ended June 30, 2024 and 2023 (in thousands): SCHEDULE OF DISAGGREGATES OF REVENUE Hardware Monitoring Total Six months ended June 30, 2024: PG Segment $ 1,767 $ 2,088 $ 3,855 CP Segment 428 124 552 Total Revenue $ 2,195 $ 2,212 $ 4,407 Hardware Monitoring Total Six months ended June 30, 2023: PG Segment $ 1,237 $ 1,959 $ 3,196 CP Segment 396 130 526 Total Revenue $ 1,633 $ 2,089 $ 3,722 Hardware Monitoring Total Three months ended June 30, 2024: PG Segment $ 1,014 $ 1,047 $ 2,061 CP Segment 151 63 214 Total Revenue $ 1,165 $ 1,110 $ 2,275 Hardware Monitoring Total Three months ended June 30, 2023: PG Segment $ 688 $ 1,001 $ 1,689 CP Segment 220 64 284 Total Revenue $ 908 $ 1,065 $ 1,973 Deferred revenue activity for the six months ended June 30, 2024 can be seen in the table below (in thousands): SCHEDULE OF DEFERRED REVENUE ACTIVITY Hardware Monitoring Total Balance at December 31, 2023 $ 2,965 $ 2,619 $ 5,584 Additions during the period — 2,235 2,235 Recognized as revenue ( 1,027 ) ( 2,212 ) ( 3,239 ) Balance at June 30, 2024 $ 1,938 $ 2,642 $ 4,580 Amounts to be recognized as revenue in the twelve-month-period ending: June 30, 2025 $ 1,400 2,190 3,590 June 30, 2026 534 448 982 June 30, 2027 and thereafter 4 4 8 Total $ 1,938 2,642 4,580 15 The amount of hardware revenue recognized during the six months ended June 30, 2024 that was included in deferred revenue at the beginning of the fiscal year was $ 1,027,000 . The amount of monitoring revenue during the six months ended June 30, 2024 that was included in deferred revenue at the beginning of the fiscal year was $ 1,633,000 . The following table provides a reconciliation of the Company’s hardware revenue for the six- and three-month periods ended June 30, 2024 and 2023 (in thousands): SCHEDULE OF RECONCILIATION OF HARDWARE REVENUE Reconciliation of Hardware Revenue 2024 2023 2024 2023 Six months ended June 30, Three months ended June 30, Reconciliation of Hardware Revenue 2024 2023 2024 2023 Amortization of deferred revenue $ 1,027 $ 1,192 $ 492 $ 607 Sales of custom designed units and related accessories — 92 — 92 Hardware sales (new product versions) 955 — 579 — Other accessories, services, shipping and miscellaneous charges 213 349 94 209 Total hardware revenue $ 2,195 $ 1,633 $ 1,165 $ 908 Deferred COGS relate only to the sale of equipment. Deferred COGS activity for the six-month period ended June 30, 2024 can be seen in the table below (in thousands): SCHEDULE OF DEFERRED CHARGES ACTIVITY Balance at December 31, 2023 $ 1,285 Additions, net of adjustments, during the period — Recognized as COGS ( 451 ) Balance at June 30, 2024 $ 834 Amounts to be recognized as COGS in the twelve-month-period ending: June 30, 2025 $ 608 June 30, 2026 224 June 30, 2027 and thereafter 2 $ 834 The following table provides a reconciliation of the Company’s COGS expense for the six- and three-month periods ended June 30, 2024 and 2023 (in thousands): SCHEDULE OF RECONCILIATION OF COGS EXPENSE Reconciliation of COGS Expense 2024 2023 2024 2023 Six months ended June 30, Three months ended June 30, Reconciliation of COGS Expense 2024 2023 2024 2023 Amortization of deferred COGS $ 451 $ 540 $ 216 $ 272 COGS of custom designed units and related accessories — 23 — 23 COGS of hardware sales (new product versions) 430 — 268 — Data costs for monitoring 123 148 61 73 Other COGS of accessories, services, shipping and miscellaneous charges 147 205 66 115 Total COGS expense $ 1,151 $ 916 $ 610 $ 483 16 The following table provides a reconciliation of the Company’s sales commissions contract assets for the six-month period ended June 30, 2024 (in thousands): SCHEDULE OF SALES COMMISSIONS CONTRACT ASSETS Hardware Monitoring Total Balance at December 31, 2023 $ 268 $ 96 $ 364 Additions during the period — 21 21 Amortization of sales commissions ( 91 ) ( 21 ) ( 112 ) Balance at June 30, 2024 $ 177 96 273 The capitalized sales commissions are included in other current assets ($ 167,000 ) and other assets ($ 106,000 ) in the Company’s unaudited condensed consolidated balance sheet at June 30, 2024. The capitalized sales commissions are included in other current assets ($ 202,000 ) and other assets ($ 162,000 ) in the Company’s condensed consolidated balance sheet at December 31, 2023. Amounts to be recognized as sales commission expense in the twelve-month-period ending (in thousands): SCHEDULE OF SALES COMMISSIONS EXPENSE June 30, 2025 $ 167 June 30, 2026 82 June 30, 2027 and thereafter 24 Total $ 273 NOTE 11— RELATED PARTY BALANCES AND TRANSACTIONS Officer and Director Fees The Company recorded consulting service fees to officers of $ 269,000 and $ 261,000 for the six-month periods ended June 30, 2024 and 2023, respectively, and $ 135,000 and $ 131,000 for the three-month periods ended June 30, 2024 and 2023, respectively, which are included in selling, general and administrative expenses. The Company recorded fees to directors of $ 37,000 and $ 34,000 for the six-month periods ended June 30, 2024 and 2023, respectively, and $ 19,000 and $ 19,000 for the three-month periods ended June 30, 2024 and 2023, respectively, which are included in selling, general and administrative expenses. 17 ACORN ENERGY, INC.