Good morning, and welcome to the Acorn Energy Second Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Heather Mallard. Please go ahead, ma'am.

Yes, thank you, and good morning. Please take note that certain of the matters discussed in this presentation contain statements that are forward-looking, such as statements relating to results of operations, financial conditions, business development activities and market dynamics. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of Acorn Energy or its subsidiaries. All statements other than statements of historical fact in this presentation regarding Acorn Energy's or any of its subsidiaries' future performance, revenues, margins, market share and any future events or prospects are forward-looking statements. For more information regarding risks and uncertainties that could affect Acorn Energy's or any of its subsidiaries' results of operations or financial condition, review Acorn Energy's filings with the Securities and Exchange Commission, in particular, its most recently filed Form 10-K and Form 10-Q. Acorn Energy's forward-looking statements are not guarantees of future performance and their actual results or developments may differ materially from the expectations expressed in the forward-looking statements. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainties of estimates, forecasts and projections and may be better or worse than projected and such differences could be material. Acorn Energy undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the presentation over to John Moore, President and CEO of Acorn Energy.

Thank you, Heather. By nature, developing truly new and innovative products is fraught with delays and challenges, and the second quarter at Acorn Energy illustrates the ups and downs that are the hallmarks of creating the industries of tomorrow. The big news at US Seismic was the handing of the baton of US -- of CEO of US Seismic from founder Jim Andersen to seismic industry veteran Mark Bashforth. We're grateful for Jim's contributions in founding the company and assembling a world-class scientific team. However, delays in commercialization caused us to miss a delivery date for the previously mentioned supermajor project. While the customer is disappointed, they remain committed to us and to the order and we expect to make delivery before year end. We have confirmation that the customer is scheduled to present the results of last year's seismic shootout at the Annual Society of Seismic Exploration Geologists (sic) [Geophysicists] Conference in October. We've also experienced a lot of interest in evaluating our tools from smaller but entrepreneurial independent oil producers who need integrated solutions. We chose Mark Bashforth because we're so optimistic about the prospects of the business, and we needed someone who had 3 core competencies: one, project management expertise to complete the final commercial development of the product; two, a track record of seismic sales and marketing management success, as well as the ability to be able to recruit sales and marketing people to the team; and three, a deep understanding of how to combine our product, our sensors, with the software and data processing to provide actionable insights on how to improve the productivity of unconventional wells and expand our total solution to be appealing to independent producers, as well as to the larger oil companies. Gary Morris has advanced partnership discussions with several service companies, and I have to say, it's such a delight to be able to have somebody of Gary's talent and expertise and network. It's really -- you recognize why somebody was -- why he was made CFO of Halliburton at age 42, so we're really lucky to be working with Gary and he's bringing a lot to our effort. But we're encouraged that all the potential partners that we're talking to understand, number one, that there's a market need for our solution, and that's being driven by the more rigorous demands of being able to listen for microseismic events in the subsurface. And all these potential partners seem to recognize that, while not yet commercial, that US Seismic is leading the effort in moving the seismic industry from the electronic world to the photonic world. So we believe we have a commanding lead and we believe that commanding lead is extremely valuable. So we're very excited to add Mark's talents to those of Gary's in developing our commercial plan. And I know Mark wants to share his excitement with you on the US Seismic opportunity, so Mark, I'd like to hand the call over to you.

Great. Thank you, John. Good morning. Very excited to be here and very excited about the opportunity here at US Seismic. It's not often that you get a chance to be part of a technology revolution, and I think that's exactly what's happening with US Seismic right now. Not really too different from the technology shift we've seen over the years in the telecom industry, the demand from voice to data, copper to fiber optic. I think the seismic and processing business is sort of reaching a similar crossroads. They really maxed out the potential in terms of the limits of electromechanical and technology. Customer investments in microseismic technology is really searching for better understanding of the subsurface, and I think that US Seismic is uniquely placed to deliver solutions that will provide them with valuable and essential information. So I think it's a very exciting time for the company. I am very, very excited myself to be a part of the opportunity that's there and be working with some really great minds and some great people, and not least of which, some very significant technology. You know what? My passion and my past successes have really been involved with developing and implementing strategies to help commercialize and market seismic solutions. My experience is predominantly international, selling reservoir character solutions to, among others, oil field asset managers. And if you know anything about the oil field, particularly the shale gas opportunities in the United States, you know that the asset team managers are the ones that really control the financial decisions, they really hold the purse strings for the oil companies and they're feeling a lot of pain right now. There's a huge amount of capital spending that's been engaged in their frac programs which is yielding relatively low recovery…

Great. Thank you, Mark. I'm sure our shareholders will have a lot of questions for you at the end of the call, and we're very impressed by the focus that you've brought to our upcoming production frac monitoring jobs and we're looking forward to your participation in our ongoing partnership discussions that Gary Morris is leading with oilfield service companies. Next, I'd like to recognize our friends and coworkers in Israel at DSIT. Since early July, they've been living and working under difficult conditions facing rockets, infiltration from tunnel systems, with frogman from the sea without a hiccup in their operations. They're an incredibly resilient people. International interest in our diver detection systems spiked as a result of a TIMES OF ISRAEL article on the ability to use technologies such as DSIT's in a conflict. There's both a growing installed base of our systems and increasing awareness of the vulnerability of water-based assets as a result of the recent activity both in Gaza, as well as the South China Sea. Backlog at DSIT remained strong at $12 million at June 30. Since then, we have had booked or are expecting to book another $2.2 million of new orders, including some orders for our Diver Detection Sonar systems. Some of these orders are for installations at new types of energy facilities and this demonstrate the growth potential of the business. Our operating results continue to be impacted as a significant majority of our costs are denominated in the strong Israeli shekel, while our revenue is denominated in the weak U.S. dollar. We expect gross margins to increase as a result of receipt of certain new orders, but we expect them to remain below historic margins due to our current mix of projects. Now turning to GridSense. It's on track to have…

[Operator Instructions] We have a question from Jill McRed (sic) [James McIlree] from Chardan Capital.

Well, I think that's Jim McIlree. John, I think you've said that GridSense in Q3 can generate as much revenue at it did in all of 2013, did I hear you right?

So what I was saying was that we believe that the 9 months of 2013 -- excuse me, the 9 months of 2014 that will generate nearly as much revenue as we did in all of 2013.

Okay. That makes much more sense, great. And Mark, on the product development, the commercialization and all of that, thank you for your summary, but can you go into a little bit more detail about what your immediate tasks are with US Seismic, either in terms of products or marketing or personnel?

I'm sorry, Jim, the call broke up a little bit. Could you just please repeat that question for me?

Yes, I was hoping that you would go into more detail about the immediate tasks that you face at US Seismic. And if it helps, I'm looking for something in terms of either product changes, or development, or marketing, or channel changes or personnel changes. But what are the things that needs to be done immediately?

Okay. Great question. So keep in mind, I've been there approximately 2 weeks, but used time prior to that to understand the dynamics of the business. The team consists of a very good group of professionals and domain experts. I think there's been a commercial leadership vacuum there, which I think we're addressing very, very quickly now. I think the first thing is focus. Project management is being realigned to be more systematic. The biggest issue is that they've tried to be all things to all people. You can't do that. You can't scale a business doing that. And so what we're trying to do is focus on one thing right now and that is one single final commercial design. And if the task is not related to that, it's going to get put on the back burner, which is why the tasks that we're doing this week in Texas and with the Department of Energy coming up in a few weeks' time are so essential. We need to validate that our current design works, make any adjustments necessary and then finalize that design, and then we can move to commercialization. Now one of those aspects involves the clamping system. And so we have had several different approaches to that and we've refined that down now to just having a multi-shot approach to the clamping system instead of having also a single shot, which would require to be recharged each time it was redeployed. By doing that, we've simplified manufacturing, we're focusing on one standard design and we don't have too many variables or choices. Once we have that, it makes it much easier then to look at potentially outsourcing the manufacturing because I think our business model needs to be more concise. We need to understand are we going to be manufacturing tools, or are we going to be having them manufactured for us and then, once that is decided, with a validated design, then we can determine, okay, what's our business model? Are we going to, for example, lease the technology? Are we going to work with service providers? Are we going to have our own consulting and deployment team and so on? And these are things that we're studying right now as we speak to determine which is the best approach and which one will yield the greatest shareholder value. But in the immediate time right now, it's get that design validated, cut the costs on unnecessary tests and manufacturing and stay focused on delivering a qualitative delivery as soon as you possibly can and then get out there and sell it.

[Operator Instructions] [Technical Difficulty] This is William Bremer from Maxim Group.

Mark, love to have you aboard, and just wanted to get your sense on one of the issues with US Seismic that really has halted its commercialization has been the clamp and lead cable failures. That's really outside of the company's expertise. And I know you sort of voiced that you had some relationships there. How quickly do you think that can be solved? Is that a major issue? Or is that something that you feel -- and I realize you've only been there a couple of weeks, is that something that you feel as though that you could wrap that up in a quarter?

I don't like to say things that I can't guarantee. So what I will tell you is this, I'm very aware of the problem and I do think that the lack of oil field expertise in the business has been an Achilles heel for US Seismic without a doubt. I am already in dialogue with technical experts in borehole seismic monitoring and have worked many, many years in deployment, as well as our other partners that we've had long-term relationships with to study and understand what can be done to resolve those issues. And in fact, the current deployment that we're doing this week is using a different cable design than the one we typically will use for that very reason. So we're moving at lightning speed in terms of how we identify and move past these problems. I think the clamping system, my expectation is it's going to be easier to resolve. I think the cable system is a little bit more complicated, and one of the issues there is there aren't a lot of vendors that can produce the type of cable we need. We have actually identified a new specification and we're in the process of finalizing that specification. We're waiting for feedback from the current tests we're running. Once we get that test feedback, we'll put together a final spec, put it out for quotation and find out what the cost and delivery time will be. One of the things that I think we need to do is look for other manufacturers that can shorten the time. A typical lead time right now could be 3 or 4 months for a cable, not to mention the cost, of course, to produce it. So getting this right, as you indicated, is essential, and that's what we've got on the top of the list right now because we can't have a full-fledged commercial design without having made sure that, that cable system and the clamping system are state-of-the-art and without any technical glitches.

I couldn't agree with you more. At this point, we just need to validate, as you said. And maybe can you give us, say, a little look at, we've gone after a supermajor, we've gone after some different shale work, we've had success in the shallow wells. Can you give us a sense of what is on the plate right now in the next year that we feel as though we're really going to target, which pilots, and which ones are more longer term?

Yes, that's a good question. So I'm going to answer 2 ways. On the technology side, we're going to be looking at continuous improvement off the standard designs. So once we've stabilized the commercial delivery, then we can look at expanding the frequency range, we can look at improving the heat tolerances and certainly the range on the pressure capabilities. [indiscernible] providing customers are willing to pay for that, and that's -- there's no point in having something that people aren't willing to pay for. Now the concern I have is that there's a lot of people that like what we're doing, but not necessarily all that interest is germaine to a commercial release. So customers that -- we've segmented the market into 3 or 4 key categories, and for right now, we're really looking at the shale gas as the primary play. I think that by having a standard delivery focusing on shale gas opportunity in the United States, there is more than enough opportunity there. And I think by working with service partners, there's a number of very large companies, can't mention a specific name right now, that we're in dialogue with, that are interested in looking at our technology to potentially either OEM it from us and repackage it or brand it as their own solution, or work with us to enhance their current seismic and processing offerings to give them a leapfrog in the market. So I think there's probably 2 or 3 ways to market, William. I think one is, by working with these service providers to get to those localized customers, which is predominantly the U.S. independents, but also having technology partnerships with the larger international oil companies and supermajors, as you've indicated, and we are doing that and we're on track for that.…

Agreed. And my final question is, John, you referenced that the supermajor delivery will occur before year end. What type of revenue are you anticipated for that?

That's about $1,850,000.

$1,850,000?

That's right. And then...

Do you believe that's going to hit in the fourth quarter?

That's correct.

And that's already in backlog, John?

That's correct. And so I think that hitchhiking on the question that you asked Mark is that we're seeing a lot of these independents, like the supermajor has their own seismic processing capability. What a lot of these independents that we've -- that have expressed interests in using our tool once we have a successful deep-well trial, they're going to need seismic processing, and that's one of the areas of Mark's strengths is assembling a package of the seismic processing plus the acquisition, and that could be a whole new product line for us, going out and selling to these independents.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

That concludes our prepared remarks. Thank you, everybody, for your patience. I think the new leadership of our new CEOs and as we complete the product development and the market development, that we'll see improved revenue and operating performance at US Seismic and Acorn Energy. Thank you so much, everybody, for your time and energy and we look forward to giving you future updates.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.