**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended June 30, 2008





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 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 14, 2008Common
                Stock, $0.01 par value per share
            
            11,387,659
                shares








**ACORN
      ENERGY, INC.**


**Quarterly
      Report on Form 10-Q**


**for
      the Quarterly Period Ended June 30, 2008**





**TABLE
      OF CONTENTS**





**PART
      I. Financial Information**




Item
                1.
            Financial
                StatementsUnaudited
                Consolidated Financial Statements:Consolidated
                Balance Sheets as
                of December 31, 2007 and June 30, 2008
            1Consolidated
                Statements of Operations the six and three month periods ended June
                30,
                2007 and 2008
            2Consolidated
                Statement of Changes in Shareholders’ Equity for the six month period
                ended June 30, 2008
            3Consolidated
                Statements of Cash Flows for the six month periods ended June 30,
                2007 and
                2008
            4Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            16Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            26Item
                4.
            Controls
                and Procedures
            26




**PART
      II. Other Information**





Item
                1.
            Legal
                Proceedings
            27Item
                6.
            Exhibits
            28**Signatures**
            
            29





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.





**ACORN
      ENERGY, INC. AND SUBSIDIARIES**


**Consolidated
      Balance Sheets**


(in
      thousands, except share and per share data)





ASSETS
            
            **As
                of December 31, 2007**
            
            **As
                of June 30, 2008**(unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            19,644
            
            $
            16,708Restricted
                cash
            
            
            --
            
            
            2,303Accounts
                receivable, net
            
            
            1,775
            
            
            1,547Unbilled
                work-in-process
            
            
            1,784
            
            
            1,443Inventory
            
            
            119
            
            
            527Other
                current assets
            
            
            1,391
            
            
            2,473Total
                current assets
            
            
            24,713
            
            
            25,001Property
                and equipment, net
            
            
            1,335
            
            
            1,446Available
                for sale - Investment in Comverge
            
            
            55,538
            
            
            14,068Investment
                in GridSense
            
            
            --
            
            
            996Investment
                in Paketeria
            
            
            1,439
            
            
            909Other
                investments
            
            
            668
            
            
            400Funds
                in respect of employee termination benefits
            
            
            1,607
            
            
            1,940Restricted
                cash
            
            
            1,517
            
            
            618Other
                intangible assets, net
            
            
            5,987
            
            
            7,408Goodwill
            
            
            3,945
            
            
            4,154Other
                assets
            
            
            218
            
            
            2,086Total
                assets
            
            $
            96,967
            
            $
            59,026LIABILITIES
                AND SHAREHOLDERS’ EQUITYCurrent
                liabilities:Short-term
                bank credit
            
            $
            590
            
            $
            --Current
                maturities of long-term debt
            
            
            171
            
            
            70Convertible
                debt, net
            
            
            4,237
            
            
            --Trade
                accounts payable
            
            
            910
            
            
            907Accrued
                payroll, payroll taxes and social benefits
            
            
            1,118
            
            
            934Other
                current liabilities
            
            
            3,844
            
            
            2,109Total
                current liabilities
            
            
            10,870
            
            
            4,020Long-term
                liabilities:Long-term
                debt
            
            
            12
            
            
            12Liability
                for employee termination benefits
            
            
            2,397
            
            
            2,888Deferred
                taxes
            
            
            16,038
            
            
            1,550Other
                liabilities
            
            
            325
            
            
            424Total
                long-term liabilities
            
            
            18,772
            
            
            4,874Minority
                interests
            
            
            --
            
            
            2,143Shareholders’
                equity:Common
                stock - $0.01 par value per share:Authorized
                - 20,000,000 shares; Issued -11,134,795 shares and 12,165,030
              at
                December 31, 2007 and June 30, 2008
            
            
            111
            
            
            121Additional
                paid-in capital
            
            
            49,306
            
            
            52,672Warrants
            
            
            1,330
            
            
            1,023Accumulated
                deficit
            
            
            (9,692
            )
            
            (9,181
            )Treasury
                stock, at cost - 777,371 shares for December 31, 2007 and
              June
                30, 2008, respectively
            
            
            (3,592
            )
            
            (3,592
            )Accumulated
                other comprehensive income
            
            
            29,862
            
            
            6,946Total
                shareholders’ equity
            
            
            67,325
            
            
            47,989Total
                liabilities and shareholders’ equity
            
            $
            96,967
            
            $
            59,026




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,****2007**
            
            **2008**
            
            **2007**
            
            **2008**SalesProjects
            
            $
            1,287
            
            $
            4,041
            
            $
            475
            
            $
            2,133Catalytic
                regeneration services
            
            
            --
            
            
            3,601
            
            
            --
            
            
            1,352Other
            
            
            433
            
            
            260
            
            
            206
            
            
            1221,720
            
            
            7,902
            
            
            681
            
            
            3,607Cost
                of salesProjects
            
            
            1,042
            
            
            2,777
            
            
            461
            
            
            1,470Catalytic
                regeneration services
            
            
            --
            
            
            2,498
            
            
            --
            
            
            1,007Other
            
            
            337
            
            
            197
            
            
            164
            
            
            981,379
            
            
            5,472
            
            
            625
            
            
            2,575Gross
                profit
            
            
            341
            
            
            2,430
            
            
            56
            
            
            1,032Operating
                expenses:Research
                and development expenses
            
            
            233
            
            
            108
            
            
            103
            
            
            57Selling,
                marketing, general and administrative expenses
            
            
            1,859
            
            
            5,239
            
            
            1,049
            
            
            2,686Total
                operating expenses
            
            
            2,092
            
            
            5,347
            
            
            1,152
            
            
            2,743Operating
                loss
            
            
            (1,751
            )
            
            (2,917
            )
            
            (1,096
            )
            
            (1,711
            )Gain
                on early redemption of convertible debentures
            
            
            --
            
            
            1,259
            
            
            --
            
            
            --Finance
                income (expense), net
            
            
            (371
            )
            
            (2,900
            )
            
            (345
            )
            
            88Gain
                on sale of Comverge shares
            
            
            --
            
            
            5,782
            
            
            
            
            
            5,782Gain
                on Comverge public offering
            
            
            16,169
            
            
            --
            
            
            16,169
            
            
            --Income
                before taxes on income
            
            
            14,047
            
            
            1,224
            
            
            14,728
            
            
            4,159Tax
                benefit (expense) on income
            
            
            (5
            )
            
            2
            
            
            (3
            )
            
            (640
            )Income
                from operations of the Company and its consolidated
              subsidiaries
            
            
            14,042
            
            
            1,226
            
            
            14,725
            
            
            3,519Minority
                interests
            
            
            --
            
            
            80
            
            
            --
            
            
            89Share
                in losses of GridSense
            
            
            --
            
            
            (134
            )
            
            --
            
            
            (134
            )Share
                in losses of Paketeria
            
            
            (388
            )
            
            (661
            )
            
            (201
            )
            
            (374
            )Net
                income
            
            $
            13,654
            
            $
            511
            
            $
            14,524
            
            $
            3,100Basic
                and diluted earnings per share:Net
                income per share - basic
            
            $
            1.43
            
            $
            0.05
            
            $
            1.52
            
            $
            0.28Net
                income per share - diluted
            
            $
            1.23
            
            $
            0.04
            
            $
            1.21
            
            $
            0.26Weighted
                average number of shares outstanding - basic
            
            
            9,549
            
            
            11,138
            
            
            9,583
            
            
            11,243Weighted
                average number of shares outstanding - diluted
            
            
            11,366
            
            
            11,995
            
            
            12,290
            
            
            12,138




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




2


**ACORN
      ENERGY, INC. AND SUBSIDIARIES**


**Consolidated
      Statement of Changes in Shareholders’ Equity** (unaudited)


(in
      thousands)





Number
                of Shares
            
            Common
                Stock
            
            Additional
              Paid-In
              Capital
            
            Warrants
            
            Accumulated
                Deficit
            
            Treasury
                Stock
            
            Accumulated
                Other Comprehensive Income
            
            TotalBalances
                as ofDecember
                31, 2007
            
            
            11,135
            
            $
            111
            
            $
            49,306
            
            $
            1,330
            
            $
            (9,692
            )
            $
            (3,592
            )
            $
            29,862
            
            $
            67,325Net
                income
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            511
            
            
            --
            
            
            --
            
            
            511FAS
                115 adjustment on Comverge shares, net of deferred taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (23,072
            )
            
            (23,072
            )Differences
                from translation of financial statements of subsidiaries and equity
                investees
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            156
            
            
            156Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (22,405
            )Intrinsic
                value of beneficial conversion feature of convertible debentures
                at
                extinguishment
            
            
            --
            
            
            --
            
            
            (1,259
            )
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (1,259
            )Exercise
                of options and warrants
            
            
            250
            
            
            2
            
            
            1,060
            
            
            (307
            )
            
            --
            
            
            --
            
            
            --
            
            
            755Conversion
                of Debentures
            
            
            780
            
            
            8
            
            
            2,955
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            2,963Stock
                option compensation
            
            
            --
            
            
            --
            
            
            433
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            433Stock
                option compensation of subsidiary
            
            
            --
            
            
            --
            
            
            177
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            177Balances
                as ofJune
                30, 2008
            
            
            12,165
            
            $
            121
            
            $
            52,672
            
            $
            1,023
            
            $
            (9,181
            )
            $
            (3,592
            )
            $
            6,946
            
            $
            47,989




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,****2007**
            
            **2008**Cash
                flows provided by (used in) operating activities:Net
                income
            
            $
            13,654
            
            $
            511Adjustments
                to reconcile net income to net cash
              used
                in operating activities (see Schedule A):
            
            
            (14,651
            )
            
            (2,268
            )Net
                cash used in operating activities
            
            
            (997
            )
            
            (1,757
            )Cash
                flows provided by (used in) investing activities:Proceeds
                from sale of Comverge shares
            
            
            --
            
            
            9,682Investment
                in GridSense
            
            
            --
            
            
            (1,153
            )Restricted
                cash
            
            
            --
            
            
            (1,404
            )Short-term
                loans provided to Paketeria
            
            
            (733
            )
            
            (1,584
            )Loans
                to investee and potential investee companies and capitalized investment
                costs
            
            
            --
            
            
            (1,987
            )Transaction
                costs in 2007 acquisition of SCR Tech
            
            
            --
            
            
            (956
            )Amounts
                funded for employee termination benefits
            
            
            (26
            )
            
            (335
            )Utilization
                of employee termination benefits
            
            
            62
            
            
            2Acquisition
                of license
            
            
            --
            
            
            (2,000
            )Acquisitions
                of property and equipment
            
            
            (167
            )
            
            (275
            )Net
                cash used in investing activities
            
            
            (864
            )
            
            (10
            )Cash
                flows provided by (used in) financing activities:Short-term
                debt borrowings (repayments), net
            
            
            (296
            )
            
            (590
            )Proceeds
                from long-term debt
            
            
            107
            
            
            --Proceeds
                from convertible debentures with warrants net of transaction
                costs
            
            
            5,840
            
            
            --Redemption
                of convertible debentures
            
            
            --
            
            
            (3,443
            )Repayments
                of long-term debt
            
            
            (62
            )
            
            (117
            )Repayment
                of related party note payable
            
            
            (300
            )
            
            --Issuance
                of shares to minority shareholders in consolidated
                subsidiary
            
            
            --
            
            
            2,226Proceeds
                from employee stock option and warrant exercises
            
            
            178
            
            
            755Net
                cash provided (used in) by financing activities
            
            
            5,467
            
            
            (1,169
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            3,606
            
            
            (2,936
            )Cash
                and cash equivalents at beginning of period
            
            
            1,521
            
            
            19,644Cash
                and cash equivalents at end of period
            
            $
            5,127
            
            $
            16,708


4


**ACORN
      ENERGY, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows** (unaudited)


(dollars
      in thousands)








**Six
                months ended**
              **June
                30,**Schedule
                A:
            
            **2007**
            
            **2008**Adjustments
                to reconcile net income to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            67
            
            
            551Impairment
                of software license
            
            
            23
            
            
            --Share
                in losses of Paketeria
            
            
            356
            
            
            650Share
                in losses of GridSense
            
            
            --
            
            
            134Increase
                (decrease) in liability for employee termination benefits
            
            
            (250
            )
            
            491Deferred
                income taxes
            
            
            --
            
            
            10Amortization
                of stock-based deferred compensation
            
            
            406
            
            
            610Amortization
                of beneficial conversion feature, debt origination costs and value
                of
                warrants in private placement of Debentures
            
            
            205
            
            
            3,064Gain
                on public offering of investment in Comverge
            
            
            (16,169
            )
            
            --Gain
                on sale of Comverge shares
            
            
            --
            
            
            (5,782
            )Gain
                on early redemption of Debentures
            
            
            --
            
            
            (1,259
            )Impairment
                of investment and provision of loan and accrued interest to investee
                company
            
            
            --
            
            
            516Minority
                interests
            
            
            --
            
            
            (80
            )Other
            
            
            (1
            )
            
            14Change
                in operating assets and liabilities:Decrease
                in accounts receivable, unbilled work-in process and other current
                and
                other assets
            
            
            417
            
            
            47Increase
                in inventory
            
            
            --
            
            
            (408
            )Increase
                (decrease) in accounts payable and other liabilities
            
            
            295
            
            
            (826
            )Net
                cash used in operating activities
            
            
            (14,651
            )
            
            (2,268
            )


Non-cash
                items:Value
                of beneficial conversion feature upon issuance of convertible
                debentures
            
            $
            2,570Unrealized
                gain (loss) from Comverge shares
            
            $
            14,043
            
            
            ($37,570
            )Amount
                due from broker on account of options exercised
            
            $
            325Reduction
                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
            
            
            
            
            $
            41


Non-cash
                financing and investing itemsConversion
                of Debentures to common stock and additional
                paid-in-capital
            
            
            
            
            $
            2,963Value
                of beneficial conversion feature upon issuance of convertible
                debentures
            
            $
            2,570Adjustment
                of retained earnings and other current liabilities with respect to
                the
                adoption of FIN 48
            
            $
            305






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-month period ended June 30, 2008
      are not necessarily indicative of the results that may be expected for the
      year
      ending December 31, 2008. 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, 2007. **** Certain
      reclassifications have been made to the Company’s prior years’ consolidated
      financial statements to conform to the current year’s consolidated financial
      statement presentation.




**Note
      2: New Accounting Standards**





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
      141(R)”) and SFAS No. 160, “Non-controlling Interests in Consolidated Financial
      Statements” (“SFAS 160”). SFAS 141(R) requires the acquiring entity in a
      business combination to record all assets acquired and liabilities assumed
      at
      their respective acquisition-date fair values and changes other practices under
      SFAS 141. SFAS 141(R) also requires additional disclosure of information
      surrounding a business combination, such that users of the entity’s financial
      statements can fully understand the nature and financial impact of the business
      combination. SFAS 160 requires entities to report non-controlling (minority)
      interests in subsidiaries as equity in the consolidated financial statements.
      The Company is required to adopt SFAS 141(R) and SFAS 160 simultaneously in
      its
      fiscal year beginning January 1, 2009. The provisions of SFAS 141(R) will only
      impact the Company if it is party to a business combination after the
      pronouncement has been adopted. The Company is currently evaluating the effects,
      if any, that SFAS 160 may have on its financial position, results of operations
      and cash flows.




In
      June
      2006, the Emerging Issues Task Force (EITF), reached a consensus on Issue No.
      06-01, “Accounting for Consideration Given by a Service Provider to
      Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive
      Service from the Service Provider” (EITF No. 06-01). EITF 06-01 provides
      guidance on the accounting for consideration given to third party manufacturers
      or resellers of equipment which is required by the end-customer in order to
      utilize the service from the service provider. EITF 06-01 is effective January
      1, 2008 for the Company. The adoption of EITF 06-01 did not have a material
      impact on the Company’s results of operations and financial
      position.





In
      June
      2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
      07-03, "Accounting for Nonrefundable Advance Payments for Goods or Services
      Received to Be Used in Future Research and Development Activities" (EITF No.
      07-03). EITF No. 07-03 requires that nonrefundable advance payments for goods
      or
      services that will be used or rendered for future research and development
      activities be deferred and amortized over the period that the goods are
      delivered or the related services are performed, subject to an assessment of
      recoverability. The provisions of EITF 07-03 are effective January 1, 2008
      for
      the Company. The adoption of EITF 07-03 did not have a material impact on the
      Company’s results of operations and financial position.





6


In
      December 2007, the FASB reached a consensus on EITF Issue No. 07-01, "Accounting
      for Collaborative Arrangements" ("EITF 07-01"). EITF 07-01 defines collaborative
      arrangements and establishes reporting requirements for transactions between
      participants in a collaborative arrangement and between participants in the
      arrangement and third parties. EITF 07-01 also establishes the appropriate
      income statement presentation and classification for joint operating activities
      and payments between participants, as well as the sufficiency of the disclosures
      related to these arrangements. EITF 07-01 is effective for fiscal years
      beginning after December 15, 2008 (January 1, 2009, for the Company). The
      Company does not expect the adoption of EITF 07-01 to have a material impact
      on
      its results of operations and financial position.




**Note
      3: Investment in Comverge Inc. (Comverge)**




During
      the second quarter of 2008, the Company sold 757,367 of its 1,763,665 Comverge
      shares held at the beginning of 2008. The Company received proceeds of $9,682
      from the sales and recorded a pre-tax gain of $5,782.




The
      Company’s remaining 1,006,298 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 $13.98 at June 30, 2008 which
      resulted in a reduction of the carrying value to reflect a fair market value
      of
      $14,068. In addition, the Company adjusted the previously recorded deferred
      tax
      liability associated with the Comverge shares to $2,404. The net reduction
      of
      $23,072 was recorded to Accumulated Other Comprehensive Income.




**Note
      4: Investment in GridSense Systems Inc. (GridSense)**




On
      January 2, 2008, the Company participated in a private placement financing
      of
      total gross proceeds of C$1,700 (approximately $1,700) for GridSense Systems
      Inc. (CDNX: GSN.V )
      (“GridSense”). The placement consisted of 24,285,714 units at $0.07 per unit,
      each unit being comprised of one common share and one share purchase warrant.
      Each warrant entitles the holder to acquire an additional common share at $0.10
      per share until July 2, 2008.




The
      Company was the lead investor in the placement acquiring 15,714,285 shares
      and
      15,714,285 warrants for C$1,100 (approximately $1,100) plus transaction costs
      of
      approximately $53. The 15,714,285 shares acquired by the Company in the
      placement represents approximately 24.5% of GridSense's issued and outstanding
      shares. The Company did not exercise any of the 15,714,285 warrants it acquired
      in the placement and they expired on July 2, 2008. Also in January 2008,
      GridSense issued 3,000,000 of its shares in an acquisition. The GridSense
      issuance diluted the Company’s holdings in GridSense to approximately
      23.4%.




The
      Company’s accounts for its investment in GridSense using the equity method in
      accordance with APB Opinion No. 18, “The Equity Method of Accounting for
      Investments in Common Stock”. The Company records its share of income or loss in
      GridSense with a lag of three months as it is not able to receive timely
      financial information. In the second quarter of 2008, the Company recorded
      a
      loss of $112 representing the Company’s weighted average of approximately 23.8%
      share of GridSense’s losses for the period from January 2, 2008 to March 31,
      2008. Based on an independent appraisal, the Company has allocated the $1,153
      investment in GridSense as follows:





·
            $761
                to the value of technologies acquired. The acquired technologies
                is to be
                amortized using the straight-line method over ten years.


·
            $73
                to the value of the customer relationships and $61 to the value of
                the
                tradename at the date of the investment. The value of the customer
                relationships and the tradename are to be amortized using the
                straight-line method over weighted average 12.5 year period.






7


·
            $25
                to the value of the warrants acquired.


·
            $233
                to non-amortizing goodwill.





All
      the
      above components of the Company’s investment are not reflected separately as
      such in the consolidated balance sheet of the Company, but are reflected as
      components of the Company’s investment in GridSense. In addition to the
      Company’s share of losses in GridSense for the period from January 2, 2008 to
      March 31, 2008, the Company recorded amortization with respect to the identified
      amortizable intangibles noted above. The Company’s Share of losses in Gridsense
      is comprised of the following:





Six
                months ended June 30, 2008
            
            Three
                months ended June 30, 2008Equity
                loss in GridSense for the period from January 2, 2008 - March 31,
                2008
            
            $
            112
            
            $
            112Amortization
                expense associated with acquired technologies, customer relationships
                and
                trademarks
            
            
            22
            
            
            22Share
                of losses in GridSense
            
            $
            134
            
            $
            134




**Note
      5: Investment in Paketeria AG (Paketeria)**




The
      Company currently owns approximately 31% of Paketeria’s outstanding shares and
      accordingly, records 31% of Paketeria’s losses as equity loss in Paketeria.




The
      Company’s Share of losses in Paketeria is comprised of the
      following:







Six
                months ended June 30, 2008
            
            Six
                months ended June 30, 2007
            
            Three
                months ended June 30, 2008
            
            Three
                months ended June 30, 2007Equity
                loss in Paketeria
            
            $
            (592
            )
            $
            (293
            )
            $
            (334
            )
            $
            (161
            )Amortization
                expense associated with acquired non-compete and franchise
                agreements
            
            
            (58
            )
            
            (63
            )
            
            (29
            )
            
            (27
            )Stock
                compensation expense
            
            
            (11
            )
            
            (32
            )
            
            (11
            )
            
            (13
            )Share
                of losses in Paketeria
            
            $
            (661
            )
            $
            (388
            )
            $
            (374
            )
            $
            (201
            )




8


During
      the six months ended June 30, 2008, the Company lent Paketeria €1,030
      ($1,624 based upon current exchange rates) on a series of promissory notes.
      The
      promissory notes bear interest at the rate of 8.0%. The promissory notes are
      due
      on the earlier of December 31, 2008 or upon the completion of any transaction
      in
      which Paketeria raises funds through any equity and/or debt financing. In
      addition, the Company received warrants to purchase 6,866 shares of Paketeria.
      If the warrants are exercised prior to December 31, 2008, the exercise price
      of
      the warrants will be €75 ($118) unless Paketeria completes a financing through
      the sale of its common stock of at least €1,000 by December 31, 2008 in which
      event the exercise price will be the lower of €75 or the price per share in the
      financing. If no financing has occurred by December 31, 2008, the exercise
      price
      will be the price per share of Paketeria’s last financing round.




The
      amount lent to Paketeria was allocated to the loan and the warrants received
      based on the relative fair values at time of issuance. The Company allocated
      $1,561 to the loan portion and $63 to the value of the warrants. The Company
      is
      accreting interest on the loan portion until the maturity date of the loan
      using
      the effective interest method. The loan balance is included in Other Current
      Assets.




**Note
      6: Goodwill and Other Intangible Assets**




There
      were no impairments of goodwill recorded during the six-month
      period ended June 30, 2008. Upon finalizing the purchase price allocation of
      the
      Company’s additional investment in DSIT in November 2007, the Company recorded
      an increase in goodwill of $209 along with a decrease in acquired intangibles
      of
      $250. The Company’s goodwill is related to both its SCR segment ($3,714) and its
      RT Solutions segment ($440). As a result of the adjustment of the purchase
      price
      allocation, the amount allocated to the put option associated with the
      additional investment in DSIT was reduced by $41.




On
      May 9,
      2008, the Company’s CoaLogix, Inc. (“CoaLogix”) subsidiary entered into a
      strategic alliance and license agreement with Solucorp Industries, Ltd. pursuant
      to which CoaLogix obtained exclusive, worldwide commercialization and marketing
      rights to Solucorp’s IFS-2C technology for use in applications which remove
      heavy metals, such as mercury, from power plants. The agreement has a term
      of
      ten years, with an option in favor of CoaLogix to renew for an additional
      five-year period. In consideration for its rights under the agreement, CoaLogix
      paid an upfront license fee of $2,000 and agreed to pay royalties on net sales
      of, and to share a portion of any royalties received in respect of, licensed
      product with Solucorp based on specified formula.




The
      changes in the carrying amounts and accumulated amortization of intangible
      assets from December 31, 2007 to June 30, 2008 were as follows:




SCR
            
            RT
                SolutionsCost
            
            Accumulated
                amortization
            
            Cost
            
            Accumulated
                amortization
            
            NetBalance
                at December 31, 2007
            
            $
            5,511
            
            $
            (81
            )
            $
            557
            
            
            --
            
            $
            5,987Acquisition
                of license
            
            
            2,000
            
            
            --
            
            
            --
            
            
            --
            
            
            2,000Adjustment
                of acquired intangibles upon finalizing purchase price
                allocation
            
            
            --
            
            
            --
            
            
            (250
            )
            
            --
            
            
            (250
            )Amortization
            
            
            --
            
            
            (303
            )
            
            --
            
            
            (26
            )
            
            (329
            )Balance
                at June 30, 2008
            
            $
            7,511
            
            $
            (384
            )
            $
            307
            
            $
            (26
            )
            $
            7,408




All
      intangible assets are being amortized over their estimated useful lives, which
      were estimated to be ten years for SCR and seven
      years for RT Solutions intangibles. A mortization
      expense for each of the six months ended June 30, 2007 and 2008 amounted to
      $13
      and $329, respectively. Amortization
      expense with respect to intangible assets is estimated to be $795 per year
      for
      each of the years ending June 30, 2009 through 2013.




**Note
      7: Other Investments**




During
      the second quarter of 2008,
      the Company recorded an impairment charge of $268 with respect to the Company’s
      investment in Local Power Inc, (Local Power). The charge is included in selling,
      marketing and general administrative expense in the second quarter.




During
      the first quarter of 2008,
      the Company lent Local Power $245 on a promissory note that bears interest
      at a
      rate of 8% per year and is due on January 30, 2010. At the end of the first
      quarter of 2008, the Company took a provision against the loan due to
      questionable collectibility and included the expense in selling, marketing
      and
      general administrative expense in the first quarter.





9


**Note
      8: Other Assets**




At
      June
      30, 2008, Other Assets includes a $1,500 secured promissory note from Coreworx,
      Inc. The Company has entered into a letter of intent to acquire all the
      outstanding shares of Coreworx. The promissory note bears interest at a rate
      of
      12% per year and is due on December 31, 2010. Coreworx is the developer of
      CoreworxTM a world-leading software tool for capital project collaboration.
      CoreworxTM is currently utilized to manage the construction of hundreds of major
      capital projects, including offshore oil wells, refineries, mining operations
      and power plants around the world. Completion of the transaction remains subject
      to due diligence and execution of definitive documentation. During the six
      month
      period ended June 30, 2008, the Company recorded interest income of $40 with
      respect to the promissory note which is also included in Other Assets. Other
      Assets also includes $93 of transaction costs capitalized in contemplation
      of
      the acquisition of Coreworx. (See Note 16).




At
      June
      30, 2008, Other Assets also includes $200 on a convertible promissory note
      evidencing a loan made by CoaLogix to a company in contemplation of the
      acquisition by CoaLogix of the assets of that company. CoaLogix did not enter
      into a definitive agreement with the company by the target date provided for
      in
      the convertible promissory note and does not intend to proceed with the
      acquisition. The note bears interest at the rate of 11% per year and the note
      is
      due February 28, 2011. During the six month period ended June 30, 2008, the
      Company recorded interest income of $7 with respect to the promissory note
      which
      is also included in Other Assets.




**Note
      9: Redemption of Convertible Redeemable Subordinated Debentures**




On
      January 29, 2008 the Company completed the redemption of all of its outstanding
      10% Convertible Redeemable Subordinated Debentures due March 2011. Subsequent
      to
      the Company’s announcement of redemption, the holders of the debentures elected
      to convert approximately $2,963 into approximately 780,000 shares of the
      Company’s common stock, at a conversion price of $3.80 per share. The remaining
      $3,443 principal amount of Debentures was redeemed in accordance with the notice
      of redemption. As a result of the early redemption of the Debentures, the
      remaining balance of unamortized beneficial conversion features, warrants and
      debt origination costs of $3,064 was written off to interest expense in the
      first quarter of 2008. In
      accordance with applicable accounting standards, the Company recorded a non-cash
      gain of $1,259 on the redemption of the Debentures from the reacquisition of
      the
      beneficial conversion feature.




**Note
      10: Minority Interests**




On
      February 29, 2008, the Company entered into a Common Stock Purchase Agreement
      (the “Stock Purchase Agreement”) with the Company’s wholly-owned CoaLogix Inc.
      subsidiary and EnerTech Capital Partners III L.P. (“EnerTech”) pursuant to which
      EnerTech purchased from CoaLogix a 15% interest in CoaLogix for $1,948. The
      Company owns 85% of CoaLogix following the transaction and EnerTech’s interest
      in CoaLogix was reflected in the Company’s Consolidated Balance Sheets as
      Minority Interests. The Company recorded an immaterial gain as a result of
      the
      investment by EnerTech. During the second quarter of 2008, EnerTech invested
      an
      additional $278 in CoaLogix as its 15% share of an aggregate $1,850 additional
      investment made by the Company and Enertech in CoaLogix. The minority interest’s
      share of CoaLogix’s net loss for the six and three month periods ending June 30,
      2008 was $80 and $89, respectively.




In
      connection with completing the transaction under the Stock Purchase Agreement,
      the Company, CoaLogix, EnerTech and the senior management of CoaLogix entered
      into a Stockholders’ Agreement dated as of February 29, 2008 (the “Stockholders’
Agreement”). Under the Stockholders’ Agreement, EnerTech is entitled to a
      designate a member of the Board of Directors of CoaLogix. In addition, the
      Stockholders’ Agreement provides the parties with rights of first refusal and
      co-sale in connection with proposed transfers of their CoaLogix stock.




Pursuant
      to the Stockholders’ Agreement, EnerTech also has a right to purchase additional
      stock to maintain its percentage interest in CoaLogix in the event of certain
      dilutive transactions. The right may be exercised until such time as the
      Company’s ownership in CoaLogix is reduced to 75% or CoaLogix completes an
      initial public offering.




10


**Note
      11: Stock Options and Warrants**




(a)
      Acorn
      Stock Options





A
      summary
      of stock option activity for the six months ended June 30, 2008 is as
      follows:





Number
                of Options (in shares)
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Contractual Life
            
            Aggregate
                Intrinsic ValueOutstanding
                at December 31, 2007
            
            
            1,684,000
            
            $
            3.09
            
            
            3.1
                yearsGranted
                at market price
            
            
            285,000
            
            $
            5.21Exercised
            
            
            (50,000
            )
            $
            2.17
            
            
            
            
            $
            136Forfeited
                or expired
            
            
            --Outstanding
                at June 30, 2008
            
            
            1,919,000
            
            $
            3.42
            
            
            3.4
                years
            
            $
            4,100Exercisable
                at June 30, 2008
            
            
            1,359,498
            
            $
            3.01
            
            
            2.6
                years
            
            $
            3,553





The
      weighted average grant date fair value of the 285,000 stock options granted
      during the first six months of 2008 was $3.35 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
            74%Expected
                term (years)
            5.7
                yearsRisk
                free interest rate
            2.5%Expected
                dividend yield
            0.0%




(b)
      CoaLogix Stock Option Plan





In
      April
      2008, the Company adopted a CoaLogix Inc. 2008 Stock Option Plan (the “Plan”)
      for its CoaLogix subsidiary to be administrated by the board members of
      CoaLogix.




In
      April
      2008, CoaLogix granted options to purchase 13,971 of its ordinary shares, to
      senior management and employees of CoaLogix under the Plan. The options were
      granted with an exercise price of $126.16 per share and are exercisable for
      a
      period of ten years. The options vest over a four year period from the date
      of
      grant. Upon exercise of all the options in the Plan, the Company’s holdings in
      CoaLogix will be diluted from 85% to approximately 76%. During the six and
      three
      month periods ending June 30, 2008, $177 was recorded as stock compensation
      expense with respect to the abovementioned options ($57 in Cost of Sales -
      Catalytic Regeneration Services and $120 in Selling, Marketing, General and
      Administrative expenses).





The
      purpose of the Plan for our CoaLogix subsidiary is to provide incentives to
      key
      employees of CoaLogix to further the growth, development and financial success
      of CoaLogix.




(c)
      Stock-based compensation expense





11


Total
      stock-based compensation expense included in the Company’s statements of
      operations for the six months ended June 30, 2007 and 2008, respectively,
      was:




Six
                months ended June 30, 2007
            
            Six
                months ended June 30, 2008
            
            Three
                months ended June 30, 2007
            
            Three
                months ended June 30, 2008Cost
                of sales
            
            $
            22
            
            $
            57
            
            $
            1
            
            $
            57Selling,
                marketing, general and administrative expenses
            
            
            352
            
            
            542
            
            
            103
            
            
            393Share
                of losses in Paketeria
            
            
            32
            
            
            11
            
            
            13
            
            
            11Total
                stock based compensation expense
            
            $
            406
            
            $
            610
            
            $
            117
            
            $
            461





(d)
      Warrants





A
      summary
      of stock warrants activity for the six months ended June 30, 2008 is as
      follows:





Number
                of Warrants (in shares)
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Contractual LifeOutstanding
                at December 31, 2007
            
            
            986,506
            
            $
            3.89
            
            
            4.01Granted
            
            
            --Exercised
            
            
            (200,485
            )
            $
            3.21Forfeited
                or expired
            
            
            --Outstanding
                and exercisable at
              June
                30, 2008
            
            
            786,021
            
            $
            4.06
            
            
            3.59





**Note
      12: Warranty Provision**





The
      following table summarizes the changes in accrued warranty liability from the
      period from December 31, 2007 to June 30, 2008:





Gross
                Carrying AmountBalance
                at December 31, 2007
            
            $
            107Warranties
                issued and adjustment of provision
            
            
            80Warranty
                claims
            
            
            (2
            )Balance
                at June 30, 2008*
            
            $
            185




*
      $10 of
      the warranty provision is included in other current liabilities and $175 in
      other liabilities at June 30, 2008





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




12


**Note
      13: Fair Value Measurement**




In
      September 2006, the FASB issued SFAS 157 which defines fair value, establishes
      a
      framework for measuring fair value in generally accepted accounting principles
      and expands disclosures about fair-value measurements. The Company adopted
      SFAS
      157 effective January 1, 2008 for all financial assets and liabilities and
      any
      other assets and liabilities that are recognized or disclosed at fair value
      on a
      recurring basis. Although the adoption of SFAS 157 did not materially impact
      the
      Company’s financial condition, results of operations or cash flows, the Company
      is required to provide additional disclosures within its condensed consolidated
      financial statements.




SFAS
      157
      defines fair value as the price that would be received to sell an asset or
      paid
      to transfer the liability (an exit price) in an orderly transaction between
      market participants and also establishes a fair value hierarchy which requires
      an entity to maximize the use of observable inputs and minimize the use of
      unobservable inputs when measuring fair value. The fair value hierarchy within
      SFAS 157 distinguishes between three levels of inputs that may be utilized
      when
      measuring fair value including level 1 inputs (using quoted prices in active
      markets for identical assets or liabilities), level 2 inputs (using inputs
      other
      than level 1 prices such as quoted prices for similar assets and liabilities
      in
      active markets or inputs that are observable for the asset or liability) and
      level 3 inputs (unobservable inputs supported by little or no market activity
      based on the company’s own assumptions used to measure assets and liabilities).
      A financial asset’s or liability’s classification within the above hierarchy is
      determined based on the lowest level input that is significant to the fair
      value
      measurement.




The
      Company also adopted FAS 159, “The Fair Value Option for Financial Assets and
      Financial Liabilities” (“SFAS 159”). This standard permits entities to choose to
      measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS 159 is effective for fiscal years after
      November 15, 2007. The Company did not elect to apply the fair value option
      available under SFAS 159 for any of its eligible instruments.




Financial
      assets and liabilities measured at fair value on a recurring basis as at June
      30, 2008 consisted of the following:




Level
                1
            
            Level
                2
            
            TotalAvailable
                for sale securities
            
            $
            14,068
            
            
            --
            
            $
            14,068




Marketable
      securities that are classified in level 1 consist of available-for-sale
      securities for which market prices are readily available. Unrealized gains
      or
      losses from available-for-sale securities are recorded in accumulated other
      comprehensive (loss) income.









**Note
      14: Segment Information**




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




·
            RT
                Solutions whose activities are focused on two areas - naval solutions
                and
                other real-time and embedded hardware & software development. RT
                Solutions activities are provided through the Company’s DSIT Solutions
                Ltd. subsidiary.




·
            SCR
                (Selective Catalytic Reduction) Catalyst and Management Services
                conducted
                through the Company’s CoaLogix subsidiary provides catalyst regeneration
                technologies and management services for SCR systems used by coal-fired
                power plants to reduce nitrogen oxides (NOx) emissions. As these
                activities were acquired in November 2007, there are no comparative
                results reported for these activities for the three and six month
                periods
                ended June 30, 2007.




13


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





**RT
                Solutions**
            
            **SCR**
            
            **Other**
            
            **Total**Six
                months ended June 30, 2008:Revenues
                from external customers
            
            $
            3,595
            
            $
            3,601
            
            $
            706
            
            $
            7,902Intersegment
                revenues
            
            
            16
            
            
            --
            
            
            --
            
            
            16Segment
                gross profit
            
            
            1,180
            
            
            1,102
            
            
            148
            
            
            2,430Segment
                income (loss)
            
            
            154
            
            
            (395
            )
            
            (42
            )
            
            (283
            )Six
                months ended June 30, 2007:Revenues
                from external customers
            
            $
            1,132
            
            
            --
            
            $
            588
            
            $
            1,720Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit
            
            
            291
            
            
            --
            
            
            50
            
            
            341Segment
                loss
            
            
            (211
            )
            
            --
            
            
            (371
            )
            
            (582
            )Three
                months ended June 30, 2008:Revenues
                from external customers
            
            $
            1,913
            
            $
            1,352
            
            $
            342
            
            $
            3,607Intersegment
                revenues
            
            
            16
            
            
            --
            
            
            --
            
            
            16Segment
                gross profit
            
            
            616
            
            
            344
            
            
            72
            
            
            1,032Segment
                income (loss)
            
            
            71
            
            
            (578
            )
            
            (7
            )
            
            (514
            )Three
                months ended June 30, 2007:Revenues
                from external customers
            
            $
            432
            
            
            --
            
            $
            249
            
            $
            681Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit (loss)
            
            
            95
            
            
            --
            
            
            (39
            )
            
            56Segment
                loss
            
            
            (268
            )
            
            --
            
            
            (288
            )
            
            (556
            )





**Reconciliation
      of Segment Income (Loss) to Consolidated Net Income**





Six
                months ended June 30,
            
            Three
                months ended June 30,2007
            
            2008
            
            2007
            
            2008Total
                loss for reportable segments
            
            $
            (211
            )
            $
            (241
            )
            $
            (268
            )
            $
            (507
            )Other
                operational segment loss
            
            
            (371
            )
            
            (42
            )
            
            (288
            )
            
            (7
            )Total
                operating loss
            
            
            (582
            )
            
            (283
            )
            
            (556
            )
            
            (514
            )Share
                of losses in Paketeria
            
            
            (388
            )
            
            (661
            )
            
            (201
            )
            
            (374
            )Share
                of losses in GridSense
            
            
            --
            
            
            (134
            )
            
            --
            
            
            (134
            )Minority
                interests
            
            
            --
            
            
            80
            
            
            --
            
            
            89Gain
                on sale of Comverge shares
            
            
            --
            
            
            5,782
            
            
            --
            
            
            5,782Gain
                recorded on Comverge public offering
            
            
            16,169
            
            
            --
            
            
            16,169
            
            
            --Gain
                on early redemption of Debentures
            
            
            --
            
            
            1,259
            
            
            --
            
            
            --Interest
                expense recorded with respect to the private placement of
                Debentures
            
            
            --
            
            
            (3,064
            )
            
            --
            
            
            --Income
                tax benefit (expense)
            
            
            (5
            )
            
            2
            
            
            (3
            )
            
            (640
            )Net
                loss of corporate headquarters and other unallocated
                costs*
            
            
            (1,540
            )
            
            (2,470
            )
            
            (888
            )
            
            (1,109
            )Total
                consolidated net income
            
            $
            13,654
            
            $
            511
            
            $
            14,524
            
            $
            3,100




***** The
      six
      and three months ended June 30, 2008 includes $516 and $268, respectively of
      impairments and loan provisions with respect to the Company’s investment in
      Local Power.





14


**Note
      15: Income Taxes**





During
      the second quarter of 2008, the Company received an exemption of income taxes
      from the State of Delaware. Thus, effective for the period beginning with the
      Company’s transition to Delaware in March 2006, the Company’s effective income
      tax rate on domestic earnings is 34%.




**Note
      16: Subsequent Events**




**Acquisition
      of Coreworx Inc.**





On
      August
      13, 2008, the Company entered into and closed an agreement for the acquisition
      all of the outstanding capital stock of Coreworx, Inc. (“Coreworx”). Coreworx is
      headquartered in Ontario, Canada and is engaged in the design and delivery
      of
      project collaboration solutions for large capital projects.  In
      consideration for the Coreworx shares, Acorn issued 287,500 shares of its Common
      Stock. Under the share purchase agreement, a portion of these shares will be
      held in escrow until one year after the closing.




Prior
      to
      the purchase of the Coreworx shares, the Company contributed to the capital
      of
      Coreworx $2,500 in cash and $3,400 aggregate principal amount of its 8% one-year
      promissory notes. The cash and notes were delivered by Coreworx to the holders
      of Coreworx’s debentures in full payment and satisfaction of all principal and
      accrued interest outstanding on such debentures.




Prior
      to
      and in contemplation of the completion of the acquisition, Acorn lent Coreworx
      $1,500.




As
      a
      result of the transaction, Coreworx is a wholly-owned subsidiary of the Company
      and will be presented as the Company’s Energy Infrastructure Software segment.
      In connection with the transaction, the Company agreed to implement an option
      plan for Coreworx employees for up to 20% of the outstanding Coreworx shares.
      The Coreworx management team will continue in their current positions.




**Value
      of the Company’s Investment in Comverge**





During
      the period from July 1, 2008 to August 12, 2008, the Company sold an additional
      453,798 of its Comverge shares for approximately $5,428. As of August 12, 2008,
      the total market value of the Company’s remaining 552,500 Comverge shares was
      approximately $3.6 million based on an August 12, 2008 closing market price
      of
      $6.55 per share.





**Loan
      to GridSense**




In
      July
      2008, the Company lent GridSense C$750 ($750) under a secured promissory note
      which bears interest at 8% and is due on October 30, 2008. The note is secured
      by all the assets of GridSense.





**Capital
      Call in EnerTech**




In
      July
      2008, the Company received a capital call of $750 from EnerTech Capital Partners
      III L.P. The Company funded the capital call in August 2008.




15


**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, 2007.





**Recent
      Developments**





***Acquisition
      of Coreworx***





On
      August
      13, 2008, we entered into and closed an agreement for the acquisition all of
      the
      outstanding capital stock of Coreworx, Inc. (“Coreworx”). Coreworx is
      headquartered in Ontario, Canada and is engaged in the design and delivery
      of project collaboration solutions for large capital projects.  In
      consideration for the Coreworx shares, we issued 287,500 shares of our Common
      Stock. Under the share purchase agreement, a portion of these shares will be
      held in escrow until one year after the closing.




Prior
      to
      the purchase of the Coreworx shares, we contributed to the capital of Coreworx
      $2.5 million in cash and $3.4 million aggregate principal amount of its 8%
      one-year promissory notes. The cash and notes were delivered by Coreworx to
      the
      holders of Coreworx’s debentures in full payment and satisfaction of all
      principal and accrued interest outstanding on such debentures.




Prior
      to
      and in contemplation of the completion of the acquisition, we lent Coreworx
      $1.5
      million.




As
      a
      result of the transaction, Coreworx is a wholly-owned subsidiary and will be
      presented as our Energy Infrastructure Software segment. In connection with
      the
      transaction, we agreed to implement an option plan for Coreworx employees for
      up
      to 20% of the outstanding Coreworx shares. The Coreworx management team will
      continue in their current positions.





***DC
      Circuit Court Vacates Clean Air Interstate Rule***




On
      July
      11, 2008, the District of Columbia Court of Appeals issued an opinion in the
      State of North Carolina v. Environmental Protection Agency in which the
      court vacated the Environmental Protection Agency’s (EPA) Clean Air Interstate
      Rule (CAIR) and the associated Federal Implementation Plan.




The
      EPA
      adopted CAIR in March 2005 to provide a federal framework to limit the emission
      of sulfur dioxide (SO 2 )
      and
      nitrogen oxides (NOx). The rule required 28 eastern states and the District
      of
      Columbia to permanently cap SO 2 and NOx,
      thereby significantly reducing emissions in the affected states.





Under
      CAIR, states had to achieve required emission reductions using one of two
      compliance options:    (1) meet the state’s emission budget by
      requiring power plants to participate in an EPA-administered interstate
      cap-and-trade system that caps emissions in two stages, or (2) meet an
      individual state emissions budget that is administered through measures of
      the
      state’s choosing.  The EPA-administered interstate cap-and-trade system did
      not establish quotas on individual states with respect to SO 2 or NOx,
      but instead created a regional framework with regional caps.  CAIR was to
      be phased in under a two part plan, with a Phase I cap for NOx and
      SO 2 beginning in 2009 and 2010, respectively, and Phase II beginning with respect
      to
      both pollutants in 2015.





16


Although
      the court’s ruling eliminated the CAIR program, including the related
      SO 2 and
      NOx cap-and-trade programs, the court noted that, in the absence of CAIR, the
      NOx SIP Call program will continue. In addition state allowances for NOx under
      the Clean Air Act remain in effect. However, by striking down CAIR and the
      cap-and-trade regime, the CAIR-promulgated annual NOx allowances have been
      eliminated, leaving the validity of the states’ regulations regarding these
      allowances in question. The EPA has announced that it is reviewing the decision
      and analyzing its effects it is unclear when new regulation will be proposed
      or
      adopted or if legislation to revamp the Clean Air Act may overtake or supersede
      new regulatory action.




***CoaLogix
      Receives Two New Orders for Regeneration Totaling $5
      Million***





CoaLogix
      secured two new contracts for catalyst regeneration totaling over five million
      dollars substantially increasing its backlog. The new contracts are for delivery
      in 2008 and 2009 with one of the new contracts coming from a southern utility
      company and another from a mid-Atlantic utility company.




***Strategic
      Alliance and License Agreement with Solucorp Industries,
      Ltd.***





In
      May
      2008, our CoaLogix subsidiary signed an agreement to obtain for $2 million
      the
      exclusive worldwide commercialization and marketing rights to Solucorp
      Industries, Ltd. (SLUP.PK) IFS-2C technology for the fixation of heavy metals,
      such as mercury, for the electric power generation industry. The agreement
      grants CoaLogix exclusive worldwide marketing rights for the technology for
      a
      period of ten years with an option to extend for an additional five years.




***Comverge***




On
      June
      30, 2008 we held 1,006,298 common shares of Comverge. During the period from
      July 1, 2008 to August 12, 2008, we sold an additional 453,798 of our Comverge
      shares for approximately $5.4 million. As of August 12, 2008, the total market
      value of our remaining 552,500 Comverge shares was approximately $3.6 million
      based on an August 12, 2008 closing market price of $6.55 per
      share.




***Paketeria***





In
      July
      2008, our Paketeria affiliate in Germany deepened its partnership with the
      Volksbank network with the execution by Volksbank Meissen of an agreement to
      open 12 “shop-in-bank” locations in Meissen -- two in August and the remaining
      ten in the fall. This follows the May opening of “shop-in-bank” pilot stores in
      five Volksbank branches in Celle, a suburb of Hanover with a population of
      70,000. As part of the agreement, Volksbank Meissen also made a small equity
      investment in Paketeria. Volksbank Meissen’s first major promotion will be
      Stromboerse (100% owned by Paketeria) services for cost savings on energy and
      gas.




Thus
      far
      in 2008, we have provided Paketeria with approximately $1.5 million of loans
      in
      order to provide it with additional temporary financing to help it support
      its
      operations until it is able to raise funds through the sale by existing
      shareholders of shares through the escrow arrangement from Paketeria’s listing
      on the Frankfurt Stock Exchange (further described on page F-20 of our Annual
      Report on Form 10-K) or other sources.




***GridSense***




On
      January 2, 2008, we participated in a transaction where we were the lead
      investor in a private placement by GridSense Systems Inc. (“GridSense”),
      acquiring 15,714,285 shares and 15,714,285 warrants for C$1.1 million
      (approximately $1.1 million). The warrants acquired expired in July 2008.
      The 15,714,285 shares acquired by us in the placement represented approximately
      24.5% of GridSense's issued and outstanding shares at  the time. Our
      holdings in GridSense were subsequently diluted to approximately 23.8% as a
      result of a transaction by GridSense. In July 2008, we provided GridSense with
      a
      C$750,000 loan ($750,000). The loan bears interest at a rate of 8% per year
      is
      due on October 30, 2008. The loan is secured by a security interest in all
      the
      assets of GridSense.




17


***Investment
      Company Act***





Under
      the
      Investment Company Act of 1940, as amended (the “Investment Company Act”), and
      the rules thereunder, we would be deemed to be an investment company if the
      “value” of “investment securities” we own accounts for more than 40% of the
      total “value” of our assets, exclusive of “government securities,” cash and
      certain cash items. The shares of Comverge common stock we own are “investment
      securities” under the Act and account for significantly more than 40% of the
      value of our total assets.




Pursuant
      to a “safe harbor” provision under the Investment Company Act rules, we would be
      exempt from regulation as an investment company, if, among other things, we
      were
      deemed to primarily control Comverge. In order to primarily control Comverge,
      we
      would need to own more than 25% of its voting securities and be Comverge’s
      single largest shareholder. As a result of (1) the Comverge IPO in April 2007
      which resulted in the substantial dilution of our equity position, and (2)
      the
      resulting termination of our voting agreements with other shareholders, it
      is
      likely that we were deemed to no longer have primary control of Comverge. As
      a
      result, as of the end of our fiscal quarter ending June 30, 2007, we may have
      fallen within the definition of an investment company, without any applicable
      exemption.




In
      June
      2007, we availed ourselves of the provision under Rule 3a-2 under the Investment
      Company Act that exempts an issuer from investment company status for up to
      one
      year, so long as it has a bona fide intent to be engaged primarily, as soon
      as
      is reasonably possible (and in any event by the termination of the one-year
      period), in a business other than that of investing, reinvesting, owning,
      holding or trading in securities.





Our
      management and Board of Directors formulated and implemented plans for returning
      the Company to compliance with the numerical tests for exemption from investment
      company status. Those plans included the acquisition of one or more
      wholly-owned, majority-owned, or primarily-controlled operating businesses
      and
      the sale of a substantial portion of our Comverge shares. Our 2007 purchase
      of
      SCR-Tech, our recent sale of Comverge shares and our additional investment
      in
      our majority-owned and primarily-controlled subsidiary has significantly reduced
      the percentage of the total value of our assets represented by investment
      securities. At the end of June 2008, our management and board of directors
      performed a valuation of our assets after giving effect to such transactions
      and
      determined that we are in compliance with the numerical tests for exemption
      from
      investment company status at June 30, 2008. We believe that there is little
      or
      no future risk to us with respect to Investment Company Act compliance.




**Overview
      and Trend Information**





Acorn
      Energy is a holding company that specializes in acquiring and accelerating
      the
      growth of emerging ventures that promise improvement in the economic and
      environmental efficiency of the energy sector. We aim to acquire primarily
      controlling positions in companies led by promising entrepreneurs and we add
      value by supporting those companies with financing, branding, positioning,
      strategy and business development.




Through
      our majority-owned operating subsidiaries we provide the following
      services:





18


·
            **RT
                Solutions**.
                Real time software consulting and development services provided through
                the Company’s DSIT subsidiary, with a focus on port security for strategic
                energy installations.





·
            **SCR
                Catalyst and Management Services**for coal-fired power plants that use selective catalytic reduction
                (“SCR”)
                systems to reduce nitrogen oxide (“NOx”) emissions, provided through
                CoaLogix and its subsidiary SCR-Tech LLC. These services include
                SCR
                catalyst management, cleaning and regeneration as well as consulting
                services to help power plant operators to optimize efficiency and
                reduce
                overall NOx compliance costs.





Our
      equity affiliates and entities in which we own significant equity interests
      are
      engaged in the following activities:





·
            **Comverge
                Inc.**Provides energy intelligence solutions for utilities and energy companies
                through demand response..





·
            **GridSense
                Systems Inc.**Provides remote monitoring and control systems to electric utilities
                and
                industrial facilities worldwide.





·
            **Coreworx
                Inc.**Acquired in August 2008, provides unique solutions for engineering,
                procurement and construction companies who manage capital projects.





·
            **Paketeria
                AG**.
                Owner and franchiser of a full-service franchise chain in Germany
                that
                combines eight services (post and parcels, electricity, eBay dropshop,
                mobile telephones, copying, printing, photo processing and printer
                cartridge refilling) in one store.





·
            **Local
                Power, Inc**.
                Provides consultation services for Community Choice Aggregation.




During
      the 2008 periods included in this report, we had operations in two reportable
      segments: providing
      catalyst regeneration technologies and management services for SCR systems
      through our CoaLogix subsidiary and
      RT
      Solutions which is conducted through our DSIT subsidiary. The
      following analysis should be read together with the segment information provided
      in Note 14 to the interim unaudited consolidated financial statements included
      in this quarterly report, which information is hereby incorporated by reference
      into this Item 2.





*RT
      Solutions*




Our
      RT
      Solutions segment reported significantly increased revenues in 2008 as compared
      to 2007 (for both the three and six months ended June 30). The increase in
      revenues was the result of the acquisition of the following projects:




·
            A
                NIS 30 million (approximately $8.1 million at June 30, 2008) order
                for a
                sonar and underwater acoustic system for the Israeli Ministry of
                Defense,
                and




·
            An
                order to supply what we believe to be the world’s first underwater
                surveillance system to protect a strategic coastal energy installation.
                This order was received in mid- 2007 and the project was successfully
                completed in the second quarter of
                2008.




·
            A
                number of significant embedded hardware and software RT projects
                for which
                we received over $2 million of orders in the first six months of
                2008.




Our
      increased revenues are a direct result of our progress in those projects.




Our
      projected growth in sales in 2008 is expected to come primarily from our naval
      solutions projects with sales from our embedded hardware and software
      development projects expected to be at least at the level of 2007 sales. We
      anticipate our 2008 sales to increase based on our abovementioned contract
      with
      the Israeli MOD for which we currently have a backlog of approximately $5.1
      million. In addition, we anticipate receiving in the second half of 2008 a
      number of significant naval solutions contracts for additional underwater
      surveillance systems to protect strategic coastal energy installations.





19


*CoaLogix/SCR*




In
      the
      first half of 2008, SCR-Tech secured new contracts from major U.S. companies
      representing more than triple its entire 2007 sales.  Included in these
      contracts are a three year and a five year contract bundling selective catalytic
      reduction (SCR) management services and time sensitive regeneration during
      planned outages as well as a contract from a southern utility company and
      another from a mid-Atlantic utility company. The contracts represent both new
      and repeat customers.  At the end of the second quarter, SCR-Tech had a
      backlog of approximately $12.5 million which we expect to realize over the
      next
      2 years.




As
      noted in “Recent Developments”, in July 2008, the District of Columbia Court of
      Appeals issued an opinion in the State of North Carolina v. Environmental
      Protection Agency in which the court vacated the EPA’s Clean Air Interstate
      Rule (CAIR) and the associated Federal Implementation Plan. The court’s ruling
      may mean less regeneration activity in the short term for CoaLogix. 
However, we believe that the long-term trend is for increasing and more
      stringent environmental regulation our customers and that the long-term
      prospects for the regeneration business remain good. In addition we believe
      that
      the new uncertain regulatory landscape creates additional opportunities for
      CoaLogix’s SCR management services.




In
      May
      2008, CoaLogix, Inc. entered into a license agreement with Solucorp Industries,
      Ltd. to obtain worldwide marketing, selling, and installation rights to Solucorp
      Industries IFS-2C technology for the fixation of heavy metals, such as mercury,
      for the electric power generation industry. CoaLogix will market the product
      under the brand name MetalliFix Hg. CoaLogix paid a one-time licensing fee
      of
      $2,000,000. The agreement also requires that CoaLogix pay Solucorp cost plus
      an
      agreed mark up on all MetalliFix reagents and Solucorp will also receive a
      percentage of net sale proceeds based on certain sales parameters.  In
      addition, Solucorp will be paid a percentage of any royalties received by
      CoaLogix for the use of the MetalliFix system.  The term of the licensing
      agreement is for 10 years with an additional 5-year renewal
      period. CoaLogix intends to invest heavily on the marketing, sales,
      customer training, product installation and support of the MetalliFix
      technology.  This program is expected to rapidly build industry awareness
      of the newest proven technology to effectively reduce mercury emissions in
      coal
      fired furnace facilities.




*Paketeria*





In
      December 2007, Paketeria’s shares were listed under the symbol “AOSTYL” on the
      Open Market (Freiverkehr) of the Frankfurt Stock Exchange and became eligible
      for trading. In connection with the listing and the escrow arrangements the
      Paketeria shareholders agreed to lock up certain of their shares for up to
      one
      year from the listing date. Under the lock-up agreement, shareholders may not
      offer, pledge, allot, sell or otherwise transfer or dispose of directly or
      indirectly any shares of Paketeria. There is currently a limited market for
      Paketeria’s shares on this market. From the listing date to August 1, 2008, 935
      shares of Paketeria were sold by the German investment bank responsible for
      the
      initial listing.





Thus
      far
      in 2008, we have provided Paketeria with approximately $1.5 million of loans
      in
      order to provide it with additional temporary financing to help it support
      its
      operations until it is able to raise funds from other sources. These advances
      are to be repaid by December 31, 2008. In connection with the loans, we also
      received warrants to acquire additional shares of Paketeria.





In
      June
      2008 Paketeria entered into an agreement with the Volksbank network to open
      12
“shop-in-bank” locations in Meissen -- two in August 2008 and the remaining ten
      in the fall. This follows the May 2008 opening of “shop-in-bank” pilot stores in
      five Volksbank branches in Celle, a suburb of Hanover with a population of
      70,000. As part of the agreement, Volksbank Meissen also made a small equity
      investment in Paketeria.





20


Paketeria
      continues to look for additional outside equity or debt financing to finance
      its
      expansion.




*GridSense*




We
      acquired our interest in GridSense by participating as the lead investor in
      their January 2008 private placement. In the private placement we acquired
      15,714,285 shares and 15,714,285 warrants for C$1.1 million (approximately
      $1.1
      million) plus transaction costs. The 15,714,285 shares we acquired represents
      approximately 25% of GridSense's issued and outstanding shares. We did not
      exercise any of the 15,714,285 warrants it acquired in the placement and they
      expired on July 2, 2008. Our holdings in GridSense were diluted to approximately
      24% following the first quarter acquisition by GridSense of Transformer
      Contracting, Inc. in which they issued an additional 3,000,000
      shares.




In
      July
      2008, we lent GridSense C$750,000 ($750,000) under a secured promissory note
      which bears interest at 8% and is due on October 30, 2008. The note is secured
      by all the assets of GridSense.





We
      account for our GridSense investment the equity method and, as such, we record
      approximately 24% of its income/loss in our consolidated results. 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 second quarter of 2008,
      we
      recorded a loss of $112,000 representing our 25% share of GridSense’s losses for
      the period from January 2, 2008 to March 31, 2008. In addition, we also recorded
      an additional $22,000 as our share of losses in GridSense which represents
      the
      amortization of certain intangible assets acquired by us in our initial
      investment. We will record our share of GridSense’s second quarter results in
      the third quarter of 2008.





*Local
      Power*





Local
      Power (LPI) has won several new contracts in California and currently requires
      additional funding to expand operations and take advantage of the growing
      opportunities for city-based energy systems, both in the West, Midwest, and
      the
      Northeast CCA Markets. This ramp-up of operational resources is prompted by
      a
      dramatic increase in work that will now commence during LPI’s preparation of the
      San Francisco CCA implementation, the world’s largest urban green power public
      works project. Acorn management has decided at this time to limit its funding
      to
      Local Power and has taken an impairment charge of $268,000 on its investment
      in
      LPI in the second quarter of 2008.




*Corporate*




As
      noted
      above in “Recent Developments” on August 13, 2008, we entered into and closed an
      agreement for the acquisition all of the outstanding capital stock of Coreworx.
      Coreworx is engaged in the design and delivery of project collaboration
      solutions for large capital projects.




During
      the second quarter of 2008, we sold 757,367 of the 1,763,665 Comverge shares
      held at the beginning of the year. The Company received proceeds of $9,682
      (an
      average sales price of $12.78 per share) from the sales and recorded a pre-tax
      gain of $5,782. Subsequent to June 30, 2008, we have continued to sell our
      Comverge shares and through August 12, 2008, we sold an additional 453,798
      of
      our Comverge shares for approximately $5.4 million (an average sales price
      of
      $11.96 per share). As of August 12, 2008, the total market value of our
      remaining 552,500 Comverge shares was approximately $3.6 million based on an
      August 12, 2008 closing market price of $6.55 per share.




In
      January 2008, we completed the redemption of our outstanding 10% Convertible
      Redeemable Subordinated Debentures due March 2011. Prior to the redemption,
      the
      debenture holders converted the entire $3.44 million convertible portion of
      the
      debentures into approximately 900,000 shares of Acorn common stock and the
      remaining $3.44 million of debentures were redeemed in accordance with the
      notice of redemption. In accordance with applicable accounting standards, we
      recorded a non-cash gain of approximately $1.3 million and non-cash interest
      expense of approximately $3.1 million on the early redemption of our debentures.
      At the end of July, prior to our acquisition of Coreworx, we had no corporate
      debt and approximately $17.1 million in unrestricted cash. 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.




21


**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,
      2007 and 2008, 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, 2008 include the results of our newly
      acquired SCR-Tech subsidiary. As such, results for the three and six months
      ended June 30, 2008 may not be comparable to the results for the three and
      six
      months ended June 30, 2007 without negating the effect of SCR-Tech’s
      results.




Six
                months ended June 30,
            
            Three
                months ended June 30,2007
            
            2008
            
            Change
            
            2007
            
            2008
            
            Change($,000)
            
            %
                of
                sales
            
            ($,000)
            
            %
                of
                sales
            
            From
                2007 to 2008
            
            ($,000)
            
            %
                of
                sales
            
            ($,000)
            
            %
                of
                sales
            
            From
                2007 to 2008Sales
            
            $
            1,720
            
            
            *100*
            *%*
            $
            7,902
            
            
            *100*
            *%*
            
            *359*
            *%*
            $
            681
            
            
            *100*
            *%*
            $
            3,607
            
            
            *100*
            *%*
            
            *430*
            *%*Cost
                of sales
            
            
            1,379
            
            
            *80*
            
            
            5,472
            
            
            *69*
            
            
            *297*
            
            
            625
            
            
            *92*
            
            
            2,575
            
            
            *71*
            
            
            *312*Gross
                profit
            
            
            341
            
            
            *20*
            
            
            2,430
            
            
            *31*
            
            
            *613*
            
            
            56
            
            
            *8*
            
            
            1,032
            
            
            *29*
            
            
            *1,743*R&D
                expenses
            
            
            233
            
            
            *14*
            
            
            108
            
            
            *1*
            
            
            *(54*
            *)*
            
            103
            
            
            *15*
            
            
            57
            
            
            *2*
            
            
            *(45*
            *)*SMG&A
                expenses
            
            
            1,859
            
            
            *108*
            
            
            5,239
            
            
            *66*
            
            
            *182*
            
            
            1,049
            
            
            *154*
            
            
            2,686
            
            
            *74*
            
            
            *156*Operating
                loss
            
            
            (1,751
            )
            
            *(102*
            *)*
            
            (2,917
            )
            
            *(37*
            *)*
            
            *67*
            
            
            (1,096
            )
            
            *(161*
            *)*
            
            (1,711
            )
            
            *(47*
            *)*
            
            *56*Gain
                on early redemption of Debentures
            
            
            --
            
            
            *--*
            
            
            1,259
            
            
            *16*
            
            
            
            
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Finance
                income (expense), net
            
            
            (371
            )
            
            *(22*
            *)*
            
            (2,900
            )
            
            *(37*
            *)*
            
            *682*
            
            
            (345
            )
            
            *(51*
            *)*
            
            88
            
            
            *2*
            
            
            *(126*
            *)*Gain
                on public offering of Comverge
            
            
            16,169
            
            
            *940*
            
            
            --
            
            
            *--*
            
            
            *(100*
            *)*
            
            16,169
            
            
            *2,374*
            
            
            --
            
            
            *--*
            
            
            *(100*
            *)*Gain
                on sale of Comverge shares
            
            
            --
            
            
            *--*
            
            
            5,782
            
            
            *73*
            
            
            
            
            
            --
            
            
            *--*
            
            
            5,782
            
            
            *160*Income
                before taxes on income
            
            
            14,047
            
            
            *817*
            
            
            1,224
            
            
            *15*
            
            
            *(91*
            *)*
            
            14,728
            
            
            *2,163*
            
            
            4,159
            
            
            *115*
            
            
            *(72*
            *)*Taxes
                on income
            
            
            (5
            )
            
            *0*
            
            
            2
            
            
            *0*
            
            
            *(140*
            *)*
            
            (3
            )
            
            *0*
            
            
            (640
            )
            
            *18*Income
                (loss) from operations of the Company and its consolidated
                subsidiaries
            
            
            14,042
            
            
            *816*
            
            
            1,226
            
            
            *16*
            
            
            *(91*
            *)*
            
            14,725
            
            
            *2,162*
            
            
            3,519
            
            
            *98*
            
            
            *(76*
            *)*Minority
                interests
            
            
            --
            
            
            *--*
            
            
            80
            
            
            *1*
            
            
            
            
            
            --
            
            
            *--*
            
            
            89
            
            
            *2*Share
                of losses in GridSense
            
            
            --
            
            
            *--*
            
            
            (134
            )
            
            *(2*
            *)*
            
            
            
            
            --
            
            
            *--*
            
            
            (134
            )
            
            *(4*
            *)*Share
                in losses in Paketeria
            
            
            (388
            )
            
            *(23*
            *)*
            
            (661
            )
            
            *(8*
            *)*
            
            *70*
            
            
            (201
            )
            
            *(30*
            *)*
            
            (374
            )
            
            *(10*
            *)*
            
            *86*Net
                income
            
            $
            13,654
            
            
            *794*
            
            $
            511
            
            
            *6*
            
            
            *(96*
            *)%*
            $
            14,424
            
            
            *2,118*
            
            $
            3,100
            
            
            *86*
            
            
            *(79*
            *)*




*Sales.* Sales in
      the first six months of 2008 increased by $6.2 million or 359% to $7.9 million
      from $1.7 million in the first six months of 2007. The increase in sales is
      attributable to the sales of CoaLogix which we acquired at the end of 2007
      of
      $3.6 million in the first six months of 2008 which were not included in our
      consolidated results in 2007 and an increase in DSIT sales of $2.6 million
      or
      250% from $1.7 million in 2007 to $4.3 million in 2008. Sales in the second
      quarter of 2008 increased by $2.9 million, or 430% to $3.6 million from $0.7
      million in the second quarter of 2007. The increase in second quarter 2008
      sales
      is also attributable to CoaLogix sales of $1.3 million combined with an increase
      in DSIT sales of $1.6 million. The increase in DSIT sales for both the three
      and
      six months ended June 30, 2008 was almost entirely attributable to an increase
      in RT Solutions segment sales which was the primarily due to two naval projects
      being performed by our DSIT subsidiary which began in the third quarter of
      2007.
      The $3.6 million of sales in the second quarter of 2008 represents a decrease
      of
      approximately $0.7 million or 17% from sales in the first quarter of 2008.
      The
      quarter-to-quarter decrease in sales is due to a $0.8 million decrease in
      CoaLogix sales partially offset by a quarter-to-quarter increase of $0.2 million
      in DSIT sales. The change in sales at CoaLogix was due to seasonal factors
      since
      power plants do not schedule service of their catalyst systems during the spring
      and summer ozone months.





22


*Gross
      profit.* Gross
      profits in the first six months of 2008 increased by $2.1 million or 613% to
      $2.4 million from $0.3 million in the first six months of 2007. The increase
      in
      gross profits is attributable to the inclusion of CoaLogix gross profits of
      $1.1
      million in the first six months of 2008 combined with an increase in DSIT gross
      profits of $1.0 million or 390% from $0.3 million in 2007 to $1.3 million in
      2008. Gross profits in the second quarter of 2008 increased by approximately
      $1.0 million as compared to the second quarter of 2007. The increase in second
      quarter 2008 gross profit was also attributable to the inclusion in 2008 of
      CoaLogix gross profits of $0.3 million combined with an increase in DSIT gross
      profit of $0.7 million. The increase in DSIT gross profit was also attributable
      to the aforementioned increase in RT Solutions segment sales. Our gross margins
      also increased to 31% in the first six months of 2008 compared to 20% in the
      first six months of 2007. The increased gross margins were the result of
      CoaLogix gross margin of 31% during the period and DSIT’s increased gross margin
      of 31% as compared to 2007’s 20%. DSIT’s increased gross margins were due to
      higher margin projects being performed during the period.




*Selling,
      marketing, general and administrative expenses (“SMG&A”).* ** SMG&A
      in the first six months of
      2008
      increased by $3.4 million as compared to the first six months of 2007. A portion
      of the increase was attributable to the inclusion of CoaLogix’s SMG&A costs
      of $1.5 million. DSIT’s SMG&A increased by approximately $0.4 million
      compared to the first six months of 2007. During that period, senior management
      in DSIT subsidiary waived approximately $0.2 million of liabilities DSIT had
      to
      them in order to shore up its results and maintain its working relationship
      with
      its banks. In addition, DSIT’s costs have increased due to the weakness of the
      US dollar during 2008 as compared to 2007. Corporate SMG&A expense also
      increased by approximately $1.5 million during 2008 as compared to 2007. The
      increase in corporate SMG&A is due to approximately $500,000 of impairments
      recorded with respect our investment in Local Power and increased professional
      fees and salaries reflecting a higher level of corporate activity due to our
      M&A activity.




*Gain
      on early redemption of Debenture* .
      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
      increase in finance expense in the first six months of 2008 compared with the
      first six months of 2007 is due to the non-cash 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. This was partially offset by
      interest income earned on the proceeds of the sale of Comverge
      shares.




*Gain
      on public offering of Comverge* .
      In
      April 2007, Comverge completed its initial public offering. As a result of
      the
      Comverge offering, the Company recorded an increase in its investment in
      Comverge and recorded a non-cash gain of $16.2 million in “Gain on public
      offering of Comverge”.




23


*Gain
      on sale of Comverge shares* .
      During
      the second quarter of 2008, we sold 757,367 of the 1,763,665 Comverge shares
      we
      held at the beginning of 2008. We received proceeds of $9.7 million from the
      sales and recorded a pre-tax gain of $5.8 million.




*Taxes
      on income.* In
      the
      second quarter of 2008, we recorded income tax expense of $0.6 million primarily
      due to the gain recorded on the sale of Comverge shares.




*Share
      of losses in GridSense.* 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. We will record our share
      of
      GridSense’s second quarter results in the third quarter of 2008. In the first
      six months of 2008, we recorded a loss of $112,000 representing our
      approximately 25% share of GridSense’s losses for the first quarter of 2008. In
      addition, we also recognized additional losses totaling $22,000 with respect
      to
      amortization related to acquired technologies, customer relationships and
      trademarks.




*Share
      of losses in Paketeria.* In
      the
      first six months of 2008, we recorded a loss of $592,000 representing our
      approximately 31% share of Paketeria’s losses for the period. In addition, we
      also recognized additional losses totaling $69,000 with respect to amortization
      related to the value of a non-compete agreement and franchises and stock
      compensation expense.






**Liquidity
      and Capital Resources** ****




As
      of
      June 30, 2008, we had working capital of $21.0 million, including $16.7 million
      of cash and cash equivalents not including restricted cash of $2.9 million
      (of
      which we expect approximately $2.3 million to be released by the first quarter
      of 2009). Net cash used in the six months ended June 30, 2008 was $2.9 million,
      of which $1.8 million was used in operating activities. The primary use of
      cash
      in operating activities during the first six months of 2008 was our corporate
      cash operating expenditures of approximately $1.4 million. Cash used in
      investing activities were primarily due to our $3.6 million of loans made to
      Paketeria, Coreworx and others, $2.0 used for the acquisition of license
      technology by our CoaLogix subsidiary, $1.2 million used to fund our investment
      in GridSense, $1.0 million with respect to an additional deposit in an Israeli
      bank as a guarantee for a project being performed by our DSIT subsidiary,
      approximately $0.4 million of additional restricted cash deposits and $1.0
      million of costs related to our November 2007 acquisition of SCR Tech. These
      amounts were offset by the proceeds of $9.7 from the sale of our Comverge shares
      during the second quarter. Net cash of $1.2 million was used in financing
      activities, primarily from the redemption of our debentures ($3.4 million)
      and
      repayment of short and long-term borrowings ($0.7 million). This use of cash
      was
      partially offset by the $2.2 million investment made by Enertech in CoaLogix
      and
      the proceeds from the exercise of warrants and employee stock
      options.




As
      of
      August 1, 2008 the Company’s corporate operations had a total of approximately
      $17.1 million in cash and cash equivalents (not including the $2.5 million
      deposited in an account as a security for a guarantee for DSIT), reflecting
      a
      $1.5 million increase from the balance as of June 30, 2008. This increase in
      cash is due to the sale of Comverge shares after June 30, 2008.




We
      believe that the cash available and the cash potentially available from any
      sales of our holdings in Comverge will provide more than sufficient liquidity
      to
      finance Acorn’s activities for the foreseeable future and for the next 12 months
      in particular.





At
      June
      30, 2008, DSIT had approximately $280,000 in Israeli credit lines available
      to
      DSIT by an Israeli bank, of which $190,000 was then being used. DSIT had
      additional funds in the same bank which the bank had the right to offset against
      the line of credit being used. As such, the net line of credit being used by
      DSIT on June 30, 2008 was zero.




At
      June
      30, 2008, DSIT was in technical violation of covenants under its bank line
      of
      credit. The bank is continuing to provide funding to DSIT despite the technical
      violation and has not formally notified DSIT of any violation or any
      contemplated action. Acorn has agreed to be supportive of DSIT’s liquidity
      requirements over the next 12 months.




24


**Contractual
      Obligations and Commitments**




Our
      contractual obligations and commitments at June 30, 2008 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
            
            2009
            
            2010-2011
            
            2012-2013
            
            2014
                and thereafterLong-term
                debt
            
            $
            80
            
            $
            70
            
            $
            8
            
            $
            2
            
            $
            --Operating
                leases (1)
            
            
            2,505
            
            
            850
            
            
            1,079
            
            
            576
            
            
            --Potential
                severance obligations to Israeli employees (2)
            
            
            2,888
            
            
            --
            
            
            --
            
            
            --
            
            
            2,888Investment
                in EnerTech Capital Partners III L.P. (3)
            
            
            4,600
            
            
            4,600
            
            
            --
            
            
            --
            
            
            --Purchase
                commitments
            
            
            760
            
            
            760
            
            
            --
            
            
            --
            
            
            --Total
                contractual cash obligations
            
            
            10,833
            
            
            6,280
            
            
            1,087
            
            $
            578
            
            $
            2,888




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




(1)
      As
      part of the sale of our Databit computer hardware subsidiary in 2006, we
      assigned all of the US leases to Databit and no longer have rental expense
      for
      facilities in the US. However, the landlords of the properties have not
      consented to the assignments and we therefore continue to be contingently liable
      on these leases, which have an annual cost of approximately $120,000 until
      November 2008. Such costs are included in the table above. Databit has agreed
      to
      indemnify us for any liability in connection with these leases.




(2)
      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, 2008, we accrued a total of $2.9 million for potential severance
      obligations of which approximately $1.9 million was funded with cash to
      insurance companies.




(3)
      In
      August 2007, we committed to invest up to $5 million over a ten-year period
      in
      EnerTech Capital Partners III L.P. (“EnerTech III”), 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 a current liability, though
      it
      is uncertain as to when actual payments may be made. To date, we have received
      and funded a capital call of $400,000 to EnerTech III. In July we received
      an
      additional capital call of $750,000 which was made in August.




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 utilization
      at June 30, 2008 stood at approximately $190,000. Additionally, our non-US
      dollar monetary assets and liabilities (net liability of approximately $0.9
      million) in Israel are exposed to fluctuations in exchange rates. In addition,
      $3.0 million and $0.7 million of our backlog of projects are contracts and
      orders that are linked to an Israeli Ministry of Defense Index, and denominated
      in NIS, respectively. We do not employ specific strategies, such as the use
      of
      derivative instruments or hedging, to manage our interest rate or foreign
      currency exchange rate exposures. Our DSIT subsidiary is examining ways to
      reduce its foreign currency exposure risks.






**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 Coltrol 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**




None.


27


**Item
      6.**  **Exhibits.**







10.1
            
            CoaLogix
                Inc. 2008 Stock Option Plan.*10.2
            
            Stock
                Option Agreement with William J. McMahon under the CoaLogix Inc.
                2008
                Stock Option Plan.*10.3
            
            CoaLogix
                Inc. and Subsidiaries Capital Appreciation Rights
                Plan.*10.4
            
            Participation
                Agreement with William J. McMahon under the CoaLogix Inc. and Subsidiaries
                Capital Appreciation Rights Plan.*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.





*
      This
      exhibit includes a management contract, compensatory plan or arrangement in
      which one or more directors or executive officers of the Registrant
      participate.


28


**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.**Date: August
              14, 2008
            By:
            /s/ Michael
              BarthMichael
                Barth
              Chief
                Financial Officer




29