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 September 30, 2024 As of December 31, 2023 (Unaudited) ASSETS Current assets: Cash $ 2,153 $ 1,449 Accounts receivable, net 894 536 Inventory, net 659 962 Deferred cost of goods sold (COGS) 507 809 Other current assets 318 280 Total current assets 4,531 4,036 Property and equipment, net 527 570 Right-of-use assets, net 112 193 Deferred COGS 134 476 Other assets 99 174 Total assets $ 5,403 $ 5,449 LIABILITIES AND EQUITY (DEFICIT) Current liabilities: Accounts payable $ 313 $ 288 Accrued expenses 202 132 Deferred revenue 3,572 4,034 Current operating lease liabilities 129 123 Other current liabilities 38 30 Total current liabilities 4,254 4,607 Long-term liabilities: Deferred revenue 812 1,550 Noncurrent operating lease liabilities — 98 Other long-term liabilities 23 20 Total liabilities 5,089 6,275 Commitments and contingencies (Note 7) - - Equity (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 September 30, 2024 and December 31, 2023, respectively, and 2,487,307 and 2,484,791 shares outstanding at September 30, 2024 and December 31, 2023, respectively 25 25 Additional paid-in capital 103,386 103,321 Accumulated stockholders’ deficit ( 100,087 ) ( 101,148 ) Treasury stock, at cost – 50,178 shares at September 30, 2024 and December 31, 2023 ( 3,036 ) ( 3,036 ) Total Acorn Energy, Inc. stockholders’ equity (deficit) 288 ( 838 ) Non-controlling interest 26 12 Total equity (deficit) 314 ( 826 ) Total liabilities and equity (deficit) $ 5,403 $ 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 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Revenue $ 7,457 $ 5,809 $ 3,050 $ 2,087 COGS 2,014 1,453 863 537 Gross profit 5,443 4,356 2,187 1,550 Operating expenses: Research and development expense (R&D) 698 614 234 212 Selling, general and administrative (SG&A) expense 3,653 3,746 1,197 1,330 Total operating expenses 4,351 4,360 1,431 1,542 Operating income (loss) 1,092 ( 4 ) 756 8 Interest income, net 53 46 20 19 Income before income taxes 1,145 42 776 27 Income tax expense 67 — 42 — Net income 1,078 42 734 27 Non-controlling interest share of income ( 17 ) ( 7 ) ( 9 ) ( 3 ) Net income attributable to Acorn Energy, Inc. stockholders $ 1,061 $ 35 $ 725 $ 24 Basic and diluted net income per share attributable to Acorn Energy, Inc stockholders – basic and diluted Basic $ 0.43 $ 0.01 $ 0.29 $ 0.01 Diluted $ 0.42 $ 0.01 $ 0.29 $ 0.01 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 2,504 2,506 2,511 2,532 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 EQUITY (DEFICIT) (UNAUDITED) (IN THOUSANDS) Three and Nine Months Ended September 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’ Equity (Deficit) Non- controlling interests Total Equity (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 ) Net income — — — 725 — — 725 9 734 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 14 — — — 14 — 14 Balances as of September 30, 2024 2,487 $ 25 $ 103,386 $ ( 100,087 ) 50 $ ( 3,036 ) $ 288 $ 26 $ 314 Three and Nine Months Ended September 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 interests Total Deficit Balances as of December 31, 2022 2,483 $ 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 2,485 $ 25 $ 103,283 $ ( 101,352 ) 50 $ ( 3,036 ) $ ( 1,080 ) $ 6 $ ( 1,074 ) Net income — — — 96 — — 96 3 99 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 13 — — — 13 — 13 Balances as of June 30, 2023 2,485 $ 25 $ 103,296 $ ( 101,256 ) 50 $ ( 3,036 ) $ ( 971 ) $ 8 $ ( 963 ) Balances 2,485 $ 25 $ 103,296 $ ( 101,256 ) 50 $ ( 3,036 ) $ ( 971 ) $ 8 $ ( 963 ) Net income — — — 24 — — 24 3 27 Net income (loss) — — — 24 — — 24 3 27 Accrued dividend in OmniMetrix preferred shares — — — — — — — ( 1 ) ( 1 ) Stock-based compensation — — 16 — — — 16 — 16 Balances as of September 30, 2023 2,485 $ 25 $ 103,312 $ ( 101,232 ) 50 $ ( 3,036 ) $ ( 931 ) $ 10 $ ( 921 ) Balances 2,485 $ 25 $ 103,312 $ ( 101,232 ) 50 $ ( 3,036 ) $ ( 931 ) $ 10 $ ( 921 ) * 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) Nine months ended September 30, 2024 2023 Cash flows provided by operating activities: Net income $ 1,078 $ 42 Depreciation and amortization 91 115 (Decrease) increase in the provision for credit loss ( 7 ) 3 Impairment of inventory 21 9 Non-cash lease expense 97 96 Stock-based compensation 52 46 Change in operating assets and liabilities: (Increase) decrease in accounts receivable ( 351 ) 11 Decrease (increase) in inventory 282 ( 129 ) Decrease in deferred COGS 644 162 Decrease (increase) in other current assets and other assets 37 ( 49 ) (Decrease) increase in deferred revenue ( 1,200 ) 40 Decrease in operating lease liability ( 108 ) ( 104 ) Increase in accounts payable, accrued expenses, other current liabilities and non-current liabilities 103 124 Net cash provided by operating activities 739 366 Cash flows used in investing activities: Investments in technology ( 44 ) ( 70 ) Equipment purchases ( 4 ) ( 2 ) Net cash used in investing activities ( 48 ) ( 72 ) 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 704 299 Cash at the beginning of the period 1,449 1,450 Cash at the end of the period $ 2,153 $ 1,749 Supplemental cash flow information: Cash paid during the period for: Interest $ 1 $ 2 Income Taxes $ 2 $ — Non-cash investing and financing activities: Accrued preferred dividends to former CEO of OmniMetrix $ 3 $ 3 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 nine- and three-month periods ended September 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 Statements of Equity (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 $ 2,153,000 at September 30, 2024. The Company does not believe there is a significant risk of non-performance by its counterparties. For the nine- and three-month period ended September 30, 2024, there was one customer that represented 12 % and 26 %, respectively, of the Company’s total invoiced sales. At September 30, 2024, the Company had one customer that represented 37 % of its total accounts receivable due by December 29, 2024 based on the customer’s payment terms. The customer with this concentration of both invoiced sales and accounts receivable is the customer under the material contract that was executed in June 2024. See Note 10 for further discussion. 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 the end of 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 balance sheet approach. 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 not be realized. The assessment of the realization of deferred tax assets is subject to significant judgement and the Company evaluates its deferred tax assets for realizability at each reporting period. The Company’s deferred tax assets consist primarily of net operating loss carryforwards which may be able to be utilized against taxable income, however the changes in ownership may limit the ability to fully utilize loss carryforwards under Internal Revenue Code Section 382. The Company intends to perform a study to determine what portion of its deferred tax assets may be subject to annual limitation due to the tax law limitations and complete this analysis in the fourth quarter of 2024. The income tax expense in the nine- and three- month periods ended September 30, 2024 represents the tax by various states on the 2023 income of OmniMetrix. The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits, and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s tax years subject to examination based on the statute of limitations is generally three years; however, the tax authorities may examine records and other evidence from the year the net operating loss was generated when the Company utilizes net operating loss carryforwards in future periods. 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. The dilutive effects of stock options are excluded from the computation of diluted net income per share if doing so would be antidilutive. For the nine-month period ending September 30, 2024, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was 17,000 (which have a weighted average exercise price of $ 9.09 ). For the three-month period ending September 30, 2024, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was 15,000 (which have a weighted average exercise price of $ 9.17 ). For the nine-month period ending September 30, 2023, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was 6,000 (which have a weighted average exercise price of $ 8.49 ). For the three-month period ending September 30, 2023, there were no options that were excluded from the computation of diluted net income due to having an antidilutive effect. The following table represents the amounts used in computing earnings per share and the effect on net income and the weighted average number of potential dilutive shares of 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 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Net income attributable to common stockholders $ 1,061 $ 35 $ 725 $ 24 Weighted average shares outstanding: Basic 2,487 2,484 2,487 2,485 Add: Stock options 17 22 24 47 Diluted 2,504 2,506 2,511 2,532 Basic net income per share $ 0.43 $ 0.01 $ 0.29 $ 0.01 Diluted net income per share $ 0.42 $ 0.01 $ 0.29 $ 0.01 9 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. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional disclosures of income tax components that affect the rate reconciliation and income taxes paid, broken out by the applicable taxing jurisdictions. The Company expects to adopt this ASU for the annual period beginning on January 1, 2025, and does not expect a material impact on the consolidated financial statements. NOTE 3— LIQUIDITY As of September 30, 2024, the Company had $ 2,153,000 of consolidated cash. At September 30, 2024, the Company had working capital of $ 277,000 . Its working capital includes $ 2,153,000 of cash and deferred revenue of $ 3,572,000 . Such deferred revenue does not require a significant cash outlay for the revenue to be recognized. Total deferred revenue decreased by $ 1,200,000 , from $ 5,584,000 at December 31, 2023 to $ 4,384,000 at September 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 September 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 nine-month period ended September 30, 2024 by $ 704,000 , with $ 739,000 provided by operating activities, $ 48,000 used in investing activities, and $ 13,000 provided by financing activities. As of November 5, 2024, the Company had cash of $ 2,087,000 . 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, 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. 10 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 September 30, 2024, the Company had gross receivables of $ 900,000 and an allowance for credit losses of $ 6,000 . The following is a tabular reconciliation of the Company’s allowance for credit losses: SCHEDULE OF ALLOWANCES FOR CREDIT LOSSES September 30, 2024 December 31, 2023 As of September 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) 3 ( 2 ) Balance at end of period $ 6 $ 10 NOTE 5— INVENTORY SCHEDULE OF INVENTORY September 30, 2024 December 31, 2023 As of September 30, 2024 December 31, 2023 (in thousands) Raw materials $ 586 $ 904 Finished goods 73 58 Inventory net $ 659 $ 962 At September 30, 2024 and December 31, 2023, the Company’s inventory reserve was $ 11,000 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 nine months ended September 30, 2024 and 2023 were $ 97,000 and $ 96,000 , respectively. Operating lease payments for the three months ended September 30, 2024 and 2023 were $ 33,000 and $ 33,000 , respectively. The present value of future minimum lease payments on non-cancellable operating leases as of September 30, 2024 using a discount rate of 4.5 % is $ 129,000 . 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 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. 11 Supplemental cash flow information related to leases consisted of the following (in thousands): SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES For the Nine Months Ending September 30, 2024 2023 Cash paid for operating lease liabilities $ 97 $ 96 Supplemental balance sheet information related to leases consisted of the following: SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES As of September 30, 2024 Weighted average remaining lease terms for operating leases 1 year 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 September 30, 2024 (in thousands): SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Year ended September 30, 2025 $ 132 Total undiscounted cash flows 132 Less: Imputed interest ( 3 ) Present value of operating lease liabilities (a) $ 129 (a) The total amount represents the current portion of $ 129,000 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 nine- and three-month periods ended September 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 $ 0 , respectively. The Company has paid a total of $ 16,000 for its share of the sublease profit since the lease commencement. In addition to the $ 16,000 paid since inception, $ 2,000 in sublease profit due has been accrued at September 30, 2024. 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 $ 2,000 : SCHEDULE OF SUBLEASES Total undiscounted cash flows - sublease: Year ended September 30, 2025 $ 29 NOTE 7— COMMITMENTS AND CONTINGENCIES The Company has $ 129,000 in operating lease obligations payable through 2025 and $ 496,000 in other contractual obligations. The contractual services include $ 240,000 payable through September 30, 2025, $ 196,000 payable through September 30, 2026, and $ 60,000 payable through September 30, 2027. The Company also has $ 757,000 in open purchase order commitments payable through September 30, 2025 of which $ 581,000 is to one electronics vendor. 12 NOTE 8— STOCKHOLDERS’ EQUITY (DEFICIT) (a) General At September 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. (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 September 30, 2024, 69,973 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 nine-month period ended September 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 September 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 nine- and three-month periods ended September 30, 2024, there were no grants to non-employees (other than the directors, CEO and CFO). During the nine- and three-month periods ended September 30, 2024, 2,812 options were exercised, all of which were exercised in the three-month period ended March 31, 2024. No options were exercised in the three-month period ended September 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 ( 1,104 ) 5.67 Outstanding at September 30, 2024 75,877 $ 6.43 3.5 years $ 251,000 Exercisable at September 30, 2024 69,341 $ 6.47 3.3 years $ 227,000 The fair value of the options granted of $ 47,000 during the nine-month period ended September 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 — % 13 (c) Stock-based Compensation Expense Stock-based compensation expense included in selling, general, and administrative expense in the Company’s unaudited condensed consolidated statements of operations was $ 52,000 and $ 46,000 for the nine-month periods ended September 30, 2024 and 2023, respectively, and $ 14,000 and $ 16,000 for the three-month periods ended September 30, 2024 and 2023, respectively. The total compensation cost related to non-vested awards not yet recognized was $ 17,000 and $ 17,000 as of September 30, 2024 and 2023, respectively. NOTE 9— SEGMENT REPORTING As of September 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 TrueGuard power generator monitors and 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 nine-month and three-month periods ended September 30, 2024 and 2023 (in thousands): SUMMARY OF SEGMENTED DATA PG CP Total Nine months ended September 30, 2024: Revenues from external customers $ 6,681 $ 776 $ 7,457 Segment gross profit $ 4,988 $ 455 $ 5,443 Depreciation and amortization $ 81 $ 10 $ 91 Segment income before income taxes $ 1,902 $ 13 $ 1,915 Nine months ended September 30, 2023: Revenues from external customers $ 4,994 $ 815 $ 5,809 Segment gross profit $ 3,876 $ 480 $ 4,356 Depreciation and amortization $ 99 $ 16 $ 115 Segment income (loss) before income taxes $ 891 $ ( 35 ) $ 856 Three months ended September 30, 2024: Revenues from external customers $ 2,826 $ 224 $ 3,050 Segment gross profit $ 2,054 $ 133 $ 2,187 Depreciation and amortization $ 30 $ 3 $ 33 Segment income before income taxes $ 966 $ 46 $ 1,012 Three months ended September 30, 2023: Revenues from external customers $ 1,798 $ 289 $ 2,087 Segment gross profit $ 1,381 $ 169 $ 1,550 Depreciation and amortization $ 36 $ 5 $ 41 Segment income before income taxes $ 361 $ 5 $ 366 14 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. 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 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Total net income before income taxes for reportable segments $ 1,915 $ 856 $ 1,012 $ 366 Unallocated cost of corporate headquarters ( 770 ) ( 814 ) ( 236 ) ( 339 ) Consolidated net income (before income taxes $ 1,145 $ 42 $ 776 $ 27 NOTE 10— REVENUE The following table disaggregates the Company’s revenue for the nine-month and three-month periods ended September 30, 2024 and 2023 (in thousands): SCHEDULE OF DISAGGREGATES OF REVENUE Hardware Monitoring Total Nine months ended September 30, 2024: PG Segment $ 3,517 $ 3,164 $ 6,681 CP Segment 590 186 776 Total Revenue $ 4,107 $ 3,350 $ 7,457 Hardware Monitoring Total Nine months ended September 30, 2023: PG Segment $ 2,017 $ 2,977 $ 4,994 CP Segment 620 195 815 Total Revenue $ 2,637 $ 3,172 $ 5,809 Hardware Monitoring Total Three months ended September 30, 2024: PG Segment $ 1,750 $ 1,076 $ 2,826 CP Segment 162 62 224 Total Revenue $ 1,912 $ 1,138 $ 3,050 Hardware Monitoring Total Three months ended September 30, 2023: PG Segment $ 780 $ 1,018 $ 1,798 CP Segment 224 65 289 Total Revenue $ 1,004 $ 1,083 $ 2,087 See Concentrations of Credit Risk in Note 2 for additional discussion. 15 Deferred revenue activity for the nine months ended September 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 — 3,613 3,613 Recognized as revenue ( 1,463 ) ( 3,350 ) ( 4,813 ) Balance at September 30, 2024 $ 1,502 $ 2,882 $ 4,384 Amounts to be recognized as revenue in the twelve-month period ending: September 30, 2025 $ 1,178 $ 2,394 $ 3,572 September 30, 2026 324 485 809 September 30, 2027 and thereafter — 3 3 Total $ 1,502 $ 2,882 $ 4,384 The amount of hardware revenue recognized during the nine months ended September 30, 2024 that was included in deferred revenue at the beginning of the fiscal year was $ 1,463,000 . The amount of monitoring revenue during the nine months ended September 30, 2024 that was included in deferred revenue at the beginning of the fiscal year was $ 2,081,000 . The following table provides a reconciliation of the Company’s hardware revenue for the nine- and three-month periods ended September 30, 2024 and 2023 (in thousands): SCHEDULE OF RECONCILIATION OF HARDWARE REVENUE Reconciliation of Hardware Revenue 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, Reconciliation of Hardware Revenue 2024 2023 2024 2023 Amortization of deferred revenue $ 1,463 $ 1,821 $ 436 $ 629 Sales of custom designed units and related accessories — 135 — 43 Hardware sales (new product versions) 2,297 150 1,342 150 Other accessories, services, shipping and miscellaneous charges 347 531 134 182 Total hardware revenue $ 4,107 $ 2,637 $ 1,912 $ 1,004 Deferred COGS relate only to the sale of equipment. Deferred COGS activity for the nine-month period ended September 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 ( 644 ) Balance at September 30, 2024 $ 641 Amounts to be recognized as COGS in the twelve-month-period ending: September 30, 2025 $ 507 September 30, 2026 134 September 30, 2027 and thereafter — $ 641 16 The following table provides a reconciliation of the Company’s COGS expense for the nine- and three-month periods ended September 30, 2024 and 2023 (in thousands): SCHEDULE OF RECONCILIATION OF COGS EXPENSE Reconciliation of COGS Expense 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, Reconciliation of COGS Expense 2024 2023 2024 2023 Amortization of deferred COGS $ 644 $ 817 $ 193 $ 277 COGS of custom designed units and related accessories — 34 — 11 COGS of hardware sales (new product versions) 960 66 530 66 Data costs for monitoring 186 224 63 76 Other COGS of accessories, services, shipping and miscellaneous charges 224 312 77 107 Total COGS expense $ 2,014 $ 1,453 $ 863 $ 537 The following table provides a reconciliation of the Company’s sales commissions contract assets for the nine-month period ended September 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 — 35 35 Amortization of sales commissions ( 130 ) ( 33 ) ( 163 ) Balance at September 30, 2024 $ 138 98 236 The capitalized sales commissions are included in other current assets ($ 150,000 ) and other assets ($ 86,000 ) in the Company’s unaudited condensed consolidated balance sheets as of September 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: SCHEDULE OF SALES COMMISSIONS EXPENSE September 30, 2025 $ 150 September 30, 2026 63 September 30, 2027 and thereafter 23 Total $ 236 NOTE 11— RELATED PARTY BALANCES AND TRANSACTIONS Officer and Director Fees The Company recorded consulting service fees to officers of $ 403,000 and $ 391,000 for the nine-month periods ended September 30, 2024 and 2023, respectively, and $ 134,000 and $ 131,000 for the three-month periods ended September 30, 2024 and 2023, respectively, which are included in selling, general and administrative expense. The Company recorded fees to directors of $ 56,000 and $ 52,000 for the nine-month periods ended September 30, 2024 and 2023, respectively, and $ 19,000 and $ 18,000 for the three-month periods ended September 30, 2024 and 2023, respectively, which are included in selling, general and administrative expense. 17 ACORN ENERGY, INC.