NOTE 2—ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements

The preparation of 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.

As applicable to these unaudited consolidated financial statements, the most significant estimates and assumptions relate to uncertainties with respect to valuation allowance.

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 $4,458,000 at September 30, 2026. The Company does not believe there is a significant risk of non-performance by its counterparties. For the nine- and three-month periods ended September 30, 2026, there was one customer that represented 12% and 10%, respectively, of the Company’s total invoiced sales. At September 30, 2026, the Company did not have any customers that represented 10% or more of our total accounts receivable. The customer with this concentration of invoiced sales is the customer under the material contract that was executed in June 2024 (the “Material Contract”). Approximately 42% of the accounts receivable at December 31, 2025 was due from the customer under the Material Contract 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) 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.

Management conducted an assessment and wrote off inventory deemed obsolete valued at $5,000 and $3,000 in the nine- and three-month periods ended September 30, 2026, respectively. Management wrote off inventory valued at $15,000 and $11,000 in the nine- and three-month periods ended September 30, 2025, respectively.

Intangibles

The Company’s intangible assets are subject to amortization. Intangible assets held prior to the Gen-Tracker Acquisition (see Note 14) are amortized over their estimated useful lives in proportion to the economic benefits received. Intangible assets acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The finite-lived intangible assets acquired in the Gen-Tracker Acquisition, consisting of customer relationships of $1,730,000, a trade name of $67,000 and a non-compete agreement of $50,000, are amortized on a straight-line basis over their estimated useful lives of five to ten years. The amounts assigned to these assets are based on a preliminary purchase price allocation and are subject to adjustment during the measurement period (see Note 14). Amortization expense related to these assets was $13,000 for each of the nine- and three-month periods ended September 30, 2026. The Company evaluates the recoverability of intangible assets periodically by considering events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. No impairment of intangible assets was recognized during the nine and three months ended September 30, 2026.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may first assess qualitative factors to determine whether a quantitative impairment test is necessary. If a quantitative test is performed, an impairment loss is recognized for the amount by which the carrying amount of the reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. As of September 30, 2026, goodwill of $1,443,000 related to the Gen-Tracker Acquisition (see Note 14), which is provisional pending completion of the purchase price allocation, is included in the Company’s PG segment. No goodwill impairment was recognized during the nine and three months ended September 30, 2026.

Business Combinations

The Company accounts for business combinations under ASC 805, Business Combinations, using the acquisition method of accounting. Identifiable assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date, and any excess of the purchase consideration over those fair values is recorded as goodwill. Determining these fair values, particularly for acquired intangible assets, requires significant estimates and assumptions, including projected cash flows and discount rates. Purchase price allocations may be provisional and adjusted during the measurement period, which does not exceed one year from the acquisition date, as additional information about facts and circumstances that existed as of the acquisition date is obtained. Acquisition-related costs are expensed as incurred. Deferred consideration that is not contingent on future events is recorded at its acquisition-date fair value and subsequently carried at amortized cost, with the discount accreted to interest expense.

Revenue Recognition

The Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle of ASC 606 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 12 - Revenue, for further discussion.

Product revenues are recognized at the point in time when control of the product is transferred to the customer, which typically occurs upon shipment or delivery except to the one customer under the Material Contract for which this occurs upon acceptance. To determine when control has transferred, the Company considers if there is a present right to payment and if legal title, physical possession, and the significant risks and rewards of ownership of the asset has transferred to the customer. Revenue from the prepayment of monitoring fees (generally paid twelve months in advance) are recorded as deferred revenue upon receipt of payment from the customer and then recognized to revenue over the monitoring service period. This method provides a faithful depiction of the transfer of services as it aligns the recognition of revenue with the period in which the monitoring services are provided. By deferring the revenue and recognizing it over the service period, the financial statements accurately reflect the Company’s performance and obligations to its customers. See Notes 11 and 12 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 accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and the tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. During the year ended December 31, 2025, the Company recorded a reduction in the valuation allowance of $1,074,000 that was previously recorded against our deferred tax assets. During the three and nine months ended September 30, 2026, the Company recorded a reduction in the valuation allowance of $780,000 that was previously recorded against our deferred tax assets. As of September 30, 2026 and December 31, 2025, we believe that a partial valuation allowance of $9,546,000 and $10,326,000, respectively, is necessary against our deferred tax assets. Management will continue to assess the need for the valuation allowance and will make adjustments when appropriate. Management’s projections and beliefs are based upon a variety of estimates and numerous assumptions made by our management with respect to, among other things, interest rates, forecasted revenue of the hardware sales and monitoring revenue or revenue streams that could generate sufficient income so that the Company can utilize our net operating loss (NOL) carryforwards and other matters, many of which are difficult to predict, are subject to significant uncertainties and are beyond our control. As a result, there is inherently uncertainty that the estimates and assumptions upon which these projections and beliefs are based will prove to be accurate, that the anticipated results will be realized or that the actual results will not be substantially higher or lower than the Company projected.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more likely-than-not recognition threshold, the company recognizes the largest amount of tax benefit is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statements of operations. No accrued interest or penalties were required to be included in the related tax liability line in the unaudited condensed consolidated balance sheet as of September 30, 2026 and in the consolidated balance sheet as of December 31, 2025.

Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing the net income attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income per share is computed by dividing the net income by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options are excluded from the computation of diluted net income per share if doing so would be antidilutive.

The combined weighted average number of options that were excluded from the computation of diluted income per share, as they had an antidilutive effect, was 59,000 (which have a weighted average exercise price of $18.98) for the nine-month period ended September 30, 2026. The combined weighted average number of options that were excluded from the computation of diluted income per share, as they had an antidilutive effect, was 63,000 (which have a weighted average exercise price of $19.02) for the three-month period ended September 30, 2026. The combined weighted average number of options that were excluded from the computation of diluted net income per share, as they had an antidilutive effect, was 7,000 (with a weighted average exercise price of $17.51) for the nine-month period ended September 30, 2025. There were no antidilutive options excluded from the computation of diluted net income per share in the three-month period ended September 30, 2025.

The following data represents the amounts used in computing earnings per share and the effect on net income and the weighted average number of shares of dilutive potential common stock (in thousands, except per share data):

 SCHEDULE OF EFFECT ON NET INCOME LOSS AND WEIGHTED AVERAGE NUMBER OF SHARES 

Recent Accounting Pronouncements

In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued Accounting Standards Update No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for us for our annual reporting for fiscal 2027 and for interim period reporting beginning in fiscal 2028 on a prospective basis. Both early adoption and retrospective application are permitted. The Company is currently evaluating the impact that the adoption of these standards will have on its consolidated financial statements and disclosures.

In September 2025, the FASB issued Accounting Standards Update No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 removes all references to prescriptive and sequential software development project stages and requires an entity to begin capitalizing software costs when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 also incorporates the guidance on website development costs into Subtopic 350-40. ASU 2025-06 is effective for us for annual reporting periods beginning in fiscal 2028, including interim reporting periods within that annual period, and may be applied on a prospective, modified or retrospective basis. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.

In December 2025, the FASB issued Accounting Standards Update No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). ASU 2025-11 clarifies the form, content and applicability of interim financial statements and notes and provides a comprehensive list of the disclosures required in interim reporting periods. ASU 2025-11 is effective for us for interim reporting periods beginning in fiscal 2028. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its interim consolidated financial statement disclosures.

Recently Adopted Accounting Standards

In July 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-05, which introduces a practical expedient and an accounting policy election for estimating expected credit losses on current accounts receivable and contract assets arising from revenue transactions under ASC Topic 606. The practical expedient allows entities to assume that current conditions as of the reporting date remain unchanged over the remaining life of the asset, thereby eliminating the need to incorporate forecasts of future economic conditions. The accounting policy election, available to entities other than public business entities, permits consideration of post-balance sheet cash collections in estimating expected credit losses, provided the practical expedient is also elected. Although the Company qualifies as a public business entity and is therefore not eligible for the accounting policy election, the Company evaluated the practical expedient and determined that it did not have a material impact on its consolidated financial statements upon adoption effective January 1, 2026.