Acorn Energy, Inc.: Form 10-Q for the period ended Mar 31, 2025

This Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”, “intend”, “could”, “estimate” or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

All dollar amounts in the tables and discussion below are rounded to the nearest thousand, except per share data; thus, they are approximate.

FINANCIAL RESULTS BY COMPANY

The following tables show, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.

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BACKLOG

As of March 31, 2025, OmniMetrix had a backlog of $3,955,000, comprised of deferred revenue, of which $3,394,000 is expected to be recognized as revenue in the next twelve months. This compares to a backlog of $5,028,000 at March 31, 2024. Now that we are selling hardware units that are capable of being distinct, the hardware backlog will no longer continue to grow and will be fully amortized by August 31, 2026, while the monitoring backlog will continue to be deferred and amortized over the period of service.

RECENT DEVELOPMENTS

On June 1, 2024, we entered into a contract (the “Material Contract”) with one of the nation’s largest cell phone providers to provide monitoring hardware and services. Under the contract, OmniMetrix will provide monitoring devices and related remote monitoring and control services for between 5,000 to 10,000 cell tower backup generators in the U.S. The monitoring hardware and monitoring services, which are being deployed over a one-to-two-year period. Shipping of hardware commenced in the third quarter of 2024 and installation and monitoring services commenced in the fourth quarter of 2024. We recognized $876,000 in hardware revenue and $69,000 in monitoring revenue from this contract in the three months ended March 31, 2025.

OVERVIEW AND TREND INFORMATION

Acorn Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology-driven solutions for energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC (“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 RADTM (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.

Each of our PG and CP activities represents a reportable segment. The following analysis should be read together with the segment and revenue information provided in Notes 10 and 11 to the unaudited condensed consolidated financial statements included in this quarterly report.

OmniMetrix

OmniMetrix is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, and other industrial equipment) as well as cathodic protection for the pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix with 1% owned by the former CEO of OmniMetrix.

Following the emergence of machine-to-machine (M2M) and IoT applications, whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, cybersecurity threats, and other issues related to the reliability of the electric power grid. As residential and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly monitored in IoT applications and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this market.

OmniMetrix sells monitoring hardware devices and data monitoring services. On September 1, 2023, we launched an updated version of our products that includes new functionality in our TrueGuard, AIRGuard, Patriot and Hero products that allows our customers to have options as it relates to obtaining and utilizing the data that is provided by our hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to our over-the-air data protocol. This product update allows customers to have the option to purchase our monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire, whereas, historically, our standard products only functioned with our monitoring services. The modification to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023 were made such that only the new version of these products was sold subsequent to that date. Prior to such product modification, revenue (and related costs) associated with sale of equipment was recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. This deferred revenue and the deferred cost of the hardware with respect to the sale of new equipment was recognized over the life of the units, which was estimated to be three years. Revenue from hardware sales subsequent to August 31, 2023 is recognized upon shipment or upon acceptance (specific to the material contract), instead of being deferred. Revenues from the prepayment of monitoring fees (generally paid in advance) are initially recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period (typically twelve-month, renewable periods).

Critical Accounting Estimates

In preparing the financial statements, management is required to make estimates and assumptions that have an impact on the asset, liability, revenue and expense amounts reported. These estimates can also affect our supplemental information disclosures, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to U.S. GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. We make routine estimates and judgments in determining net realizable value of accounts receivable, inventories, property and equipment, prepaid expenses, product warranties and other reserves as well as the amortization period for deferred commissions payable. Management believes our most critical accounting estimates and assumptions are in the area of revenue recognition and valuation allowance.

Valuation Allowance

We regularly review our deferred tax assets for recoverability considering historically profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. The net carrying amount of the Company’s deferred tax assets is based on the Company’s belief that it is more likely than not that the Company will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. The ultimate realization of the deferred tax assets depends upon our ability to generate sufficient taxable income in the future. In forecasting future taxable income, management uses estimates and makes assumptions regarding significant future events, including the timing and number of new hardware sales contracts and associated monitoring revenue. In evaluating our ability to recover our deferred tax assets, we consider and weigh all available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance are charged in the period in which the determination is made. If our estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets, resulting in additional income tax expense in the Company’s Consolidated Statements of Operations, or conversely to reduce the existing valuation allowance resulting in less income tax expense.

The Company generated a three-year cumulative positive income through December 31, 2024. Based on its earnings, the Company released a portion of its valuation allowance on its deferred tax assets (other than as stated above) during the year ended December 31, 2024. As of March 31, 2025, we believe, based on our projections, that a partial valuation allowance of $11,400,000 continues to be necessary against our deferred tax assets. Uncertainty exists related to the generation of future hardware and monitoring revenue, nonetheless the Company believes sufficient positive evidence exists which supports the partial reversal of the valuation allowance. In recent years, the Company executed new contracts, growing hardware and monitoring revenue which resulted in cumulative pre-tax earnings over the prior three years which we believe is significant positive evidence to support the reversal of valuation allowance during 2024. At this time, however, we cannot assure you that we will be successful in doing so. Accordingly, our management will continue to assess the need for this valuation allowance and will make adjustments when appropriate.

The utilization of the Company’s federal and state net operating losses may be subject to a limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code, as well as similar state provisions. Such limitations may result in the expiration of net operating loss (NOL) carryforwards before their utilization. The Company has not completed a study to assess whether an “ownership change” as defined in Section 382 has occurred or whether there have been multiple ownership changes since the Company’s inception. Future changes in the Company’s stock ownership, which may be outside of the Company’s control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” The Company will complete a full analysis of the tax attribute carryforwards prior to any utilization of tax attributes which may be subject to limitation.

Results of Operations

The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the three-month periods ended March 31, 2025 and March 31, 2024, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components. For segment data, see Notes 10 and 11 to the unaudited condensed consolidated financial statements included in this quarterly report.

*result is less than 1%

Revenue. Revenue in the first quarter of 2025 was $3,098,000 compared to $2,132,000 in the first quarter of 2024, which is an increase of $966,000, or 45.3%. As discussed above, OmniMetrix has two reportable segments, PG and CP. The PG segment includes our monitoring devices for generators, industrial air compressors and our annunciator products. The CP segment includes our monitoring devices for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. Of the $3,098,000 in revenue recognized in the three-month period ended March 31, 2025, $2,887,000 was attributed to PG activities and $211,000 was attributed to CP activities. As compared to the three-month period ended March 31, 2024, revenue from PG activities increased $1,093,000, or 60.9%, and revenue from CP activities decreased $127,000, or 37.6%. As compared to the three-month period ended March 31, 2024, hardware revenue increased $799,000, or 78%, while monitoring revenue increased $167,000, or 15%.

Hardware revenue during the three-month periods ended March 31, 2025 and 2024 is further detailed in the table below (in thousands):

PG hardware revenue increased $928,000, or 123.2%, during the first three-month period ended March 31, 2025 to $1,681,000, as compared to $753,000 during the first three-month period ended March 31, 2024. The increase in PG revenue was due to sales under our material contract described above under “Recent Developments,” and sales of custom-designed units. PG monitoring revenue in the first quarter of 2025 increased $165,000, or 15.9%, compared to the first quarter of 2024 due to an increase in the number of connections being monitored and growth in our customer base.

Gross Profit. Gross profit during the three-month period ended March 31, 2025 was $2,326,000, reflecting a gross margin of 75.1% on revenue, compared with a gross profit during the three-month period ended March 31, 2024 of $1,591,000, also reflecting a gross margin of 74.6%.

R&D expense. During the three-month periods ended March 31, 2025 and 2024, R&D expense was $291,000 and $238,000, respectively. The increase in R&D expense in the three-month period ended March 31, 2025 of approximately $53,000 is related to salary increases granted to our engineering personnel effective October 1, 2024, the hiring of another senior level engineer in November 2024 and the expenses and materials paid to third-party consultants in the continued development of next-generation PG and CP products and exploration into potential new product lines. We expect a moderate increase in R&D expense throughout 2025 for continued investment in work on certain initiatives to launch the next generation of our products and expand product lines to increase our level of innovation ahead of our competitors.

Selling, general and administrative expense. SG&A expense of the consolidated entities in the first three months of 2025 reflected an increase of $156,000, or 12.2%, as compared to the first three months of 2024. OmniMetrix’s SG&A expense increased $54,000, or 5.6%, from $970,000 in the first three months of 2024 to $1,024,000 in the first three months of 2025. This increase was primarily due to an increase of (i) $41,000 in personnel expenses due to compensation increases and staff additions, (ii) $18,000 in technology expenses, primarily consulting fees, (iii) $28,000 in sales commissions, offset by decreases of (iv) $23,000 in travel and trade show expenses and (v) a net decrease of $10,000 in other expenses in the aggregate. Corporate SG&A expense increased $102,000, or 33.4%, from $305,000 in the first three months of 2024 to $407,000 in the first three months of 2025. This increase was due to an increase of (i) $22,000 in audit fees incurred in the first quarter of 2025 primarily related to the audit work on the release of the income tax valuation allowance at December 31, 2024, (ii) $46,000 in tax professional fees from the preparation of the 2024 income tax provision and the calculations related to the release of the income tax valuation allowance and (iii) $36,000 in stock compensation expense due to the increase in the Company’s stock price, offset by a net decrease of $2,000 in other public company expenses.

Net income attributable to Acorn Energy. We recognized net income attributable to Acorn stockholders of $464,000 in the first three months of 2025 compared to net income attributable to Acorn stockholders of $65,000 in the first three months of 2024. Our net income during the three-month period ended March 31, 2025 is comprised of pre-tax net income at OmniMetrix of $1,034,000 less federal taxes of $131,000 and state taxes of $23,000 on OmniMetrix income, corporate expenses, net of interest income, of $406,000, and $10,000 representing the non-controlling interest share of our income from OmniMetrix. Our net income during the three-month period ended March 31, 2024 is comprised of pre-tax net income at OmniMetrix of $364,000 less state taxes of $25,000 on OmniMetrix income, corporate expenses of $271,000, and $3,000 representing the non-controlling interest share of our income from OmniMetrix.

Liquidity and Capital Resources

At March 31, 2025, we had working capital of $1,731,000. Our working capital includes $2,591,000 of cash and deferred revenue of $3,394,000. Such deferred revenue does not require a significant cash outlay for the revenue to be recognized.

During the three-month period ended March 31, 2025, our OmniMetrix subsidiary provided cash flow from operations of $646,000, while our corporate headquarters used $375,000 for operations during the same period.

During the three-month period ended March 31, 2025, we invested $6,000 in technology. We did not have any cash flow from financing activities.

Liquidity

As of May 6, 2025, we had cash of $2,724,000. We believe that such cash, plus the cash expected to be generated from operations, will provide sufficient liquidity to finance the corporate activities of Acorn and the operating activities of OmniMetrix at their current level of operations for at least the twelve-month period from the issuance of the unaudited condensed consolidated financial statements contained in this Quarterly Report. We may, at some point, elect to obtain a new line of credit or other source of financing to fund additional investments in the business. If we decide 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 required and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.

Contractual Obligations and Commitments

The table below provides information concerning obligations under certain categories of our contractual obligations as of March 31, 2025.

CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS

*Reflects the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease.

**Reflects open purchase orders for components/parts to be delivered over the next twelve months as sales forecast requires.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our CEO and CFO concluded that, due to the material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2024, our disclosure controls and procedures were not effective as of March 31, 2025.

As noted in our Annual Report on Form 10-K for the year ended December 31, 2024, we employ a decentralized internal control methodology, coupled with management’s oversight, whereby its subsidiary is responsible for mitigating its risks to financial reporting by implementing and maintaining effective control policies and procedures and subsequently translating that respective risk mitigation up and through to the parent level and to the Company’s external consolidated financial statements. Also, as the Company’s subsidiary is not large enough to effectively mitigate certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout the Company in a manner that is feasible within the constraints it operates.

The material weaknesses management identified were caused by an insufficient complement of resources at the Company’s OmniMetrix subsidiary and limited IT system capabilities, such that individual control policies and procedures could not be implemented, maintained, or remediated when and where necessary. Management identified the following material weaknesses set forth below in our internal control over financial reporting:

• The Company had ineffective design and operation of information technology general controls (ITGCs) over logical access, program change management, and vendor management controls.
• The Company had ineffective design and operation of internal controls over financial reporting related to segregation of duties and journal entries. The weakness related to segregation of duties arises due to insufficient segregation of duties within the Company’s ERP system. Specifically, two individuals currently have access to both the recording and approval of financial transactions, which increases the risk of unauthorized adjustments. The weakness related to journal entries stems from the ERP’s functionality that allows users to modify journal entries after they have been posted. This capability creates a risk of unauthorized changes to financial records.
• The Company had ineffective design and operation of controls including management review controls, over the Company’s projected financial information within the Company’s deferred tax asset valuation allowance analysis.

Changes in Internal Control Over Financial Reporting

During the latter six months of 2024, we implemented the following (i) provisioning/termination controls with signed and authenticated authorizations, (ii) change controls for development processes that require authorizations, peer review, quality assurance documentation, ticket matching of changes to work authorizations and overall change controls, and (iii) a more detailed review process of our valuation allowance analysis. It is our belief that these added controls and related actions will effectively remediate the existing material weaknesses detailed in bullets one and three above. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Other than the remediation actions described above, there were no other changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.