UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended June 30, 2009





Commission
file number:  0-19771





ACORN
ENERGY, INC.


(Exact
name of registrant as specified in its charter)





Delaware
              
              22-2786081(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)4
      West Rockland Road
                Montchanin,
      Delaware
              
              19710(Address
      of principal executive offices)
              
              (Zip
      Code)





(302)
656-1708


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x    No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).





Yes o   No  o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large
accelerated filer  ̈   Accelerated
filer  ̈   Non-accelerated
filer  ̈   Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈No  x





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





Class
              
              Outstanding
      at August 9, 2009Common
      Stock, $0.01 par value per share
              
              11,179,447
      shares








ACORN
ENERGY, INC.


Quarterly
Report on Form 10-Q


for
the Quarterly Period Ended June 30, 2009





TABLE
OF CONTENTS





PART
      I.  Financial InformationItem
      1.
                  Financial
      StatementsUnaudited
      Consolidated Financial Statements:Consolidated
      Balance Sheets
                    as
      of December 31, 2008 and June 30, 2009
                  
                  1Consolidated
      Statements of Operations
                    for
      the six and three month periods ended June 30, 2008 and
    2009
                  
                  2Consolidated
      Statement of Changes in Equity
                    for
      the six month period ended June 30, 2009
                  
                  3Consolidated
      Statements of Cash Flows
                    for
      the six month periods ended June 30, 2008 and 2009
                  
                  4Notes
      to Consolidated Financial Statements
                  
                  6Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  18Item
      3.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  
                  26Item
      4.
                  Controls
      and Procedures
                  
                  26PART
      II. Other InformationItem
      1.
                  Legal
      Proceedings
                  
                  27Item
      2 .
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  28Item
      6.
                  Exhibits
                  
                  29Signatures
                  
                  30




Certain
statements contained in this report are forward-looking in nature. These
statements are generally identified by the inclusion of phrases such as “we
expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of
similar meaning. Whether such statements ultimately prove to be accurate depends
upon a variety of factors that may affect our business and operations. Many of
these factors are described in our most recent Annual Report on Form 10-K as
filed with Securities and Exchange Commission and in Part II, Item 1A of this
Quarterly Report..





ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated
Balance Sheets


(in
thousands, except share and per share data)





As of December
                      31,
      2008
                    
                    
                    As
      of June
                      30,
      2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    15,142
                    
                    
                    $
                    14,612Restricted
      deposit
                    
                    
                    2,157
                    
                    
                    
                    2,592Accounts
      receivable, net
                    
                    
                    4,524
                    
                    
                    
                    3,679Unbilled
      work-in-process
                    
                    
                    581
                    
                    
                    
                    1,880Inventory
                    
                    
                    1,148
                    
                    
                    
                    1,544Available
      for sale - Investment in Comverge
                    
                    
                    —
                    
                    
                    
                    392Other
      current assets
                    
                    
                    2,080
                    
                    
                    
                    1,944Total
      current assets
                    
                    
                    25,632
                    
                    
                    
                    26,643Property
      and equipment, net
                    
                    
                    2,447
                    
                    
                    
                    2,497Available
      for sale - Investment in Comverge
                    
                    
                    2,462
                    
                    
                    
                    —Investment
      in GridSense
                    
                    
                    129
                    
                    
                    
                    —Investment
      in EnerTech
                    
                    
                    1,117
                    
                    
                    
                    1,537Funds
      in respect of employee termination benefits
                    
                    
                    1,677
                    
                    
                    
                    1,739Restricted
      deposit
                    
                    
                    579
                    
                    
                    
                    561Other
      intangible assets, net
                    
                    
                    10,357
                    
                    
                    
                    10,067Goodwill
                    
                    
                    6,342
                    
                    
                    
                    6,425Other
      assets
                    
                    
                    313
                    
                    
                    
                    344Total
      assets
                    
                    $
                    51,055
                    
                    
                    $
                    49,813LIABILITIES
      AND EQUITYCurrent
      liabilities:Short-term
      bank credit and current maturities of long-term debt
                    
                    $
                    445
                    
                    
                    $
                    200Notes
      payable
                    
                    
                    3,400
                    
                    
                    
                    3,400Trade
      accounts payable
                    
                    
                    2,285
                    
                    
                    
                    1,449Accrued
      payroll, payroll taxes and social benefits
                    
                    
                    1,314
                    
                    
                    
                    1,126Other
      current liabilities
                    
                    
                    4,350
                    
                    
                    
                    3,561Total
      current liabilities
                    
                    
                    11,794
                    
                    
                    
                    9,736Long-term
      liabilities:Liability
      for employee termination benefits
                    
                    
                    2,651
                    
                    
                    
                    2,689Other
      liabilities
                    
                    
                    487
                    
                    
                    
                    561Total
      long-term liabilities
                    
                    
                    3,138
                    
                    
                    
                    3,250Equity:Acorn
      Energy Inc. Common stock - $0.01 par value per share:Authorized
      – 20,000,000 shares; Issued –12,454,528 at December 31, 2008 and June 30,
      2009
                    
                    
                    124
                    
                    
                    
                    124Additional
      paid-in capital
                    
                    
                    54,735
                    
                    
                    
                    55,746Warrants
                    
                    
                    1,020
                    
                    
                    
                    1,020Accumulated
      deficit
                    
                    
                    (17,587
                    )
                    
                    
                    (18,307
                    )Treasury
      stock, at cost – 841,286 and 1,258,681 shares for December 31, 2008 and
      June 30, 2009, respectively
                    
                    
                    (3,719
                    )
                    
                    
                    (4,781
                    )Accumulated
      other comprehensive income (loss)
                    
                    
                    (425
                    )
                    
                    
                    57Total
      Acorn Energy Inc. shareholders’ equity
                    
                    
                    34,148
                    
                    
                    
                    33,859Non-controlling
      interests
                    
                    
                    1,975
                    
                    
                    
                    2,968Total
      equity
                    
                    
                    36,123
                    
                    
                    
                    36,827Total
      liabilities and equity
                    
                    $
                    51,055
                    
                    
                    $
                    49,813




The
accompanying notes are an integral part of these consolidated financial
statements.


1




ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Operations(unaudited)


(in
thousands, except per share data)





Six
      months ended
                          June
      30,
                        
                        
                        Three
      months ended
                          June
      30,2008
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009SalesCatalytic
      regeneration services
                        
                        $
                        3,601
                        
                        
                        $
                        9,937
                        
                        
                        $
                        1,352
                        
                        
                        $
                        4,547Projects
                        
                        
                        4,041
                        
                        
                        
                        4,002
                        
                        
                        
                        2,133
                        
                        
                        
                        2,036Software
      license and services
                        
                        
                        —
                        
                        
                        
                        2,102
                        
                        
                        
                        —
                        
                        
                        
                        1,075Other
                        
                        
                        260
                        
                        
                        
                        217
                        
                        
                        
                        122
                        
                        
                        
                        1227,902
                        
                        
                        
                        16,258
                        
                        
                        
                        3,607
                        
                        
                        
                        7,780Cost
      of salesCatalytic
      regeneration services
                        
                        
                        2,498
                        
                        
                        
                        6,466
                        
                        
                        
                        1,007
                        
                        
                        
                        2,931Projects
                        
                        
                        2,777
                        
                        
                        
                        2,351
                        
                        
                        
                        1,470
                        
                        
                        
                        1,132Software
      license and services
                        
                        
                        —
                        
                        
                        
                        416
                        
                        
                        
                        —
                        
                        
                        
                        145Other
                        
                        
                        197
                        
                        
                        
                        156
                        
                        
                        
                        98
                        
                        
                        
                        825,472
                        
                        
                        
                        9,389
                        
                        
                        
                        2,575
                        
                        
                        
                        4,290Gross
      profit
                        
                        
                        2,430
                        
                        
                        
                        6,869
                        
                        
                        
                        1,032
                        
                        
                        
                        3,490Operating
      expenses:Research
      and development expenses, net of SRED credits of $1,016 in
      2009
                        
                        
                        108
                        
                        
                        
                        (348
                        )
                        
                        
                        57
                        
                        
                        
                        (624
                        )Impairments
                        
                        
                        516
                        
                        
                        
                        80
                        
                        
                        
                        268
                        
                        
                        
                        10Selling,
      general and administrative expenses
                        
                        
                        4,723
                        
                        
                        
                        8,727
                        
                        
                        
                        2,418
                        
                        
                        
                        4,619Total
      operating expenses
                        
                        
                        5,347
                        
                        
                        
                        8,459
                        
                        
                        
                        2,743
                        
                        
                        
                        4,005Operating
      loss
                        
                        
                        (2,917
                        )
                        
                        
                        (1,590
                        )
                        
                        
                        (1,711
                        )
                        
                        
                        (515
                        )Gain
      on early redemption of convertible debentures
                        
                        
                        1,259
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Finance
      income (expense), net
                        
                        
                        (2,900
                        )
                        
                        
                        (84
                        )
                        
                        
                        88
                        
                        
                        
                        85Gain
      on sale of Comverge shares
                        
                        
                        5,782
                        
                        
                        
                        1,227
                        
                        
                        
                        5,782
                        
                        
                        
                        810Income
      (loss) before taxes on income
                        
                        
                        1,224
                        
                        
                        
                        (447
                        )
                        
                        
                        4,159
                        
                        
                        
                        380Tax
      benefit (expense) on income
                        
                        
                        2
                        
                        
                        
                        —
                        
                        
                        
                        (640
                        )
                        
                        
                        —Income
      (loss) from operations of the Company and its consolidated
      subsidiaries
                        
                        
                        1,226
                        
                        
                        
                        (447
                        )
                        
                        
                        3,519
                        
                        
                        
                        380Share
      in losses of GridSense
                        
                        
                        (134
                        )
                        
                        
                        (129
                        )
                        
                        
                        (134
                        )
                        
                        
                        —Share
      in losses of Paketeria
                        
                        
                        (661
                        )
                        
                        
                        —
                        
                        
                        
                        (374
                        )
                        
                        
                        —Net
      income (loss)
                        
                        
                        431
                        
                        
                        
                        (576
                        )
                        
                        
                        3,011
                        
                        
                        
                        380Net
      (income) loss attributable to non-controlling interests
                        
                        
                        80
                        
                        
                        
                        (144
                        )
                        
                        
                        89
                        
                        
                        
                        (37
                        )Net
      income (loss) attributable to Acorn Energy Inc.
                        
                        $
                        511
                        
                        
                        $
                        (720
                        )
                        
                        $
                        3,100
                        
                        
                        $
                        343Basic
      and diluted earnings per share attributable to Acorn
      Energy  Inc.:Net
      income (loss) per share attributable to Acorn Energy
      Inc.   – basic
                        
                        $
                        0.05
                        
                        
                        $
                        (0.06
                        )
                        
                        $
                        0.28
                        
                        
                        $
                        0.03Net
      income (loss) per share attributable to Acorn Energy Inc.  –
      diluted
                        
                        $
                        0.04
                        
                        
                        $
                        (0.06
                        )
                        
                        $
                        0.26
                        
                        
                        $
                        0.03Weighted
      average number of shares outstanding attributable to Acorn Energy
      Inc.  – basic
                        
                        
                        11,138
                        
                        
                        
                        11,456
                        
                        
                        
                        11,243
                        
                        
                        
                        11,377Weighted
      average number of shares outstanding attributable to Acorn Energy
      Inc.  – diluted
                        
                        
                        11,995
                        
                        
                        
                        11,456
                        
                        
                        
                        12,138
                        
                        
                        
                        11,553




The
accompanying notes are an integral part of these consolidated financial
statements.


2




ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statement of Changes in
Equity(unaudited)


(in
thousands)





Number
      of
                    Shares
                
                
                Common
                    Stock
                
                
                Additional
                    Paid-In
                    Capital
                
                
                Warrants
                
                
                Accumulated
                    Deficit
                
                
                Treasury
                    Stock
                
                
                Accumulated
                    Other
                    Comprehensive
                    Income
      (Loss)
                
                
                Non-
                    controlling
                    interests
                
                
                TotalBalances
      as of December 31, 2008
                
                
                12,455
                
                
                $
                124
                
                
                $
                54,735
                
                
                $
                1,020
                
                
                $
                (17,587
                )
                
                $
                (3,719
                )
                
                $
                (425
                )
                
                $
                1,975
                
                
                $
                36,123Net
      income (loss)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (720
                )
                
                
                —
                
                
                
                —
                
                
                
                144
                
                
                
                (576
                )FAS
      115 adjustment on Comverge shares
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                384
                
                
                
                —
                
                
                
                384Differences
      from translation of financial statements of subsidiaries and equity
      investees
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                98
                
                
                
                —
                
                
                
                98Comprehensive
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —
                
                
                
                94Purchase
      of treasury shares
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (1,062
                )
                
                
                
                
                
                
                —
                
                
                
                (1,062
                )Issuance
      of shares by CoaLogixto
      Acorn and non-controlling interests shareholders
                
                
                —
                
                
                
                —
                
                
                
                245
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                849
                
                
                
                1,094Stock
      option compensation
                
                
                —
                
                
                
                —
                
                
                
                425
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                425Stock
      option compensation of subsidiaries
                
                
                —
                
                
                
                —
                
                
                
                341
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                341Balances
      as of June 30, 2009
                
                
                12,455
                
                
                $
                124
                
                
                $
                55,746
                
                
                $
                1,020
                
                
                $
                (18,307
                )
                
                $
                (4,781
                )
                
                $
                57
                
                
                $
                2,968
                
                
                $
                36,827




The
accompanying notes are an integral part of these consolidated financial
statements.


3


ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows(unaudited)


(dollars
in thousands)





Six
      months ended
                      June
      30,2008
                    
                    
                    2009Cash
      flows provided by (used in) operating activities:Net
      income (loss)
                    
                    $
                    431
                    
                    
                    $
                    (576
                    )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    551
                    
                    
                    
                    893Share
      in losses of Paketeria
                    
                    
                    650
                    
                    
                    
                    —Share
      in losses of GridSense
                    
                    
                    134
                    
                    
                    
                    129Exchange
      rate adjustment on restricted deposits
                    
                    
                    
                    
                    
                    
                    83Exchange
      rate adjustment on amounts funded for employee termination benefits net of
      exchange adjustment on liability for employee termination
      benefits
                    
                    
                    102
                    
                    
                    
                    (22
                    )Increase
      in liability for employee termination benefits
                    
                    
                    150
                    
                    
                    
                    107Deferred
      income taxes
                    
                    
                    10
                    
                    
                    
                    —Amortization
      of stock-based deferred compensation
                    
                    
                    610
                    
                    
                    
                    766Amortization
      of beneficial conversion feature, debt origination costs and value of
      warrants in private placement of Debentures
                    
                    
                    3,064
                    
                    
                    
                    —Gain
      on early redemption of Debentures
                    
                    
                    (1,259
                    )
                    
                    
                    —Impairments
                    
                    
                    516
                    
                    
                    
                    80Gain
      on sale of Comverge shares
                    
                    
                    (5,782
                    )
                    
                    
                    (1,227
                    )Other
                    
                    
                    14
                    
                    
                    
                    —Change
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable, unbilled work-in process and other
      current and other assets
                    
                    
                    47
                    
                    
                    
                    (301
                    )Increase
      in inventory
                    
                    
                    (408
                    )
                    
                    
                    (396
                    )Increase
      in accounts payable, accrued payroll, payroll taxes and social benefits,
      other current liabilities and other liabilities
                    
                    
                    (826
                    )
                    
                    
                    (1,620
                    )Net
      cash used in operating activities
                    
                    
                    (1,996
                    )
                    
                    
                    (2,084
                    )Cash
      flows provided by (used in) investing activities:Proceeds
      from sale of Comverge shares
                    
                    
                    9,682
                    
                    
                    
                    3,569Proceeds
      from sale of covered calls
                    
                    
                    —
                    
                    
                    
                    112Investment
      in EnerTech
                    
                    
                    —
                    
                    
                    
                    (500
                    )Payment
      for DSIT shares from exercise of put option
                    
                    
                    —
                    
                    
                    
                    (294
                    )Investment
      in GridSense
                    
                    
                    (1,153
                    )
                    
                    
                    —Restricted
      deposits
                    
                    
                    (1,404
                    )
                    
                    
                    (500
                    )Loans
      to investee and potential investee companies
                    
                    
                    (3,571
                    )
                    
                    
                    —Transaction
      costs in 2007 acquisition of SCR Tech
                    
                    
                    (956
                    )
                    
                    
                    —Amounts
      funded for employee termination benefits
                    
                    
                    (96
                    )
                    
                    
                    (116
                    )Utilization
      of employee termination benefits
                    
                    
                    2
                    
                    
                    
                    7Acquisition
      of license
                    
                    
                    (2,000
                    )
                    
                    
                    —Acquisitions
      of property and equipment
                    
                    
                    (275
                    )
                    
                    
                    (414
                    )Net
      cash provided by investing activities
                    
                    
                    229
                    
                    
                    
                    1,864Cash
      flows provided by (used in) financing activities:Short-term
      debt borrowings, net
                    
                    
                    (590
                    )
                    
                    
                    (241
                    )Repayments
      of long-term debt
                    
                    
                    (117
                    )
                    
                    
                    (4
                    )Purchase
      of treasury shares
                    
                    
                    —
                    
                    
                    
                    (1,062
                    )Redemption
      of Convertible Debentures
                    
                    
                    (3,443
                    )
                    
                    
                    —Issuance
      of shares to non-controlling interest in consolidated
      subsidiary
                    
                    
                    2,226
                    
                    
                    
                    1,094Proceeds
      from employee stock option and warrant exercises
                    
                    
                    755
                    
                    
                    
                    —Net
      cash used in financing activities
                    
                    
                    (1,169
                    )
                    
                    
                    (213
                    )Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    —
                    
                    
                    
                    (97
                    )Net
      decrease in cash and cash equivalents
                    
                    
                    (2,936
                    )
                    
                    
                    (530
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    19,644
                    
                    
                    
                    15,142Cash
      and cash equivalents at end of period
                    
                    
                    16,708
                    
                    
                    
                    14,612




The
accompanying notes are an integral part of these consolidated financial
statements.


4


ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows(unaudited)


(dollars
in thousands)





Six
      months ended
                    June
      30,2008
                  
                  
                  2009Non-cash
      investing and finance items:Unrealized
      gain (loss) from Comverge shares
                  
                  $
                  (37,570
                  )
                  
                  $
                  384Reduction
      of deferred tax liability with respect to unrealized loss from
      Comverge  shares
                  
                  $
                  14,498Increase
      in goodwill with respect to finalizing purchase price
      allocation
                  
                  $
                  209Reduction
      in intangibles acquired with respect to finalizing purchase price
      allocation
                  
                  $
                  250Reduction
      in value of put option with respect to finalizing purchase price
      allocation
                  
                  $
                  41Conversion
      of Debentures to common stock and additional
    paid-in-capital
                  
                  $
                  2,963Intangibles
      acquired by Coreworx in consideration for future royalties
                  
                  
                  
                  
                  
                  $
                  99Adjustment
      of additional paid-in-capital and non-controlling interests from
      investment in CoaLogix by non-controlling interests
                  
                  
                  
                  
                  
                  $
                  245




The
accompanying notes are an integral part of these consolidated financial
statements.


5


ACORN
ENERGY, INC. AND SUBSIDIARIES


Notes to Consolidated Financial
Statements(unaudited)


(dollars
in thousands)




Note
1: Basis of Presentation




The
accompanying unaudited consolidated financial statements of Acorn Energy, Inc.
and its subsidiaries (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included.  Operating results for the six and three-month periods
ended June 30, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008.




Effective
January 1, 2009, the Company implemented Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment to ARB No. 51, or SFAS 160. This standard
changed the accounting for and reporting of minority interests (now called
noncontrolling interests) in the Company’s consolidated financial statements.
Upon adoption, certain prior period amounts have been reclassified to conform to
the current period financial statement presentation. These reclassifications
have no effect on the Company’s previously reported financial position or
results of operations (See Note 2).




Note
2: New Accounting Standards




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”) which replaces SFAS
No. 141, “Business Combination”. SFAS 141R establishes the principles and
requirements for how an acquirer: (1) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (2) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (3) discloses the business combination. This Statement applies to all
transactions in which an entity obtains control of one or more businesses,
including transactions that occur without the transfer of any type of
consideration. SFAS 141R is effective on a prospective basis for all business
combinations on or after January 1, 2009, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax contingencies. The
adoption of SFAS 141R had no material impact on the Company’s financial
statements.




In December 2007, the FASB issued SFAS
No. 160 “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB No. 51 and
establishes accounting and reporting standards that require noncontrolling
interests (previously referred to as minority interest) to be reported as a
component of equity, changes in a parent’s ownership interest while the parent
retains its controlling interest be accounted for as equity transactions, and
upon a loss of control, retained ownership interest will be remeasured at fair
value, with any gain or loss recognized in earnings. Prior to adoption of SFAS
160 on January 1, 2009, the Company had stopped attributing losses to its DSIT
subsidiary because the losses exceeded the carrying amount of the noncontrolling
interest. Upon adoption of SFAS 160, the Company prospectively attributes income
and losses to the noncontrolling interests associated with DSIT. The
presentation and disclosure requirements of SFAS 160 were applied
retrospectively. Other than the change in presentation of noncontrolling
interests and the treatment of noncontrolling interests associated with DSIT and
CoaLogix, the adoption of SFAS 160 had no impact on the Company’s financial
statements.




6




In March 2008, FASB issued Statement
No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133" ("FAS 161"). FAS 161 amends and expands the
disclosure requirements of FAS 133 to clarify how and why companies use
derivative instruments. In addition, FAS 161 requires more disclosures regarding
how companies account for derivative instruments and the impact derivatives have
on a company’s financial statements. Other than the required disclosures (see
Note 15) the adoption of SFAS 161 had no impact on the Company’s financial
statements.




In April 2008, the FASB issued FASB
Staff Position (the “FSP”) FAS No. 142-3, which amends the factors that must be
considered in developing renewal or extension assumptions used to determine the
useful life over which to amortize the cost of a recognized intangible asset
under FAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an
entity to consider its own assumptions about renewal or extension of the term of
the arrangement, consistent with its expected use of the asset, and is an
attempt to improve consistency between the useful life of a recognized
intangible asset under FAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under FAS No. 141, “Business Combinations.”.
The adoption of FSP FAS 142-3 had no impact on the Company’s financial
statements.




In April 2009, the Financial
Accounting Standards Board (FASB) issued three related Staff Positions (FSP):
(i) FSP 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability have Significantly Decreased and Identifying
Transactions That Are Not Orderly,” or FSP FAS 157-4, (ii) FAS 115-2 and
FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,”
or FSP FAS 115-2, and (iii) FAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” or FSP FAS 107-1, which will be
effective for interim and annual periods ending after June 15, 2009. FSP
FAS 157-4 provides guidance on how to determine the fair value of assets and
liabilities under SFAS No. 157 in the current economic environment and
reemphasizes that the objective of a fair value measurement remains an exit
price. If the Company was to conclude that there has been a significant decrease
in the volume and level of activity of the asset or liability in relation to
normal market activities, quoted market values may not be representative of fair
value and the Company may conclude that a change in valuation technique or the
use of multiple valuation techniques may be appropriate. FSP FAS 115-2 modifies
the requirements for recognizing other-than-temporarily impaired debt securities
and revise the existing impairment model for such securities, by modifying the
current intent and ability indicator in determining whether a debt security is
other-than-temporarily impaired. FSP FAS 107-1 enhances the disclosure of
instruments under the scope of SFAS No. 157 for both interim and annual
periods. The Company’s adoption of these Staff Positions did not have a material
impact on its consolidated financial statements.




In May 2009, the FASB issued SFAS
No. 165, “Subsequent Events”. This standard is intended to establish
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, this standard sets forth the period after
the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements, and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. 
SFAS No. 165 is effective for fiscal years and interim periods ended after
June 15, 2009 and will be applied prospectively. The adoption of SFAS No.
165 did not have a material impact on the Company’s financial
statements.




In June 2009, the FASB issued SFAS 167,
Amendments to FASB Interpretation No. 46(R), which changes the approach to
determining the primary beneficiary of a variable interest entity (“VIE”) and
requires companies to more frequently assess whether they must consolidate VIEs.
This new standard is effective for the Company beginning on January 1,
2010. The Company is currently assessing the potential impacts, if any, on our
consolidated financial statements.




7




In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles”. This standard replaces SFAS No. 162, “The Hierarchy of
Generally Accepted Accounting Principles”, and establishes only two levels of
U.S. generally accepted accounting principles (“GAAP”), authoritative and
non-authoritative. The FASB Accounting Standards Codification (the
“Codification”) will become the source of authoritative, nongovernmental GAAP,
except for rules and interpretive releases of the Securities and Exchange
Commission (“SEC”), which are sources of authoritative GAAP for SEC registrants.
All other non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative. This standard is effective for
financial statements for interim or annual reporting periods ending after
September 15, 2009.  The Company will begin to use the new guidelines
and numbering system prescribed by the Codification when referring to GAAP in
the third quarter of fiscal 2010.  As the Codification was not intended to
change or alter existing GAAP, it will not have any impact on the Company’s
financial statements.




Note
3: Inventory





As
      of
                    December
                    31,
      2008
                  
                  
                  As
      of
                    June
      30,
                    2009Raw
      materials
                  
                  $
                  720
                  
                  
                  $
                  783Finished
      goods
                  
                  
                  428
                  
                  
                  
                  761$
                  1,148
                  
                  
                  $
                  1,544




Note
4: Investment in Comverge Inc. (Comverge)




During
the six months ended June 30, 2009, the Company sold 470,100 of its 502,500
Comverge shares held at the beginning of 2009.  The Company received
proceeds of $3,647 (included $78 received from covered-call options and
allocated to shares sold – see below) and recorded a pre-tax gain of $1,227 on
the sale of these shares.




The
Company’s remaining 32,400 Comverge shares are accounted for as
“available-for-sale” under SFAS 115 “Accounting for Certain Investments in Debt
and Equity Securities”. Accordingly, the Company reflected its investment in
Comverge based on Comverge’s share price of $12.10 at June 30, 2009 which
resulted in an adjustment to the carrying value to reflect a fair market value
of $392.




The
Company has entered into “covered-call” options for 32,100 of its remaining
Comverge shares. The covered-call options obligate the Company to sell 29,200
and 2,900 of its Comverge shares in September 2009 at $10.00 and $7.50 per
share, respectively, should the option holder exercise the option. In addition,
during the second quarter of 2009, the Company also entered into covered-call
options for its Comverge shares. The Company received proceeds of $112 as a
result of these covered-call transactions of which $78 related to covered-calls
which expired in the second quarter of 2009 and $34 which relates to
covered-calls which will expire in the third quarter of 2009. The proceeds from
the covered-call transactions were recorded as a reduction in the Company’s
Investment in Comverge. At June 30, 2009, the fair market value of the remaining
covered-call options was a loss of $65 which is included in Finance income
(expense) and Other Current Liabilities. As a result of entering into the
covered-call options, the Company has classified its remaining 32,400 shares of
Comverge shares as a current asset.




Note
5:  CoaLogix





On April 8, 2009, the Company entered
into a Common Stock Purchase Agreement (the “Purchase Agreement”) with the
Company’s 85% owned CoaLogix Inc. subsidiary, EnerTech Capital Partners III L.P.
(“EnerTech”) and certain members of CoaLogix’s senior management pursuant to
which each of the Company and EnerTech agreed to purchase from CoaLogix 781,111
shares of common stock for a purchase price of $5,624, and certain members of
CoaLogix’s senior management agreed to purchase 36,111 shares of common stock of
CoaLogix for an aggregate purchase price of $260 for a total of
$11,508.  The Purchase Agreement provides that the Company, EnerTech
and senior management will purchase such shares of common stock in stages as
funding is needed by CoaLogix for plant expansion, technology development, legal
expenses and computer software.  Following completion of all the
stages of the stock purchase under the Purchase Agreement, the Company would own
approximately 72.3% of CoaLogix.




8




The Company’s share of the first stage
of the stock purchase under the Purchase Agreement was $1,046. The Company
transferred this amount to CoaLogix in April 2009 and was issued 145,254 shares
of CoaLogix common stock. Concurrently, EnerTech and CoaLogix’s senior
management’s share of the first stage of the stock purchase under the Purchase
Agreement was $1,094. CoaLogix received these amounts from EnerTech and CoaLogix
senior management in April 2009 and was issued 145,254 and 6,715 shares of
CoaLogix common stock, respectively. As a result of these issuances of shares,
the Company’s holdings in CoaLogix were diluted to approximately
81.7%.





As part of the Purchase Agreement,
CoaLogix granted additional options to purchase ordinary shares to it senior
management (see Note 11(b)). In accordance with SFAS 160, the Company recorded
an increase of $245 in Additional Paid-in-Capital as a result of the $1,094
investment by non-controlling interests in April 2009.





Note
6:  Non-Controlling Interests





The following schedule presents the
effects of changes in the Company’s ownership interests in its subsidiaries on
the Company’s equity.





Net
      Income Attributable to Acorn Energy Inc.
                                      and
      Transfers to (from) the Noncontrolling InterestSix
      months endedJune
      30,
                                      2008
                                    
                                    
                                    June
      30,
                                      2009Net
      income attributable to Acorn Energy, Inc.
                                    
                                    $
                                    511
                                    
                                    
                                    $
                                    (720
                                    )Transfers
      to (from) the non-controlling interest:Increase
      in Acorn Energy Inc.’s paid-in-capital from sale by CoaLogix of its shares
      to non-controlling interests
                                    
                                    
                                    —
                                    
                                    
                                    
                                    245Net
      transfers from non-controlling interest
                                    
                                    
                                    —
                                    
                                    
                                    
                                    245Changes
      from net income attributable to Acorn Energy, Inc. and transfers to (from)
      non-controlling interest
                                    
                                    $
                                    511
                                    
                                    
                                    $
                                    (475
                                    )





Note
7:  Capital Call by EnerTech




In April
2009, the Company received a capital call of $500 from EnerTech relating to the
Company’s investment in EnerTech.  The Company funded the capital call
in April 2009.  To date, the Company has funded $1,650 of its $5,000
investment commitment in EnerTech.




Note
8:  Privatization of GridSense




On June
15, 2009, GridSense Systems Inc. (“GSI”) effectively completed a plan which was
approved by a majority of GSI shareholders in February 2009, whereby GSI
transferred its grid monitoring business to a newly formed private Australian
corporation known as GridSense Pty Ltd. (“GPL”). Concurrently, certain GSI
shareholders (including Acorn) transferred their shares to a third party and
received shares in GPL. Under the plan, GPL assumed all the debt of GSI
including its debt to Acorn (CDN$750 ($645) which was previously fully written
down by Acorn as an impairment). As a result, the Company’s percentage ownership
in the grid monitoring business increased from approximately 23% (in GSI) to
approximately 31% of the newly formed Australian corporation (GPL).  The
Company recorded no gain or loss on the privatization transaction, and its
investment in GPL is zero as was the Company’s investment balance in GSI prior
to the going private transaction.




9




Note
9: Acquisition of ProExecute Licensed Technology





On April 23, 2009, the Company’s
Coreworx subsidiary signed an agreement (the “Agreement”) with ProExecute LLC
for the rights to its Contract Management Solution technology (“ProExecute” or
“Licensed Technology”). Coreworx’s Project Information Control software is used
for managing complex engineering documentation and information exchange amongst
design professionals, external engineering firms and contractors. With the
acquisition of ProExecute, Coreworx will now be extending the Project
Information Control platform for capital projects to include an integrated
contract and document management solution designed to address the complete
construction contract life cycle.





Upon analysis, the Company has
determined that the acquisition of ProExecute should be recorded as a business
acquisition under the guidelines of SFAS No. 141(R), “Business Combinations”, as
Coreworx acquired substantially all of the net assets of the ProExecute business
including its core intellectual property, full use of ProExecute’s physical
assets, as well as the access to all intellectual knowledge.





In accordance with SFAS No. 141(R), the
Company recorded the assets acquired and the liabilities assumed (including any
contractual contingencies) measured at their fair values as of the date of
acquisition. The Company determined that fair value of the acquired assets on
the date of acquisition was $99 all of which was allocated to License Technology
– an amortizable intangible asset. Additionally, the Company recorded as a
liability the fair value of expected future royalty fees payable ($81 included
in other current liabilities and $18 in other liabilities) with respect to the
acquisition of ProExecute.  The Licensed Technology will be amortized
over a 30-month period and is included in the Software group of intangible
assets in the Company’s EIS segment (see Note 10).




Note
10:  Goodwill and Other Intangible Assets





The
changes in the carrying amounts of goodwill from December 31, 2008 to June
30, 2009 were as follows:




CoaLogix
                    
                    
                    Naval
      &
                      RT
                      Solutions
                    
                    
                    EIS
                    
                    
                    TotalBalance
      as of December 31, 2008
                    
                    
                    3,714
                    
                    
                    $
                    530
                    
                    
                    $
                    2,098
                    
                    
                    $
                    6,342Translation
      adjustment
                    
                    
                    —
                    
                    
                    
                    (16
                    )
                    
                    
                    99
                    
                    
                    
                    83Balance
      as of June 30, 2009
                    
                    $
                    3,714
                    
                    
                    $
                    514
                    
                    
                    $
                    2,197
                    
                    
                    $
                    6,425




The
changes in the carrying amounts and accumulated amortization of intangible
assets from December 31, 2008 to June 30, 2009 were as
follows:




SCR
                  Technologies**
              
              
              Solucorp
      License
              
              
              Naval
                  Technologies
              
              
              Software***
              
              
              Customer
                  Relationships***
              
              
              TotalCost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              NetBalance
      as of December 31, 2008
              
              $
              5,511
              
              
              $
              (633
              )
              
              $
              2,000
              
              
              $
              (128
              )
              
              $
              523
              
              
              $
              (48
              )
              
              $
              2,865
              
              
              $
              (69
              )
              
              $
              349
              
              
              $
              (13
              )
              
              $
              10,357Acquisition
      (see Note 9)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              99
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              99Amortization
              
              
              —
              
              
              
              (273
              )
              
              
              —
              
              
              
              (100
              )
              
              
              —
              
              
              
              (39
              )
              
              
              —
              
              
              
              (97
              )
              
              
              —
              
              
              
              (18
              )
              
              
              (527
              )Cumulative
      translation adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (16
              )
              
              
              2
              
              
              
              141
              
              
              
              (5
              )
              
              
              17
              
              
              
              (1
              )
              
              
              138Balance
      as of June 30, 2009
              
              $
              5,511
              
              
              $
              (906
              )
              
              $
              2,000
              
              
              $
              (228
              )
              
              $
              507
              
              
              $
              (85
              )
              
              $
              3,105
              
              
              $
              (171
              )
              
              $
              366
              
              
              $
              (32
              )
              
              $
              10,067




*    Accumulated
amortization
  **   SCR
Technologies includes regeneration, rejuvenation and on-site cleaning
technologies associated with CoaLogix.
  ***
Software and Customer Relationships relates to the Company’s EIS
segment.




10





All
intangible assets are being amortized over their estimated useful lives, whose
weighted average lives were estimated to be ten years for SCR Technologies and
the Solucorp license, seven years for Naval Technologies, sixteen years for
Software and ten years for customer relationships. Amortization expense for each
of the six months ended June 30, 2008 and 2009 amounted to $329 and $527,
respectively.  Amortization expense with respect to intangible assets
is estimated to be $1,189, $1,189, $1,151, $1,132 and $1,132 per year for each
of the years ending June 30, 2010 through 2014.




Note
11:  Stock Options and Warrants




(a)
Acorn Stock Options





A summary
of stock option activity for the six months ended June 30, 2009 is as
follows:





Number
      of
                        Options (in
                        shares)
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      Weighted
                        Average
                        Remaining
                        Contractual
                        Life
                      
                      Aggregate
                        Intrinsic
                        ValueOutstanding
      at December 31, 2008
                      
                      
                      1,876,500
                      
                      
                      $
                      3.27Granted
                      
                      
                      329,500
                      
                      
                      $
                      2.19Exercised
                      
                      
                      —Forfeited
      or expired
                      
                      
                      (253,667
                      )
                      
                      $
                      2.65Outstanding
      at June 30, 2009
                      
                      
                      1,952,333
                      
                      
                      $
                      3.17
                      
                      3.4
      years
                      
                      $
                      883Exercisable
      at  June 30, 2009
                      
                      
                      1,497,330
                      
                      
                      $
                      3.15
                      
                      2.3
      years
                      
                      $
                      666





The
weighted average grant date fair value of the 329,500 stock options granted
during the first six months of 2009 was $1.54 per share. The fair value of the
options granted was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted average
assumptions:





Volatility
                  
                  
                  70
                  %Expected
      term (years)
                  
                  5.7 yearsRisk
      free interest rate
                  
                  
                  1.95
                  %Expected
      dividend yield
                  
                  None




(b)
CoaLogix Stock Options





In April
2009, CoaLogix granted options (the “April 2009 Options”) to purchase 81,445 of
its ordinary shares to senior management of CoaLogix under the CoaLogix Inc.
2008 Stock Option Plan (the “CoaLogix Plan”). The options were granted with an
exercise price of $7.20 per share and are exercisable for a period of ten years.
The options are subject to a double trigger vesting schedule. The April 2009
Options will vest over a four-year term with 25% vesting after one year and the
balance vesting quarterly over the following three years. In addition, the
maximum cumulative number of April 2009 Options that may vest at any applicable
vesting date is limited based on the amount invested by the Purchasers under the
Purchase Agreement described in Note 5.




11




Upon
exercise of all the options in the CoaLogix Plan, the Company’s holdings in
CoaLogix will be diluted from 81.7% to approximately 70.1%.




CoaLogix
valued the options using a Black Scholes model using the following
variables:




Stock
      price*
                  
                  $
                  7.20Exercise
      price
                  
                  $
                  7.20Expected
      term of option in years
                  
                  6.1 yearsVolatility**
                  
                  
                  65
                  %Risk-free
      interest rate
                  
                  
                  1.8
                  %Expected
      dividend yield
                  
                  None




* The
stock price was determined based upon the valuation used in the Company’s recent
investment in CoaLogix (see Note 5).




**   The
calculated volatility for comparable companies for the expected term was
used.




Based
upon the above, it was determined that the options granted had a value of $4.33
per option.




A summary
status of the CoaLogix Plan as of June 30, 2009, as well as changes during the
six months then ended, is presented below:





2009Number
      of
                    Options
      (in
                    shares)
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceOutstanding
      at January 1, 2009
                  
                  
                  376,475
                  
                  
                  $
                  5.05Granted
      at fair value
                  
                  
                  81,445
                  
                  
                  
                  7.20Exercised
                  
                  
                  —
                  
                  
                  
                  —Forfeited
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at June 30, 2009
                  
                  
                  457,920
                  
                  
                  $
                  5.43Exercisable
      at June 30, 2009
                  
                  
                  128,678
                  
                  
                  $
                  5.05




(c)
Stock-based compensation expense




Total
stock-based compensation expense included in the Company’s statements of
operations for the six and three months ended June 30, 2008 and 2009,
respectively, was:




Six
                          months
                          ended
                          June
      30,
                          2008
                        
                        
                        Six
                          months
                          ended
                          June
      30,
                          2009
                        
                        
                        Three
                          months
                          ended
                          June
      30,
                          2008
                        
                        
                        Three
                          months
                          ended
                          June
      30,
                          2009Cost
      of sales
                        
                        $
                        57
                        
                        
                        $
                        98
                        
                        
                        $
                        57
                        
                        
                        $
                        49Research
      and development expense
                        
                        
                        —
                        
                        
                        
                        40
                        
                        
                        
                        —
                        
                        
                        
                        21Selling,
      general and administrative expenses
                        
                        
                        542
                        
                        
                        
                        628
                        
                        
                        
                        393
                        
                        
                        
                        287Share
      of losses in Paketeria
                        
                        
                        11
                        
                        
                        
                        —
                        
                        
                        
                        11
                        
                        
                        
                        —Total
      stock based compensation expense
                        
                        $
                        610
                        
                        
                        $
                        766
                        
                        
                        $
                        461
                        
                        
                        $
                        357




12




(d)
Warrants





A summary
of stock warrants activity for the six months ended June 30, 2009 is as
follows:





Number
      of
                      Warrants
      (in
                      shares)
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      LifeOutstanding
      at December 31, 2008
                    
                    
                    784,023
                    
                    
                    $
                    4.06
                    
                    3.1 yearsGranted
                    
                    
                    —Exercised
                    
                    
                    —Forfeited
      or expired
                    
                    
                    —Outstanding
      and exercisable at June 30, 2009
                    
                    
                    784,023
                    
                    
                    $
                    4.06
                    
                    2.6
      years





Note
12: Share Repurchase Program





On
October 6, 2008, the Board of Directors of the Company authorized a share
repurchase program of up to 1,000,000 shares of its common stock. The share
repurchase program is being implemented at management’s discretion from time to
time. During the period from January 1, 2009 to June 30, 2009, the Company
repurchased 417,395 shares of its common stock at an average price of $2.54 per
share. As at June 30, 2009, the Company repurchased a total of 481,310 shares of
its common stock under the program.





Note
13: Research and Development Expenses, Net





In April 2009, following a technical
audit, the Company’s Coreworx subsidiary’s claims for scientific and
experimental development tax credits and Ontario innovation tax credits
pertaining to its 2007 tax year totaling approximately CDN$826 ($710) net of
contingency fees and interest (collectively “SR&ED Claims”) were accepted by
the Canada Revenue Agency and the Ontario Ministry of Revenue, respectively.
 During the second quarter of 2009, Coreworx received CDN$627 ($539) of the
2007 SRED Claim with the remaining CDN$199 ($171) expected to be received in the
third quarter of 2009. Additionally, as a result of it passing the technical
audit, Coreworx has also accrued CDN$400 ($344) with respect to similar SRED
Claims pertaining to its 2008 tax year only to the extent that it is entitled to
apply for refundable credits on qualifying expenditures up to August 13, 2008
(the date it was acquired by the Company). Tax credits resulting from qualifying
expenditures after August 13, 2008 are applicable against income taxes otherwise
payable by Coreworx.




It is the
Company’s policy that credits arising from qualifying scientific research and
experimental development expenditures are netted against research and
development expenses. Accordingly, all the credits ($1,016) have been netted
against research and development expenses in the second quarter of
2009.




13




Note
14: Warranty Provision
 
 The
following table summarizes the changes in accrued warranty liability from the
period from December 31, 2008 to June 30, 2009:




Gross
      Carrying
                      AmountBalance
      at December 31, 2008
                    
                    $
                    256Warranties
      issued and adjustment of provision
                    
                    
                    6Warranty
      claims
                    
                    
                    —Balance
      at  June 30, 2009*
                    
                    $
                    262




* $26 of
the warranty provision is included in Other Current Liabilities and $236 in
Other Liabilities at June 30, 2009.





The
Company’s warranty provision is based upon the Company’s estimate of costs to be
incurred during the warranty period.





Note
15: Fair Value Measurement





In
February 2008, the FASB issued FSP No. 157-2, “Effective Date of FASB Statement
No. 157” (“FSP No. 157-2”), which delayed the effective date of SFAS No. 157,
“Fair Value Measurements” (“SFAS No. 157”) for non-financial assets and
non-financial liabilities to fiscal years beginning after November 15, 2008,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis. This provision of SFAS No. 157 was effective
for the Company beginning on January 1, 2009. The adoption of this guidance did
not have a material impact on the Company’s condensed consolidated financial
statements, because the Company did not have any non-financial assets or
non-financial liabilities recognized or disclosed at fair value at the adoption
date.




SFAS No.
157 defines fair value for financial reporting as the price that would be
received upon the sale of an asset or paid upon the transfer of a liability in
an orderly transaction between market participants at the measurement date. The
fair value measurement of our financial assets utilized assumptions categorized
as observable inputs under SFAS No. 157. Observable inputs are assumptions based
on independent market data sources.




The
following table sets forth information regarding the fair value measurement of
our financial assets as of June 30, 2009:





Level
      1
                                    
                                    
                                    Level
      2
                                    
                                    
                                    TotalAvailable
      for sale securities
                                    
                                    $
                                    392
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    392Covered-call
      options
                                    
                                    
                                    (65
                                    )
                                    
                                    $
                                    —
                                    
                                    
                                    
                                    (65
                                    )Derivative
      assets
                                    
                                    
                                    43
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    
                                    43Total
                                    
                                    $
                                    370
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    370





Marketable
securities that are classified in Level 1 consist of available-for-sale
securities and covered-call options for which market prices are readily
available. Unrealized gains or losses from available-for-sale securities are
recorded in Accumulated Other Comprehensive Income (Loss) whereas unrealized
gains or losses from covered-call options are recorded in Finance income
(expense), net. Derivative assets that are classified in Level 1 consist of
forward contracts for the purchase of NIS for which market prices are readily
available. Unrealized gains or losses from forward contracts are recorded in
Finance income (expense), net.




14




Note
16: Segment Information




The Company’s current operations are
based upon three operating segments:




·
            CoaLogix
      - SCR (Selective Catalytic Reduction) Catalyst and Management services
      conducted through the Company’s CoaLogix subsidiary which provides through
      its SCR-Tech, LLC subsidiary catalyst regeneration technologies and
      management services for selective catalytic reduction (SCR) systems used
      by coal-fired power plants to reduce nitrogen oxides (NOx)
      emissions.




·
            Naval
      and RT Solutions whose activities are focused on the following areas –
      sonar and acoustic related solutions for energy, defense and commercial
      markets and other real-time and embedded hardware & software
      development and production. Naval and RT Solutions activities are provided
      through the Company’s DSIT Solutions Ltd.
  subsidiary.




·
            Energy
      Infrastructure Software (EIS) services are provided through the Company’s
      Coreworx subsidiary which was acquired in August 2008. Coreworx provides
      integrated project collaboration and advanced document management
      solutions for the architecture, engineering and construction markets,
      particularly for large capital projects. As these activities were acquired
      in August 2008, there are no comparative results reported for these
      activities for the three or six month periods ended June 30,
      2008.




Other
operations include various operations that do not meet the quantitative
thresholds of SFAS No. 131.


15





CoaLogix
                        
                        
                        Naval and RT
                          Solutions
                        
                        
                        EIS
                        
                        
                        Other
                        
                        
                        TotalSix
      months ended June 30, 2009:Revenues
      from external customers
                        
                        $
                        9,937
                        
                        
                        $
                        3,636
                        
                        
                        $
                        2,102
                        
                        
                        $
                        583
                        
                        
                        $
                        16,258Intersegment
      revenues
                        
                        
                        —
                        
                        
                        
                        5
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        5Segment
      gross profit
                        
                        
                        3,471
                        
                        
                        
                        1,549
                        
                        
                        
                        1,686
                        
                        
                        
                        163
                        
                        
                        
                        6,869Segment
      income (loss)
                        
                        
                        533
                        
                        
                        
                        413
                        
                        
                        
                        (603
                        )
                        
                        
                        (21
                        )
                        
                        
                        322Depreciation
      and amortization expense
                        
                        
                        613
                        
                        
                        
                        93
                        
                        
                        
                        173
                        
                        
                        
                        14
                        
                        
                        
                        893Stock
      compensation expense
                        
                        
                        230
                        
                        
                        
                        2
                        
                        
                        
                        111
                        
                        
                        
                        —
                        
                        
                        
                        343Six
      months ended June 30, 2008:Revenues
      from external customers
                        
                        $
                        3,601
                        
                        
                        $
                        3,595
                        
                        
                        $
                        —
                        
                        
                        $
                        706
                        
                        
                        $
                        7,902Intersegment
      revenues
                        
                        
                        —
                        
                        
                        
                        16
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        16Segment
      gross profit
                        
                        
                        1,102
                        
                        
                        
                        1,180
                        
                        
                        
                        —
                        
                        
                        
                        148
                        
                        
                        
                        2,430Segment
      income (loss)
                        
                        
                        (395
                        )
                        
                        
                        154
                        
                        
                        
                        —
                        
                        
                        
                        (42
                        )
                        
                        
                        (283
                        )Depreciation
      and amortization expense
                        
                        
                        432
                        
                        
                        
                        99
                        
                        
                        
                        —
                        
                        
                        
                        20
                        
                        
                        
                        551Stock
      compensation expense
                        
                        
                        177
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        177Three
      months ended June 30, 2009:Revenues
      from external customers
                        
                        $
                        4,547
                        
                        
                        $
                        1,840
                        
                        
                        $
                        1,075
                        
                        
                        $
                        318
                        
                        
                        $
                        7,780Intersegment
      revenues
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Segment
      gross profit
                        
                        
                        1,616
                        
                        
                        
                        831
                        
                        
                        
                        931
                        
                        
                        
                        112
                        
                        
                        
                        3,490Segment
      income (loss)
                        
                        
                        (43
                        )
                        
                        
                        215
                        
                        
                        
                        224
                        
                        
                        
                        21
                        
                        
                        
                        417Depreciation
      and amortization expense
                        
                        
                        308
                        
                        
                        
                        48
                        
                        
                        
                        92
                        
                        
                        
                        8
                        
                        
                        
                        456Stock
      compensation expense
                        
                        
                        129
                        
                        
                        
                        —
                        
                        
                        
                        57
                        
                        
                        
                        —
                        
                        
                        
                        186Three
      months ended June 30, 2008:Revenues
      from external customers
                        
                        $
                        1,352
                        
                        
                        $
                        1,913
                        
                        
                        $
                        —
                        
                        
                        $
                        342
                        
                        
                        $
                        3,607Intersegment
      revenues
                        
                        
                        —
                        
                        
                        
                        16
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        16Segment
      gross profit
                        
                        
                        344
                        
                        
                        
                        616
                        
                        
                        
                        —
                        
                        
                        
                        72
                        
                        
                        
                        1,032Segment
      income (loss)
                        
                        
                        (578
                        )
                        
                        
                        71
                        
                        
                        
                        —
                        
                        
                        
                        (7
                        )
                        
                        
                        (514
                        )Depreciation
      and amortization expense
                        
                        
                        214
                        
                        
                        
                        48
                        
                        
                        
                        —
                        
                        
                        
                        11
                        
                        
                        
                        273Stock
      compensation expense
                        
                        
                        177
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        177


16


Reconciliation
of Segment Income (Loss) to Consolidated Net Income





Six months ended
                  June 30,
                
                
                Three months ended
                  June 30,2008
                
                
                2009
                
                
                2008
                
                
                2009Total
      income (loss) for reportable segments
                
                $
                (241
                )
                
                $
                343
                
                
                $
                (507
                )
                
                $
                396Other
      operational segment loss
                
                
                (42
                )
                
                
                (21
                )
                
                
                (7
                )
                
                
                21Total
      operating income (loss)
                
                
                (283
                )
                
                
                322
                
                
                
                (514
                )
                
                
                417Share
      of losses in Paketeria
                
                
                (661
                )
                
                
                —
                
                
                
                (374
                )
                
                
                —Share
      of losses in GridSense
                
                
                (134
                )
                
                
                (129
                )
                
                
                (134
                )
                
                
                —Non-controlling
      interest
                
                
                80
                
                
                
                (144
                )
                
                
                89
                
                
                
                (37
                )Impairments
                
                
                (516
                )
                
                
                (80
                )
                
                
                (268
                )
                
                
                (10
                )Gain
      on sale of Comverge shares
                
                
                5,782
                
                
                
                1,227
                
                
                
                5,782
                
                
                
                810Gain
      on early redemption of Debentures
                
                
                1,259
                
                
                
                —
                
                
                
                —
                
                
                
                —Interest
      expense recorded with respect to the private placement of
      Debentures
                
                
                (3,064
                )
                
                
                —
                
                
                
                —
                
                
                
                —Income
      tax benefit (expense)
                
                
                2
                
                
                
                —
                
                
                
                (640
                )
                
                
                —Net
      loss of corporate headquarters and other unallocated
costs*
                
                
                (1,954
                )
                
                
                (1,916
                )
                
                
                (841
                )
                
                
                (837
                )Net
      income (loss) attributable to Acorn Energy Inc
                
                $
                511
                
                
                $
                (720
                )
                
                $
                3,100
                
                
                $
                343





*
Includes stock compensation expense of $433 and $423 for the six month periods
ending June 30, 2008 and 2009, respectively.  Includes stock
compensation expense of $284 and $171 for the three month periods ending June
30, 2008 and 2009, respectively.




Note
17: Subsequent Events





On August 13, 2009, the Company paid
the $3,400 principal and $68 of outstanding interest due which was associated
with the 8% one-year promissory notes previously issued with respect to the
Company’s acquisition of Coreworx in August 2008.





Subsequent
events have been evaluated through August 13, 2009, the filing date of this
Quarterly Report on Form 10Q, for disclosure and
recognition.


17


ACORN
ENERGY, INC.


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion includes statements that are forward-looking in nature.
Whether such statements ultimately prove to be accurate depends upon a variety
of factors that may affect our business and operations.  Certain of
these factors are discussed in this report and in our Annual Report on Form 10-K
for the year ended December 31, 2008.





Recent
Developments




CoaLogix
Appoints Two New Members to its Board of Directors





In
July 2009, CoaLogix announced that Holly Koeppel, the CFO of American Electric
Power Company, Inc.  (NYSE: AEP), and John Eaves, the President and COO of
Arch Coal, Inc. (NYSE: ACI), have been elected to the company’s Board of
Directors.  These additions increase the number of directors on the
CoaLogix board to six. In addition to Holly Koeppel and John Eaves, the members
of CoaLogix’s board include John Moore, Chairman, President & CEO of Acorn
Energy; Rick Giacco, Board member of Acorn Energy; Scott Ungerer, Managing
Partner of EnerTech Capital; and Bill McMahon, CEO of CoaLogix.





Future
Commitment for New AquaShield Orders





In July 2009, DSIT signed an agreement
with a leading Homeland Security integrator securing future orders for its
underwater site security systems. Under the agreement the integrator committed
to providing DSIT, by the end of the first quarter of 2010, with orders for the
AquaShieldTM Diver Detection Sonar (DDS) system totaling close to $5 million. The
AquaShieldTM DDS systems to be ordered based on this agreement will be employed
to defend strategic sites such as power plants, ports, and energy terminals. The
agreement also includes an option for ordering of additional AquaShieldTM systems
valued at approximately an additional $5 million by the end of
2011.




DSIT
Lease Agreement





In August 2009, DSIT signed a new three
year lease agreement to continue operating at its current facilities in Givat
Shmuel, Israel. Under the new lease agreement, which begins on September 1,
2009, DSIT expects to save approximately $150,000 per year in rent and
associated costs over the life of the lease.





Coreworx
acquires rights to ProExecute




In April
2009, Coreworx entered into an agreement with ProExecute LLC for the exclusive
rights to its licensed technology of Contract Management Solutions
(“ProExecute”). Under the agreement, Coreworx agreed to pay royalties based upon
percentage rates (which decrease at predetermined intervals based on unit
license sales) and committed to hiring certain ProExecute LLC personnel and to
reimburse ProExecute LLC for certain costs. Coreworx’s Project Information
Control software is used for managing complex engineering documentation and
information exchange amongst design professionals, external engineering firms
and contractors. With the agreement for the rights for ProExecute, Coreworx will
now be extending its Project Information Control platform for capital projects
to include the first integrated contract and document management solution
designed to address the complete construction contract life cycle.




18





GridSense




On June
15, 2009, GridSense Systems Inc. (“GSI”) effectively completed a plan which was
approved by a majority of GSI shareholders in February 2009, whereby GSI
transferred its grid monitoring business to a newly formed private Australian
corporation known as GridSense Pty Ltd. (“GPL”). Concurrently, certain GSI
shareholders (including Acorn) transferred their shares to a third party and
received shares in GPL. Under the plan, GPL assumed all the debt of GSI
including its debt to us (CDN$750,000 ($645,000) which was previously fully
written down by us as an impairment). As a result, our percentage ownership in
the grid monitoring business increased from approximately 23% (in GSI) to
approximately 31% of the newly formed Australian corporation (GPL).





Repayment
of Promissory Notes




On August
13, 2009, we paid the $3.4 million of principal and $68,000 of outstanding
interest which was due associated with the 8% one-year promissory notes
previously issued with respect to our acquisition of Coreworx in August
2008.




Overview
and Trend Information




During
the 2009 period included in this report, we had operations in three reportable
segments: providing catalyst regeneration technologies and management services
for SCR systems through our CoaLogix subsidiary, Naval and RT Solutions which is
conducted through our DSIT subsidiary and Energy Infrastructure Software (“EIS”)
services provided through our Coreworx subsidiary which was acquired in August
2008.  Accordingly, our results for the three and six month periods
ending June 30, 2009 does not include comparative information for the three and
six month periods ending June 30, 2008 with respect to Coreworx’s
results.




The
following analysis should be read together with the segment information provided
in Note 16 to the interim unaudited consolidated financial statements included
in this quarterly report.





CoaLogix





Our CoaLogix segment reported
significantly increased revenues, gross profit, gross margin and net income in
2009 as compared to 2008 (for both the three and six months ended June
30).





Revenues of $9.9 million represent an
increase of approximately $6.3 million or 176% in the first six months of 2009
as compared to the first six months of 2008. Second quarter 2009 revenues of
$4.5 million also reflected an increase of approximately $3.2 million or 236%
over second quarter 2008 revenues of $1.4 million. The increase in revenues was
due to continuing penetration in the regeneration market combined with the
ability to process more SCR modules facilitated by the completion of a plant
expansion in the fourth quarter 2008.





Gross profit in the first six months of
2009 increased by approximately $2.4 million or 215% over first six months of
2008 gross profit. In the second quarter of 2009, gross profit of $1.6 million
represents an increase of $1.3 million or 370% over second quarter 2008 gross
profit. The increase in gross profit was due to increased revenues noted above
and increased gross margins.





CoaLogix’s gross margins increased to
35% in the first six months of 2009 compared to 31% in the first six months of
2008.  Gross margins increased during the period due to increased
efficiencies and additional throughput from the plant expansion in the fourth
quarter of 2008.





At the end of the second quarter,
SCR-Tech had a backlog of approximately $7.3 million which CoaLogix expects to
realize over the next 2 years. Based on our backlog and scheduling of customer
jobs, we expect revenues for the balance of 2009 to be above 2008 levels.
However, we do expect revenues in the third quarter of 2009 to be below second
quarter sales due to seasonal factors.  Revenues and margins for the
second and third quarters have been typically lower than those of first and
fourth quarters due to seasonal factors since power plants generally do not
schedule service of their catalyst systems during months of peak generating
capacity which are typically the spring and summer ozone months. In addition, we
expect operating expenses for the balance of 2009 to be in excess of operating
expenses for the first and second quarters.




19




In April
2009, we entered into the Purchase Agreement with CoaLogix, EnerTech and certain
members of CoaLogix’s senior management pursuant to which Acorn and EnerTech
each agreed to purchase from CoaLogix 781,111 shares of common stock for a
purchase price of $5.6 million, and certain members of CoaLogix’s senior
management agreed to purchase 36,111 shares of common stock of CoaLogix for an
aggregate purchase price of approximately $260,000.  Proceeds of the
sale of the common stock will be used by CoaLogix for plant expansion,
technology development, legal expenses and computer software.  To
date, CoaLogix has received $2.1 million of the total $11.5 million commitment
by Acorn, EnerTech and management. Approximately half of this first stage of
funds is being used for plant expansion.





Naval
& RT Solutions




In July
2009, DSIT signed an exclusivity arrangement (see “Recent Developments”) whereby
a current customer committed to ordering five AquaShieldTM underwater security
systems by April 2010. This follows the $4.0 million of AquaShieldTM orders
received in the first quarter of 2009.




Our Naval
& RT Solutions segment reported stable revenues but significantly increased
gross profit, gross margin and net income in the first six months of 2009 as
compared to the first six months of 2008.





First six months 2009 revenues of $3.6
million were effectively unchanged as compared to the first six months of 2008.
Second quarter 2009 revenues of $1.8 million reflected a slight decrease of $0.1
million or 4% compared to second quarter 2008 segment revenues of $1.9 million.
Within the segment, sales from our Naval Solutions (which include AquaShieldTM
sales) increased in the first six months of 2009 by $0.6 million. This increase
was offset by a similar decrease in our other RT Solutions projects. DSIT
expects this trend to continue as it increasingly focuses on growing the Naval
Solutions portion of this segment.





Gross profit in the first six months of
2009 increased by approximately $0.4 million or 31% over first six months of
2008 gross profit, despite virtually no increase in sales. Gross margins
increased in the first six months of 2009 to 43% as compared to 33% in the first
six months of 2008. The increase in gross profit was due to increased margins on
projects as the current mix of projects (with increased Naval Solutions sales)
has higher margins than the mix of projects in 2008.





At June 30, 2009, our Naval and RT
Solutions segment had a backlog of approximately $5.9 million. Based on our
backlog, we expect that revenues in the coming quarters will continue to be at
least at the level of sales in the first two quarters of 2009.




Coreworx




During the second quarter of 2009, the
Company increased its focus on providing its software solutions to the nuclear
power industry.  The Company is planning to deliver a nuclear industry
solution that addresses project execution and information control requirements
for major refurbishment, modifications to the original plant design to increase
the maximum capacity output at which the plant can operate and new build
projects.  The nuclear industry solution will address regulatory
compliance, document traceability, and work processes that utilize best
practices in managing major capital projects.  Market conditions that the
Company believes will drive nuclear as a growing source of revenue include: an
increasing world-wide energy demand, an aging North American nuclear
infrastructure, and public pressure to provide clean-air electricity sources
that reduce dependency on overseas supplies of fossil fuel.




20




As we
acquired Coreworx in August 2008, its results are not included in our 2008
results. However, Coreworx’s revenues of CDN$2.5 million in the first six months
of 2009 represents an increase of CDN$1.7 million over Coreworx’s first six
months 2008 revenues of CDN$0.8 million. The increase in revenues is principally
due to increases in software licenses sold and increases in ongoing maintenance
fees.





Coreworx’s
gross profit in the first six months of 2009 was CDN$2.0 million compared to
2008 first six months gross profit of CDN$0.6 million.  The increase
in Coreworx’s gross profit in 2009 was attributable to the increase in sales.
Gross margin was up from 73% in the first six months of 2008 to 80% due to the
mix of revenues as software license sales have higher margins than other
categories of sales.





As of the
end of the second quarter of 2009, Coreworx received orders and payments
from USEC and Husky for licenses in excess of CDN$0.9 million which are
included in deferred revenues. Coreworx expects to recognize those revenues in
the third and fourth quarters of 2009.   In addition, the recent order
from Husky is expected to increase in size as it evaluates increasing the scope
of its deployment of the software solution to include more sites.




In
addition to the recent $1.0 million made by Acorn to Coreworx in June 2009 for
development of the new project information software for the nuclear power plant
industry, Coreworx will require additional working capital support in order to
finance its working capital needs in 2009. This support may be in the form of a
bank line, new investment by others, additional investment by Acorn, or a
combination of the above. There is no assurance that such support will be
available from such sources in sufficient amounts, in a timely manner and on
acceptable terms.  The availability and amount of any additional
investment from us in Coreworx may be limited by the working capital needs of
our corporate activities and other operating companies.





GridSense





We
account for our GridSense investment using the equity method, and we record our
share of income or loss in GridSense with a lag of three months as we are not
able to receive timely financial information. In the first quarter of 2009, we
recorded a loss of $129,000 representing our approximate 24% share of
GridSense’s losses for the period from October 1, 2008 to December 31, 2008 as
well as the amortization of certain intangible assets acquired by us in our
initial investment. As our investment in GridSense has been reduced to zero, we
will no longer record equity income or loss in GridSense until such a time as
our investment carrying value becomes positive.





As noted
in “Recent Developments”, GridSense has recently completed a going private
transaction. As a result of this transaction, our holdings in the entity which
will continue to carry on GridSense’s grid monitoring business are approximately
31%. Accordingly, we will record approximately 31% of GridSense’s income or loss
in the future should our investment carrying value become positive.




Corporate





In October, 2008, our Board of
Directors authorized a share repurchase program of up to 1,000,000 shares of our
common stock. The share repurchase program is being implemented at management’s
discretion from time to time. In the period from January 1, 2009 to June 30,
2009, we purchased 417,395 shares at an average price of $2.54 per share under
our Stock Repurchase Program. During the period from July 1, 2009 to August
7, 2009, we purchased 16,400 shares of our common stock at an average price of
$2.81 per share.




21




On August
13, 2009, we repaid our corporate debt of $3.4 million related to our
acquisition of Coreworx. Following the repayment of this debt, we had
approximately $7.5 million in unrestricted corporate cash.  In
addition, we have restricted corporate cash of approximately $2.7 million of
which we expect approximately significant portion to be released in the third
quarter of 2009. We continue to have significant corporate cash expenses and
will continue to expend in the future, significant amounts of funds on
professional fees and other costs in connection with our strategy to seek out
and invest in companies that fit our target business model.





Results
of Operations




The
following table sets forth certain information with respect to the consolidated
results of operations of the Company for the three and six months ended June 30,
2008 and 2009, 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.  Our results
for the three and six months ended June 30, 2009 include the results of our
newly acquired Coreworx subsidiary. As such, results for the three months ended
June 30, 2009 may not be comparable to the results for the three and six months
ended June 30, 2008 without negating the effect of Coreworx’s results. For
segment data see Note 16 to the Unaudited Consolidated Financial Statements
included in this quarterly report.




Six months ended June 30,
                                  
                                  
                                  Three months ended June 30,2008
                                  
                                  
                                  2009
                                  
                                  
                                  Change
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  Change($,000)
                                  
                                  
                                  % of
                                    sales
                                  
                                  
                                  
                                  ($,000)
                                  
                                  
                                  % of
                                    sales
                                  
                                  
                                  From
                                    2008 to
                                    2009
                                  
                                  
                                  
                                  ($,000)
                                  
                                  
                                  % of
                                    sales
                                  
                                  
                                  
                                  ($,000)
                                  
                                  
                                  % of
                                    sales
                                  
                                  
                                  From
                                    2008 to
                                    2009Sales
                                  
                                  $
                                  7,902
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  $
                                  16,258
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  
                                  106
                                  %
                                  
                                  $
                                  3,607
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  $
                                  7,780
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  
                                  116Cost
      of sales
                                  
                                  
                                  5,472
                                  
                                  
                                  
                                  69
                                  
                                  
                                  
                                  9,389
                                  
                                  
                                  
                                  58
                                  
                                  
                                  
                                  72
                                  
                                  
                                  
                                  2,575
                                  
                                  
                                  
                                  71
                                  
                                  
                                  
                                  4,290
                                  
                                  
                                  
                                  55
                                  
                                  
                                  
                                  67Gross
      profit
                                  
                                  
                                  2,430
                                  
                                  
                                  
                                  31
                                  
                                  
                                  
                                  6,869
                                  
                                  
                                  
                                  42
                                  
                                  
                                  
                                  183
                                  
                                  
                                  
                                  1,032
                                  
                                  
                                  
                                  29
                                  
                                  
                                  
                                  3,490
                                  
                                  
                                  
                                  45
                                  
                                  
                                  
                                  238R&D
      expenses, net
                                  
                                  
                                  108
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (348
                                  )
                                  
                                  
                                  (2
                                  )
                                  
                                  
                                  (422)
                                  
                                  
                                  
                                  57
                                  
                                  
                                  
                                  2
                                  
                                  
                                  
                                  (624
                                  )
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  (1,195)Impairments
                                  
                                  
                                  516
                                  
                                  
                                  
                                  7
                                  
                                  
                                  
                                  80
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  (84)
                                  
                                  
                                  
                                  268
                                  
                                  
                                  
                                  7
                                  
                                  
                                  
                                  10
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  (96)SG&A
      expenses
                                  
                                  
                                  4,723
                                  
                                  
                                  
                                  60
                                  
                                  
                                  
                                  8,727
                                  
                                  
                                  
                                  54
                                  
                                  
                                  
                                  85
                                  
                                  
                                  
                                  2,418
                                  
                                  
                                  
                                  67
                                  
                                  
                                  
                                  4,619
                                  
                                  
                                  
                                  59
                                  
                                  
                                  
                                  91Operating
      loss
                                  
                                  
                                  (2,917
                                  )
                                  
                                  
                                  (37
                                  )
                                  
                                  
                                  (1,590
                                  )
                                  
                                  
                                  (10
                                  )
                                  
                                  
                                  (45)
                                  
                                  
                                  
                                  (1,711
                                  )
                                  
                                  
                                  (47
                                  )
                                  
                                  
                                  (515
                                  )
                                  
                                  
                                  (7
                                  )
                                  
                                  
                                  (70)Gain
      on early redemption of Debentures
                                  
                                  
                                  1,259
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (100)
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Finance
      income (expense), net
                                  
                                  
                                  (2,900
                                  )
                                  
                                  
                                  (37
                                  )
                                  
                                  
                                  (84
                                  )
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  (97)
                                  
                                  
                                  
                                  88
                                  
                                  
                                  
                                  2
                                  
                                  
                                  
                                  85
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (3)Gain
      on sale of Comverge shares
                                  
                                  
                                  5,782
                                  
                                  
                                  
                                  73
                                  
                                  
                                  
                                  1,227
                                  
                                  
                                  
                                  8
                                  
                                  
                                  
                                  (79)
                                  
                                  
                                  
                                  5,782
                                  
                                  
                                  
                                  160
                                  
                                  
                                  
                                  810
                                  
                                  
                                  
                                  10
                                  
                                  
                                  
                                  (86)Income
      before taxes on income
                                  
                                  
                                  1,224
                                  
                                  
                                  
                                  15
                                  
                                  
                                  
                                  (447
                                  )
                                  
                                  
                                  (3
                                  )
                                  
                                  
                                  (137)
                                  
                                  
                                  
                                  4,159
                                  
                                  
                                  
                                  115
                                  
                                  
                                  
                                  380
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  (91)Taxes
      on income
                                  
                                  
                                  2
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (100)
                                  
                                  
                                  
                                  (640
                                  )
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Income
      (loss) from operations of the Company and its consolidated
      subsidiaries
                                  
                                  
                                  1,226
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  (447
                                  )
                                  
                                  
                                  (3
                                  )
                                  
                                  
                                  (136)
                                  
                                  
                                  
                                  3,519
                                  
                                  
                                  
                                  97
                                  
                                  
                                  
                                  380
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  (89)Share
      of losses in GridSense
                                  
                                  
                                  (134
                                  )
                                  
                                  
                                  (2
                                  )
                                  
                                  
                                  (129
                                  )
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  (4)
                                  
                                  
                                  
                                  (134
                                  )
                                  
                                  
                                  (4
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (100)Share
      in losses in Paketeria
                                  
                                  
                                  (661
                                  )
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (100)
                                  
                                  
                                  
                                  (374
                                  )
                                  
                                  
                                  (10
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (100)Net
      income (loss)
                                  
                                  
                                  431
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  (576
                                  )
                                  
                                  
                                  (4
                                  )
                                  
                                  
                                  (234)
                                  
                                  
                                  
                                  3,011
                                  
                                  
                                  
                                  83
                                  
                                  
                                  
                                  380
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  (87)Net
      (income) loss attributable to  non-controlling
      interests
                                  
                                  
                                  80
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (144
                                  )
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  (280)
                                  
                                  
                                  
                                  89
                                  
                                  
                                  
                                  3
                                  
                                  
                                  
                                  (37
                                  )
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  (142)Net
      income (loss) attributable to Acorn Energy Inc.
                                  
                                  $
                                  511
                                  
                                  
                                  
                                  6
                                  
                                  
                                  $
                                  (720
                                  )
                                  
                                  
                                  (4
                                  )
                                  
                                  
                                  (241)
                                  
                                  
                                  $
                                  3,100
                                  
                                  
                                  
                                  86
                                  
                                  
                                  $
                                  343
                                  
                                  
                                  
                                  4
                                  
                                  
                                  
                                  (89)




Sales.  Sales in
the first six months of 2009 increased by $8.4 million or 106% from $7.9 million
in the first six months of 2008 to $16.3 million in the first six months of
2009. The increase in sales is partially attributable to the inclusion of
Coreworx sales of $2.1 million in the first six months of 2009. The balance of
the increase in sales is due to the increase in CoaLogix sales which increased
by $6.3 million (176%) to $9.9 million compared to first six months 2008 sales
of $3.6 million. DSIT’s Naval & RT Solutions segment sales remained stable
at $3.6 million. The increase in CoaLogix sales was due to continued penetration
in the regeneration market combined with the ability to process more SCR modules
facilitated by the completion of a plant expansion in the fourth quarter
2008.




22




Sales in the second quarter of 2009
also reflected an increase of $4.2 million over the second quarter of 2008. The
increase in sales was attributable primarily to CoaLogix’s increase in sales of
$3.2 million from $1.3 million in 2008 to $4.5 million in 2009 combined with the
inclusion of Coreworx’s second quarter 2009 sales of $1.1 million.




Gross profit.Gross profit in
the first six months of 2009 increased by $4.4 million or 183% as compared to
the first six months of 2008. The increase in gross profit is attributable to
the inclusion of Coreworx gross profit in the first six months of 2009 of $1.7
million. In addition, both CoaLogix and DSIT recorded increased gross profits of
$2.4 million (an increase of 215%) and $0.4 million (an increase of 29%),
respectively. The increase in CoaLogix gross profit was primarily attributable
to the increase in CoaLogix sales; gross margins for CoaLogix increased from 31%
in the first six months of 2008 to 35% in the first six months of 2009 reflected
greater operational efficiency since the plant expansion in 2008. Gross margin
in DSIT’s Naval and RT Solutions segment increased from 33% in the first six
months of 2008 to 43% in the first six months of 2009 due to an increase in the
higher margin AquaShieldTM
projects worked on in 2009.




Research and development, net
(“R&D”). We recorded a net benefit from R&D expenses of $348,000
in the first six months of 2009 as compared to an expense of $108,000 in the
first six months of 2008. During the second quarter of 2009, we recorded a
benefit of approximately $1.0 million from R&D expense following the
approval of a claim by our Coreworx subsidiary for scientific research and
experimental development tax credit refunds from the Canada Revenue Agency of
the Ontario Ministry of Revenue.




Impairments.In 2008, we
recorded a provision of $516,000 with respect to loans made to and an investment
in an affiliated company. In 2009, we recorded an impairment of $80,000 with
respect to our investment in EnerTech.




Selling, general and administrative
expenses (“SG&A”).SG&A in the first six months of
2009 increased by $4.0 million as compared to the first six months of 2008. A
portion of the increase is attributable to Coreworx’s SG&A costs of $3.0
million. CoaLogix’s SG&A costs in the first six months of 2009 increased by
$1.4 million as compared to the first six months of 2008 reflecting increased
overhead costs resulting from the company’s growth and legal expenses associated
with the EES and Evonik lawsuits discussed in Part II, Item 1, Legal
Proceedings. DSIT’s SG&A costs were relatively unchanged. Corporate general
and administrative costs decreased by $0.4 million reflecting the effects of our
efforts to reduce costs.




Gain on early redemption of
Debentures. In accordance with applicable accounting standards, we
recorded a non-cash gain of approximately $1.3 million in connection with the
January 2008 redemption of our convertible debentures.




Finance income (expense), net.The decrease in finance expense in the first six months of 2009 compared
with the first six months of 2008 is due to the interest expense of $3.1 million
recorded with respect to the write-off of the remaining balances of debt
origination costs, warrants value and beneficial conversion features in the
early redemption of our convertible
debentures.




Gain on sale of Comverge
shares.  In the first six months of 2009, we sold 470,100 of
our Comverge shares of and recorded a gain of $1.2 million on proceeds of $3.6
million. In the first six months of 2008, we sold 757,367 of our Comverge shares
of and recorded a gain of $5.8 million on proceeds of $9.7 million.




Liquidity
and Capital Resources




As of
June 30, 2009, we had working capital of $16.9 million, including $14.6 million
of non-restricted cash and cash equivalents. Our working capital includes
restricted deposits of approximately $2.6 million of which we expect
approximately $2.1 million to be released in the third quarter of
2009.   During the six months ended June 30, 2009, approximately
$2.1 million was used in operating activities. The primary use of cash in
operating activities during the first six months of 2009 was  the $1.8
million used by CoaLogix in its operations combined with the $1.1 million of
cash used in our corporate operating activities. This was partially offset by
the $0.6 million and $0.2 million of cash provided by operating activities from
our DSIT and Coreworx subsidiaries, respectively.




23




Cash
provided by investing activities of $1.9 million was primarily due to the $3.7
million of proceeds from the sale of our Comverge shares and covered-calls
during the period. Those proceeds amounts were partially offset by a $0.5
million restricted deposit as security for one of DSIT’s AquaShieldTM
projects, $0.5 million for an investment in EnerTech arising from a capital
call, $0.4 million for the acquisition of property and equipment and the payment
of $0.3 million for DSIT shares as a result of the exercise of a put option at
the end of 2008.




Net cash
of $0.2 million was used in financing activities, primarily from the purchase of
treasury shares ($1.1 million) and the repayment of short-term borrowings ($0.2
million). These uses of cash were partially offset by the proceeds from the
issuance of shares to non-controlling interests in CoaLogix ($1.1
million).




At June
30, 2009, DSIT had approximately $510,000 in Israeli credit lines available to
it by an Israeli bank, none of which was then being used. The line-of-credit is
subject to certain financial covenants. DSIT was in compliance with its
financial covenants at June 30, 2009. We believe that DSIT will have sufficient
liquidity to finance its activities from cash flow from its own operations over
the next 12 months.  This is based on continued utilization of its
lines of credit and expected continued improvement of operating results stemming
from anticipated growth in sales. DSIT is continuing to search for additional
sources of financing to support its growth.




At June
30, 2009, CoaLogix had a $500,000 term loan and a $2 million formula based
line-of-credit available to it for utilization from a bank.  At June
30, 2009, CoaLogix was utilizing $200,000 of the formula based line of credit.
Both the term loan and the line-of-credit are to finance CoaLogix’s working
capital and to finance its growth and are subject to certain financial
covenants. CoaLogix was in compliance with its financial covenants at June 30,
2009. We believe that CoaLogix will have sufficient liquidity to finance its
operating activities from cash flow from its own operations and its bank
financing over the next 12 months.




In
anticipation of CoaLogix’s need to increase production capacity in order to
satisfy expected increased orders from customers, in April 2009, we entered into
the Purchase Agreement (see “Recent Developments”) with CoaLogix and other
parties and each party agreed to purchase shares of common stock from CoaLogix
for an aggregate  purchase price of approximately $11.5
million.  The Purchase Agreement provides that Acorn and others will
purchase such shares of common stock in installments as funding is needed by
CoaLogix for plant expansion, technology development, legal expenses and
computer software.  The initial funding under the Purchase Agreement
was $2.1 million which was received by CoaLogix in April 2009.




In
addition to the loan of $1.0 million by us to Coreworx for development of a new
project information software product for the nuclear power plant industry which
we made in June 2009, we continue to expect that Coreworx will require
additional working capital support in order to finance its working capital needs
in 2009. This support may be in the form of a bank line, new investment by
others, additional investment or loan by Acorn, or a combination of the above.
There is no assurance that such support will be available from such sources in
sufficient amounts, in a timely manner and on acceptable terms.  The
availability and amount of any additional investment from us in Coreworx may be
limited by the working capital needs of our corporate activities and other
operating companies.




As of
August 13, 2009, following the repayment of the promissory notes and interest
due with respect to our acquisition of Coreworx (see “Recent Developments”), the
Company’s corporate operations had a total of approximately $10.2 million in
cash and cash equivalents (including $2.7 million deposited in an account as a
security for a guarantee for DSIT), reflecting a $1.5 million decrease from the
$11.7 million balance as of June 30, 2009. The decrease from June 30, 2009 is
due to the aforementioned repayment of the promissory notes of $3.4 million and
our normal operating costs which was partially offset by the repayment of a $2.2
million short-term loan from CoaLogix.




24




We
believe that the cash on hand plus expected the release of restricted deposits
and the cash potentially available from any sales of our holdings in Comverge as
well as cash from our subsidiaries operating activities will provide more than
sufficient liquidity to finance Acorn and its subsidiaries activities for the
foreseeable future and for the next 12 months in particular.





Contractual
Obligations and Commitments




Our
contractual obligations and commitments at June 30, 2009 principally include
obligations associated with our outstanding indebtedness, future minimum
operating lease obligations and potential severance obligations to Israeli
employees and are set forth in the table below.




Cash Payments Due During Year Ending June 30,(amounts in thousands)Contractual Obligations
                  
                  Total
                  
                  
                  2010
                  
                  
                  
                  2011-
                    2012
                  
                  
                  
                  2013-
                    2014
                  
                  
                  2015 and
                    thereafterPromissory
      notes (1)
                  
                  $
                  3,400
                  
                  
                  $
                  3,400
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Operating
      leases (2)
                  
                  
                  2,918
                  
                  
                  
                  1,226
                  
                  
                  
                  1,678
                  
                  
                  
                  14
                  
                  
                  
                  —Potential
      severance obligations to Israeli employees (3)
                  
                  
                  2,689
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,689Investment
      in EnerTech Capital Partners III L.P. (4)
                  
                  
                  3,350
                  
                  
                  
                  3,350
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Investment
      in CoaLogix (5)
                  
                  
                  4,578
                  
                  
                  
                  4,578
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      contractual cash obligations
                  
                  $
                  16,935
                  
                  
                  $
                  12,554
                  
                  
                  $
                  1,678
                  
                  
                  $
                  14
                  
                  
                  $
                  2,689




We expect
to finance these contractual commitments from cash on hand and cash generated
from operations.




(1)
The promissory notes were paid on August 13, 2009 (see “Recent
Developments”).




(2)
In August 2009, DSIT signed a three year lease extension on its current
premises. Under the terms of the lease extension, DSIT will have a six month
grace period during which no rental payments will be required. Over the
remaining 30 month period, DSIT will pay approximately $20,000 per month. These
costs are not included in the Contractual Obligations and Commitments table
above.




(3)
Under Israeli law and labor agreements, DSIT is required to make severance
payments to dismissed employees and to employees leaving employment under
certain other circumstances. The obligation for severance pay benefits, as
determined by the Israeli Severance Pay Law, is based upon length of service and
ending salary. These obligations are substantially covered by regular deposits
with recognized severance pay and pension funds and by the purchase of insurance
policies.  As of June 30, 2009, we accrued a total of $2.7 million for
potential severance obligations of which approximately $1.7 million was funded
with cash to insurance companies.




(4) In
August 2007, we committed to invest up to $5 million over a ten-year period in
EnerTech Capital Partners III L.P. (“EnerTech”), a proposed $250 million venture
capital fund targeting early and expansion stage energy and clean energy
technology companies that can enhance the profits of the producers and consumers
of energy.




Our
obligation under this commitment is presented as an obligation due in the next
12 months, though it is uncertain as to when actual payments may be made.
Through June 30, 2009, we have received and funded capital calls of $1,650,000
to EnerTech III.




(5) As
noted in “Recent Developments”, in April 2009, we entered into the Purchase
Agreement with CoaLogix, EnerTech and certain members of CoaLogix’s senior
management pursuant to which each of Acorn and EnerTech agreed to purchase from
CoaLogix 781,111 shares of common stock for a purchase price of $5,624,000 and
certain members of CoaLogix’s senior management agreed to purchase 36,111 shares
of common stock of CoaLogix for an aggregate purchase price of
$260,000.  The Purchase Agreement provides that Acorn, EnerTech and
senior management will purchase such shares of common stock in installments as
funding is needed by CoaLogix for plant expansion, technology development, legal
expenses and computer software. Our obligation under this commitment is
presented as due in the next 12 months, though it is uncertain as to when actual
payments may be made.


25


Item
3.  Quantitative and Qualitative Disclosures About Market Risk




In the
normal course of business, we are exposed to fluctuations in interest rates on
lines-of-credit incurred to finance our operations in Israel, whose net
utilization at June 30, 2009 stood at zero. Our non-US dollar monetary assets
and liabilities (net assets of approximately $0.4 million) in Israel are exposed
to fluctuations in exchange rates. In addition, our non-US dollar monetary
assets and liabilities (net assets of approximately $0.3 million) in Canada at
our Coreworx subsidiary are also exposed to fluctuations in exchange rates.
Furthermore, $0.8 million and $1.2 million of our backlog of projects are
contracts and orders that are denominated in NIS and linked to an Israeli
Ministry of Defense Index, and denominated in NIS, respectively.




In 2009,
our DSIT subsidiary began to enter into forward contracts which did not qualify
as hedging instruments under accounting principles to try to mitigate its
foreign currency exposure risks. At June 30, 2009, DSIT had committed to selling
NIS 2.2 million in July 2009 in two tranches at an average exchange rate of
4.152 and NIS 0.6 million in September 2009 at an exchange rate of 4.236. At
June 30, 2009, the exchange rate of the NIS was 3.919.




Item
4.  Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




As of the
end of the period covered by this Report, we carried out an evaluation, under
the supervision and with the participation of our management, including the
Chief Executive Officer and the Chief Financial Officer, of the design and
operation of our disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act’)). Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level at end of the period covered by
this report to ensure that the information required to be disclosed by us in the
reports we file or submit under the Exchange Act is (i) accumulated and
communicated to our management (including our Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and
forms.




Changes
in Internal Control Over Financial Reporting




There was
no change 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.


26




PART
II – OTHER INFORMATION




Item
1.  Legal Proceedings


Environmental
Energy Services, Inc. v. CoaLogix, Inc.


District
of Connecticut, Case No. 3:08 CV 1237 (RNC)





On August
13, 2008, Environmental Energy Services (“EES”) filed suit against CoaLogix and
William McMahon, the president and chief executive officer of CoaLogix, in the
United States District Court for the District of Connecticut alleging claims for
tortious interference with contract, fraudulent misrepresentation, conversion,
unfair trade practices and unjust enrichment.  EES’ claims arise
largely out of a series of business relationships that existed between EES,
CoaLogix and Solucorp Industries, Ltd. (“Solucorp”).  Beginning in
2005, EES acquired a license to distribute certain Solucorp technology related
to the reduction of mercury emissions.  Subsequently, in the fall of
2007, CoaLogix entered into separate and independent business relationships with
both Solucorp and EES.  While CoaLogix’s relationship with Solucorp
matured into a licensing arrangement, a business relationship with EES, after
further investigation and due diligence, was ultimately deemed
inadvisable.  EES initially alleged that CoaLogix and its CEO utilized
confidential information obtained during negotiations with EES in order to
improperly seek out and broker a deal with Solucorp in violation of EES’
contractual rights.  On October 10, 2008, CoaLogix and its CEO filed a
motion to have the case transferred to the Western District of North
Carolina.  Simultaneously, CoaLogix and its CEO filed motions to
extend all deadlines in the case until such time as the court had ruled on the
motion to transfer venue.  Thereafter, on October 22, 2008, EES filed
an Amended Complaint dropping CoaLogix’s CEO as a defendant and removing its
claim for fraudulent misrepresentation.  The Amended Complaint seeks
unspecified damages in addition to disgorgement of all revenues CoaLogix has
earned from its dealings with Solucorp.





On June
24, 2009, EES filed a further Amended Complaint to add William McMahon and
EnerTech as parties to the suit and to add a further claim of civil
conspiracy.  EES has subsequently indicated that it will drop EnerTech
as a defendant to the suit.  The Company and Mr. McMahon intend to
oppose Mr. McMahon being added as a defendant party to the lawsuit.





CoaLogix
denies any liability and intends to vigorously defend this lawsuit in the event
that a favorable settlement is not reached.  Further, CoaLogix
contends that its cost of defense, together with any ultimate judgment, is the
responsibility of SoluCorp due to an indemnification agreement between the
companies.  SoluCorp has agreed to assume the cost of defense, but has
not made a commitment regarding any ultimate judgment. The case is in the
discovery phase, and depositions of the parties are in progress of being noticed
and taken.





SCR-Tech
LLC v Evonik Energy Services LLC et al.


District
of Connecticut, Case No. 3:08 CV 1237 (RNC)





On July
30, 2008, SCR-Tech LLC (“SCR-Tech”), a subsidiary of CoaLogix, filed suit in
Mecklenburg County, North Carolina, Superior Court against Evonik Energy
Services LLC (“Evonik LLC”), Hans-Ulrich Hartenstein and Brigitte Hartenstein
(the “Hartensteins”), and three of Evonik LLC’s German parent companies: Evonik
Energy Services GmbH, Evonik Steag GmbH and Evonik Industries AG (the “German
Defendants”).  Subsequent to the initial filing, the case was
designated as a complex business matter and transferred to the North Carolina
Business Court.





SCR-Tech’s
claims arise largely from the Hartensteins’ previous employment as officers of
SCR-Tech and the Confidentiality and Invention Assignment Agreement signed by
the Hartensteins upon termination of their employment with
SCR-Tech.  Shortly after leaving SCR-Tech in late 2005, the
Hartensteins accepted positions as officers of Evonik LLC f/k/a Steag
LLC.  Evonik LLC then announced that it would be opening a catalyst
regeneration facility in Kings Mountain, North Carolina.  SCR-Tech
subsequently became concerned that the Hartensteins were acting in contravention
of their confidentiality agreement.  After Evonik LLC refused to
engage in meaningful discussions regarding SCR-Tech’s concerns, SCR-Tech filed
suit alleging claims for breach of contract, tortious interference with
contract, misappropriation of trade secrets, breach of fiduciary duty and
usurpation of corporate opportunity.  SCR-Tech’s claims against the
German Defendants stem from Evonik LLC’s admission that its parent entities knew
of the Hartensteins’ contractual obligations to SCR-Tech and, nevertheless,
directed the actions which have been in contravention of those
obligations.




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Subsequent
to the filing of this lawsuit, the Hartensteins filed a motion to dismiss
SCR-Tech’s claims related to breach of fiduciary duty and usurpation of
corporate opportunity, and the court dismissed these two claims effective May 6,
2009.  The other claims stated against the Hartensteins in the
complaint are not affected by this ruling.  Also subsequent to the
filing of this lawsuit, the German Defendants filed motions to have the German
Defendants dismissed on the basis of lack of jurisdiction and failure to state a
claim upon which relief can be granted, and on May 6, 2009 the court granted the
motion to dismiss with respect to Evonik Industries AG and denied the motion to
dismiss with respect to failure to state a claim upon which relief can be
granted.  Consequently, Evonik Industries AG has been dismissed as a
defendant, and Evonik Energy Services GmbH and Evonik Steag GmbH remain
defendants in the lawsuit.





Additionally,
Evonik LLC has filed a counterclaim against SCR-Tech, for unspecified damages,
alleging trade libel, abuse of process and unfair and deceptive trade
practices.  SCR-Tech vehemently denies the allegations of Evonik LLC’s
counterclaim and will vigorously defend against them.  The case is in
the initial phase of discovery with interrogatory requests having been exchanged
by some of the parties.





Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





(c)
Issuer Purchases of Equity Securities





The Company purchased, pursuant to its
share repurchase program, shares of the Company’s common stock as follows for
the months of January through June 2009:





Period
              
              Total Number of
                  Shares Purchased
              
              
              Average Price
                  Paid Per Share
              
              
              Total Number of
                  Shares Purchased
                  as Part of
                  Publicly
                  Announced Plan
              
              
              Maximum
                  Number of
                  SharesThat May
                  Yet bePurchased
                  Underthe Plan1January
      1, 2009 – January 31, 2009
              
              
              59,640
              
              
              $
              2.15
              
              
              
              123,555
              
              
              
              876,445February
      1, 2009 – February 28, 2009
              
              
              45,907
              
              
              $
              2.42
              
              
              
              169,462
              
              
              
              830,538March
      1, 2009 –March 31, 2009
              
              
              40,106
              
              
              $
              2.21
              
              
              
              209,568
              
              
              
              790,432April
      1, 2009 –April 30, 2009
              
              
              37,701
              
              
              $
              2.46
              
              
              
              247,269
              
              
              
              752,731May
      1, 2009 –May 31, 2009
              
              
              68,701
              
              
              $
              2.74
              
              
              
              315,970
              
              
              
              684,030June
      1, 2009 – June 30, 2009
              
              
              165,340
              
              
              $
              2.74
              
              
              
              481,310
              
              
              
              518,690Total
              
              
              417,395
              
              
              $
              2.54





1 The
maximum number of shares that may be purchased under the share repurchase plan
is 1,000,000 shares.


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Item
6. Exhibits.




10.1
                      
                      Common
      Stock Purchase Agreement dated as of April 8, 2009, by and among Acorn
      Energy, Inc., EnerTech Capital Partners III L.P. and the other purchasers
      named therein.10.2
                      
                      Amended
      and Restated Stockholders’ Agreement, dated as of April 8, 2009, by and
      among CoaLogix Inc., Acorn Energy, Inc. and the other stockholders named
      therein.31.1
                      
                      Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                      
                      Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                      
                      Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
                      
                      Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of
2002.


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SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by its principal financial
officer thereunto duly authorized.





ACORN
      ENERGY, INC.Dated:  August
      13, 2009By:
              /s/Michael
      BarthMichael
      BarthChief
      Financial Officer


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