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ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2024

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.

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.

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:

	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

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.