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 March 31,
2009





Commission
file number:  0-19771





ACORN
ENERGY, INC.


(Exact
name of registrant as specified in its charter)





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





(302)
656-1708


(Registrant’s
telephone number, including area code)





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


Yes
xNo   ̈





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





Yes oNo  o




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




Large
accelerated filer o   Accelerated
filer o   Non-accelerated
filer o   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 May 10, 2009Common
      Stock, $0.01 par value per share
            
            11,420,987
      shares













ACORN
ENERGY, INC.


Quarterly
Report on Form 10-Q


for
the Quarterly Period Ended March 31, 2009





TABLE
OF CONTENTS





PART
      I.  Financial InformationItem
      1.
                Financial
      StatementsUnaudited
      Consolidated Financial Statements:Consolidated
      Balance Sheets as of December 31, 2008 and March 31, 2009
                1Consolidated
      Statements of Operations for the three month periods ended March 31, 2008
      and 2009
                2Consolidated
      Statement of Changes in Equity for the three month period ended March 31,
      2009
                3Consolidated
      Statements of Cash Flows for the three month periods ended March 31, 2008
      and 2009
                4Notes
      to Consolidated Financial Statements
                6Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                15Item
      3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                23Item
      4.
                Controls
      and Procedures
                23PART
      II. Other InformationItem
      1.
                Legal
      Proceedings
                24Item
      2 .
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                25Item
      6.
                Exhibits
                26Signatures
                27




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





ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated
Balance Sheets


(in
thousands, except share and per share data)





As of December 31,
                          2008
                        
                        
                        As of March 31,
                          2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        15,142
                        
                        
                        $
                        14,698Restricted
      deposit
                        
                        
                        2,157
                        
                        
                        
                        1,958Accounts
      receivable, net
                        
                        
                        4,524
                        
                        
                        
                        4,624Unbilled
      work-in-process
                        
                        
                        581
                        
                        
                        
                        913Inventory
                        
                        
                        1,148
                        
                        
                        
                        1,225Other
      current assets
                        
                        
                        2,080
                        
                        
                        
                        1,477Total
      current assets
                        
                        
                        25,632
                        
                        
                        
                        24,895Property
      and equipment, net
                        
                        
                        2,447
                        
                        
                        
                        2,366Available
      for sale - Investment in Comverge
                        
                        
                        2,462
                        
                        
                        
                        1,929Investment
      in GridSense
                        
                        
                        129
                        
                        
                        
                        —Investment
      in EnerTech
                        
                        
                        1,117
                        
                        
                        
                        1,047Funds
      in respect of employee termination benefits
                        
                        
                        1,677
                        
                        
                        
                        1,579Restricted
      deposit
                        
                        
                        579
                        
                        
                        
                        525Other
      intangible assets, net
                        
                        
                        10,357
                        
                        
                        
                        9,951Goodwill
                        
                        
                        6,342
                        
                        
                        
                        6,221Other
      assets
                        
                        
                        313
                        
                        
                        
                        333Total
      assets
                        
                        $
                        51,055
                        
                        
                        $
                        48,846LIABILITIES
      AND EQUITYCurrent
      liabilities:Short-term
      bank credit and current maturities of long-term debt
                        
                        $
                        445
                        
                        
                        $
                        700Notes
      payable
                        
                        
                        3,400
                        
                        
                        
                        3,400Trade
      accounts payable
                        
                        
                        2,285
                        
                        
                        
                        1,748Accrued
      payroll, payroll taxes and social benefits
                        
                        
                        1,314
                        
                        
                        
                        1,114Other
      current liabilities
                        
                        
                        4,350
                        
                        
                        
                        3,270Total
      current liabilities
                        
                        
                        11,794
                        
                        
                        
                        10,232Long-term
      liabilities:Liability
      for employee termination benefits
                        
                        
                        2,651
                        
                        
                        
                        2,472Other
      liabilities
                        
                        
                        487
                        
                        
                        
                        478Total
      long-term liabilities
                        
                        
                        3,138
                        
                        
                        
                        2,950Equity:Acorn
      Energy Inc. Common stock - $0.01 par value per share:Authorized
      – 20,000,000 shares; Issued –12,454,528 at December 31, 2008 and March 31,
      2009
                        
                        
                        124
                        
                        
                        
                        124Additional
      paid-in capital
                        
                        
                        54,735
                        
                        
                        
                        55,144Warrants
                        
                        
                        1,020
                        
                        
                        
                        1,020Accumulated
      deficit
                        
                        
                        (17,587
                        )
                        
                        
                        (18,650
                        )Treasury
      stock, at cost – 841,286 and 986,939 shares for December 31, 2008 andMarch
      31, 2009, respectively
                        
                        
                        (3,719
                        )
                        
                        
                        (4,047
                        )Accumulated
      other comprehensive loss
                        
                        
                        (425
                        )
                        
                        
                        (9
                        )Total
      Acorn Energy Inc. shareholders’ equity
                        
                        
                        34,148
                        
                        
                        
                        33,582Non-controlling
      interests
                        
                        
                        1,975
                        
                        
                        
                        2,082Total
      equity
                        
                        
                        36,123
                        
                        
                        
                        35,664Total
      liabilities and equity
                        
                        $
                        51,055
                        
                        
                        $
                        48,846




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)




Three
      months ended
                              March
      31,2008
                            
                            
                            2009SalesCatalytic
      regeneration services
                            
                            $
                            2,249
                            
                            
                            $
                            5,390Projects
                            
                            
                            1,908
                            
                            
                            
                            1,966Software
      license and services
                            
                            
                            —
                            
                            
                            
                            1,027Other
                            
                            
                            138
                            
                            
                            
                            954,295
                            
                            
                            
                            8,478Cost
      of salesCatalytic
      regeneration services
                            
                            
                            1,491
                            
                            
                            
                            3,535Projects
                            
                            
                            1,307
                            
                            
                            
                            1,219Software
      license and services
                            
                            
                            —
                            
                            
                            
                            271Other
                            
                            
                            99
                            
                            
                            
                            742,897
                            
                            
                            
                            5,099Gross
      profit
                            
                            
                            1,398
                            
                            
                            
                            3,379Operating
      expenses:Research
      and development expenses
                            
                            
                            51
                            
                            
                            
                            276Impairments
                            
                            
                            248
                            
                            
                            
                            70Selling,
      general and administrative expenses
                            
                            
                            2,305
                            
                            
                            
                            4,108Total
      operating expenses
                            
                            
                            2,604
                            
                            
                            
                            4,454Operating
      loss
                            
                            
                            (1,206
                            )
                            
                            
                            (1,075
                            )Finance
      expense, net
                            
                            
                            (2,988
                            )
                            
                            
                            (169
                            )Gain
      on early redemption of convertible debentures
                            
                            
                            1,259
                            
                            
                            
                            —Gain
      on sale of Comverge shares
                            
                            
                            —
                            
                            
                            
                            417Loss
      before taxes on income
                            
                            
                            (2,935
                            )
                            
                            
                            (827
                            )Income
      tax benefit
                            
                            
                            642
                            
                            
                            
                            —Loss
      from operations of the Company and its consolidated
      subsidiaries
                            
                            
                            (2,293
                            )
                            
                            
                            (827
                            )Share
      in losses of Paketeria
                            
                            
                            (287
                            )
                            
                            
                            —Share
      in losses of GridSense
                            
                            
                            —
                            
                            
                            
                            (129
                            )Net
      loss
                            
                            
                            (2,580
                            )
                            
                            
                            (956
                            )Net
      income attributable to non-controlling interests
                            
                            
                            (9
                            )
                            
                            
                            (107
                            )Net
      loss attributable to Acorn Energy Inc.
                            
                            $
                            (2,589
                            )
                            
                            $
                            (1,063
                            )Basic
      and diluted earnings  per share attributable to Acorn
      Energy  Inc.:Net
      loss per share attributable to Acorn Energy Inc. – basic and
      diluted
                            
                            $
                            (0.23
                            )
                            
                            $
                            (0.09
                            )Weighted
      average number of shares outstanding attributable to Acorn Energy
      Inc. – basic and diluted
                            
                            
                            11,050
                            
                            
                            
                            11,535




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


2




ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statement of Changes in
Equity(unaudited)


(in
thousands)





Number of
                    Shares
                
                
                Common
                    Stock
                
                
                Additional
                  Paid-In
                  Capital
                
                
                Warrants
                
                
                Accumulated
                    Deficit
                
                
                Treasury
                    Stock
                
                
                Accumulated
                    Other
                    Comprehensive
                    Income (Loss)
                
                
                Non-
                    controlling
                    interests
                
                
                TotalBalances
      as ofDecember
      31, 2008
                
                
                12,455
                
                
                $
                124
                
                
                $
                54,735
                
                
                $
                1,020
                
                
                $
                (17,587
                )
                
                $
                (3,719
                )
                
                $
                (425
                )
                
                $
                1,975
                
                
                $
                36,123Net
      income (loss)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (1,063
                )
                
                
                —
                
                
                
                —
                
                
                
                107
                
                
                
                (956
                )FAS
      115 adjustment on Comverge shares
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                625
                
                
                
                —
                
                
                
                625Differences
      from translation of financial statements of subsidiaries
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (209
                )
                
                
                —
                
                
                
                (209
                )Comprehensive
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —
                
                
                
                (540
                )Purchase
      of treasury shares
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (328
                )
                
                
                
                
                
                
                —
                
                
                
                (328
                )Stock
      option compensation
                
                
                —
                
                
                
                —
                
                
                
                254
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                254Stock
      option compensation of subsidiaries
                
                
                —
                
                
                
                —
                
                
                
                155
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                155Balances
      as ofMarch
      31, 2009
                
                
                12,455
                
                
                $
                124
                
                
                $
                55,144
                
                
                $
                1,020
                
                
                $
                (18,650
                )
                
                $
                (4,047
                )
                
                $
                (9
                )
                
                $
                2,082
                
                
                $
                35,664




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)





Three
      months ended
                                                                    March
      31,2008
                                                                  
                                                                  
                                                                  2009Cash
      flows provided by (used in) operating activities:Net
      loss
                                                                  
                                                                  $
                                                                  (2,580
                                                                  )
                                                                  
                                                                  $
                                                                  (956
                                                                  )Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
                                                                  
                                                                  
                                                                  290
                                                                  
                                                                  
                                                                  
                                                                  436Share
      in losses of Paketeria
                                                                  
                                                                  
                                                                  287
                                                                  
                                                                  
                                                                  
                                                                  —Share
      in losses of GridSense
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  129Exchange
      rate adjustment on restricted deposits
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  253Exchange
      rate adjustment on amounts funded for employee termination benefits net of
      exchange adjustment on liability for employee termination
      benefits
                                                                  
                                                                  
                                                                  38
                                                                  
                                                                  
                                                                  
                                                                  (82
                                                                  )Increase
      in liability for employee termination benefits
                                                                  
                                                                  
                                                                  51
                                                                  
                                                                  
                                                                  
                                                                  58Deferred
      income taxes
                                                                  
                                                                  
                                                                  (646
                                                                  )
                                                                  
                                                                  
                                                                  —Amortization
      of stock-based deferred compensation
                                                                  
                                                                  
                                                                  149
                                                                  
                                                                  
                                                                  
                                                                  409Amortization
      of beneficial conversion feature, debt origination costs and value of
      warrants in private placement of Debentures
                                                                  
                                                                  
                                                                  3,064
                                                                  
                                                                  
                                                                  
                                                                  —Gain
      on early redemption of Debentures
                                                                  
                                                                  
                                                                  (1,259
                                                                  )
                                                                  
                                                                  
                                                                  —Impairments
                                                                  
                                                                  
                                                                  248
                                                                  
                                                                  
                                                                  
                                                                  70Gain
      on sale of Comverge shares
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (417
                                                                  )Other
                                                                  
                                                                  
                                                                  9
                                                                  
                                                                  
                                                                  
                                                                  —Change
      in operating assets and liabilities:Decrease
      in accounts receivable, unbilled work-in process and other current and
      other assets
                                                                  
                                                                  
                                                                  40
                                                                  
                                                                  
                                                                  
                                                                  298Increase
      in inventory
                                                                  
                                                                  
                                                                  (100
                                                                  )
                                                                  
                                                                  
                                                                  (77
                                                                  )Increase
      in accounts payable, accrued payroll, payroll taxes and social benefits,
      other current liabilities and other liabilities
                                                                  
                                                                  
                                                                  (978
                                                                  )
                                                                  
                                                                  
                                                                  (1,387
                                                                  )Net
      cash used in operating activities
                                                                  
                                                                  
                                                                  (1,387
                                                                  )
                                                                  
                                                                  
                                                                  (1,266
                                                                  )Cash
      flows provided by (used in) investing activities:Proceeds
      from sale of Comverge shares
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  1,397Payment
      for DSIT shares from exercise of put option
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (294
                                                                  )Investment
      in GridSense
                                                                  
                                                                  
                                                                  (1,153
                                                                  )
                                                                  
                                                                  
                                                                  —Restricted
      deposits
                                                                  
                                                                  
                                                                  (1,388
                                                                  )
                                                                  
                                                                  
                                                                  —Loans
      to investee and potential investee companies
                                                                  
                                                                  
                                                                  (2,877
                                                                  )
                                                                  
                                                                  
                                                                  —Transaction
      costs in 2007 acquisition of SCR Tech
                                                                  
                                                                  
                                                                  (927
                                                                  )
                                                                  
                                                                  
                                                                  —Amounts
      funded for employee termination benefits
                                                                  
                                                                  
                                                                  (16
                                                                  )
                                                                  
                                                                  
                                                                  (57
                                                                  )Acquisitions
      of property and equipment
                                                                  
                                                                  
                                                                  (110
                                                                  )
                                                                  
                                                                  
                                                                  (120
                                                                  )Net
      cash provided by (used in) investing activities
                                                                  
                                                                  
                                                                  (6,471
                                                                  )
                                                                  
                                                                  
                                                                  926Cash
      flows provided by (used in) financing activities:Short-term
      debt borrowings, net
                                                                  
                                                                  
                                                                  164
                                                                  
                                                                  
                                                                  
                                                                  259Repayments
      of long-term debt
                                                                  
                                                                  
                                                                  (67
                                                                  )
                                                                  
                                                                  
                                                                  (4
                                                                  )Purchase
      of treasury shares
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (328
                                                                  )Redemption
      of Convertible Debentures
                                                                  
                                                                  
                                                                  (3,443
                                                                  )
                                                                  
                                                                  
                                                                  —Issuance
      of shares to non-controlling interest in consolidated
      subsidiary
                                                                  
                                                                  
                                                                  1,948
                                                                  
                                                                  
                                                                  
                                                                  —Proceeds
      from employee stock option and warrant exercises
                                                                  
                                                                  
                                                                  121
                                                                  
                                                                  
                                                                  
                                                                  —Net
      cash used in financing activities
                                                                  
                                                                  
                                                                  (1,277
                                                                  )
                                                                  
                                                                  
                                                                  (73
                                                                  )Effect
      of exchange rate changes on cash and cash equivalents
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (31
                                                                  )Net
      decrease in cash and cash equivalents
                                                                  
                                                                  
                                                                  (9,135
                                                                  )
                                                                  
                                                                  
                                                                  (444
                                                                  )Cash
      and cash equivalents at beginning of period
                                                                  
                                                                  
                                                                  19,644
                                                                  
                                                                  
                                                                  
                                                                  15,142Cash
      and cash equivalents at end of period
                                                                  
                                                                  
                                                                  10,509
                                                                  
                                                                  
                                                                  
                                                                  14,698




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


4


ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows(unaudited)


(dollars
in thousands)








Three months ended
                      March 31,2008
                    
                    
                    2009Non-cash
      items:Unrealized
      gain (loss) from Comverge shares
                    
                    $
                    (37,319
                    )
                    
                    $
                    625Due
      from broker from sale of Comverge shares
                    
                    
                    —
                    
                    
                    $
                    178Reduction
      of deferred tax liability with respect to unrealized loss from
      Comverge shares
                    
                    $
                    14,927Non-cash
      financing and investing itemsConversion
      of Debentures to common stock and additional
    paid-in-capital
                    
                    $
                    2,963




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 three-month period ended
March 31, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008.




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




Note
2: New Accounting Standards





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




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


6




In March 2008, FASB issued Statement
No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133" ("FAS 161"). FAS 161 amends and expands the
disclosure requirements of FAS 133 to clarify how and why companies use
derivative instruments. In addition, FAS 161 requires more disclosures regarding
how companies account for derivative instruments and the impact derivatives have
on a company’s financial statements. Other than the required disclosures (see
Note 10) the adoption of SFAS 161 had no impact on the Company’s financial
statements.




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




In April 2009, the FASB issued FASB
Staff Position No. 157-4, "Determining Whether a Market is not Active and a
Transaction is not Distressed" ("FSP FAS 157-4"), which provides additional
guidance in accordance with FASB No. 157, Fair Value Measurements, when the
volume and level of activity for the asset or liability has significantly
decreased. FSP FAS 157-4 shall be effective for interim and annual reporting
periods ending after June 15, 2009. The Company is currently evaluating the
future impacts and disclosures of this staff position.




In April
2009, the FASB issued FASB Staff Position No. 107-1 ("FSP FAS 107-1") and APB
28-1 ("APB 28-1"), which amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments and APB Opinion No. 28, Interim Financial
Reporting, to require disclosures about the fair value of financial instruments
for interim reporting periods. FSP FAS 107-1 and APB 28-1 will be effective for
interim reporting periods ending after June 15, 2009. The Company is currently
evaluating the future impacts and disclosures of this staff
position.




Note
3: Inventory





As of
                    December
                    31,2008
                  
                  
                  As of
                    March 31,
                    2009Raw
      materials
                  
                  $
                  720
                  
                  
                  $
                  633Finished
      goods
                  
                  
                  428
                  
                  
                  
                  592$
                  1,148
                  
                  
                  $
                  1,225




Note
4: Investment in Comverge Inc. (Comverge)




During
the three months ended March 31, 2009, the Company sold 225,000 of its 502,500
Comverge shares held at the beginning of 2009. The Company received proceeds of
$1,397 from the sales and receivable due from a broker of $178. The Company
recorded a pre-tax gain of $417 on the sale of these shares.




The
Company’s remaining 277,500 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 $6.95 at March 31, 2009 which
resulted in an adjustment to the carrying value to reflect a fair market value
of $1,929.


7




Note
5:  Goodwill and Other Intangible Assets




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





CoaLogix
                        
                        
                        Naval &
                          RT
                          Solutions
                        
                        
                        EIS
                        
                        
                        TotalBalance
      as of December 31, 2008
                        
                        
                        3,714
                        
                        
                        $
                        530
                        
                        
                        $
                        2,098
                        
                        
                        $
                        6,342Translation
      adjustment
                        
                        
                        —
                        
                        
                        
                        (49
                        )
                        
                        
                        (72
                        )
                        
                        
                        (121
                        )Balance
      as of March 31, 2009
                        
                        $
                        3,714
                        
                        
                        $
                        481
                        
                        
                        $
                        2,026
                        
                        
                        $
                        6,221




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




SCR
                  Technologies**
              
              
              Solucorp
      License
              
              
              Naval
                  Technologies
              
              
              Software***
              
              
              Customer
                  Relationships***
              
              
              TotalCost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              Cost
              
              
              A.A.*
              
              
              NetBalance
      as of December 31, 2008
              
              $
              5,511
              
              
              $
              (633
              )
              
              $
              2,000
              
              
              $
              (128
              )
              
              $
              523
              
              
              $
              (48
              )
              
              $
              2,865
              
              
              $
              (69
              )
              
              $
              349
              
              
              $
              (13
              )
              
              $
              10,357Amortization
              
              
              —
              
              
              
              (136
              )
              
              
              —
              
              
              
              (50
              )
              
              
              —
              
              
              
              (19
              )
              
              
              —
              
              
              
              (44
              )
              
              
              —
              
              
              
              (9
              )
              
              
              (258
              )Cumulative
      translation adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (48
              )
              
              
              6
              
              
              
              (98
              )
              
              
              3
              
              
              
              (12
              )
              
              
              1
              
              
              
              (148
              )Balance
      as of March 31, 2009
              
              $
              5,511
              
              
              $
              (769
              )
              
              $
              2,000
              
              
              $
              (178
              )
              
              $
              475
              
              
              $
              (61
              )
              
              $
              2,767
              
              
              $
              (110
              )
              
              $
              337
              
              
              $
              (21
              )
              
              $
              9,951




*    Accumulated
amortization




**   SCR
Technologies includes regeneration, rejuvenation and on-site cleaning
technologies associated with CoaLogix.




***
Software and Customer Relationships relates to the Company’s EIS
segment.




All
intangible assets are being amortized over their estimated useful lives, which
were estimated to be ten years for SCR Technologies and the Solucorp license,
seven years for Naval Technologies, sixteen years for Software and ten years for
customer relationships. Amortization expense for each of the three months ended
March 31, 2008 and 2009 amounted to $164 and $258,
respectively.  Amortization expense with respect to intangible assets
is estimated to be $1,032 per year for each of the years ending March 31, 2010
through 2014.


8




Note
6:  Stock Options and Warrants




(a)
Acorn Stock Options





A summary
of stock option activity for the three months ended March 31, 2009 is as
follows:





Number
      of
                      Options (in
                      shares)
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      Life
                    
                    Aggregate
                      Intrinsic
                      ValueOutstanding
      at December 31, 2008
                    
                    
                    1,876,500
                    
                    
                    $
                    3.27Granted
                    
                    
                    307,000
                    
                    
                    $
                    2.16Exercised
                    
                    
                    —Forfeited
      or expired
                    
                    
                    (253,667
                    )
                    
                    $
                    2.65Outstanding
      at March 31, 2009
                    
                    
                    1,929,833
                    
                    
                    $
                    3.17
                    
                    3.7
      years
                    
                    $
                    532Exercisable
      at  March 31, 2009
                    
                    
                    1,457,330
                    
                    
                    $
                    3.15
                    
                    2.4
      years
                    
                    $
                    403





The
weighted average grant date fair value of the 307,000 stock options granted
during the first three months of 2009 was $1.51 per share. The fair value of the
options granted was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted average
assumptions:





Volatility
                    
                    
                    70
                    %Expected term
      (years)
                    
                    5.6
      yearsRisk
      free interest rate
                    
                    
                    1.8
                    %Expected
      dividend yield
                    
                    None





(b)
Stock-based compensation expense




Total
stock-based compensation expense included in the Company’s statements of
operations for the three months ended March 31, 2008 and 2009, respectively,
was:





Three months ended March 31,2008
                      
                      
                      2009Cost
      of sales
                      
                      $
                      —
                      
                      
                      $
                      49Research
      and development expense
                      
                      
                      —
                      
                      
                      
                      19Selling,
      general and administrative expenses
                      
                      
                      149
                      
                      
                      
                      341Total
      stock based compensation expense
                      
                      $
                      149
                      
                      
                      $
                      409


9





(c)
Warrants





A summary
of stock warrants activity for the three months ended March 31, 2009 is as
follows:





Number of
                      Warrants(in
                      shares)
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      LifeOutstanding
      at December 31, 2008
                    
                    
                    784,023
                    
                    
                    $
                    4.06
                    
                    3.1
      yearsGranted
                    
                    
                    —Exercised
                    
                    
                    —Forfeited
      or expired
                    
                    
                    —Outstanding
      and exercisable atMarch
      31, 2009
                    
                    
                    784,023
                    
                    
                    $
                    4.06
                    
                    2.8
      years





Note
7: Share Repurchase Program





On
October 6, 2008, the Board of Directors of the Company authorized a share
repurchase program of up to 1,000,000 shares of its common stock. The share
repurchase program is being implemented at management’s discretion from time to
time. During the period from January 1, 2009 to March 31, 2009, the Company
repurchased 145,653 shares of its common stock at an average price of $2.25 per
share. As at March 31, 2009, the Company repurchased a total of 209,568 shares
of its common stock under the program.





Note
8: Warranty Provision





The
following table summarizes the changes in accrued warranty liability from the
period from December 31, 2008 to March 31, 2009:





Gross Carrying
                    AmountBalance
      at December 31, 2008
                  
                  $
                  256Warranties
      issued and adjustment of provision
                  
                  
                  4Warranty
      claims
                  
                  
                  —Balance
      at  March 31, 2009*
                  
                  $
                  260




* $20 of
the warranty provision is included in Other Current Liabilities and $240 in
Other Liabilities at March 31, 2009.





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


10


Note
9: Fair Value Measurement





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




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




The
following table sets forth information regarding the fair value measurement of
our financial assets as of March 31, 2009:




Level 1
              
              
              Level 2
              
              
              Level 3
              
              
              TotalAvailable
      for sale securities
              
              $
              1,929
              
              
              $
              —
              
              
              $
              —
              
              
              $
              1,929Derivative
      assets
              
              
              3
              
              
              
              —
              
              
              
              —
              
              
              
              3Derivative
      liabilities
              
              
              (30
              )
              
              
              —
              
              
              
              —
              
              
              
              (30
              )Total
              
              $
              1,902
              
              
              $
              —
              
              
              $
              —
              
              
              $
              1,902




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 Income (Loss). Derivative assets and liabilities that are
classified in Level 1 consist of forward contracts for the purchase of NIS and
Great Britain pounds (“GBP”) for which market prices are readily available.
Unrealized gains or losses from forward contracts are recorded in Finance
expense, net.


11




Note
10: Segment Information




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




·
            CoaLogix
      - SCR (Selective Catalytic Reduction) Catalyst and Management services
      conducted through the Company’s CoaLogix subsidiary which provides through
      its SCR-Tech, LLC subsidiary catalyst regeneration technologies and
      management services for selective catalytic reduction (SCR) systems used
      by coal-fired power plants to reduce nitrogen oxides (NOx) emissions. In
      addition, CoaLogix offers a new technology (MetalliFixTM) through its
      MetalliFix LLC subsidiary for the removal of heavy metals, such as
      mercury, from coal-fired power
plants.




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




·
            Energy
      Infrastructure Software (EIS) services are provided through the Company’s
      Coreworx subsidiary which was acquired in August 2008. Coreworx provides
      integrated project collaboration and advanced document management
      solutions for the architecture, engineering and construction markets,
      particularly for large capital projects. As these activities were acquired
      in August 2008, there are no comparative results reported for these
      activities for the three month period ended March 31,
  2008.




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





CoaLogix
                    
                    
                    Naval and RT
                      Solutions
                    
                    
                    EIS
                    
                    
                    Other
                    
                    
                    TotalThree
      months ended March 31, 2009:Revenues
      from external customers
                    
                    $
                    5,390
                    
                    
                    $
                    1,796
                    
                    
                    $
                    1,027
                    
                    
                    $
                    265
                    
                    
                    $
                    8,478Intersegment
      revenues
                    
                    
                    —
                    
                    
                    
                    5
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    5Segment
      gross profit
                    
                    
                    1,855
                    
                    
                    
                    719
                    
                    
                    
                    755
                    
                    
                    
                    50
                    
                    
                    
                    3,379Segment
      income (loss)
                    
                    
                    576
                    
                    
                    
                    198
                    
                    
                    
                    (827
                    )
                    
                    
                    (42
                    )
                    
                    
                    (95
                    )Stock
      compensation expense
                    
                    
                    101
                    
                    
                    
                    2
                    
                    
                    
                    54
                    
                    
                    
                    —
                    
                    
                    
                    157Three
      months ended March 31, 2008:Revenues
      from external customers
                    
                    $
                    2,249
                    
                    
                    $
                    1,682
                    
                    
                    $
                    —
                    
                    
                    $
                    364
                    
                    
                    $
                    4,295Intersegment
      revenues
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Segment
      gross profit
                    
                    
                    758
                    
                    
                    
                    564
                    
                    
                    
                    —
                    
                    
                    
                    76
                    
                    
                    
                    1,398Segment
      income (loss)
                    
                    
                    183
                    
                    
                    
                    83
                    
                    
                    
                    —
                    
                    
                    
                    (35
                    )
                    
                    
                    231Stock
      compensation expense
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —


12


Reconciliation
of Segment Income (Loss) to Consolidated Net Income





Three months ended
                    March 31,2008
                  
                  
                  2009Total
      income (loss) for reportable segments
                  
                  $
                  266
                  
                  
                  $
                  (53
                  )Other
      operational segment loss
                  
                  
                  (35
                  )
                  
                  
                  (42
                  )Total
      operating income (loss)
                  
                  
                  231
                  
                  
                  
                  (95
                  )Share
      of losses in Paketeria
                  
                  
                  (287
                  )
                  
                  
                  —Share
      of losses in GridSense
                  
                  
                  —
                  
                  
                  
                  (129
                  )Impairments
                  
                  
                  (248
                  )
                  
                  
                  (70
                  )Non-controlling
      interest
                  
                  
                  (9
                  )
                  
                  
                  (107
                  )Gain
      on sale of Comverge shares
                  
                  
                  —
                  
                  
                  
                  417Gain
      on early redemption of Convertible  Debentures
                  
                  
                  1,259
                  
                  
                  
                  —Interest
      expense associated with early redemption of Convertible
      Debentures
                  
                  
                  (3,064
                  )
                  
                  
                  —Income
      tax benefit
                  
                  
                  642
                  
                  
                  
                  —Net
      loss of corporate headquarters and other unallocated
costs*
                  
                  
                  (1,113
                  )
                  
                  
                  (1,079
                  )Net
      loss attributable to Acorn Energy Inc.
                  
                  $
                  (2,589
                  )
                  
                  $
                  (1,063
                  )





*
Includes stock compensation expense of $149 and $252 for the three month periods
ending March 31, 2008 and 2009, respectively.




Note
11: Subsequent Events





CoaLogix





On April 8, 2009, the Company entered
into a Common Stock Purchase Agreement (the “Purchase Agreement”) with the
Company’s 85% owned CoaLogix Inc. subsidiary, EnerTech Capital Partners III L.P.
(“EnerTech”) and certain members of CoaLogix’s senior management pursuant to
which each of the Company and EnerTech each agreed to purchase from CoaLogix
781,111 shares of common stock for a purchase price of $5,624, and certain
members of CoaLogix’s senior management agreed to purchase 36,111 shares of
common stock of CoaLogix for an aggregate purchase price of $260.  The
Purchase Agreement provides that the Company, EnerTech and senior management
will purchase such shares of common stock in installments as funding is needed
by CoaLogix for plant expansion, technology development, legal expenses and
computer software.  Following completion of the stock purchase under
the Purchase Agreement, the Company would own approximately 72.3% of CoaLogix.
The Company’s, EnerTech’s and senior management’s share of the initial funding
under the Purchase Agreement is $2,140 of which $1,046 was the Company’s share.
All these funds were transferred to CoaLogix in April 2009. As a result of this
transfer, the Company’s holdings in CoaLogix were diluted to approximately
81.7%





Capital
Call by EnerTech




In April
2009, the Company received a capital call of $500 from EnerTech Capital Partners
III L.P. (“EnerTech”) relating to the Company’s investment in
EnerTech.  The Company funded the capital call in April
2009.  The Company’s has currently funded $1,650 of its $5,000
investment commitment in EnerTech.


13





SRED
Claim




In April
2009, the Company’s Coreworx subsidiary received a proposal from the Canada
Revenue Agency of the Ontario Ministry of Revenue in connection with Coreworx’s
2007 scientific research and experimental development tax credit refund claim or
Ontario innovation tax credit refund claim for 2007 (collectively, the “SRED
Claim”). Under the proposal, Coreworx expects to receive approximately CDN$743
($589) net of contingency fees plus interest. The Company expects the funds to
be received during the second quarter of 2009.





Share
Repurchase Program





During
the period from April 1 2009 to May 8, 2009, the Company purchased 46,602 shares
of its common stock at an average price of $2.52 per share under its Stock
Repurchase Program and has repurchased a total of 256,170 shares of common stock
under the program.


.


Investment
in Comverge





During
the period from April 1, 2009 to May 8, 2009, the Company sold 134,000 of its
shares of Comverge and received proceeds of $1,010. As of May 8, 2009, the total
market value of the Company’s remaining 143,500 Comverge shares was
approximately $1,217 based on a May 8, 2008 closing market price of $8.48 per
share.


14


ACORN
ENERGY, INC.


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations





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




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





Recent
Developments




Additional
Investment in CoaLogix





On April 8, 2009, we entered into a
Common Stock Purchase Agreement (the “Purchase Agreement”) with our 85% owned
CoaLogix Inc. subsidiary (“CoaLogix”), EnerTech Capital Partners III L.P.
(“EnerTech”) and certain members of CoaLogix’s senior management pursuant to
which we and EnerTech each agreed to purchase from CoaLogix 781,111 shares of
common stock for a purchase price of $5.6 million, and certain members of
CoaLogix’s senior management agreed to purchase 36,111 shares of common stock of
CoaLogix for an aggregate purchase price of approximately
$260,000.  The Purchase Agreement provides that Acorn, EnerTech and
senior management will purchase such shares of common stock in installments as
funding is needed by CoaLogix for plant expansion, technology development, legal
expenses and computer software.  Following completion of the stock
purchase under the Purchase Agreement, we would own approximately 72.3% of
CoaLogix. Acorn’s, EnerTech’s and senior management’s share of the initial
funding under the Purchase Agreement was $2,140,000 of which $1,046,000 was the
Company’s share. All these funds were transferred to CoaLogix in April 2009. As
a result of this transfer, our holdings in CoaLogix were diluted to
approximately 81.7%.




Clean
Air Mercury Rule





On February 23, 2009, the U.S. Supreme
Court refused to hear an appeal of the earlier decision by the U.S. Circuit
Court of Appeals for the D.C. Circuit which vacated the Clean Air Mercury Rule
(“CAMR”).  With this decision, CAMR is no longer
effective.  CAMR was the federal government’s attempt to reduce
mercury emissions from coal-fueled power plants, and with the vacature of CAMR
there is no current federal regulation directly addressing reduction of mercury
emissions from coal-fueled power plants.  The Environmental Protection
Agency is expected to promulgate new regulations restricting mercury emissions;
however, there is no way to predict when such new regulations will be
promulgated or effective.  The lack of federal regulations restricting
mercury emissions could cause a delay for the demand for MetalliFix by
utilities, and could have a negative impact upon CoaLogix’s marketing and sales
of MetalliFix.




SRED
Claim




In April
2009, our Coreworx subsidiary received a proposal from the Canada Revenue Agency
of the Ontario Ministry of Revenue in connection with its 2007 scientific
research and experimental development tax credit refund claim or Ontario
innovation tax credit refund claim for 2007 (collectively, the “SRED Claim”).
Under the proposal, Coreworx expects to receive approximately CDN$743,000
($589,000) net of contingency fees plus interest. We expect the funds to be
received during the second quarter of 2009.


15


GridSense





On
February 19, 2009, a majority of the shareholders approved a plan to make
GridSense a private company by GridSense transferring its grid monitoring
business to a newly formed Australian corporation that will be owned by certain
of the significant shareholders of GridSense including Acorn
Energy.  Under the plan, the debt of CDN$750,000 ($595,000) owed by
GridSense to the Company will be continue to be owed by GridSense’s Australian
operating subsidiary.  Our percentage ownership of the newly formed
Australian corporation once GridSense has gone private is expected to be
approximately 31.2%.  The going-private transaction is expected to be
effective in the second quarter of 2009.




Comverge





During
the period from April 1, 2009 to May 8, 2009, we sold 134,000 of our shares of
Comverge and received proceeds of approximately $1.0 million. As of May 8, 2009,
the total market value of our remaining 143,500 Comverge shares was
approximately $1.2 million based on a May 8, 2008 closing market price of $8.48
per share.




Share
Repurchase Program





During
the period from April 1, 2009 to May 8, 2009, we continued to purchase our
shares under our Stock Repurchase Program. During that period, we purchased
46,602 shares of our common stock at an average price of $2.52 per
share.




Overview
and Trend Information




During
the 2009 period included in this report, we had operations in three reportable
segments: providing catalyst regeneration technologies and management services
for SCR systems through our CoaLogix subsidiary, Naval and RT Solutions which is
conducted through our DSIT subsidiary and Energy Infrastructure Software (“EIS”)
services provided through our Coreworx subsidiary which was acquired in August
2008.  Accordingly, our results for the three month period ending
March 31, 2009 does not include comparative information for the three month
period ending March 31, 2008 with respect to Coreworx’s results.




The
following analysis should be read together with the segment information provided
in Note 10 to the interim unaudited consolidated financial statements included
in this quarterly report.





CoaLogix




Our CoaLogix segment reported
significantly increased revenues in the first quarter of 2009 as compared to the
first quarter of 2008 as well as increased gross profit, gross margin and net
income.





Revenues of $5.4 million represent an
increase of approximately $3.1 million or 140% in the first quarter of 2009 as
compared to the first quarter of 2008. First quarter 2009 revenues also
reflected an increase of $0.7 million or 16% over fourth quarter 2008 revenues
of $4.7 million. The increase in revenues was due to increased penetration in
the regeneration market combined with the ability to process more SCR modules
facilitated by the completion of a plant expansion in the fourth quarter
2008.





Gross profit in the first quarter of
2009 increased by approximately $1.1 million or 145% over first quarter 2008
gross profit. The increase in gross profit was due to the increased revenues as
CoaLogix’s gross margin remained stable at 34% for both
periods.


16


During the quarter, CoaLogix received
new orders totaling $4.3 million and at the end of March 2009 had a backlog of
$7.2 million. Based on our backlog, we expect that revenues in the coming
quarters will continue to be above 2008 levels. However, we do expect revenues
in the second and third quarters of 2009 to be below first quarter sales due to
seasonal factors.  Revenues and margins for the second and third
quarters are generally lower than those of first and fourth quarters due to
seasonal factors since power plants do not schedule service of their catalyst
systems during the spring and summer ozone months.




As noted
above in “Recent Developments”, on April 8, 2009, we entered into the Purchase
Agreement with CoaLogix, EnerTech and certain members of CoaLogix’s senior
management pursuant to which Acorn and EnerTech each agreed to purchase from
CoaLogix 781,111 shares of common stock for a purchase price of $5.6 million,
and certain members of CoaLogix’s senior management agreed to purchase 36,111
shares of common stock of CoaLogix for an aggregate purchase price of
approximately $260,000.  Proceeds of the sale of the common stock will
be used by CoaLogix for plant expansion, technology development, legal expenses
and computer software.





Naval
& RT Solutions




In
February 2009, DSIT received a $2.3 million order for its AquaShieldTM underwater
security system. This order follows $1.7 million order for another AquaShieldTM
underwater security system in January 2009.




Our Naval
& RT Solutions segment reported increased revenues in the first quarter of
2009 as compared to the first quarter of 2008 as well as increased gross profit,
gross margin and net income.





First quarter 2009 revenues of $1.8
million represents a slight increase of approximately $0.1 million or 7% as
compared to the first quarter of 2008. First quarter 2009 revenues also
reflected a slight increase of $0.1 million or 6% compared to fourth quarter
2008 segment revenues of $1.7 million. The increase in revenues as compared to
the first quarter of 2008 was due to the revenues recorded with respect to the
above-mentioned AquaShieldTM orders which offset the loss of revenues from the
near completion of a large project in the fourth quarter of 2008.





Gross profit in the first quarter of
2009 increased by approximately $0.2 million or 28% over first quarter 2008
gross profit. Gross margins increased in the first quarter of 2009 to 40% as
compared to 34% in the first quarter of 2008. The increase in gross profit was
due primarily to the increased margins on projects as the current mix of
projects has higher margins than those in 2008.





At December 31, 2008, our Naval and RT
Solutions segment had a backlog of approximately $4.3 million. During the
quarter, we received new orders totaling approximately $4.2 million and at the
end of March 2009 had a backlog of approximately $7.0 million. Based on our backlog, we
expect that revenues in the coming quarters will continue to be at least at
first quarter 2009 levels.




Coreworx




As noted
above in “Recent Developments, in April 2009, our Coreworx subsidiary received a
proposal from the Canada Revenue Agency of the Ontario Ministry of Revenue in
connection with its 2007 scientific research and experimental development tax
credit refund claim or Ontario innovation tax credit refund claim for 2007
(collectively, the “SRED Claim”). Under the proposal, Coreworx expects to
receive approximately CDN$743,000 ($589,000) net of contingency fees plus
interest. We expect the funds to be received during the second quarter of
2009.





As we
acquired Coreworx in August 2008, its results are not included in our 2008
results. However, Coreworx’s revenues of CDN$1.3 million in the first quarter of
2009 represents an increase of CDN$1.0 million over Coreworx’s first quarter
2008 revenues of CDN$0.3 million. The increase in revenues is due to an increase
in licenses sold to Chevron.


17





Coreworx’s
gross profit in the first quarter of 2009 was CDN$1.0 million compared to 2008
first quarter gross profit of CDN$0.2 million.  The increase in
Coreworx’s gross profit in 2009 was attributable to the increase in sales. Gross
margin was down slightly from 82% in the first quarter of 2008 to 74% due to the
mix of revenues (software license sales have higher margins than other category
of sales) and a one time charge to expense in the first quarter of
2009.





During
the first quarter of 2009, Coreworx began an initiative to target sales in Latin
and South America in the hopes of expanding its geographic reach in the coming
periods. In addition, Coreworx is considering a build up of personnel to
undertake an initiative to enter into the nuclear industry space which Coreworx
expects to be a rapidly growing market in the coming years. In connection with
this initiative, Acorn has committed to loan Coreworx $1.0 million to provide
Coreworx with the capital it needs to develop this new software product, and
anticipates such loan will be made in May 2009.




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





GridSense





We
account for our GridSense investment the using 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 first quarter of
2009, we recorded a loss of $129,000 representing our approximate 24% share of
GridSense’s losses for the period from October 1, 2008 to December 31, 2008 as
well as the amortization of certain intangible assets acquired by us in our
initial investment. As our investment in GridSense has been reduced to zero, we
will no longer record equity income or loss in GridSense until such a time as
our investment carrying value becomes positive.




Corporate





As noted above in “Recent
Developments”, on April 8, 2009, we entered into the Purchase Agreement with
CoaLogix and others, pursuant to which we agreed to purchase from CoaLogix
781,111 shares of common stock for a purchase price of $5.6
million,  with the purchase price being payable in installments. Our
share of the initial funding under the Purchase Agreement was $1,046,000 and
these funds were transferred to CoaLogix in April 2009. As a result of this
transfer, our holdings in CoaLogix were diluted to approximately
81.7%.





Additionally, we committed to loan $1.0
million to Coreworx for Coreworx’s development of a new project information
software product for the nuclear power plant industry. The loan is anticipated
to be made in May 2009.





In April 2009, we received a capital
call of $500,000 from EnerTech in connections with our investment in
EnerTech.  We funded the capital call in April 2009. Following this
capital call, we will have funded approximately $1.7 million of our $5.0 million
commitment to EnerTech.


18




In
October, 2008, our Board of Directors authorized a share repurchase program of
up to 1,000,000 shares of our common stock. The share repurchase program is
being implemented at management’s discretion from time to time. In the period
from January 1 2009 to May 8, 2009, we purchased 192,255 shares of our common
stock at an average price of $2.32 per share under our Stock Repurchase Program
and have repurchased a total of 256,170 shares of our common stock under the
program.




At the
end of April 2009, we had corporate debt of $3.4 million related to our
acquisition of Coreworx and approximately $12.4 million in unrestricted
cash.  In addition, we have restricted cash of $2.6 million of which
we expect a significant portion to be released in the second quarter of 2009. We
continue to have significant corporate cash expenses and will continue to expend
in the future, significant amounts of funds on professional fees and other costs
in connection with our strategy to seek out and invest in companies that fit our
target business model.





Results
of Operations




The
following table sets forth certain information with respect to the consolidated
results of operations of the Company for the three months ended March 31, 2008
and 2009, including the percentage of total revenues during each period
attributable to selected components of the operations statement data and for the
period to period percentage changes in such components.  Our results
for the three months ended March 31, 2009 include the results of our newly
acquired Coreworx subsidiary. As such, results for the three months ended March
31, 2009 may not be comparable to the results for the three months ended March
31, 2008 without negating the effect of Coreworx’s results. For segment data see
Note 10 to the Unaudited Consolidated Financial Statements included in this
quarterly report.




Three
      months ended March 31,2008
                                              
                                              
                                              2009
                                              
                                              
                                              Change$(,000)
                                              
                                              
                                              %
      of
                                                sales
                                              
                                              
                                              $(,000)
                                              
                                              
                                              %
      of
                                                sales
                                              
                                              
                                              From
                                                2008
      to
                                                2009Sales
                                              
                                              $
                                              4,295
                                              
                                              
                                              
                                              100
                                              %
                                              
                                              $
                                              8,478
                                              
                                              
                                              
                                              100
                                              %
                                              
                                              
                                              97
                                              %Cost
      of sales
                                              
                                              
                                              2,897
                                              
                                              
                                              
                                              67
                                              
                                              
                                              
                                              5,099
                                              
                                              
                                              
                                              60
                                              
                                              
                                              
                                              76Gross
      profit
                                              
                                              
                                              1,398
                                              
                                              
                                              
                                              33
                                              
                                              
                                              
                                              3,379
                                              
                                              
                                              
                                              40
                                              
                                              
                                              
                                              142R&D
      expenses
                                              
                                              
                                              51
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              276
                                              
                                              
                                              
                                              3
                                              
                                              
                                              
                                              441Impairments
                                              
                                              
                                              248
                                              
                                              
                                              
                                              6
                                              
                                              
                                              
                                              70
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              (72
                                              )SG&A
      expenses
                                              
                                              
                                              2,305
                                              
                                              
                                              
                                              54
                                              
                                              
                                              
                                              4,108
                                              
                                              
                                              
                                              48
                                              
                                              
                                              
                                              78Operating
      loss
                                              
                                              
                                              (1,206
                                              )
                                              
                                              
                                              (28
                                              )
                                              
                                              
                                              (1,075
                                              )
                                              
                                              
                                              (13
                                              )
                                              
                                              
                                              (11
                                              )Finance
      expense, net
                                              
                                              
                                              (2,988
                                              )
                                              
                                              
                                              (70
                                              )
                                              
                                              
                                              (169
                                              )
                                              
                                              
                                              (2
                                              )
                                              
                                              
                                              (94
                                              )Gain
      on early redemption of convertible debentures
                                              
                                              
                                              1,259
                                              
                                              
                                              
                                              29
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (100
                                              )Gain
      on sale of Comverge shares
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              417
                                              
                                              
                                              
                                              5Income
      before taxes on income
                                              
                                              
                                              (2,935
                                              )
                                              
                                              
                                              (68
                                              )
                                              
                                              
                                              (827
                                              )
                                              
                                              
                                              (10
                                              )
                                              
                                              
                                              (72
                                              )Taxes
      on income
                                              
                                              
                                              642
                                              
                                              
                                              
                                              15
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (100
                                              )Income
      (loss) from operations of the Company and its consolidated
      subsidiaries
                                              
                                              
                                              (2,293
                                              )
                                              
                                              
                                              (53
                                              )
                                              
                                              
                                              (827
                                              )
                                              
                                              
                                              (10
                                              )
                                              
                                              
                                              (64
                                              )Share
      of losses in Paketeria
                                              
                                              
                                              (287
                                              )
                                              
                                              
                                              (7
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (100
                                              )Share
      of losses in GridSense
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (129
                                              )
                                              
                                              
                                              (2
                                              )Net
      loss
                                              
                                              
                                              (2,580
                                              )
                                              
                                              
                                              (60
                                              )
                                              
                                              
                                              (956
                                              )
                                              
                                              
                                              (11
                                              )
                                              
                                              
                                              (63
                                              )Net
      income attributable to non-controlling interests
                                              
                                              
                                              (9
                                              )
                                              
                                              
                                              0
                                              
                                              
                                              
                                              (107
                                              )
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              1,089Net
      loss attributable to Acorn Energy Inc.
                                              
                                              $
                                              (2,589
                                              )
                                              
                                              
                                              (60
                                              )
                                              
                                              $
                                              (1,063
                                              )
                                              
                                              
                                              (13
                                              )
                                              
                                              
                                              (59
                                              )


19




Sales.  Sales in
the first quarter of 2009 increased by $4.2 million or 97% from $4.3 million in
the first quarter of 2008 to $8.5 million in the first quarter of 2009. The
increase in sales is partially attributable to the inclusion of Coreworx sales
of $1.0 million in the first quarter of 2009. The balance of the increase in
sales is due to the increase in CoaLogix sales which increased by $3.1 million
(140%) to $5.4 million compared to first quarter 2008 sales of $2.2 million.
DSIT sales remained stable at $2.1 million. The increase in CoaLogix sales was
due to increased penetration in the regeneration market combined with the
ability to process more SCR modules facilitated by the completion of a plant
expansion in the fourth quarter 2008.




Gross profit.Gross profit in
the first quarter of 2009 increased by $2.0 million or 142% as compared to the
first quarter of 2008. The increase in gross profit is attributable to the
inclusion of Coreworx gross profit in the first quarter of 2009 of $0.8 million.
In addition, both CoaLogix and DSIT recorded increased gross profits of $1.1
million (an increase of 145%) and $0.1 million (an increase of 21%),
respectively. The increase in CoaLogix gross profit was wholly attributable to
the increase in CoaLogix sales; gross margins for CoaLogix remained stable at
34% for both the first quarter of 2009 and 2008. Gross margin in DSIT’s Naval
and RT Solutions segment increased from 34% in the first quarter of 2008 to 40%
in the first quarter of 2009 due to higher margin projects worked on in
2009.




Research and development
(“R&D”). R& D expenses increased from $51,000 in the first
quarter of 2008 to $276,000 in the first quarter of 2009 primarily due to the
inclusion of Coreworx’s $191,000 of development costs in 2009.




Impairments.In 2008, we
recorded a provision of $248,000 with respect to loans made to a an affiliated
company. In 2009, we recorded an impairment of $70,000 with respect to our
investment in EnerTech.




Selling, general and administrative
expenses (“SG&A”).SG&A in the first quarter of 2009
increased by $1.9 million as compared to the first quarter of 2008. A portion of
the increase is attributable to Coreworx’s SG&A costs of $1.3 million.
CoaLogix’s SG&A costs in the first quarter of 2009 increased by $0.7 million
as compared to the first quarter of 2008 reflecting increased overhead costs
resulting from the company’s growth. DSIT’s SG&A costs were relatively
unchanged. Corporate general and administrative costs decreased by $0.2 million
reflecting the effects of our efforts to reduce costs.




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




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




Gain on sale of Comverge
shares.  In the first quarter of 2009, we sold 225,000 of our
Comverge shares of and recorded a gain of $0.4 million on proceeds of $1.6
million.




Taxes on
income.In the first quarter of 2008, we recorded an
income tax benefit of $0.6 million due to the recording of deferred tax
assets.




Liquidity
and Capital Resources




As of
March 31, 2009, we had working capital of $14.7 million, including $14.7 million
of non-restricted cash and cash equivalents. Our working capital includes
restricted deposits of approximately $2.0 million which we expect to be released
in the second quarter of 2009. Net cash used in the three months ended
March 31, 2009 was $0.4 million, of which approximately $1.3 million was used in
operating activities. The primary use of cash in operating activities during the
first three months of 2009 was the $1.8 and $0.2 million used by CoaLogix and
Coreworx, respectively in their operations combined with the $0.4 million of
cash used in our corporate operating activities. This was partially offset by
the $0.9 million of cash provided by operating activities from our DSIT
subsidiary.


20




Cash
provided by investing activities of $0.9 million was primarily due to the $1.4
million of proceeds from the sale of our Comverge shares during the quarter.
Those proceeds amounts were partially offset by the payment of $0.3 million for
DSIT shares as a result of the exercise of a put option at the end of 2008 and
$0.1 million for the acquisition of property and equipment.




Net cash
of $0.1 million was used in financing activities, primarily from the purchase of
treasury shares ($0.3 million) which was partially offset by new short-term
borrowings.




At March
31, 2009, DSIT had approximately $478,000 in Israeli credit lines available to
it by an Israeli bank, none of which was then being used. The line-of-credit is
subject to certain financial covenants. DSIT was in compliance with its
financial covenants at March 31, 2009. We believe that DSIT will have sufficient
liquidity to finance its activities from cash flow from its own operations over
the next 12 months.  This is based on continued utilization of its
lines of credit and expected continued improvement of operating results stemming
from anticipated growth in sales. DSIT is continuing to search for additional
sources of financing to support its growth.




At March
31, 2009, CoaLogix had a $500,000 term loan and a $2 million formula based
line-of-credit available to it for utilization from a bank.  At March
31, 2009, CoaLogix was utilizing $700,000 of the formula based line of credit.
Both the term loan and the line-of-credit are to finance CoaLogix’s working
capital and to finance its growth and  are subject to certain
financial covenants. CoaLogix was in compliance with its financial covenants at
March 31, 2009. We believe that CoaLogix will have sufficient liquidity to
finance its operating activities from cash flow from its own operations and its
bank financing over the next 12 months.




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




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




As of May
1, 2009, the Company’s corporate operations had a total of approximately $15.0
million in cash and cash equivalents (including the $2.6 million deposited in an
account as a security for a guarantee for DSIT), reflecting a $0.9 million
decrease from the balance as of March 31, 2009. The decrease from March 31, 2009
includes $1.0 million that was invested in our CoaLogix subsidiary as part of
the Purchase Agreement (see “Recent Developments”) and $0.5 million that was
transferred to EnerTech as a result of a recent capital call. These uses of cash
and cash used for our normal operating costs were partially offset by the
proceeds from the continued sales of Comverge shares and the receipt of a
Federal income tax refund of $0.2 million.




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


21





Contractual
Obligations and Commitments




Our
contractual obligations and commitments at March 31, 2009 principally include
obligations associated with our outstanding indebtedness, future minimum
operating lease obligations and potential severance obligations to Israeli
employees and are set forth in the table below.




Cash Payments Due During Year Ending March 31,(amounts in thousands)Contractual Obligations
                  
                  Total
                  
                  
                  2010
                  
                  
                  
                  2011-
                    2012
                  
                  
                  
                  2013-
                    2014
                  
                  
                  2015 and
                    thereafterDebt
                  
                  $
                  3,400
                  
                  
                  $
                  3,400
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Operating
      leases
                  
                  
                  3,344
                  
                  
                  
                  1,228
                  
                  
                  
                  1,719
                  
                  
                  
                  397
                  
                  
                  
                  —Potential
      severance obligations to Israeli employees (1)
                  
                  
                  2,472
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,472Investment
      in EnerTech Capital Partners III L.P. (2)
                  
                  
                  3,850
                  
                  
                  
                  3,850
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      contractual cash obligations
                  
                  $
                  13,066
                  
                  
                  $
                  8,478
                  
                  
                  $
                  1,719
                  
                  
                  $
                  397
                  
                  
                  $
                  2,472




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




(1)
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 March 31, 2009, we accrued a total of $2.5 million
for potential severance obligations of which approximately $1.6 million was
funded with cash to insurance companies.




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




Our
obligation under this commitment is presented as a current liability, though it
is uncertain as to when actual payments may be made. Through March 31, 2009, we
have received and funded capital calls of $1,150,000 to EnerTech. In April 2009,
we received a capital call of $500,000 from EnerTech. The capital call was
funded in April 2009, and we currently have funded $1,650,000 of our $5 million
commitment.





As noted in “Recent Developments”, on
April 8, 2009, we entered into the Purchase Agreement with CoaLogix, EnerTech
and certain members of CoaLogix’s senior management pursuant to which each of
Acorn and EnerTech agreed to purchase from CoaLogix 781,111 shares of common
stock for a purchase price of $5,624,000 and certain members of CoaLogix’s
senior management agreed to purchase 36,111 shares of common stock of CoaLogix
for an aggregate purchase price of $260,000.  The Purchase Agreement
provides that Acorn, EnerTech and senior management will purchase such shares of
common stock in installments as funding is needed by CoaLogix for plant
expansion, technology development, legal expenses and computer
software.  In April 2009, we funded $1,046,000 of the
$5,624,000.


22




Item
3. Quantitative and Qualitative Disclosures About Market Risk




In the
normal course of business, we are exposed to fluctuations in interest rates on
lines-of-credit incurred to finance our operations in Israel, whose net
utilization at March 31, 2009 stood at zero. Our non-US dollar monetary assets
and liabilities (net assets of approximately $0.1 million) in Israel are exposed
to fluctuations in exchange rates. In addition, our non-US dollar monetary
assets and liabilities (net liability of approximately $0.2 million) in Canada
at our Coreworx subsidiary are also exposed to fluctuations in exchange rates.
Furthermore, $0.7 million and $1.4 million of our backlog of projects are
contracts and orders that are denominated in NIS and linked to an Israeli
Ministry of Defense Index, and denominated in NIS, respectively.




In the
first quarter of 2009, our DSIT subsidiary began to enter into forward contracts
which did not qualify as hedging instruments under accounting principles to try
to mitigate its foreign currency exposure risks. At March 31, 2009, DSIT had
committed to selling NIS 1.1 million on a monthly basis during the period from
April 2009 to July 2009 at an exchange rate of 4.068. In addition, At March 31,
2009, DSIT had committed to purchasing GBP 110,000 in April at an exchange rate
of 1.412.




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.


23




PART
II – OTHER INFORMATION




Item
1. Legal Proceedings


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


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





On August
13, 2008, Environmental Energy Services (“EES”) filed suit against CoaLogix and
William McMahon, the president and chief executive officer of CoaLogix, in the
United States District Court for the District of Connecticut alleging claims for
tortious interference with contract, fraudulent misrepresentation, conversion,
unfair trade practices and unjust enrichment.  EES’ claims arise
largely out of a series of business relationships that existed between EES,
CoaLogix and Solucorp Industries, Ltd. (“Solucorp”).  Beginning in
2005, EES acquired a license to distribute certain Solucorp technology related
to the reduction of mercury emissions.  Subsequently, in the fall of
2007, CoaLogix entered into separate and independent business relationships with
both Solucorp and EES.  While CoaLogix’s relationship with Solucorp
matured into a licensing arrangement, a business relationship with EES, after
further investigation and due diligence, was ultimately deemed
inadvisable.  EES initially alleged that CoaLogix and its CEO utilized
confidential information obtained during negotiations with EES in order to
improperly seek out and broker a deal with Solucorp in violation of EES’
contractual rights.  On October 10, 2008, CoaLogix and its CEO filed a
motion to have the case transferred to the Western District of North
Carolina.  Simultaneously, CoaLogix and its CEO filed motions to
extend all deadlines in the case until such time as the court has ruled on the
motion to transfer venue.  Thereafter, on October 22, 2008, EES filed
an Amended Complaint dropping CoaLogix’s CEO as a defendant and removing its
claim for fraudulent misrepresentation.  The Amended Complaint seeks
unspecified damages in addition to disgorgement of all revenues CoaLogix has
earned from its dealings with Solucorp.  CoaLogix denies any liability
and intends to vigorously defend this lawsuit in the event that a favorable
settlement is not reached.  Further, CoaLogix contends that its cost
of defense, together with any ultimate judgment, is the responsibility of
SoluCorp due to an indemnification agreement between the
companies.  SoluCorp has agreed to assume the cost of defense, but has
not made a commitment regarding any ultimate judgment. The case is in the
discovery phase with depositions of parties expected to commence being taken in
June or July, 2009.





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


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





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





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


24





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


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





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





(c)
Issuer Purchases of Equity Securities





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





Period
              
              Total Number of
                  Shares Purchased
              
              
              Average Price
                  Paid Per Share
              
              
              Total Number of
                  Shares Purchased
                  as Part of
                  Publicly
                  Announced Plan
              
              
              Maximum
                  Number of
                  Shares That May
                  Yet be Purchased
                  Under the Plan1January
      1, 2009 – January 31, 2009
              
              
              59,640
              
              
              $
              2.15
              
              
              
              123,555
              
              
              
              876,445February
      1, 2009 – February 28, 2009
              
              
              45,907
              
              
              $
              2.42
              
              
              
              169,462
              
              
              
              830,538March
      1, 2009 – March 31, 2009
              
              
              40,106
              
              
              $
              2.21
              
              
              
              209,568
              
              
              
              790,432Total
              
              
              145,653
              
              
              $
              2.25





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


25




Item
6. Exhibits.




10.1
              
              Form
      of Option Agreement between the Registrant and Joe B. Cogdell, Jr. dated
      January 5, 2009 (incorporated herein by reference to Exhibit 10.53 to the
      Registrant’s Annual
      Report on Form 10-K for the year ended December 31, 2009).*10.2
              
              Amendment
      dated as of March 31, 2009 by and between George Morgenstern and the
      Registrant to the Consulting Agreement dated as of March 9, 2006 by and
      between George Morgenstern and the Registrant.*10.3
              
              Common
      Stock Purchase Agreement dated as of April 8, 2009, by and among Acorn
      Energy, Inc., EnerTech Capital Partners III L.P. and the other purchasers
      named therein.10.4
              
              Amended
      and Restated Stockholders’ Agreement,
      dated as of April 8, 2009, by and among CoaLogix Inc., Acorn Energy, Inc.
      and the other stockholders named therein.31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
              
              Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
              
              Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.





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


26


SIGNATURES




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





ACORN
      ENERGY, INC.Dated:  May
      14, 2009By:
                    /s/
      Michael
      BarthMichael BarthChief
      Financial
Officer


27