**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**September
                30, 2007**





Commission
      file number: **0-19771**





**ACORN
      FACTOR, INC.**


(Exact
      name of registrant as specified in its charter)





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





**(302)
      656-1708**


(Registrant’s
      telephone number, including area code)








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.    Yes x  No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
      accelerated filer  ̈  Accelerated
      filer  ̈  Non-accelerated
      filer 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 November 16, 2007Common
                Stock, $0.01 par value per share
            
            10,231,143
                shares











**ACORN
      FACTOR, INC.**


**Quarterly
      Report on Form 10-Q**


**for
      the Quarterly Period Ended September 30, 2007**





**TABLE
      OF CONTENTS**





**PART
      I. Financial Information**


Item
                  1.
              Financial
                  StatementsUnaudited
                  Consolidated Financial Statements:Consolidated
                  Balance Sheets as of December 31, 2006 and September 30,
                  2007
              1Consolidated
                  Statements of Operations for the three and nine month periods ended
                  September 30, 2006 and 2007
              2Consolidated
                  Statement of Changes in Shareholders’ Equity for the nine month period
                  ended September 30, 2007
              3Consolidated
                  Statements of Cash Flows for the three and nine month periods ended
                  September 30, 2006 and 2007
              4Notes
                  to Consolidated Financial Statements
              6Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              18Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              30Item
                  4T.
              Controls
                  and Procedures
              30**PART
                  II. Other Information**Item
                  1.
              Legal
                  Proceedings
              31Item
                  1A.
              Risk
                  Factors
              31Item
                  6.
              Exhibits
              32**Signatures**
              33




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









**ACORN
      FACTOR, INC. AND SUBSIDIARIES**


**Consolidated
      Balance Sheets**


(in
      thousands, except share and per share data)





ASSETS
            
            **As
                of**
              **December
                31,**
              **2006**
            
            **As
                of**
              **September
                30,**
              **2007**(unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            1,521
            
            $
            4,196Accounts
                receivable, net
            
            
            1,373
            
            
            1,804Unbilled
                work-in-process
            
            
            393
            
            
            507Other
                current assets
            
            
            316
            
            
            542Total
                current assets
            
            
            3,603
            
            
            7,049Property
                and equipment, net
            
            
            445
            
            
            581Investment
                in Comverge
            
            
            --
            
            
            91,549Investment
                in Paketeria
            
            
            1,212
            
            
            2,270Investment
                in Local Power
            
            
            --
            
            
            268Funds
                in respect of employee termination benefits
            
            
            1,568
            
            
            1,455Goodwill
            
            
            97
            
            
            101Other
                intangible assets, net
            
            
            48
            
            
            5Other
                assets
            
            
            285
            
            
            174Total
                assets
            
            $
            7,258
            
            $
            103,452LIABILITIES
                AND SHAREHOLDERS’ EQUITYCurrent
                liabilities:Short-term
                bank credit
            
            $
            462
            
            $
            94Current
                maturities of long-term debt
            
            
            26
            
            
            48Note
                payable - related party
            
            
            300
            
            
            --Trade
                accounts payable
            
            
            378
            
            
            728Accrued
                payroll, payroll taxes and social benefits
            
            
            478
            
            
            822Other
                current liabilities
            
            
            1,700
            
            
            2,564Total
                current liabilities
            
            
            3,344
            
            
            4,256Long-term
                liabilities:Investment
                in Comverge, net
            
            
            1,824
            
            
            --Convertible
                debt, net of discounts
            
            
            --
            
            
            5,041Liability
                for employee termination benefits
            
            
            2,545
            
            
            2,093Deferred
                taxes
            
            
            --
            
            
            21,522Other
                liabilities
            
            
            6
            
            
            --Total
                long-term liabilities
            
            
            4,375
            
            
            28,656Shareholders’
                equity:Common
                stock - $0.01 par value per share:Authorized
                - 20,000,000 shares; Issued -10,276,030 shares and 10,895,314at
                December 31, 2006 and September 30, 2007
            
            
            102
            
            
            108Additional
                paid-in capital
            
            
            43,987
            
            
            48,286Warrants
            
            
            888
            
            
            1,540Accumulated
                deficit
            
            
            (41,904
            )
            
            (31,679
            )Treasury
                stock, at cost - 777,371 shares for December 31, 2006 andSeptember
                30, 2007, respectively
            
            
            (3,592
            )
            
            (3,592
            )Accumulated
                other comprehensive income
            
            
            58
            
            
            55,877Total
                shareholders’ equity (deficit)
            
            
            (461
            )
            
            70,540Total
                liabilities and shareholders’ equity
            
            $
            7,258
            
            $
            103,452




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




1




**ACORN
      FACTOR, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Operations** (unaudited)


(in
      thousands, except per share data)




**Nine
                months ended**
              **September
                30,**
            
            **Three
                months ended**
              **September
                30,****2006**
            
            **2007**
            
            **2006**
            
            **2007**Sales:Projects
            
            $
            2,203
            
            $
            2,699
            
            $
            682
            
            
            1,412Services
            
            
            642
            
            
            557
            
            
            208
            
            
            154Other
            
            
            41
            
            
            59
            
            
            33
            
            
            29Total
                sales
            
            
            2,886
            
            
            3,315
            
            
            923
            
            
            1,595Cost
                of sales:Projects
            
            
            1,490
            
            
            1,976
            
            
            469
            
            
            977Services
            
            
            547
            
            
            525
            
            
            178
            
            
            145Other
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
                cost of sales
            
            
            2,037
            
            
            2,501
            
            
            647
            
            
            1,122Gross
                profit
            
            
            849
            
            
            814
            
            
            276
            
            
            473Operating
                expenses:Research
                and development expenses
            
            
            184
            
            
            310
            
            
            87
            
            
            77Selling,
                marketing, general and administrative expenses
            
            
            3,537
            
            
            3,012
            
            
            1,571
            
            
            1,153Total
                operating expenses
            
            
            3,721
            
            
            3,322
            
            
            1,658
            
            
            1,230Operating
                loss
            
            
            (2,872
            )
            
            (2,508
            )
            
            (1,382
            )
            
            (757
            )Finance
                expense, net
            
            
            (23
            )
            
            (2,827
            )
            
            (17
            )
            
            (716
            )Gain
                on public offering of Comverge
            
            
            --
            
            
            16,169
            
            
            --
            
            
            --Gain
                on private placement of Paketeria
            
            
            --
            
            
            533
            
            
            --
            
            
            533Other
                income, net
            
            
            330
            
            
            --
            
            
            --
            
            
            --Income
                (loss) before taxes on income
            
            
            (2,565
            )
            
            11,367
            
            
            (1,399
            )
            
            (940
            )Taxes
                on income
            
            
            8
            
            
            9
            
            
            2
            
            
            4Income
                (loss) from operations of the Company and its consolidated
                subsidiaries
            
            
            (2,573
            )
            
            11,358
            
            
            (1,401
            )
            
            (944
            )Share
                of losses in Comverge
            
            
            (210
            )
            
            --
            
            
            --
            
            
            --Share
                of losses in Paketeria
            
            
            (250
            )
            
            (828
            )
            
            (250
            )
            
            (440
            )Net
                income (loss) from continuing operations
            
            
            (3,033
            )
            
            10,530
            
            
            (1,651
            )
            
            (1,384
            )Net
                income from discontinued operations, net of tax
            
            
            78
            
            
            --
            
            
            --
            
            
            --Loss
                on sale of discontinued operations and contract settlement, net of
                tax
            
            
            (2,298
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss)
            
            $
            (5,253
            )
            $
            10,530
            
            $
            (1,651
            )
            $
            (1,384
            )Basic
                net income (loss) per share:
            
            
            
            
            
            
            
            
            --Income
                (loss) per share from continuing operations
            
            $
            (0.37
            )
            $
            1.08
            
            $
            (0.20
            )
            $
            (0.14
            )Discontinued
                operations
            
            
            (0.27
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss) per share - basic
            
            $
            (0.64
            )
            $
            1.08
            
            $
            (0.20
            )
            $
            (0.14
            )Diluted
                net income (loss) per share:Income
                (loss) per share from continuing operations
            
            $
            (0.37
            )
            $
            1.01
            
            $
            (0.20
            )
            
            --Discontinued
                operations
            
            
            (0.27
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss) per share -diluted
            
            $
            (0.64
            )
            $
            1.01
            
            $
            (0.20
            )
            
            --Weighted
                average number of shares outstanding -Basic
            
            
            8,163
            
            
            9,723
            
            
            8,164
            
            
            10,063Diluted
            
            
            8,163
            
            
            10,814
            
            
            8,164
            
            
            10,063




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




2




**ACORN
      FACTOR, INC. AND SUBSIDIARIES**


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


(in
      thousands)





Number
                of Shares
            
            Common
                Stock
            
            Additional
              Paid-In
              Capital
            
            Warrants
            
            Accumulated
                Deficit
            
            Treasury
                Stock
            
            Accumulated
                Other Comprehensive Income
            
            TotalBalances
                as ofDecember
                31, 2006
            
            
            10,276
            
            $
            102
            
            $
            43,987
            
            $
            888
            
            $
            (41,904
            )
            $
            (3,592
            )
            $
            58
            
            $
            (461
            )Net
                income
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            10,530
            
            
            --
            
            
            --
            
            
            10,530FAS
                115 adjustment on Comverge shares, net of deferred taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            55,682
            
            
            55,682Differences
                from translation of financial statements of subsidiaries
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            137
            
            
            137Comprehensive
                income
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            66,349FIN
                48 adjustment
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (305
            )
            
            --
            
            
            --
            
            
            (305
            )Exercise
                of options and warrants
            
            
            619
            
            
            6
            
            
            1,129
            
            
            (92
            )
            
            --
            
            
            --
            
            
            --
            
            
            1,043Adjustment
                of transaction costs of previous private placements
            
            
            --
            
            
            --
            
            
            (15
            )
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (15
            )Warrants
                issued to placement agent with respect to private placement of
                Debentures
            
            
            --
            
            
            --
            
            
            --
            
            
            213
            
            
            --
            
            
            --
            
            
            --
            
            
            213Warrants
                issued with respect to private placement of Debentures
            
            
            --
            
            
            --
            
            
            --
            
            
            531
            
            
            --
            
            
            --
            
            
            --
            
            
            531Beneficial
                conversion feature with respect to private placement of
                Debentures
            
            
            --
            
            
            --
            
            
            2,570
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            2,570Stock
                option compensation
            
            
            --
            
            
            --
            
            
            615
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            615Balances
                as ofSeptember
                30, 2007
            
            
            10,895
            
            $
            108
            
            $
            48,286
            
            $
            1,540
            
            $
            (31,679
            )
            $
            (3,592
            )
            $
            55,877
            
            $
            70,540




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




3


**ACORN
      FACTOR, INC. AND SUBSIDIARIES**


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


(dollars
      in thousands)





**Nine
                months ended**
              **September
                30,****2006**
            
            **2007**Cash
                flows provided by (used in) operating activities:Net
                income (loss)
            
            $
            (5,253
            )
            $
            10,530Adjustments
                to reconcile net income (loss) to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            165
            
            
            118Impairment
                of software license
            
            
            --
            
            
            23Share
                in losses of Comverge
            
            
            210
            
            
            --Share
                in losses of Paketeria
            
            
            52
            
            
            779Increase
                (decrease) in liability for employee termination benefits
            
            
            188
            
            
            (167
            )Amortization
                of stock-based deferred compensation
            
            
            1,346
            
            
            615Loss
                on sale of Databit and contract settlement
            
            
            2,298
            
            
            --Amortization
                of beneficial conversion feature, debt origination costs and value
                of
                warrants in private placement of Debentures
            
            
            --
            
            
            2,516Gain
                on public offering of investment in Comverge
            
            
            --
            
            
            (16,169
            )Gain
                on private placement of Paketeria
            
            
            --
            
            
            (533
            )Other
            
            
            8
            
            
            (6
            )Change
                in operating assets and liabilities:Decrease
                (increase) in accounts receivable, unbilled work-in process and other
                current and other assets
            
            
            642
            
            
            (504
            )Increase
                in inventory
            
            
            (18
            )
            
            --Increase
                (decrease) in accounts payable and other liabilities
            
            
            (708
            )
            
            947Net
                cash used in operating activities
            
            
            (1,070
            )
            
            (1,851
            )Cash
                flows provided by (used in) investing activities:Release
                of restricted cash
            
            
            247
            
            
            --Release
                of restricted cash (under agreement with a related party)
            
            
            1,350
            
            
            --Investment
                in Comverge
            
            
            (210
            )
            
            --Loans
                to and acquisition of note due from Paketeria
            
            
            (863
            )
            
            (1,154
            )Investment
                in Local Power Inc.
            
            
            --
            
            
            (268
            )Amounts
                funded for employee termination benefits
            
            
            (125
            )
            
            (160
            )Utilization
                of employee termination benefits
            
            
            77
            
            
            89Acquisitions
                of property and equipment
            
            
            (119
            )
            
            (214
            )Sale
                of Databit Inc. - Appendix A
            
            
            (911
            )
            
            --Net
                cash used in investing activities
            
            
            (554
            )
            
            (1,707
            )Cash
                flows provided by (used in) financing activities:Short-term
                debt repayments, net
            
            
            (130
            )
            
            (368
            )Proceeds
                from long-term debt
            
            
            --
            
            
            107Proceeds
                from convertible debentures with warrants net of transaction
                costs
            
            
            --
            
            
            5,840Repayments
                of long-term debt
            
            
            (112
            )
            
            (89
            )Repayment
                of related party note payable
            
            
            --
            
            
            (300
            )Proceeds
                from private placement of common stock, net of issuance
                costs
            
            
            2,623
            
            
            --Proceeds
                from employee stock option and warrant exercises
            
            
            160
            
            
            1,043Net
                cash provided by financing activities
            
            
            2,541
            
            
            6,233Net
                increase in cash and cash equivalents
            
            
            917
            
            
            2,675Cash
                and cash equivalents at beginning of period
            
            
            913
            
            
            1,521Cash
                and cash equivalents at end of period
            
            $
            1,830
            
            $
            4,196





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




4


**ACORN
      FACTOR, INC. AND SUBSIDIARIES**


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


(dollars
      in thousands)




Non-cash
                items:Accrued
                expenses in respect of private placement of common stock and convertible
                debentures
            
            $
            58
            
            $
            83


Non-cash
                financing and investing itemsValue
                of beneficial conversion feature upon issuance of convertible
                debentures
            
            
            
            
            $
            2,570Unrealized
                gain from Comverge shares
            
            
            
            
            $
            77,204Conversion
                of loans and notes receivable and accrued interest due from Paketeria
                to
                investment in Paketeria
            
            
            
            
            $
            1,190Adjustment
                of retained earnings and other current liabilities with respect to
                the
                adoption of FIN 48
            
            
            
            
            $
            305**Appendix
                A**Assets/liabilities
                disposed of in disposition of Databit Inc. and contract
                settlement:Current
                assets
            
            $
            2,815Non-current
                assets
            
            
            40Debt
            
            
            (20
            )Current
                liabilities
            
            
            (1,816
            )Stock
                compensation costs
            
            
            315Unpaid
                transaction costs in disposition of Databit and contract
                settlement
            
            
            63Other
            
            
            (10
            )Loss
                on the sale of Databit and contract settlement
            
            $
            (2,298
            )Net
                cash used in business disposition
            
            $
            (911
            )





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





5


**ACORN
      FACTOR, 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 Factor, Inc.
      (“AFI”) and 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 nine-month period ended September
      30,
      2007 are not necessarily indicative of the results that may be expected for
      the
      year ending December 31, 2007. 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, 2006. **** Certain
      reclassifications have been made to the Company’s prior period’s consolidated
      financial statements to conform to the current period’s consolidated financial
      statement presentation. ****




**Note
      2: Financing of Operations**




On
      April
      11, 2007, the Company completed the second and final closing of its private
      placement of 10% Convertible Redeemable Subordinated Debentures (the
“Debentures”) (see Note 8) raising approximately $6.9 million (approximately
      $5.8 million net of agent’s commissions and expenses and other transaction
      costs).




dsIT
      was
      utilizing $378 of its approximate $421 lines of credit as of September 30,
      2007.
      dsIT's lines of credit are denominated in NIS and bear a weighted average
      interest rate of the Israeli prime rate plus 2.08% per annum. The Israeli prime
      rate fluctuates and as of September 30, 2007 was 5.5%. In October 2007, dsIT
      converted approximately $168 of its lines of credit being used at September
      30,
      2007 to a 12 month term loan which is denominated in NIS and bears interest
      at
      the Israeli prime rate plus 1.5% per annum. Subsequent to the conversion of
      this
      portion of dsIT’s lines of credit, dsIT has approximately $234 of lines of
      credit available to it with an interest rate of the Israeli prime plus 1.5%.




**Note
      3: Accounting Change**




Prior
      to
      January 1, 2007, the Company recognized income tax accruals with respect to
      uncertain tax positions based upon Statement of Financial Accounting Standards
      (SFAS) No. 5, “Accounting for Contingencies.” Under SFAS No. 5,
      the Company recorded a liability associated with an uncertain tax position
      if
      the liability was both probable and estimable. Our liability under SFAS
      No. 5 included interest and penalties, which were recognized as incurred
      within “Finance expense, net” in the Consolidated Condensed Statements of
      Operations.




Effective
      January 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48,
“Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in financial statements in accordance
      with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 requires that the Company determine whether the benefits
      of
      our tax positions are more likely than not of being sustained upon audit based
      on the technical merits of the tax position. For tax positions that are more
      likely than not of being sustained upon audit, the Company recognizes the
      largest amount of the benefit that is more likely than not of being sustained
      in
      our consolidated financial statements. For tax positions that are not more
      likely than not of being sustained upon audit, the Company does not recognize
      any portion of the benefit in our consolidated financial statements. The
      provisions of FIN 48 also provide guidance on de-recognition, classification,
      interest and penalties, accounting in interim periods, and disclosure.




6
 
 **ACORN
          FACTOR, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements** (unaudited)
 (dollars
          in thousands)


The
      cumulative effect of the adoption of the recognition and measurement provisions
      of FIN 48 resulted in a $305 reduction to the January 1, 2007 balance of
      retained earnings. Results of prior periods have not been restated. The
      Company’s policy for interest and penalties related to income tax exposures was
      not impacted as a result of the adoption of the recognition and measurement
      provisions of FIN 48. Therefore, the Company continues to recognize interest
      and
      penalties as incurred within “Finance income (expense), net” in the Consolidated
      Statements of Operations.




The
      Company is subject to U.S. federal income tax as well as state income tax and
      Israeli income tax.  The Company is no longer subject to examination by
      U.S. Federal taxing authorities for years before 2003 and for years before
      2002
      for state and Israeli income taxes.




**Note
      4: New Accounting Standards**




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
      Measurements.” SFAS No. 157 creates a single definition of fair value,
      along with a conceptual framework to measure fair value, and to increase the
      consistency and the comparability in fair value measurements and in financial
      statement disclosures.




In
      February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
      Financial Assets and Liabilities - Including an Amendment to FASB Statement
      No. 115.” SFAS No. 159 improves financial reporting by giving entities
      the opportunity to mitigate earnings volatility by electing to measure related
      financial assets and liabilities at fair value rather than using different
      measurement attributes. Unrealized gains and losses on items for which the
      fair
      value option has been elected should be reported in earnings. Upon initial
      adoption, differences between the fair value and carrying amount should be
      included as a cumulative-effect adjustment to beginning retained earnings.




SFAS
      Nos.
      157 and 159 are effective as of the beginning of the first fiscal year that
      begins after November 15, 2007. Earlier application is permitted as of the
      beginning of the fiscal year that begins on or before November 15, 2007.
      The Company will not early adopt SFAS Nos. 157 and 159 and is currently
      assessing the impact of implementing SFAS Nos. 157 and 159 on its financial
      position and results of operations.




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




On
      April
      18, 2007, Comverge completed its initial public offering of 6,095,000 shares
      of
      common stock at a price of $18.00 a share, including 795,000 shares sold
      pursuant to the exercise by the underwriters of their over-allotment option
      granted to them by certain selling stockholders. The shares are listed on the
      Nasdaq Global Market under the symbol "COMV". The Company did not sell any
      of
      its shares of Comverge common stock in the offering.




Immediately
      prior to the closing of the Comverge offering on April 18, 2007, all shares
      of
      preferred stock of Comverge were converted to common stock of Comverge and
      the
      Company currently owns 2,786,021 shares of Comverge common stock, which
      currently represents 14.3% of the issued and outstanding capital stock of
      Comverge.




In
      connection with the offering, the Company (and all of Comverge’s executive
      officers, directors and certain of other major stockholders of Comverge),
      entered into a lock-up agreement under which the Company agreed, subject to
      limited exceptions, not to transfer or otherwise dispose of any shares of
      Comverge common stock for a period of at least 180 days from the date of
      effectiveness of the offering without the prior written consent of the lead
      manager of the offering. The lock-up period expired on October 18, 2007.




7
 
 **ACORN
          FACTOR, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements** (unaudited)
 (dollars
          in thousands)


Prior
      to
      the public offering, the Company accounted for its Comverge investment on the
      equity method. However, since the Company’s share of losses attributable to its
      Comverge preferred stock equaled its investment in Comverge’s preferred stock,
      the Company ceased recording equity losses in Comverge.




When
      an
      equity method investee such as Comverge issues additional shares to third
      parties, the percentage ownership interest in the investee decreases. In the
      event the issuance price per share is higher or lower than an equity method
      investor’s average carrying amount per share, the investor recognizes a non-cash
      gain or loss on the issuance. This non-cash gain or loss is recognized in the
      investor’s net income in the period the change of ownership interest occurs. As
      a result of the Comverge offering, the Company recorded an increase in its
      investment in Comverge and recorded a non-cash gain of $16,169 in “Gain on
      public offering of Comverge”. Subsequent to the offering, the Company no longer
      accounts for its investment in Comverge under the equity method.




As
      of
      September 30, 2007, all of the Company’s 2,786,021 Comverge shares can be
      considered “available-for-sale” under SFAS 115 “Accounting for Certain
      Investments in Debt and Equity Securities”. Accordingly the Company recorded an
      increase of $77,204 to its investment balance by recording those shares at
      fair
      market value and recorded a deferred tax liability of $27,899 (and an offsetting
      deferred tax asset of $6,377 with respect to the utilization of the Company’s
      net operating losses) to Accumulated Other Comprehensive Income with respect
      to
      the recording those shares at fair market value.




**Note
      6—Paketeria GmbH (Paketeria)**




On
      September 20, 2007, Paketeria filed various shareholder resolutions and a
      private placement memorandum with the commercial register in Germany in
      connection with a private placement of Paketeria’s shares. In the private
      placement, Paketeria raised approximately €1,733 ($2,457) by way of a share
      issuance. The shares were issued by Paketeria on the basis of a valuation of
      €133.33 per Euro share capital, representing a pre-money valuation of Paketeria
      of €8,000 ($11,344).




In
      addition, concurrent with the private placement, the Company converted
      shareholder loans in the aggregate principal amount of €750 ($1,056 at the then
      exchange rate) plus accrued interest, into shares of Paketeria on the same
      basis
      as the private placement. Additionally, exercised its option under the August
      2006 investment agreement to acquire a convertible promissory note in the amount
      of €70 ($98 at the then exchange rate) plus accrued interest. The Company
      converted this balance into shares of Paketeria on the basis of an evaluation
      of
€ 50.70 loan/interest nominal value per Euro share capital (the valuation from
      the August 2006 investment agreement) upon the closing of the private placement.
      The Company is currently awaiting the completion of an independent assessment
      of
      its Purchase Price Allocation in connection with its new
      investment.




After
      the
      private placement and related transactions described above, the Company owns
      approximately 31% of Paketeria.




As
      a
      result of the Paketeria private placement, the Company recorded a non-cash
      gain
      of $533 in “Gain on Private Placement in Paketeria”.




Paketeria’s
      summary results of operations for the nine and three-month periods ended
      September 30, 2007 is as follows:




8


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)


Nine
                months ended
              September
                30, 2007
            
            Three
                months ended
              September
                30, 2007Sales
            
            $
            2,269
            
            $
            755Gross
                loss
            
            $
            400
            
            $
            (210
            )Net
                loss
            
            $
            (2,018
            )
            $
            (1,123
            )




Prior
      to
      Paketeria’s private placement, the Company owned approximately 33% of
      Paketeria’s outstanding shares and accordingly, recorded 33% of Paketeria’s
      losses as equity loss in Paketeria up until the date of the private placement
      and approximately 31% thereafter.




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







Nine
                months ended
              September
                30, 2007
            
            Three
                months ended
              September
                30, 2007
            
            Period
                from
              August
                7, 2006 to
              September
                30, 2006Equity
                loss in Paketeria
            
            $
            (660
            )
            $
            (367
            )
            $
            (34
            )Amortization
                expense associated with acquired non-compete and franchise agreements
                and
                change in value of options
            
            
            (121
            )
            
            (58
            )
            
            (18
            )Stock
                compensation expense
            
            
            (49
            )
            
            (17
            )
            
            (198
            )Share
                of losses in Paketeria
            
            $
            (828
            )
            $
            (440
            )
            $
            (250
            )




The
      activity in the Company’s investment in Paketeria during the nine months ended
      September 30, 2007 is as follows:




Investment
                balance as of December 31, 2006
            
            $
            1,212Conversion
                of debt and accrued interest in connection with private placement
                (including transaction costs)
            
            
            1,190Adjustment
                of investment with respect to non-cash gain in connection with private
                placement
            
            
            533Amortization
                of acquired non-compete and franchise agreements and change in value
                of
                options
            
            
            (121
            )Cumulative
                translation adjustment
            
            
            116Company’s
                share of Paketeria losses - period from January 1, 2007 to September
                30,
                2007
            
            
            (660
            )Investment
                balance as of September 30, 2007
            
            $
            2,
                270




9


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)


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




There
      were no acquisitions or impairments of goodwill recorded during the three-month
      period ended September 30, 2007. All the goodwill is related to the OncoPro
      segment in dsIT.




The
      Company’s amortizable intangible assets consisted of software licenses, with a
      gross carrying amount of $224 and $201 as of December 31, 2006 and September
      30,
      2007 respectively and accumulated amortization of $176 and $196, as of December
      31, 2006 and September 30, 2007, respectively. In the second quarter of 2007,
      the Company recognized an impairment of $23 with respect to software licenses
      associated with its Easybill product. All intangible assets are being amortized
      over their estimated useful lives, which averaged five years and the
      a mortization
      expense for each of the nine months ended September 30, 2006 and 2007 amounted
      to $19 and $14, respectively. Amortization expense of the remaining balance
      of
      these assets, for the year ending September 30, 2008 is estimated to be
      $5.




**Note
      8: Private Placement of Convertible Redeemable Subordinated Debentures**




On
      March
      30, 2007, the Company conducted an initial closing of a private placement of
      its
      Debentures. At the initial closing the Company issued $4,281 principal amount
      of
      the Debentures, at par, and received gross proceeds in the same amount. On
      April
      11, 2007, the Company conducted a second and final closing of a private
      placement of its Debentures. At the second closing the Company issued $2,605
      principal amount of the Debentures, at par, and received gross proceeds in
      the
      same amount.




From
      the
      date of issuance of the Debentures to and including, the first anniversary
      of
      the closing, 50% of the outstanding principal amount of the Debentures is
      convertible into shares of the Company’s Common Stock at a price of $3.80 per
      share. Following the first anniversary of the closing, the Debentures are
      convertible up to the entire principal amount then outstanding.




The
      Company determined the fair value of the beneficial conversion feature of the
      Debentures issued at the initial closing to be $1,654. In accordance with
      applicable accounting principles, one-half ($827) was immediately charged to
      interest expense, net in the first quarter of 2007, due to the ability to
      convert one-half of the Debentures at issuance. The remaining balance of the
      beneficial conversion feature ($827) was reflected as a discount to the total
      Debenture amount and is charged to interest expense over a one-year period
      (the
      period after which the remaining one-half of the Debentures may be converted).
      With respect to the initial closing, the Company recorded interest expense of
      $574 in the nine months ended September 30, 2007 with respect to the
      aforementioned remaining balance of the beneficial conversion feature from
      the
      initial closing.




The
      Company determined the fair value of the beneficial conversion feature of the
      Debentures issued at the second closing to be $916. In accordance with
      applicable accounting principles, one-half ($458) was immediately charged to
      interest expense, net in the second quarter of 2007, due to the ability to
      convert one-half of the Debentures at issuance. The remaining balance of the
      beneficial conversion feature ($458) was reflected as a discount to the total
      Debenture amount and is charged to interest expense over a one-year period
      (the
      period after which the remaining one-half of the Debentures may be converted).
      With respect to the second closing, the Company recorded interest expense of
      $302 through September 30, 2007 with respect to the aforementioned remaining
      balance of the beneficial conversion feature from the second
      closing.




By
      the
      terms of the offering, each subscriber, in addition to the Debentures, received
      a warrant exercisable for the purchase of a number of shares equal to 25% of
      the
      principal amount of the Debentures purchased by such subscriber, divided by
      the
      conversion price of $3.80, resulting in the issuance of Warrants to purchase
      281,656 shares at the initial closing and 171,391 shares at the second and
      final
      closing. The Warrants are exercisable for shares of the Company’s Common
      Stock for five years at an exercise price of $4.50 per share and are callable
      by
      the Company at any time after the effectiveness of the registration statement
      and provided that the registration statement has been effective during the
      period of notice and is effective at the time of the call, the Warrants are
      subject to call for cancellation, at the option of the Company, on 20 business
      days notice, upon the Common Stock having achieved a volume weighted average
      price of $6.00 or more for 20 consecutive trading days. The Company allocated
      $532 to the value of the warrants based on a valuation performed by an
      independent consultant who utilized the Black Scholes method and applied a
      discount reflecting the callable feature embedded in the warrant. The value
      allocated to the warrants has been reflected as a discount to the total
      Debenture amount and will be charged to interest expense over the five-year
      life
      of the warrants. In the nine months ended September 30, 2007, the Company
      recorded interest expense of $90 with respect to these warrants.




10
 
 **ACORN
          FACTOR, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements** (unaudited)
 (dollars
          in thousands)


The
      Debentures bear interest at the rate of 10% per annum, payable quarterly and
      mature on March 30, 2011. If the Company fails to redeem at least 50% of the
      total outstanding principal amount of the Debentures, together with interest
      accrued thereon, by the first anniversary of the initial closing, the annual
      rate of interest payable on the Debentures will be increased to
      12%.




In
      connection with the offering, the Company retained a registered broker-dealer
      to
      serve as placement agent. In accordance with the terms of the agreement, the
      placement agent received a 7% selling commission, 3% management fee, and 2%
      non-accountable expense allowance, out of the gross proceeds of the offering.
      In
      addition, the placement agent was entitled to and received warrants on
      substantially the same terms as those issued to the subscribers, exercisable
      for
      the purchase of the number of shares equal to 10% of the total principal amount
      of the Debentures sold, divided by the conversion price of $3.80. Out of the
      gross proceeds received, the Company paid the placement agent commissions and
      expenses of $864 and issued to the placement agent warrants to purchase 181,211
      shares of Common Stock. The value of the warrants issued to the placement agent
      was determined to be $213 based upon the valuation performed by the independent
      consultant mentioned above. In addition, the Company paid various other
      transaction costs of $182. The total debt origination costs of $1,259 has been
      reflected as a discount against the total Debenture amount and are to be charged
      to interest expense over the four year life of the Debentures. In the nine
      months ended September 30, 2007, the Company recorded interest expense of $265
      with respect to these debt origination costs.




**Note
      10: Stock Options and Warrants**




(a)
      Acorn
      Stock Options





A
      summary
      of stock option activity for the nine months ended September 30, 2007 is as
      follows:





Number
                of
              Options
              (in
                shares)
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
                Life
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at December 31, 2006
            
            
            2,172,835
            
            $
            2.55Granted
                at market price
            
            
            96,000
            
            $
            4.33Granted
                at discount to market price
            
            
            79,000
            
            $
            3.50Exercised
            
            
            (563,168
            )
            $
            1.58
            
            
            
            
            $
            1,959Forfeited
                or expired
            
            
            (179,167
            )
            $
            3.60Outstanding
                at September 30, 2007
            
            
            1,605,500
            
            $
            2.93
            
            
            3.4
                years
            
            $
            2,725Exercisable
                at September 30, 2007
            
            
            1,256,499
            
            $
            2.86
            
            
            3.0
                years
            
            $
            2,274




11


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)


The
      weighted average grant date fair value of 175,000 stock options granted during
      the first nine months of 2007 was $1.18 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
            
            
            50
            %Expected
                term (years)
            
            
            1.3
                yearsRisk
                free interest rate
            
            
            4.9
            %Expected
                dividend yield
            
            
            0.0
            %




Total
      stock-based compensation expense included in the Company’s statements of
      operations for the nine and three months ended September 30, 2006 and 2007,
      respectively, was:




Nine
                months
              ended
              September
                30,
              2006
            
            Nine
                months
              ended
              September
                30,
              2007
            
            Three
                months
              ended
              September
                30,
              2006
            
            Three
                months
              ended
              September
                30,
              2007Cost
                of sales
            
            $
            22
            
            $
            22
            
            $
            1
            
            $
            --Selling,
                marketing, general and administrative expenses
            
            
            1,005
            
            
            543
            
            
            565
            
            
            191Share
                of losses in Paketeria
            
            
            198
            
            
            49
            
            
            198
            
            
            17Loss
                on sale of discontinued operations and contract settlement
            
            
            315
            
            
            --
            
            
            --
            
            
            --Total
                stock based compensation expense
            
            $
            1,540
            
            $
            614
            
            $
            764
            
            $
            208




(b)
      dsIT
      Stock Option Plan




In
      February 2007, certain members of senior management and employees of dsIT
      exercised options under the dsIT Key Employee Stock Option Plan. As a result
      of
      the exercise of these options, the Company’s holdings in dsIT were diluted to
      58%.




(c)
      Warrants





As
      noted
      above in Note 8, the Company issued warrants in connection with its private
      placement of the Debentures.





A
      summary
      of stock warrants activity for the nine months ended September 30, 2007 is
      as
      follows:




12


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)


Number
                of
              Warrants
              (in
                shares)
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
                LifeOutstanding
                at December 31, 2006
            
            
            614,039
            
            $
            2.79
            
            
            3.2
                yearsGranted
            
            
            746,916
            
            $
            4.50
            
            
            4.8
                yearsExercised
            
            
            (56,116
            )
            $
            2.78Forfeited
                or expired
            
            
            --
            
            
            --Outstanding
                and exercisable at September 30, 2007
            
            
            1,304,839
            
            $
            3.77
            
            
            3.7
                years




**Note
      11: Warranty Provision**




The
      Company generally grants its customers one-year product warranty. No provision
      was made in respect of warranties based on the Company’s previous
      history.




**Note
      12: Segment Information**




The
      Company has redefined its reported operating segments. The Company no longer
      considers its Easybill operations as part of its former IT Solutions segment
      (current consisting only of OncoProTM activities) as the Company has reduced its
      focus on those activities. Easybill activities are currently included in
“Other”. The Company’s current operations are based upon the following two
      operating segments:




·
            RT
                Solutions whose activities are focused on two areas - naval solutions
                and
                other real-time and embedded hardware & software
                development.




·
            OncoProTM
                whose activities are comprised of the Company’s OncoProTM solution state of
                the art chemotherapy package for oncology and hematology
                departments.




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




Prior
      year segment disclosures have been conformed to the new segment
      presentation.




**RT
                Solutions**
            
            **OncoProTM**
            
            **Other****(*)**
            
            **Total**Nine
                months ended September 30, 2007:Revenues
                from external customers
            
            $
            2,321
            
            $
            403
            
            $
            591
            
            $
            3,315Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit
            
            
            690
            
            
            120
            
            
            4
            
            
            814Segment
                loss
            
            
            (192
            )
            
            (270
            )
            
            (154
            )
            
            (616
            )Nine
                months ended September 30, 2006:Revenues
                from external customers
            
            
            1,983
            
            
            468
            
            
            435
            
            
            2,886Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit
            
            
            718
            
            
            74
            
            
            57
            
            
            849Segment
                loss
            
            
            (88
            )
            
            (187
            )
            
            (76
            )
            
            (351
            )Three
                months ended September 30, 2007:Revenues
                from external customers
            
            
            1,219
            
            
            134
            
            
            242
            
            
            1,595Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit
            
            
            429
            
            
            12
            
            
            32
            
            
            473Segment
                income (loss)
            
            
            41
            
            
            (51
            )
            
            (24
            )
            
            (34
            )Three
                months ended September 30, 2006:Revenues
                from external customers
            
            
            649
            
            
            154
            
            
            120
            
            
            923Intersegment
                revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Segment
                gross profit
            
            
            221
            
            
            30
            
            
            25
            
            
            276Segment
                loss
            
            
            (46
            )
            
            (74
            )
            
            (13
            )
            
            (133
            )


_______________


(*)  Represents
      various operations in Israel that did not meet the quantitative thresholds
      of
      SFAS No. 131.




13


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)


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





Nine
                months ended September 30,
            
            Three
                months ended September 30,2006
            
            2007
            
            2006
            
            2007Total
                loss for reportable segments
            
            $
            (275
            )
            $
            (462
            )
            $
            (120
            )
            $
            (10
            )Other
                operational segment loss
            
            
            (76
            )
            
            (154
            )
            
            (13
            )
            
            (24
            )Total
                operating loss
            
            
            (351
            )
            
            (616
            )
            
            (133
            )
            
            (34
            )Share
                of losses in Paketeria
            
            
            (52
            )
            
            (828
            )
            
            (52
            )
            
            (440
            )Share
                of losses in Comverge
            
            
            (210
            )
            
            --
            
            
            --
            
            
            --Gain
                recorded on Comverge public offering
            
            
            --
            
            
            16,169
            
            
            --
            
            
            --Gain
                recorded on Paketeria private placement
            
            
            --
            
            
            533
            
            
            --
            
            
            533Net
                loss of corporate headquarters and other unallocated
                costs*
            
            
            (2,420
            )
            
            (4,728
            )
            
            (1,466
            )
            
            (1,443
            )Net
                income (loss) from continuing operations
            
            
            (3,033
            )
            
            10,530
            
            
            (1,651
            )
            
            (1,384
            )Discontinued
                operations
            
            
            78
            
            
            --
            
            
            --
            
            
            --Loss
                on sale of discontinued operations and contract settlement
            
            
            (2,298
            )
            
            --
            
            
            --
            
            
            --Total
                consolidated net income (loss)
            
            $
            (5,253
            )
            $
            10,530
            
            $
            (1,651
            )
            $
            (1,384
            )


_______________


*
                Includes $2,516 and $570 of non-cash interest expense during the
                nine and
                three months ended September 30, 2007, respectively, with respect
                to the
                private placement of Debentures (see Note
                8).




**Note
      13: Earnings Per S** **hare**




Basic
      and
      diluted earnings per share are based on the weighted average number of shares
      of
      common stock and potential common stock outstanding during the period. Potential
      common stock, for purposes of determining diluted earnings per share, includes
      the effects of dilutive stock options, warrants, deferred compensation
      arrangements, and convertible securities. The effect of such potential common
      stock is computed using the treasury stock method or the if-converted method,
      as
      applicable.




14
 
 **ACORN
          FACTOR, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements** (unaudited)
 (dollars
          in thousands)


The
      following table presents a reconciliation (in thousands, except per share
      amounts) of the numerators and denominators of the basic and diluted earnings
      per share computation. In the table below, income represents the numerator
      and
      shares represent the denominator:




Nine
                months ended September 30,
            
            Three
                months ended September 30,2006
            
            2007
            
            2006
            
            2007Basic:Net
                income (loss) from continuing operations
            
            $
            (3,033
            )
            $
            10,530
            
            $
            (1,651
            )
            $
            (1,384
            )Discontinued
                operations
            
            
            (2,220
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss)
            
            $
            (5,253
            )
            $
            10,530
            
            $
            (1,651
            )
            $
            (1,384
            )Weighted
                average number of shares outstanding
            
            
            8,163
            
            
            9,723
            
            
            8,164
            
            
            10,063Net
                income (loss) per share from continuing operations
            
            $
            (0.37
            )
            $
            1.08
            
            $
            (0.20
            )
            $
            (0.14
            )Discontinued
                operations per share
            
            
            (0.27
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss) per share
            
            $
            (0.64
            )
            $
            1.08
            
            $
            (0.20
            )
            $
            (0.14
            )Diluted:Net
                income (loss) from continuing operations
            
            $
            (3,033
            )
            $
            10,530
            
            $
            (1,651
            )
            $
            (1,384
            )Plus
                tax-effected interest expense related to Debentures
            
            
            --
            
            
            347
            
            
            --
            
            
            --Net
                income (loss) assuming dilutions of continuing operations
            
            
            (3,033
            )
            
            10,847
            
            
            (1,651
            )
            
            (1,384
            )Discontinued
                operations
            
            
            (2,220
            )
            
            --
            
            
            --
            
            
            --Net
                income (loss)
            
            $
            (5,253
            )
            $
            10,847
            
            $
            (1,651
            )
            $
            (1,384
            )Weighted
                average number of shares outstanding
            
            
            8,163
            
            
            9,723
            
            
            8,164
            
            
            10,063Effect
                of dilutive securities:Debentures
            
            
            --
            
            
            163
            
            
            --
            
            
            --Stock
                options and warrants
            
            
            --
            
            
            928
            
            
            --
            
            
            --Weighted
                average number of shares outstanding assuming dilution
            
            
            8,163
            
            
            10,814
            
            
            8,164
            
            
            10,063Diluted
                net income (loss) per share from continuing operations
            
            $
            (0.37
            )
            $
            1.01
            
            $
            (0.20
            )
            $
            (0.14
            )Discontinued
                operations per share
            
            
            (0.27
            )
            
            --
            
            
            --
            
            
            --Diluted
                net income (loss) per share
            
            $
            (0.64
            )
            $
            1.01
            
            $
            (0.20
            )
            $
            (0.14
            )




Diluted
      net income (loss) per share is calculated using the “if-converted” method
      in accordance with EITF 04-8, “Effect of Contingently Convertible Debt
      on Earnings per Share.”
      Diluted net income (loss) per share is calculated by adjusting net income
      (loss) for tax-effected interest expense Debentures, divided by the
      weighted average number of common shares outstanding assuming conversion.




15


**ACORN
        FACTOR, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements** (unaudited)
 (dollars
        in thousands)




The
      diluted net income per common share computation for the nine months ended
      September 30, 2007 excludes 746,916 shares of stock that represented outstanding
      stock options and warrants whose exercise price were greater than the average
      market price of the common shares during the period and were anti-dilutive.




Due
      to
      the Company’s net loss during the three and nine months ended September 30, 2006
      and for the three months ended September 30,2007, a calculation of diluted
      earnings per share is not required.




**Note
      14: Commitments**




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




The
      primary objective of EnerTech III is to provide superior venture returns. In
      so
      doing, EnerTech III may also provide investors with venture portfolio
      diversification, a hedge against rising commodity fuel prices and access to
      emerging companies that reduce the global dependence on
      hydrocarbons.





The
      Company’s capital commitment will be funded over the ten-year life of the fund.
      To date, the Company has received and funded a capital call of $400 to EnerTech
      III.




**Note
      1** **5:
      Subsequent Events**




Acquisition
      of SCR-Tech





On
      November 7, 2007, the Company completed the purchase of SCR-Tech LLC and other
      affiliated entities described below (collectively, “SCR-Tech”) from Catalytica
      Energy Systems, Inc. (“Catalyica”), a subsidiary of Renegy Holdings, Inc., for a
      purchase price of $9.6 million in cash. SCR-Tech provides catalyst regeneration
      technologies and management services for selective catalytic reduction systems
      used by coal-fired power plants to reduce nitrogen oxides (NOx) emissions (the
      “Business”).




The
      acquisition of SCR-Tech was completed pursuant to a Stock Purchase Agreement
      (the “Purchase Agreement”), dated November 7, 2007, by and among the Company,
      Catalytica, Renegy Holdings, Inc. and CoaLogix Inc. (“CoaLogix”). CoaLogix is a
      newly-formed, wholly-owned subsidiary of the Company which was formed for the
      purpose of consummating the acquisition of the Acquired Companies.




The
      Purchase Agreement provides for the purchase by CoaLogix of all of the issued
      and outstanding capital stock of CESI-SCR, Inc. (“CESI-SCR”) and CESI-Tech
      Technologies, Inc. (“CESI-Tech”) from Catalytica for $9,600 (subject to an
      agreed-upon working capital adjustment) and the assumption by the Company of
      certain liabilities of Catalytica relating to the Business (including certain
      obligations with respect to employment agreements previously entered into by
      the
      Acquired Companies). CESI-SCR owns all the issued and outstanding membership
      interests of SCR-Tech LLC, which is the operating entity. CESI-Tech is the
      holder of the intellectual property utilized in the SCR-Tech
      business.




16
 
 **ACORN
          FACTOR, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements** (unaudited)
 (dollars
          in thousands)


The
      purchase of SCR-Tech was funded by a $14 million loan dated November 7, 2007
      from CitiGroup Global Markets, Inc., as lender, under a Loan Agreement dated
      as
      November 1, 2007 (the “Loan Agreement”). Under the Loan Agreement, as security
      for loans drawn down under the Loan Agreement the Company pledged the 2,786,021
      shares of Comverge, Inc. common stock which it owns. Any amounts advanced to
      the
      Company under the Loan Agreement are payable upon demand by the lender. Interest
      is payable monthly on any amounts advanced under the Loan Agreement in
      accordance with the lender’s published rates and policies for securities margin
      accounts which currently is 7.0%.




Comverge
      Follow-on Public Offering




On
      November 6, 2007, Comverge announced that it had commenced distribution of
      preliminary prospectuses in anticipation of a follow-on public offering of
      1,370,000 shares of common stock that will be offered by Comverge and 5,480,000
      shares of common stock to be offered by certain stockholders. The selling
      stockholders will also grant the underwriters a 30-day option to purchase up
      to
      1,027,500 additional shares of common stock. The offering is being made pursuant
      to a prospectus filed as part of a registration statement on Form S-1 filed
      by
      Comverge with the Securities and Exchange Commission. Of the shares to be
      offered by certain stockholders, 1,157,656 shares will be offered by the
      Company. The Company will also grant an option to the underwriters to purchase
      up to 217,060 additional shares as part of the 30-day option referred to above.
      A registration statement relating to these securities has been filed with the
      Securities and Exchange Commission but has not yet become effective. On November
      14, 2007 Comverge announced that it had postponed the follow-on public offering
      of common stock. Comverge cited adverse market conditions as the reason for
      delaying the offering. Comverge currently plans to wait until the market
      stabilizes and then reevaluate timing.




Value
      of
      the Company’s Investment in Comverge





As
      of
      November 19, 2007, the total market value of the Company’s Comverge shares was
      approximately $76.1 million based on a November 16, 2007 closing market price
      of
      $27.32.




Guarantees
      for dsIT




In
      September 2006, the shareholders of dsIT approved a resolution, in which all
      shareholders of dsIT were given the opportunity to participate pro rata to
      their
      holdings in dsIT, in providing cash collateral necessary to induce an Israeli
      bank to issue certain financial and performance guarantees in support of
      obligations of dsIT under a purchase order from the Israeli Ministry of Defense
      for a sonar and underwater acoustics system (the “dsIT Guarantees”) in an
      aggregate of up to $2,500 (the “Guarantee Funds”). In consideration for such
      funding, dsIT would issue to the participating dsIT shareholders (i) fully
      paid
      shares representing in the aggregate up to 15% of the issued and outstanding
      ordinary shares of dsIT and (ii) warrants to purchase an equal number of shares
      of dsIT, all on the basis of a valuation of dsIT of $2 million. The Company
      agreed to fund any portion of the Guarantee Funds that are not funded by the
      other shareholders.




On
      October 18, 2007, Acorn Factor, Inc,. issued to the Company, as guarantor,
      a
      Deed of Guarantee to the Israeli bank, under which the Company pledged monies
      in
      an account with the Israeli bank. The Deed of Guarantee was issued in order
      to
      secure the dsIT Guarantees. The Israeli bank will be entitled to draw from
      the
      Guarantee Funds as reimbursement in the event that it is required to pay any
      amounts under the dsIT Guarantees. As at November 7, 2007, the balance in the
      Guarantee Funds stood at $1,507. Guarantee Funds are restricted for use and
      the
      Company expects that these funds will not be released before December 2008.
      To
      date, no other shareholders have participated in the Guarantee
      Funds.





17


**ACORN
      FACTOR, 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, 2006.





**Recent
      Developments**




***Acquisition
      of SCR-Tech***





On
      November 7, 2007, we completed the purchase of SCR-Tech LLC (“SCR-Tech”) from
      Catalytica Energy Systems, Inc., a subsidiary of Renegy Holdings, Inc., for
      a
      purchase price of $9.6 million in cash. SCR-Tech is a leading provider of
      catalyst regeneration technologies and management services for selective
      catalytic reduction (SCR) systems used by coal-fired power plants to reduce
      nitrogen oxides
      (NOx) emissions and will operate as part of CoaLogix *TM* ,
      our
      newly established platform for participating in the burgeoning clean coal
      market. The operations of CoaLogix *TM* will
      be
      reflected as part of our new CleanCoal segment.





Based
      in
      Charlotte, North Carolina, SCR-Tech is the only company in North America
      offering a commercial process capable of fully restoring catalyst activity
      and
      NOx reduction performance. SCR-Tech also provides SCR catalyst management and
      consulting services including computer simulation, inspection, testing and
      analysis to help utilities, independent power producers, and other SCR operators
      optimize their NOx  reduction
      performance and achieve regulatory compliance at lower costs.





***Comverge***




On
      November 6, 2007, Comverge announced that it had commenced distribution of
      preliminary prospectuses in anticipation of a follow-on public offering of
      1,370,000 shares of common stock that will be offered by Comverge and 5,480,000
      shares of common stock to be offered by certain stockholders. The selling
      stockholders will also grant the underwriters a 30-day option to purchase up
      to
      1,027,500 additional shares of common stock. The offering is being made pursuant
      to a prospectus filed as part of a registration statement on Form S-1 filed
      with
      the Securities and Exchange Commission. Of the shares to be offered by certain
      stockholders, 1,157,656 shares will be offered by us. We will also grant an
      option to the underwriters to purchase up to 217,060 additional shares as part
      of the 30-day option referred to above. A registration statement relating to
      these securities has been filed with the Securities and Exchange Commission
      but
      has not yet become effective. On November 14, 2007 Comverge announced that
      it
      had postponed the follow-on public offering of common stock. Comverge cited
      adverse market conditions as the reason for delaying the offering. Comverge
      currently plans to wait until the market stabilizes and then reevaluate timing.




Pursuant
      to a Registration Rights Agreement dated as of October 16, 2007, we and certain
      Comverge shareholders, including all of Comverge’s major shareholders, agreed
      not to sell any of their Comverge shares other than in the follow-on offering)
      until January 20, 2008. These shareholders have agreed, upon the effectiveness
      of the follow-on offering, to enter into a new lock-up agreement under which
      we
      and such other shareholders will agree, subject to limited exceptions, not
      to
      transfer or otherwise dispose of any shares of Comverge common stock for a
      period of at least 90 days (subject to extension under certain circumstances)
      from the date of effectiveness of the offering without the prior written consent
      of the lead manager of the offering.





18


As
      of
      November 19, 2007, the total market value of our Comverge shares was
      approximately $76.1 million based on a November 16, 2007 closing market price
      of
      $27.32.





***Paketeria***




In
      the
      period from January to July 2007, we provided Paketeria with short-term loans
      aggregating $1.1 million in order to provide it with short-term “bridge”
financing to help it support its expansion and operating activities until it
      raised funds from a debt or equity offering. In September 2007, Paketeria
      completed a private placement of Paketeria’s shares. In the private placement,
      Paketeria raised approximately €1.7 million ($2.5 million) by way of a share
      issuance. The private placement reflected a pre-money valuation of Paketeria
      of
€8.0 million ($11.3 million). In connection with the private placement, we
      converted our entire note receivable balances (€750,000 or $1.1 million) and
      accumulated interest to equity in Paketeria. In addition, as part of the
      agreement, we also exercised our to acquire a convertible note payable of
      Paketeria held by another Paketeria shareholder in the principal amount of
      €70,000 ($98,000) note and converted it to equity as well. After the completion
      of the private placement and related transactions described above, we currently
      own approximately 31% of Paketeria. As a result of the private placement, we
      recorded a non-cash gain of approximately $0.5 million with respect to the
      adjustment of the balance recorded as our investment in Paketeria to our share
      of Paketeria’s equity subsequent to the private placement.





***Local
      Power***





In
      July
      2007, we acquired 10% (on a fully diluted basis) of Local Power Inc. (LPI),
      a
      California-based corporation formed recently by a pioneer in the restructuring
      of the $325 Billion US retail electricity market. We will have the right, for
      12
      months, to purchase an additional 41 percent stake in LPI, bringing our
      potential total ownership position to 51 percent.





LPI
      provides consultation services and energy intelligence tools to enable cities
      to
      develop renewable electricity resources on a massive scale while utilizing
      the
      local utility’s distribution infrastructure. LPI’s founder, Paul Fenn, created
      Community Choice Aggregation (CCA), a revolutionary method by which cities
      can
      dramatically accelerate deployment of local green power infrastructure in order
      to diversify their electric power away from fossil fuel to renewable energy
      and
      achieve more stable, competitive rates for their communities.




LPI
      is
      building a recurring revenue business with its highly scalable energy service
      bureau model, assisting cities to adopt, implement and manage CCA networks.
      CCA
      offers numerous benefits - city governments become strategic investors in
      renewable power, local jobs are promoted, rates are stabilized, and the service
      is popular with environmentally conscious politicians and voters.





***dsIT
      Solutions***





In
      May
      2007, dsIT signed a contract to supply its AquaShield Diver Detection Sonar
      (DDS) system to a leading European oil terminal operator. The system is believed
      to be the first system in the world designed and operated to protect a strategic
      coastal energy installation. The DDS is dsIT’s state-of-the art underwater
      surveillance system, which supports automatic detection, tracking and
      classification of any moving underwater body or object. The DDS will monitor
      the
      waters surrounding the oil terminal in order to detect underwater intrusion
      and
      prevent sabotage.





19


In
      June
      2007, dsIT also received a $7.6 million (adjusted value) order for a sonar
      and
      underwater acoustics system from the Israeli Ministry of Defense. In the three
      months ended September 30, 2007, we recorded approximately $0.7 million of
      sales
      with respect to this project.




***Private
      Placement of Debentures and Warrants***





On
      April
      11, 2007, we completed a private placement of $6.9 million of principal amount
      of 10% Convertible Redeemable Subordinated Debentures (the “Debentures”),
      resulting in gross proceeds of the same amount. The Debentures, subject to
      certain restrictions, are convertible into our common stock at a conversion
      price of $3.80 per share and mature on March 30, 2011.





In
      connection with the offering, we entered into subscription agreements with
      certain accredited investors. By the terms of the subscription agreements each
      subscriber in addition to the Debentures purchased, received a warrant
      exercisable for the purchase of 25% of the number of shares obtained by dividing
      the principal amount of a given Debenture by the conversion price of $3.80
      per
      share, resulting in the issuance of warrants to purchase 453,047 shares. The
      warrants are exercisable for shares of Common Stock for a period of five years
      at an exercise price of $4.50 per share. Both the Debentures and the warrants
      are redeemable by us in certain circumstances.




In
      connection with the offering, we retained a registered broker-dealer to serve
      as
      placement agent. In accordance with the terms of our agreement with the
      placement agent, the agent received a 7% selling commission, 3% management
      fee,
      and 2% non-accountable expense allowance out of the gross proceeds of the
      offering.




Out
      of
      the gross proceeds of the offering, we paid the placement agent commissions
      and
      expenses of approximately $0.9 million and other transaction costs of $0.2
      million. In addition, we issued to the placement agent warrants to purchase
      181,211 shares of common stock on substantially the same terms as those issued
      to the subscribers.




***Corporate***




The
      purchase of SCR-Tech was funded by a loan from CitiGroup Global Markets, Inc.,
      as lender, under a Loan Agreement dated as November 1, 2007 (the “Loan
      Agreement”). Under the Loan Agreement, as security for loans drawn down under
      the Loan Agreement we pledged our 2,786,021 shares of Comverge, Inc. common
      stock. Any amounts advanced to us under the Loan Agreement are payable upon
      demand by the lender. Interest is payable monthly on any amounts advanced under
      the Loan Agreement in accordance with the lender’s published rates and policies
      for securities margin accounts which currently is 7.0%





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




20


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




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





Our
      management and Board of Directors are formulating plans for returning the
      Company to compliance with the numerical tests for exemption from investment
      company status as soon as possible and no later than June 30, 2008. These plans
      would likely include the acquisition of one or more wholly-owned,
      majority-owned, or primarily-controlled operating businesses and the sale of
      a
      substantial portion of our Comverge shares. Our recent purchase of SCR-Tech
      and
      our contemplated sale of a substantial portion of our Comverge shares in the
      Comverge follow on offering, if and when such offering is resumed and completed,
      will when taken together, significantly reduce the percentage of the total
      value
      of our assets represented by investment securities. However, while the Board
      has
      not yet performed a valuation of our assets after giving effect to such
      transactions, we expect that even after giving effect to such transactions
      the
“investment securities” we own will continue to account for more than 40% of the
      total “value” of our assets.





While
      we
      remain committed to coming into compliance with the numerical tests for
      exemption from investment company status as soon as possible and no later than
      June 30, 2008, we will likely need to sell and/or distribute additional Comverge
      shares, acquire a suitable operating business or businesses (in addition to
      SCR-Tech) and take other actions to come into compliance with the Investment
      Company Act. There is no assurance that we will be able to successfully complete
      those steps by June 30, 2008. While we could request an order from the SEC
      to
      give us additional time beyond the one year period allowed by Rule 3a-2 to
      take
      the actions necessary to come into compliance with the Investment Company Act,
      the Board of Directors has not yet determined the need to request such an order
      and there is no assurance that such an order would be granted.





If
      we are
      unable to come into compliance with the Investment Company Act before June
      30,
      2008 (or any later date to which that may be extended by the SEC), we may be
      in
      violation of the Investment Company Act. If we were deemed to be operating
      as an
      illegally unregistered investment company, the consequences could potentially
      be
      severe. Among other things, the Company would be prohibited from engaging in
      business in the United States (including non-investment company business) and
      all of its contracts would become voidable at the election of the
      counterparty.




21




**Overview
      and Trend Information**





Acorn
      Factor specializes in acquiring and accelerating the growth of emerging ventures
      that promise improvement in the economic and environmental efficiency of the
      energy sector. Consistent
      with our plans for returning to compliance for the test for exemption under
      the
      Investment Company Act, w e
      look to
      take primarily controlling positions in companies led by great entrepreneurs
      and
      to add value by supporting those companies with branding, positioning, strategy
      and business development.





Our
      recently acquired company (see “Recent Developments”), SCR-Tech,
      is a leading provider of catalyst regeneration technologies and management
      services for selective catalytic reduction (SCR) systems used by coal-fired
      power plants to reduce nitrogen oxides (NO x )
      emissions. SCR-Tech integrates leading edge technologies, a highly skilled
      workforce, and more than 100 years of combined experience in the environmental
      and power generation industries to provide innovative, cost-effective SCR
      catalyst management and regeneration services that help our customers achieve
      and maintain compliance with increasingly stringent NO x regulations.





We
      are a
      global company with equity interests in Comverge (14%), the leading clean
      capacity provider of energy solutions through demand response, Paketeria GmbH
      (32%), a German super services provider, dsIT (58%) a leader in underwater
      security systems for strategic coastal energy infrastructure; and Local Power,
      Inc. (10%), the creator of Community Choice Aggregation, a revolution in
      renewable power and retail markets for electricity.





During
      the periods included in this report, we operated in two reportable segments:
      RT
      Solutions and OncoProTM. The following analysis should be read together with the
      segment information provided in Note 11 to the interim unaudited consolidated
      financial statements included in this quarterly report, which information is
      hereby incorporated by reference into this Item 2.





*RT
      Solutions*





Segment
      revenues reflected a significant increase in the three and nine month periods
      ending September 30, 2007 as compared to the three and nine month periods ending
      September 30, 2006 as well as compared to the second quarter of 2007. Increased
      revenues were the result of our previously announced contracts with the Israeli
      Ministry of Defense and a leading European oil terminal operator - both related
      to our sonar technologies solutions operations. Segment gross profits also
      significantly increased for the three and nine months periods ending September
      30, 2007 as compared to the three and nine month periods ended September 30,
      2006 as well as compared to the second quarter of 2007. The increased gross
      profits reflect the increase in sales which more than offset the reduction
      in
      profit margins. We expect that we will continue to see similar levels of
      revenues, gross profits and gross margins in the coming quarters as a result
      of
      our backlog (over $7 million) which are primarily comprised of the recently
      announced contracts received by dsIT (see “Recent Developments”). Both of these
      new contracts are in our sonar technologies solutions operations of our RT
      Solutions segment.




We
      believe that sonar technology solutions will be the primary source of this
      segment’s future growth and profitability. We continue to have discussions and
      seek strategic alliances for marketing and obtaining additional investment
      for
      our sonar technologies solutions.




22
 
  OncoProTM


Segment
      revenues continue to show a decrease in the nine months ending September 30,
      2007 as compared to the nine months ending September 30, 2006 as well as a
      decrease in the third quarter of 2007 as compared to the third quarter of 2006.
      Segment revenues did increase in the third quarter of 2007 as compared to the
      second quarter of 2007. Decreased revenues were the result of reduced hours
      approved for payment from the Clalit Health Fund. Segment gross profits were
      unchanged in the third quarter of 2007 as compared to the second quarter of
      2007
      despite increased revenues due to the cessation of development work and the
      redirection of personnel costs. Segment gross profits and margins in the nine
      months ending September 30, 2007 were higher than those in the nine months
      ending September 30, 2006. However, we do not expect that we will see
      significantly increased revenues, gross profits or gross margins in the coming
      quarters.




We
      have
      effectively halted our beta-site development work as we continue our discussions
      and seek strategic alliances for marketing and obtaining additional investment
      for our OncoProTM solutions.




*Comverge*




As
      described above under “Recent Developments”, on April 18, 2007 Comverge
      completed its initial public offering and on November 6, 2007, Comverge
      announced that it had commenced distribution of preliminary prospectuses in
      anticipation of a follow-on public offering of 1,370,000 shares of common stock
      that will be offered by Comverge and 5,480,000 shares of common stock to be
      offered by certain stockholders. The selling stockholders will also grant the
      underwriters a 30-day option to purchase up to 1,027,500 additional shares
      of
      common stock. The offering is being made pursuant to a prospectus filed as
      part
      of a registration statement on Form S-1 filed with the Securities and Exchange
      Commission. Of the shares to be offered by certain stockholders, 1,157,656
      shares will be offered by us. We will also grant an option to the underwriters
      to purchase up to 217,060 additional shares as part of the 30-day option
      referred to above. A registration statement relating to these securities has
      been filed with the Securities and Exchange Commission but has not yet become
      effective. On November 14, 2007 Comverge announced that it had postponed the
      follow-on public offering of common stock. Comverge cited adverse market
      conditions as the reason for delaying the offering. Comverge currently plans
      to
      wait until the market stabilizes and then reevaluate timing.




In
      July
      2007, Comverge completed its acquisition of Enerwise. Enerwise is an energy
      infrastructure management, demand response and renewable energy services and
      technology provider that enables commercial and industrial customers to reduce
      energy consumption and total costs, improve energy infrastructure reliability
      and make informed decisions on energy and renewable energy purchases and
      programs.





In
      September 2007, Comverge completed its acquisition of PES. PES is an energy
      efficiency company that implements permanent base load reduction solutions
      for
      commercial and industrial customers under long-term, pay-for-performance
      contracts with a utility.





As
      of
      October 18, 2007, Comverge had contracted capacity of 659 megawatts, and
      estimated that its total payments to be received from its capacity contracts
      through 2017 were approximately $318 million.




23


*Paketeria*





We
      account for our Paketeria investment the equity method and, as such, up until
      the recent private placement by Paketeria, we recorded approximately 33% of
      its
      loss in our consolidated results. As a result of the private placement by
      Paketeria (see “Recent Developments”), it raised approximately €1.7 million
      ($2.4 million) and we converted approximately $1.1 million of debt to equity
      in
      Paketeria and our shareholdings were reduced to approximately 31%. The private
      placement of Paketeria was done at a post-money valuation of €9.8 million ($13.8
      million). As a result of the private placement and the related transactions,
      we
      recorded a non-cash gain of $0.5 million.




Paketeria
      was established to take advantage of the privatization and subsequent
      substantial reduction in retail outlets of the German post office. Since the
      beginning of 2006, Paketeria has doubled in size. In 2007, Paketeria is
      continuing its expansion of stores. In addition, Paketeria is planning to add
      additional services to its unique “Super Services Market” format. Planned
      additions to its services menu include an Internet pharmacy and
      telecommunication services in cooperation with The Phone House, Europe’s largest
      independent mobile phone retailer.





Paketeria
      continues to look for additional outside equity or debt financing to assist
      it
      in its expansion.




*Corporate*




In
      April
      2007, we completed the approximately $6.9 million private placement of our
      Convertible Redeemable Subordinated Debentures. We intend to use the funds
      raised for general working capital and to finance our search for additional
      strategic acquisitions and investments.




In
      addition, we have recently, as guarantor, issued a guarantee to an Israeli
      bank,
      under which we pledged monies in an account with the Israeli bank in an amount
      up to $2.5 million. The guarantee was issued in order to secure dsIT guarantees
      related to a purchase order from the Israeli Ministry of Defense for a sonar
      and
      underwater acoustics system. The Israeli bank will be entitled to draw from
      the
      deposited funds as reimbursement in the event that it is required to pay any
      amounts under the dsIT guarantees.




**New
      Accounting Standards**




Effective
      January 1, 2007, we adopted FASB Interpretation No. (FIN) 48,
“Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in financial statements in accordance
      with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 requires that we determine whether the benefits of our tax
      positions are more likely than not of being sustained upon audit based on the
      technical merits of the tax position. For tax positions that are more likely
      than not of being sustained upon audit, we recognize the largest amount of
      the
      benefit that is more likely than not of being sustained in our consolidated
      financial statements. For tax positions that are not more likely than not of
      being sustained upon audit, we do not recognize any portion of the benefit
      in
      our consolidated financial statements. The provisions of FIN 48 also provide
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods, and disclosure.




24


The
      cumulative effect of the adoption of the recognition and measurement provisions
      of FIN 48 resulted in a $305,000 reduction to the January 1, 2007 balance
      of our retained earnings. Results of prior periods have not been restated.
      Our
      policy for interest and penalties related to income tax exposures was not
      impacted as a result of the adoption of the recognition and measurement
      provisions of FIN 48. Therefore, we continue to recognize interest and penalties
      as incurred within “Finance income (expense), net” in the Consolidated
      Statements of Operations.




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
      Measurements.” SFAS No. 157 creates a single definition of fair value,
      along with a conceptual framework to measure fair value, and to increase the
      consistency and the comparability in fair value measurements and in financial
      statement disclosures.




In
      February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
      Financial Assets and Liabilities - Including an Amendment to FASB Statement
      No. 115.” SFAS No. 159 improves financial reporting by giving entities
      the opportunity to mitigate earnings volatility by electing to measure related
      financial assets and liabilities at fair value rather than using different
      measurement attributes. Unrealized gains and losses on items for which the
      fair
      value option has been elected should be reported in earnings. Upon initial
      adoption, differences between the fair value and carrying amount should be
      included as a cumulative-effect adjustment to beginning retained earnings.




SFAS
      Nos.
      157 and 159 are effective as of the beginning of the first fiscal year that
      begins after November 15, 2007. Earlier application is permitted as of the
      beginning of the fiscal year that begins on or before November 15, 2007. We
      are not planning to early adopt SFAS Nos. 157 and 159 and are currently
      assessing the impact of implementing SFAS Nos. 157 and 159 on our financial
      position and results of operations.




25




**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 September 30,
      2006 and 2007, 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.




Nine
                months ended September 30,
            
            Three
                months ended September 30,2006
            
            2007
            
            Change
            
            2006
            
            2007
            
            Change($,000)
            
            %
                of
                sales
            
            ($,000)
            
            %
                of
                sales
            
            %
                of
                2006
            
            ($,000)
            
            %
                of
                sales
            
            ($,000)
            
            %
                of
                sales
            
            %
                of
                2006Sales
            
            $
            2,886
            
            
            *100*
            *%*
            $
            3,315
            
            
            *100*
            *%*
            
            *15*
            *%*
            $
            923
            
            
            *100*
            *%*
            $
            1,595
            
            
            *100*
            
            
            *73*Cost
                of sales
            
            
            2,037
            
            
            *71*
            
            
            2,501
            
            
            *75*
            
            
            *23*
            
            
            647
            
            
            *70*
            
            
            1,122
            
            
            *70*
            
            
            *73*Gross
                profit
            
            
            849
            
            
            *29*
            
            
            814
            
            
            *25*
            
            
            *(4*
            *)*
            
            276
            
            
            *30*
            
            
            473
            
            
            *30*
            
            
            *71*R&D
                expenses
            
            
            184
            
            
            *6*
            
            
            310
            
            
            *9*
            
            
            *68*
            
            
            87
            
            
            *9*
            
            
            77
            
            
            *5*
            
            
            *(11*
            *)*SMG&A
                expenses
            
            
            3,537
            
            
            *123*
            
            
            3,012
            
            
            *91*
            
            
            *(15*
            *)*
            
            1,571
            
            
            *170*
            
            
            1,153
            
            
            *72*
            
            
            *(27*
            *)*Operating
                loss
            
            
            (2,872
            )
            
            *(100*
            *)*
            
            (2,508
            )
            
            *(76*
            *)*
            
            *(13*
            *)*
            
            (1,382
            )
            
            *(150*
            *)*
            
            (757
            )
            
            *(47*
            *)*
            
            *(45*
            *)*Finance
                expense, net
            
            
            (23
            )
            
            *(1*
            *)*
            
            (2,827
            )
            
            *(85*
            *)*
            
            *12,191*
            
            
            (17
            )
            
            *(2*
            *)*
            
            (716
            )
            
            *(45*
            *)*
            
            *4,112*Gain
                on public offering of Comverge
            
            
            --
            
            
            *--*
            
            
            16,169
            
            
            *488*
            
            
            
            
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Gain
                on private placement of Paketeria
            
            
            --
            
            
            *--*
            
            
            533
            
            
            *16*
            
            
            
            
            
            --
            
            
            *--*
            
            
            533
            
            
            *33*Other
                income, net
            
            
            330
            
            
            *11*
            
            
            --
            
            
            
            
            
            *(100*
            *)*
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Income
                (loss) before taxes on income
            
            
            (2,565
            )
            
            *(89*
            *)*
            
            11,367
            
            
            *343*
            
            
            *543*
            
            
            (1,399
            )
            
            *(152*
            *)*
            
            (940
            )
            
            *(59*
            *)*
            
            *33*Taxes
                on income
            
            
            (8
            )
            
            *0*
            
            
            (9
            )
            
            *0*
            
            
            *13*
            
            
            (2
            )
            
            *0*
            
            
            (4
            )
            
            *0*
            
            
            *100*Income
                (loss) from operations of the Company and its consolidated
                subsidiaries
            
            
            (2,573
            )
            
            *(89*
            *)*
            
            11,358
            
            
            *343*
            
            
            *541*
            
            
            (1,401
            )
            
            *(152*
            *)*
            
            (944
            )
            
            *(59*
            *)*
            
            *33*Share
                in losses in Paketeria
            
            
            (250
            )
            
            *(9*
            *)*
            
            (828
            )
            
            *(25*
            *)*
            
            *231*
            
            
            (250
            )
            
            *(27*
            *)*
            
            (440
            )
            
            *(28*
            *)*
            
            *76*Share
                in losses in Comverge
            
            
            (210
            )
            
            *(7*
            *)*
            
            --
            
            
            *--*
            
            
            *(100*
            *)*
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Net
                loss from continuing operations
            
            
            (3,033
            )
            
            *(105*
            *)*
            
            10,530
            
            
            *318*
            
            
            *447*
            
            
            (1,651
            )
            
            *(179*
            *)*
            
            (1,384
            )
            
            *(87*
            *)*
            
            *16*Net
                income from discontinued operations, net of tax
            
            
            78
            
            
            *3*
            
            
            --
            
            
            *--*
            
            
            *(100*
            *)*
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Loss
                on sale of discontinued operations and contract settlement
            
            
            (2,298
            )
            
            *(80*
            *)*
            
            --
            
            
            *--*
            
            
            *(100*
            *)*
            
            --
            
            
            *--*
            
            
            --
            
            
            *--*
            
            
            *--*Net
                income (loss)
            
            $
            (5,253
            )
            
            *(182*
            *)*
            $
            10,530
            
            
            *318*
            
            
            *300*
            
            $
            (1,651
            )
            
            *(179*
            *)*
            $
            (1,384
            )
            
            *(87*
            *)*
            
            *16*




*Sales.* Sales in
      the first nine months of 2007 increased by $429,000, or 15%, from $2.9 million
      in the first nine months of 2006 to $3.3 million in the first nine months of
      2007. Sales in the third quarter of 2007 reflected an increase of $672,000,
      or
      73%, from $0.9 million in the third quarter of 2006 to $1.6 million in the
      third
      quarter of 2007. The increases for both periods were wholly attributable to
      the
      increase in our RT Solutions segment sales (increases of $338,000 and $570,000
      for the nine and three month periods ended September 30, 2007 as compared to
      2006, respectively) which was the result of two new significant projects in
      2007
      (see “Recent Developments”). This increase more than offset the slight decrease
      in sales in our OncoPro TM segment
      during those periods.





*Gross
      profit.* Gross
      profits in the
      first nine months of 2007 decreased by $35,000, or 4%, from $849,000 to
      $815,000, compared to the first nine months of 2006. The decrease was primarily
      attributable to slightly decreased gross profits in the RT Solutions segment
      which were the result of lower margins which offset the increased sales during
      the period. The lower margins were due to the inclusion in 2006 of certain
      project sales with relatively high gross profit margins. Gross profit in the
      third quarter of 2007 increased by $197,000, or 71%, from $276,000 to $473,000,
      in comparison to the third quarter of 2006, primarily due to the previously
      mentioned increase in RT Solutions sales. Gross margins were unchanged in the
      third quarter of 2007 as compared to the third quarter of 2006 .





26


*Selling,
        marketing, general and administrative expenses (“SMG&A”).* Selling,
        marketing, general and administrative expenses (“SMG&A”) decreased
        significantly in
        the
        first nine months
        of
        2007 ($525,000) from $3.5 million to $3.0 million compared to the first nine
        months of 2006. SMG&A also decreased significantly (by $418,000) in the
        third quarter of 2007 as compared to the third quarter of 2006. The decreases
        for both the nine and three month periods is due almost entirely to decreases
        in
        stock compensation expense recognized in the periods in accordance with FAS
        123R.
 
 *Gain
        on public offering of Comverge.*  In
        April
        2007, Comverge completed its initial public offering. As
        a
        result of the Comverge offering, the Company recorded an increase in its
        investment in Comverge and recorded a non-cash gain of $16.2 million in “Gain on
        public offering of Comverge”. Subsequent to the offering, the Company no longer
        accounted for its investment in Comverge under the equity method.
 
 *Gain
        on private placement of Paketeria.*  In
        September 2007, Paketeria completed a private placement of shares. As part
        of
        the transaction, the Company converted approximately $1.2 million of debt
        to
        equity in Paketeria. As
        a
        result of the Paketeria private placement, the Company recorded a decrease
        in
        its investment in Paketeria and recorded a non-cash gain of $533,000 in “Gain on
        private placement of Paketeria”.
  *Finance
        expense, net.* Finance
        expense, net, increased in the first nine months of 2007 as compared to the
        first nine months of 2006 from $23,000 to $2.8 million. Finance expense,
        net,
        also increased in the third quarter of 2007 as compared to the third quarter
        of
        2006 from $17,000 to $716,000. The increases are entirely attributable to
        the
        finance costs associated with our private placement of convertible debt in
        the
        first and second quarters of 2007.
  *Share
        of losses in Comverge.* In
        the
        first quarter of 2006, we recognized $210,000 in previously unrecognized
        and
        current losses of our Comverge equity affiliate offsetting our additional
        investments during the quarter in that amount in Comverge preferred stock.
        As
        our investment in Comverge had been reduced to zero, we no longer recorded
        additional losses against our investment in Comverge.
  *Share
        of losses in Paketeria.* In
        the
        first nine months of 2007, we recognized losses of $779,000 representing
        our
        approximate 33% share of Paketeria’s losses for the period and amortization
        expense associated with acquired non-compete and franchise agreements and
        the
        change in value of options. In addition, we also recognized additional losses
        totaling $49,000 with respect to stock compensation expense associated with
        a
        previous option grant to Paketeria’s founder and managing director.
  *Net
        income from discontinued operations, net of tax.* The
        results as reported reflect the net results of Databit prior to our sale
        in
        March of 2006.
  *Loss
        on sale of discontinued operations and contract settlement, net of tax.* This
        loss
        resulted from the sale of our Databit computer hardware company and contract
        settlement with our former CEO during the first quarter of 2006.
  **Liquidity
        and Capital Resources** ****
  As
        of
        September 30, 2007, we had working capital of $2.8 million, including $4.2
        million of cash and cash equivalents. Net cash provided in the nine months
        of
        2007 was $2.7 million. Net cash of $1.8 million was used in operating activities
        during the first nine months of 2007. The primary use of cash in operating
        activities during the first nine months of 2007 was our corporate cash expenses
        of $1.4 million. Net cash of $1.7 million was used in investing activities,
        primarily due to our $1.2 million loans to and acquisition of a note due
        from
        Paketeria (which was subsequently converted to equity together with accrued
        interest) and our $0.3 million investment in Local Power. Net cash of $6.2
        million was provided from financing activities, primarily from the proceeds
        of
        our private placement of debentures and warrants net of related discounts
        ($5.8
        million, net) and the proceeds from option and warrant exercises ($1.0 million)
        offset by debt repayments ($0.6 million, net).
  27
  On
        October 18, 2007, an Israeli bank issued certain financial and performance
        guarantees in support of obligations of dsIT, under a purchase order from
        the
        Israeli Ministry of Defense for a sonar and underwater acoustics system.
        We, as
        guarantor, issued a Deed of Guarantee to the Israeli bank, under which we
        pledged monies in an account with the bank in an amount up to $2.5 million
        (the
“Guarantee Funds”). The Deed of Guarantee was issued in order to secure the
        guarantees dsIT Guarantees. The Israeli bank will be entitled to draw from
        the
        Guarantee Funds as reimbursement in the event that it is required to pay
        any
        amounts under the dsIT Guarantees. As at November 7, 2007, the amounts deposited
        in the Israeli bank as Guarantee Funds was $1.5 million. We expect that these
        funds will be restricted for use until approximately December 2008.
  The
        purchase of SCR-Tech was funded by a $14 million loan dated November 7, 2007
        from CitiGroup Global Markets, Inc., as lender, under the Loan Agreement
        dated
        as November 1, 2007. Under the Loan Agreement, as security for loans drawn
        down
        under the Loan Agreement we pledged our 2,786,021 shares of Comverge, Inc.
        common stock. Any amounts advanced to us under the Loan Agreement are payable
        upon demand by the lender. Interest is payable monthly on any amounts advanced
        under the Loan Agreement in accordance with the lender’s published rates and
        policies for securities margin accounts which currently is 7.0%.
  As
        of
        November 13, 2007 the Company’s corporate operations had an aggregate of
        approximately $6.5 million in cash and cash equivalents (not including the
        $1.5
        million deposited in an account as a security for a guarantee for dsIT -
        see
        above), reflecting a $5.0 million increase from the balance as of December
        31,
        2006.
  We
        believe that the cash available and the cash potentially available from any
        sales of our holdings in Comverge will provide more than sufficient liquidity
        to
        allow us to repay outstanding debt as well as finance Acorn’s activities for the
        foreseeable future and for the next 12 months in particular. In  October
        2007, dsIT converted approximately $168,000 of its lines of credit being
        utilized at September 30, 2007 to a 12 month term loan which is denominated
        in
        NIS and bears interest at the Israeli prime rate plus 1.5% per annum. The
        Israeli prime rate fluctuates and as of September 30, 2007 was 5.50%. Subsequent
        to the conversion of this portion of dsIT’s lines of credit, dsIT has
        approximately $234 of lines of credit available to it with an interest rate
        of
        the Israeli prime plus 1.5%. As at November 1, 2007, dsIT was not utilizing
        any
        of its credit lines.
  At
        September 30, 2007, dsIT was in technical violation of covenants under its
        line
        of credit. This bank is continuing to provide funding to dsIT despite the
        technical violation and has not formally notified dsIT of any violation or
        any
        contemplated action. Acorn has agreed to be supportive of dsIT’s liquidity
        requirements over the next 12 months.
  28
  **Contractual
        Obligations and Commitments**
  Our
        contractual obligations and commitments at September 30, 2007, excluding
        certain
        severance arrangements described below, 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 September 30,(amounts
                  in thousands)Contractual
                  Obligations
              
              Total
              
              2008
              
              2009-2010
              
              2011-2012
              
              2013
                  and thereafterLong-term
                  debt
              
              $
              6,886
              
              $
              --
              
              $
              --
              
              $
              6,886
              
              $
              --Operating
                  leases (1)
              
              
              752
              
              
              453
              
              
              299
              
              
              --
              
              
              --Potential
                  severance obligations to Israeli employees (2)
              
              
              2,378
              
              
              285
              
              
              --
              
              
              --
              
              
              2,093Investment
                  in EnerTech Capital Partners III L.P. (3)
              
              
              5,000
              
              
              5,000
              
              
              --
              
              
              --
              
              
              --Investor
                  relations
              
              
              12
              
              
              12
              
              
              --
              
              
              --
              
              
              --Total
                  contractual cash obligations
              
              $
              15,028
              
              $
              5,750
              
              $
              299
              
              $
              6,886
              
              $
              2,093
  We
        expect
        to finance these contractual commitments from cash on hand and cash generated
        from operations.
  (1)
        As
        part of the sale of our Databit computer hardware subsidiary, we assigned
        all of
        the US leases to Databit and after the first quarter of 2006 will no longer
        have
        rental expense for facilities in the US. However, the landlords of the
        properties have not yet consented to the assignments and we therefore continue
        to be contingently liable on these leases, which have an annual cost of
        approximately $120,000 until November 2008. Such costs are included in the
        table
        above. Databit has agreed to indemnify us for any liability in connection
        with
        these leases. Under a transition services arrangement, we have agreed to
        pay
        Databit $20,000 per year for various administrative services.
  (2)
        Under
        Israeli law and labor agreements, dsIT is required to make severance payments
        to
        dismissed employees and to employees leaving employment under certain other
        circumstances. The obligation for severance pay benefits, as determined by
        the
        Israeli Severance Pay Law, is based upon length of service and ending salary.
        These obligations are substantially covered by regular deposits with recognized
        severance pay and pension funds and by the purchase of insurance policies.
        As of
        September 30, 2007, we accrued a total of $2.4 million for potential severance
        obligations of which approximately $1.6 million was funded with cash to
        insurance companies.
  (3)
        In
        August 2007, we committed to invest up to $5 million over a ten-year period
        in
        EnerTech Capital Partners III L.P. (“EnerTech III”), a proposed $250 million
        venture capital fund targeting early and expansion stage energy and clean
        energy
        technology companies that can enhance the profits of the producers and consumers
        of energy.
  The
        primary objective of EnerTech III is to provide superior venture returns.
        In so
        doing, EnerTech III may also provide investors with venture portfolio
        diversification, a hedge against rising commodity fuel prices and access
        to
        emerging companies that reduce the global dependence on
        hydrocarbons.
  Our
        obligation under this commitment is presented as a current liability, though
        it
        is uncertain as to when actual payments may be made. To date, we have received
        and funded a capital call of $400,000 to EnerTech III.
  29
  **Item
        3.**  **Quantitative and Qualitative Disclosures About Market Risk**
  In
        the
        normal course of business, we are exposed to fluctuations in interest rates
        on
        lines-of-credit incurred to finance our operations in Israel, whose utilization
        at September 30, 2007 stood at approximately $378,000. Additionally, our
        monetary assets and liabilities (net liability of approximately $0.4 million)
        in
        Israel are exposed to fluctuations in exchange rates. In addition, $3.4 million,
        $0.3 million and $0.1 million of our backlog of projects are contracts and
        orders that are linked to an Israeli Ministry of Defense Index, denominated
        in
        Euros and denominated in NIS, respectively. We do not employ specific
        strategies, such as the use of derivative instruments or hedging, to manage
        our
        interest rate or foreign currency exchange rate exposures.
  **Item
        4T. Controls and Procedures**
  **Evaluation
        of 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 Controls and Procedures**
  There
        was
        no change in our internal controls 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, internal controls over financial reporting.
  30
  **PART
        II - OTHER INFORMATION**
  **Item
        1.**  **Legal
        Proceedings**
  None.
  **Item
        1A. Risk Factors**
  In
        addition to the other information set forth in this report, you should carefully
        consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
        Report on Form 10-K for the year ended December 31, 2006, which could materially
        affect our business, financial condition or future results. The risks described
        in our Annual Report on Form 10-K are not the only risks facing our company.
        Additional risks and uncertainties not currently known to us or that we
        currently deem to be immaterial also may materially adversely affect our
        business, financial condition and/or operating results.
  31
  **Item
        6.**  **Exhibits.**
 
 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.
  32
  **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
                FACTOR, INC.**Dated:
                November 19, 2007
              By:
              /s/ Michael
                BarthMichael
                  Barth
                Chief
                  Financial Officer
 33