Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
We
may from time to time make written or oral statements that contain forward-looking information. However, our actual results may differ
materially from our expectations, statements or projections. The following risks and uncertainties, together with other factors not presently
determinable, could cause actual results to differ from our expectations, statements or projections.
General
Factors
We
depend on key management for the success of our business.
Our
success is largely dependent on the skills, experience and efforts of our senior management team, including Jan Loeb, CEO of Acorn and
Acting CEO of OmniMetrix, who beneficially owns approximately 21% of the Company’s stock, and Tracy Clifford, CFO of Acorn and
COO of OmniMetrix. The loss of the services of either of these key managers could materially harm our business, financial condition,
future results and cash flow. We do not maintain “key person” life insurance policies on any members of senior management.
We may also not be able to locate or employ on acceptable terms qualified replacements for our senior management if their services were
no longer available.
Loss
of the services of a few key employees could harm our operations.
We
depend on key technical employees and sales personnel. The loss of certain personnel could diminish our ability to develop and maintain
relationships with customers and potential customers. The loss of certain technical personnel could harm our ability to meet development
and implementation schedules. The loss of key sales personnel could have a negative effect on sales to certain current customers. Our
future success also depends on our continuing ability to identify, hire, train and retain other highly qualified technical and managerial
personnel. If we fail to attract or retain highly qualified technical and managerial personnel in the future, our business could be disrupted.
Compliance
with changing regulations of corporate governance, public disclosure and financial accounting standards may result in additional expenses
and affect our reported results of operations.
Keeping
informed of, and in compliance with, changing laws, regulations and standards relating to corporate governance, public disclosure and
accounting standards, including the Sarbanes-Oxley Act, Dodd-Frank Act, as well as new and proposed SEC regulations and accounting standards,
has required an increased amount of management attention and external resources. Compliance with such requirements may result in increased
general and administrative expenses and an increased allocation of management time and attention to compliance activities.
We
may not be able to successfully integrate companies which we may invest in or acquire in the future, which could materially and adversely
affect our business, financial condition, future results and cash flow.
Part
of our business plan includes the possibility of acquiring new companies either as new platform companies or complimentary companies.
Any failure to effectively integrate any future acquisitions into our controls, systems and procedures could materially adversely affect
our business, results of operations, financial condition and cash flow.
Any
significant acquisition could require substantial use of our capital and may require significant debt or equity financing. We anticipate
the need to closely manage our cash for the foreseeable future and cannot provide any assurance as to the availability or terms of any
such financing or its effect on our liquidity and capital resources.
Integrating
acquisitions is often costly, and we may not be able to successfully integrate acquired companies with existing operations without substantial
costs, delays or other adverse operational or financial consequences. Integrating acquired companies involves a number of risks that
could materially and adversely affect our business, including:
●
failure
of the acquired companies to achieve the results we expect;
●
inability
to retain key personnel of the acquired companies;
●
dilution
of existing stockholders;
●
potential
disruption of our ongoing business activities and distraction of our management;
●
difficulties
in retaining business relationships with suppliers and customers of the acquired companies;
●
difficulties
in coordinating and integrating overall business strategies, sales and marketing, and research and development efforts; and
●
difficulties
in establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and procedures.
7
We
have reported material weaknesses in internal controls over financial reporting as of December 31, 2025 and we cannot assure you that
additional material weaknesses will not be identified in the future or that we can effectively remediate our reported weaknesses. If
our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our consolidated
financial statements that could require a restatement of our consolidated financial statements, or our filings may not be timely, and
investors may lose confidence in our reported financial information.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting
as of the end of each year, and to include a management report assessing the effectiveness of our internal control over financial reporting
in each Annual Report on Form 10-K.
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be
circumvented by the individual acts of some people, by the collusion of two or more people, or by management override of the controls.
Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or
procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Any
failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result
in significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in
material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations
regarding disclosure controls and the effectiveness of our internal control over financial reporting required under Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of a material weakness could result in errors in our consolidated
financial statements that could result in a restatement of our consolidated financial statements, cause us to fail to timely meet our
reporting obligations and cause investors to lose confidence in our reported financial information.
If
we are unable to protect our intellectual property, or our intellectual property protection efforts are unsuccessful, others may duplicate
our technology.
We
rely on a combination of patents, trademarks, copyrights, trade secret laws and restrictions on disclosure to protect our intellectual
property rights. Our ability to compete effectively will depend, in part, on our ability to protect our proprietary technology, systems’
designs and manufacturing processes. The ability of others to use our intellectual property could allow them to duplicate the benefits
of our products and reduce our competitive advantage. We could incur substantial costs in prosecuting patent and other intellectual property
infringement suits and defending the validity of our patents and other intellectual property. While we have attempted to safeguard and
maintain our property rights, we do not know whether we have been or will be completely successful in doing so. These actions could place
our patents, trademarks and other intellectual property rights at risk and could result in the loss of patent, trademark or other intellectual
property rights protection for the products, systems and services on which our business strategy partly depends. Furthermore, it is not
practical from a cost/benefit perspective to file for patent or trademark protection in every jurisdiction where we now or in the future
may conduct business. In those territories where we do not have the benefit of patent or trademark protections, our competitors may be
able to prevent us from selling our products or otherwise limit our ability to advertise under our established product names.
We
rely, to a significant degree, on contractual provisions to protect our trade secrets and proprietary knowledge. These trade secrets
either cannot be protected by patent protection, or we have determined that seeking a patent is not in our interest. These agreements
may be breached, and we may not have adequate remedies for any breach. Our trade secrets may also be known without breach of such agreements
or may be independently developed by competitors.
8
Our
financial instruments could subject us to concentrations of credit risk.
Our
financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade accounts
receivable. Our cash was deposited with a U.S. bank and amounted to $4,454,000 at December 31, 2025. We had one customer, the party
to the Material Contract, as defined below under Other Matters in Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, which represented approximately 42% of the accounts receivable at December 31, 2025.
As of March 3, 2026, 58% of this balance had been collected, with the remainder not yet due. Typically,
credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising our
customer base. However, at December 31, 2025, the balance of accounts receivable under the Material Contract represented more than
40% of the total outstanding balance of accounts receivable. Although we do not believe there is a significant risk of
non-performance by this customer, 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.
International
trade policies, including tariffs, sanctions and trade barriers may adversely affect our business, financial condition, results of operations
and prospects.
We
operate in a global economy, and our business depends on a global supply chain for the manufacturing of our products. There is inherent
risk, based on the complex relationships among the U.S. and the countries in which we conduct our business, that political, diplomatic,
and national security factors can lead to global trade restrictions and changes in trade policies and export regulations that may adversely
affect our business and operations. The current international trade and regulatory environment is subject to significant ongoing uncertainty.
We
source certain components and specialized equipment from international suppliers, with reliance on foreign manufacturers, including from
China, Taiwan and Mexico. While we have not experienced a material impact to date from tariffs, any changes in tariff policies, particularly
those affecting the locations of our suppliers and/or electronics and related materials, could materially increase our costs and reduce
our profitability. Recent and potential future changes in international trade policies, including U.S.-China trade relations and electronics-specific
tariffs, could present material risks to our operations and financial performance.
We
are dependent on information technology and our systems and infrastructure face certain risks, including cybersecurity breaches and data
leakage.
We
rely extensively on information technology systems, networks and services, including internet sites, data hosting and processing facilities
and tools, physical security systems and other hardware, software and technical applications and platforms, some of which are managed,
hosted, provided and/or used for third-parties or their vendors, to assist in conducting our business. A significant breakdown, invasion,
corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized
access to our systems or unauthorized persons could negatively impact our operations. The ever-increasing use and evolution of technology,
including cloud-based computing and AI, creates opportunities for the unintentional dissemination or intentional destruction or modification
of confidential information stored in our, or our third-party providers’ systems, portable media or storage devices. We could also
experience a business interruption, theft of confidential information or reputational damage from industrial espionage attacks, malware
or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party
providers. We have invested in appropriate industry protections and monitoring practices of our data and IT and have established a Cybersecurity
Steering Committee to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats.
While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any losses
incurred. Moreover, as cyber-attacks increase in frequency and magnitude, including by actors using AI, we may be unable to obtain cybersecurity
insurance in amounts and on terms we view as appropriate for our operations. There can be no assurance that our continuing efforts will
prevent breakdowns or breaches of our and/or our third-party providers’ databases or systems that could adversely affect our business.
9
Risks
Related to OmniMetrix
An
increase in customer terminations would negatively affect our business by reducing OmniMetrix’s revenue or requiring us to spend
more money to grow our customer base.
Although
our historical renewal rate is greater than 90%, non-renewals or other monitoring service terminations could increase in the future due
to customer dissatisfaction with our products and services, increased competition from other providers or alternative technologies.
If
we have an increase in our non-renewal rate, we will have to acquire new customers on an ongoing basis just to maintain our existing
level of customers and revenues. As a result, marketing expenditures are an ongoing requirement of our business. We incur costs to acquire
new customers, and those costs are a factor in determining our net profitability. Therefore, if we are unsuccessful in retaining customers
or are required to spend significant amounts to acquire new customers, our revenue could decrease and/or our operating results could
be affected.
OmniMetrix
is a relatively small company with limited resources compared to some of its current and potential competitors, which may hinder its
ability to compete effectively.
Some
of OmniMetrix’s current and potential competitors have significantly greater resources and broader name recognition than it does.
As a result, these competitors may have greater credibility with OmniMetrix’s existing and potential customers. They also may be
able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products,
which would allow them to respond more quickly to new or emerging technologies or changes in customer requirements. In particular, at
the present time we are facing significant competition from certain generator manufacturers who offer their own monitoring solutions.
The leveraging of any of such advantages by our current and/or potential competitors could hinder OmniMetrix’s ability to compete
effectively.
OmniMetrix
may not be able to access sufficient capital to support growth.
While
we believe we have sufficient cash to finance our operations for at least twelve months from the issuance of the audited consolidated
financial statements contained in this Annual Report, we may need to seek additional sources of funding for long-term corporate costs
or if OmniMetrix were not to grow at the rate anticipated and needed additional funds for their operations. Additional financing for
OmniMetrix may be in the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate
a loan by Acorn to OmniMetrix, or any combination thereof. The availability and amount of any additional loans from us to OmniMetrix
may be limited by the working capital needs of our corporate activities. Whether Acorn will have the resources necessary to provide funding,
or whether alternative funds, such as third-party loans or investments, will be available at the time and on terms acceptable to Acorn
and OmniMetrix cannot be determined at this time.
OmniMetrix
sells equipment and services which monitor third-party products; thus, its revenues are dependent on the continued sales of such third-party
products.
OmniMetrix’s
end-user customer base is comprised exclusively of parties who have chosen to purchase either generators or construct gas pipelines.
OmniMetrix has no ability to control the rate at which new generators or cathodic protection systems are acquired. If purchases of such
products decline, the associated need for OmniMetrix’s products and services would be expected to decline as well.
If
OmniMetrix is unable to keep pace with changing markets or customer-mandated product and service improvements, OmniMetrix’s results
of operations and financial condition may suffer.
Many
of OmniMetrix’s existing products may require ongoing engineering and upgrades in conjunction with market developments as well
as specific customer needs. There can be no assurance that OmniMetrix will continue to be successful in its engineering efforts regarding
the development of its products, and future technological difficulties could adversely affect its business, results of operations and
financial condition.
10
The
cellular networks used by OmniMetrix are also subject to periodic technical updates that may require corresponding updates to, or replacement
of, OmniMetrix’s monitoring equipment.
Cellular
networks have evolved over time to offer more robust technical capabilities in both voice and data transmission. As new capabilities
come online, it will be necessary to have equipment that can readily interface with the newer cellular networks to avoid negative impacts
on customer service. Not all of the costs associated with OmniMetrix’s corresponding equipment upgrades can be passed on to customers,
and any increased expenses are expected to have a negative impact on OmniMetrix’s operating results.
A
substantial portion of OmniMetrix’s revenues is expected to be generated not from product sales, but from periodic monitoring fees
and thus it is continually exposed to risks associated with its customers’ financial stability.
OmniMetrix
sells on-going monitoring services to both PG and CP customers. It is therefore dependent on these customers continuing to timely pay
service fees on an on-going basis. If a significant portion of these fees are not paid on a timely basis and/or are not renewed from
year-to-year, OmniMetrix could expect to experience deterioration in its financial condition.
OmniMetrix’s
ability to provide, and to collect revenues from, monitoring services is dependent on the reliability of cellular networks not controlled
by OmniMetrix.
OmniMetrix
provides monitoring services through the use of cellular and satellite technology utilizing the networks of third-party providers. These
providers generally do not warrantee their services to either OmniMetrix or the end users, and any dropped transmissions could result
in the loss of customer renewals and potential claims against OmniMetrix. There is no assurance that customers will not cancel monitoring
services due to network issues.
OmniMetrix’s
business is dependent on its ability to reliably store and manage data, but there can be no guarantee that it has sufficient capabilities
to mitigate potential data loss in all cases.
The
efficient operation of OmniMetrix’s business is dependent on its information technology systems. In addition, OmniMetrix’s
ability to assist customers in analyzing data related to the performance of such customers’ power and cathodic protection monitoring
systems is an important component of its customer value proposition. OmniMetrix utilizes Microsoft Azure cloud-hosted data servers utilizing
accepted data and power monitoring and protection processes, but whether a data loss can be avoided cannot be assured in every case.
OmniMetrix’s information technology systems are vulnerable to damage or interruption from natural disasters, sabotage (including
theft and attacks by computer viruses or hackers), power outages, and computer systems, Internet, telecommunications or data network
failure. Any interruption of OmniMetrix’s information technology systems could result in decreased revenue, increased expenses,
increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on
its results of operations and financial condition.
Risks
Related to Our Securities
Our
stock price is highly volatile, and we do not expect to pay dividends on shares of our common stock for the foreseeable future. Investors
may never obtain a return on their investment.
The
market price of our common stock has fluctuated substantially in the past and is likely to continue to be highly volatile and subject
to wide fluctuations. During 2025, our common stock traded at prices as low as $12.42 and as high as $33.00 per share. Fluctuations in
our stock price may continue to occur in response to various factors, many of which we cannot control, including:
●
general
economic and political conditions and specific conditions in the markets we address;
●
quarter-to-quarter
variations in our operating results;
●
strategic
investments or divestments;
●
announcements
of changes in our senior management;
●
the
gain or loss of one or more significant customers or suppliers;
●
announcements
of technological innovations or new products by our competitors, customers or us;
●
the
gain or loss of market share in any of our markets;
●
changes
in accounting rules;
●
changes
in investor perceptions; or
●
changes
in expectations relating to our products, plans and strategic position or those of our competitors or customers.
11
We
do not intend to pay dividends to our stockholders in the foreseeable future. We intend to reinvest earnings, if any, in the development
and expansion of our business. Accordingly, investors will need to rely on sales of their common stock after price appreciation, which
may never occur, in order to realize a return on their investment.
Our
share price may decline due to the large number of shares of our common stock eligible for future sale in the public market including
shares underlying options.
Almost
all of our outstanding shares of common stock are, or could upon exercise of options become, eligible for sale in the public market as
described below. Sales of a substantial number of shares of our common stock in the public market, or the possibility of these sales,
may adversely affect our stock price.
As
of March 3, 2026, 2,506,501 shares of our common stock were issued and outstanding. As of that date, we had 66,758 options outstanding
and exercisable with a weighted average exercise price of $9.06 per share, which if exercised would result in the issuance of additional
shares of our common stock. In addition to the options noted above, at March 3, 2026, there were 57,178 options outstanding that have
not yet vested and are not yet exercisable.
Substantially
all of our currently outstanding shares and shares issuable under our outstanding options are or would be freely tradable.
We
may have to offer additional securities for sale in the near future.
As
of March 3, 2026, we had consolidated cash of $4,131,000 which we believe is sufficient for at least the next twelve months.
Despite this, we may ultimately not have sufficient cash to allow us to execute our plans, and the occurrence of one or more unanticipated
events may require us to make significant expenditures. Accordingly, we may need to raise additional amounts to finance our operations.
If we were to do so by selling shares of our common stock and/or other securities convertible into shares of our common stock, current
investors may incur dilution in the value of their shares.