UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended June 30, 2010





Commission
file number:  0-19771





ACORN
ENERGY, INC.


(Exact
name of registrant as specified in its charter)





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





(302)
656-1708


(Registrant’s
telephone number, including area code)





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





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





Yes  ̈No   ̈




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




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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes  ̈No  x





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





Class
              
              Outstanding
      at August 9, 2010Common
      Stock, $0.01 par value per share
              
              15,642,753
      shares








ACORN
ENERGY, INC.


Quarterly
Report on Form 10-Q


for
the Quarterly Period Ended June 30, 2010





TABLE
OF CONTENTS





PART
      I.  Financial InformationItem
      1.
                                  
                                  Financial
      StatementsUnaudited
      Consolidated Financial Statements:Consolidated
      Balance Sheetsas
      of December 31, 2009 and June 30, 2010
                                  
                                  1Consolidated
      Statements of Operationsfor
      the three and six month periods ended June 30, 2009 and
    2010
                                  
                                  2Consolidated
      Statement of Changes in Equityfor
      the six month period ended June 30, 2010
                                  
                                  3Consolidated
      Statements of Cash Flowsfor
      the six month periods ended June 30, 2009 and 2010
                                  
                                  4Notes
      to Consolidated Financial Statements
                                  
                                  6Item
      2.
                                  
                                  Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                                  
                                  22Item
      4.
                                  
                                  Controls
      and Procedures
                                  
                                  33PART
      II. Other InformationItem
      1.
                                  
                                  Legal
      Proceedings
                                  
                                  34Item
      2.
                                  
                                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                                  
                                  34Item
      6.
                                  
                                  Exhibits
                                  
                                  36Signatures
                                  
                                  37




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







ACORN
ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)




As of
                              December 31,
                              2009
                            
                            
                            As of
                              June 30,
                              2010(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            11,208
                            
                            
                            $
                            10,005Restricted
      deposits
                            
                            
                            1,627
                            
                            
                            
                            1,939Accounts
      receivable, net
                            
                            
                            3,541
                            
                            
                            
                            5,858Unbilled
      revenue and work-in-process
                            
                            
                            4,113
                            
                            
                            
                            5,417Inventory
                            
                            
                            1,848
                            
                            
                            
                            3,730Other
      current assets
                            
                            
                            2,317
                            
                            
                            
                            4,391Total
      current assets
                            
                            
                            24,654
                            
                            
                            
                            31,340Property
      and equipment, net
                            
                            
                            3,357
                            
                            
                            
                            8,975Other
      investments and loans to equity investees
                            
                            
                            2,796
                            
                            
                            
                            2,537Funds
      in respect of employee termination benefits
                            
                            
                            2,074
                            
                            
                            
                            2,141Restricted
      deposits
                            
                            
                            611
                            
                            
                            
                            809Intangible
      assets, net
                            
                            
                            8,194
                            
                            
                            
                            13,944Goodwill
                            
                            
                            6,679
                            
                            
                            
                            13,748Deferred
      taxes
                            
                            
                            227
                            
                            
                            
                            252Other
      assets
                            
                            
                            143
                            
                            
                            
                            477Total
      assets
                            
                            $
                            48,735
                            
                            
                            $
                            74,223LIABILITIES
      AND EQUITYCurrent
      liabilities:Short-term
      bank credit and current maturities of long-term bank debt
                            
                            $
                            430
                            
                            
                            $
                            1,121Accounts
      payable
                            
                            
                            1,607
                            
                            
                            
                            3,684Accrued
      payroll, payroll taxes and social benefits
                            
                            
                            1,409
                            
                            
                            
                            1,679Advances
      from customers
                            
                            
                            1,924
                            
                            
                            
                            1,826Other
      current liabilities
                            
                            
                            3,064
                            
                            
                            
                            6,961Total
      current liabilities
                            
                            
                            8,434
                            
                            
                            
                            15,271Long-term
      liabilities:Liability
      for employee termination benefits
                            
                            
                            3,129
                            
                            
                            
                            3,259Long-term
      debt
                            
                            
                            405
                            
                            
                            
                            355Other
      long-term liabilities
                            
                            
                            669
                            
                            
                            
                            349Total
      long-term liabilities
                            
                            
                            4,203
                            
                            
                            
                            3,963Equity:Acorn
      Energy, Inc. stockholdersCommon
      stock - $0.01 par value per share:
                              Authorized
      – 30,000,000 shares; Issued –13,248,813 and 16,917,925 shares at December
      31, 2009 and June 30, 2010, respectively
                            
                            
                            132
                            
                            
                            
                            169Additional
      paid-in capital
                            
                            
                            58,373
                            
                            
                            
                            78,491Warrants
                            
                            
                            290
                            
                            
                            
                            274Accumulated
      deficit
                            
                            
                            (23,343
                            )
                            
                            
                            (29,618
                            )Treasury
      stock, at cost –1,275,081 shares at December 31, 2009and
      June 30, 2010, respectively
                            
                            
                            (4,827
                            )
                            
                            
                            (4,827
                            )Accumulated
      other comprehensive income
                            
                            
                            152
                            
                            
                            
                            (213
                            )Total
      Acorn Energy, Inc. stockholders’ equity
                            
                            
                            30,777
                            
                            
                            
                            44,276Non-controlling
      interests
                            
                            
                            5,321
                            
                            
                            
                            10,713Total
      equity
                            
                            
                            36,098
                            
                            
                            
                            54,989Total
      liabilities and equity
                            
                            $
                            48,735
                            
                            
                            $
                            74,223




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


1




ACORN
ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)


(IN
THOUSANDS, EXCEPT NET LOSS PER SHARE DATA)




Six months ended
                        June 30,
                      
                      
                      Three months ended
                        June 30,2009
                      
                      
                      2010
                      
                      
                      2009
                      
                      
                      2010Revenues:Catalytic
      regeneration
                      
                      $
                      9,937
                      
                      
                      $
                      9,333
                      
                      
                      $
                      4,547
                      
                      
                      $
                      4,855Projects
                      
                      
                      4,002
                      
                      
                      
                      5,258
                      
                      
                      
                      2,036
                      
                      
                      
                      2,751Software
      license and services
                      
                      
                      2,102
                      
                      
                      
                      1,667
                      
                      
                      
                      1,075
                      
                      
                      
                      897Smart
      grid distribution products and services
                      
                      
                      —
                      
                      
                      
                      517
                      
                      
                      
                      —
                      
                      
                      
                      517Other
                      
                      
                      217
                      
                      
                      
                      203
                      
                      
                      
                      122
                      
                      
                      
                      10416,258
                      
                      
                      
                      16,978
                      
                      
                      
                      7,780
                      
                      
                      
                      9,124Cost
      of sales:Catalytic
      regeneration
                      
                      
                      6,466
                      
                      
                      
                      5,546
                      
                      
                      
                      2,931
                      
                      
                      
                      3,000Projects
                      
                      
                      2,351
                      
                      
                      
                      2,817
                      
                      
                      
                      1,132
                      
                      
                      
                      1,475Software
      license and services
                      
                      
                      416
                      
                      
                      
                      380
                      
                      
                      
                      145
                      
                      
                      
                      204Smart
      grid distribution products and services
                      
                      
                      —
                      
                      
                      
                      191
                      
                      
                      
                      —
                      
                      
                      
                      191Other
                      
                      
                      156
                      
                      
                      
                      165
                      
                      
                      
                      82
                      
                      
                      
                      839,389
                      
                      
                      
                      9,099
                      
                      
                      
                      4,290
                      
                      
                      
                      4,953Gross
      profit
                      
                      
                      6,869
                      
                      
                      
                      7,879
                      
                      
                      
                      3,490
                      
                      
                      
                      4,171Operating
      expenses:Research
      and development expenses, net of SRED credits of$1,016
      in 2009
                      
                      
                      (348
                      )
                      
                      
                      1,542
                      
                      
                      
                      (624
                      )
                      
                      
                      872Dividends
      received from EnerTech
                      
                      
                      —
                      
                      
                      
                      (135
                      )
                      
                      
                      —
                      
                      
                      
                      —Selling,
      general and administrative expenses
                      
                      
                      8,807
                      
                      
                      
                      13,886
                      
                      
                      
                      4,629
                      
                      
                      
                      7,565Total
      operating expenses
                      
                      
                      8,459
                      
                      
                      
                      15,293
                      
                      
                      
                      4,005
                      
                      
                      
                      8,437Operating
      loss
                      
                      
                      (1,590
                      )
                      
                      
                      (7,414
                      )
                      
                      
                      (515
                      )
                      
                      
                      (4,266
                      )Finance
      income (expense), net
                      
                      
                      (84
                      )
                      
                      
                      (305
                      )
                      
                      
                      85
                      
                      
                      
                      (355
                      )Gain
      on investment in GridSense
                      
                      
                      —
                      
                      
                      
                      1,327
                      
                      
                      
                      —
                      
                      
                      
                      1,327Gain
      on sale of Comverge shares
                      
                      
                      1,227
                      
                      
                      
                      —
                      
                      
                      
                      810
                      
                      
                      
                      —Income
      (loss) before taxes on income
                      
                      
                      (447
                      )
                      
                      
                      (6,392
                      )
                      
                      
                      380
                      
                      
                      
                      (3,294
                      )Tax
      expense on income
                      
                      
                      —
                      
                      
                      
                      (198
                      )
                      
                      
                      —
                      
                      
                      
                      (123
                      )Income
      (loss) from operations of the Company and its consolidatedsubsidiaries
                      
                      
                      (447
                      )
                      
                      
                      (6,590
                      )
                      
                      
                      380
                      
                      
                      
                      (3,417
                      )Share
      in losses of GridSense
                      
                      
                      (129
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Net
      income (loss)
                      
                      
                      (576
                      )
                      
                      
                      (6,590
                      )
                      
                      
                      380
                      
                      
                      
                      (3,417
                      )Net
      (income) loss attributable to non-controlling interests
                      
                      
                      (144
                      )
                      
                      
                      315
                      
                      
                      
                      (37
                      )
                      
                      
                      265Net
      income (loss) attributable to Acorn Energy Inc.
                      
                      $
                      (720
                      )
                      
                      $
                      (6,275
                      )
                      
                      $
                      343
                      
                      
                      $
                      (3,152
                      )Basic
      and diluted earnings per share attributable to Acorn
      Energy  Inc.:Net
      income (loss) per share attributable toAcorn
      Energy Inc.  – basic
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.45
                      )
                      
                      $
                      0.03
                      
                      
                      $
                      (0.21
                      )Net
      income (loss) per share attributable toAcorn
      Energy Inc. – diluted
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.45
                      )
                      
                      $
                      0.03
                      
                      
                      $
                      (0.21
                      )Weighted
      average number of shares outstanding attributable toAcorn
      Energy Inc. – basic
                      
                      
                      11,456
                      
                      
                      
                      13,839
                      
                      
                      
                      11,377
                      
                      
                      
                      15,161Weighted
      average number of shares outstanding attributable toAcorn
      Energy Inc. – diluted
                      
                      
                      11,456
                      
                      
                      
                      13,839
                      
                      
                      
                      11,553
                      
                      
                      
                      15,161




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




2




ACORN
ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGESIN EQUITY (UNAUDITED)


(IN
THOUSANDS)




Acorn Energy, Inc. StockholdersNumber
                        of Shares
                    
                    
                    Common
                        Stock
                    
                    
                    Additional
                        Paid-In
                        Capital
                    
                    
                    Warrants
                    
                    
                    Accumulated
                        Deficit
                    
                    
                    Treasury
                        Stock
                    
                    
                    Accumulated
                        Other
                        Comprehensive
                        Income
                    
                    
                    Total Acorn
                        Energy, Inc.
                        Stockholders
                        Equity
                    
                    
                    Non-
                        controlling
                        interests
                    
                    
                    Total
                        EquityBalances
      as of December 31, 2009
                    
                    
                    13,249
                    
                    
                    $
                    132
                    
                    
                    $
                    58,373
                    
                    
                    $
                    290
                    
                    
                    $
                    (23,343
                    )
                    
                    $
                    (4,827
                    )
                    
                    $
                    152
                    
                    
                    $
                    30,777
                    
                    
                    $
                    5,321
                    
                    
                    $
                    36,098Net
      loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (6,275
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (6,275
                    )
                    
                    
                    (315
                    )
                    
                    
                    (6,590
                    )Differences
      from translation of subsidiaries’ financial statements and equity
      investees
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (365
                    )
                    
                    
                    (365
                    )
                    
                    
                    (11
                    )
                    
                    
                    (376
                    )Comprehensive
      loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (6,640
                    )
                    
                    
                    (326
                    )
                    
                    
                    (6,966
                    )Issuance
      by CoaLogix of CoaLogix shares to non-controlling interests (see Note
      5)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    492
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    492
                    
                    
                    
                    1,891
                    
                    
                    
                    2,383Shares
      issued in capital raise, net of transaction costs (see Note 8
      (a))
                    
                    
                    2,232
                    
                    
                    
                    22
                    
                    
                    
                    11,423
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    11,445
                    
                    
                    
                    —
                    
                    
                    
                    11,445Shares
      issued in acquisition of Decision Dynamics (see Note 4(a))
                    
                    
                    1,000
                    
                    
                    
                    10
                    
                    
                    
                    5,630
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    5,640
                    
                    
                    
                    —
                    
                    
                    
                    5,640Shares
      issued in acquisition of GridSense (see Note 4(b))
                    
                    
                    356
                    
                    
                    
                    4
                    
                    
                    
                    1,863
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,867
                    
                    
                    
                    —
                    
                    
                    
                    1,867Non-controlling
      interests created in USSI consolidation (see Note 4(c))
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,600
                    
                    
                    
                    3,600Adjustment
      of non-controlling interests following exercise of USSI options(see
      Note 4(c)(i))
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    176
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    176
                    
                    
                    
                    (176
                    )
                    
                    
                    —Other
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    6
                    
                    
                    
                    6Stock
      option compensation
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    299
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    299
                    
                    
                    
                    —
                    
                    
                    
                    299Stock
      option compensation of subsidiaries
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    397
                    
                    
                    
                    397Exercise
      of options and warrants
                    
                    
                    81
                    
                    
                    
                    1
                    
                    
                    
                    235
                    
                    
                    
                    (16
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    220
                    
                    
                    
                    —
                    
                    
                    
                    220Balances
      as of June 30, 2010
                    
                    
                    16,918
                    
                    
                    $
                    169
                    
                    
                    $
                    78,491
                    
                    
                    $
                    274
                    
                    
                    $
                    (29,618
                    )
                    
                    $
                    (4,827
                    )
                    
                    $
                    (213
                    )
                    
                    $
                    44,276
                    
                    
                    $
                    10,713
                    
                    
                    $
                    54,989




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


3


ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows(unaudited)


(dollars
in thousands)





Six months ended
                    June 30,2009
                  
                  
                  2010Cash
      flows provided by (used in) operating activities:Net
      loss
                  
                  $
                  (576
                  )
                  
                  $
                  (6,590
                  )Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  893
                  
                  
                  
                  1,064Share
      in losses of GridSense
                  
                  
                  129
                  
                  
                  
                  —Exchange
      rate adjustment on restricted deposits
                  
                  
                  83
                  
                  
                  
                  —Exchange
      rate adjustment on amounts funded for employee termination benefits net of
      exchange adjustment on liability for employee termination
      benefits
                  
                  
                  (22
                  )
                  
                  
                  (24
                  )Increase
      in liability for employee termination benefits
                  
                  
                  107
                  
                  
                  
                  210Amortization
      of stock-based deferred compensation
                  
                  
                  766
                  
                  
                  
                  696Deferred
      taxes
                  
                  
                  —
                  
                  
                  
                  (26
                  )Impairments
                  
                  
                  80
                  
                  
                  
                  —Gain
      on investment in GridSense
                  
                  
                  —
                  
                  
                  
                  (1,327
                  )Gain
      on sale of Comverge shares
                  
                  
                  (1,227
                  )
                  
                  
                  —Other
                  
                  
                  —
                  
                  
                  
                  (6
                  )Change
      in operating assets and liabilities:Increase
      in accounts receivable, unbilled work-in process, other current
      and
                    other
      assets
                  
                  
                  (301
                  )
                  
                  
                  (4,074
                  )Increase
      in inventory
                  
                  
                  (396
                  )
                  
                  
                  (1,062
                  )Increase
      (decrease) in accounts payable, accrued payroll, payroll taxes and social
      benefits, advances from  customers, other current liabilitiesand
      other liabilities
                  
                  
                  (1,620
                  )
                  
                  
                  2,416Net
      cash used in operating activities
                  
                  
                  (2,084
                  )
                  
                  
                  (8,723
                  )Cash
      flows provided by (used in) investing activities:Proceeds
      from sale of Comverge shares and covered calls
                  
                  
                  3,681
                  
                  
                  
                  —Investment
      in EnerTech
                  
                  
                  (500
                  )
                  
                  
                  (500
                  )Restricted
      deposits
                  
                  
                  (500
                  )
                  
                  
                  (1,182
                  )Release
      of restricted deposits
                  
                  
                  —
                  
                  
                  
                  672Loan
      to GridSense prior to acquisition
                  
                  
                  —
                  
                  
                  
                  (200
                  )Amounts
      funded for employee termination benefits
                  
                  
                  (109
                  )
                  
                  
                  (123
                  )Acquisitions
      of property and equipment
                  
                  
                  (414
                  )
                  
                  
                  (5,631
                  )Acquisitions
      of license
                  
                  
                  —
                  
                  
                  
                  (82
                  )Acquisition
      of USSI, net of cash acquired (See Schedule A)
                  
                  
                  —
                  
                  
                  
                  7Acquisition
      of Decision Dynamics, net of cash acquired (See Schedule
B)
                  
                  
                  —
                  
                  
                  
                  1,021Acquisition
      of GridSense, net of cash acquired (See Schedule C)
                  
                  
                  —
                  
                  
                  
                  (1,352
                  )Acquisition
      of OMI (See Schedule D)
                  
                  
                  —
                  
                  
                  
                  —Net
      cash provided by (used in) investing activities
                  
                  
                  2,158
                  
                  
                  
                  (7,370
                  )Cash
      flows provided by (used in) financing activities:Proceeds
      from capital raise, net of transaction costs
                  
                  
                  —
                  
                  
                  
                  11,445Issuance
      of shares to non-controlling interests in consolidated
      subsidiary
                  
                  
                  1,094
                  
                  
                  
                  2,383Exercise
      of options and warrants
                  
                  
                  —
                  
                  
                  
                  220Short-term
      debt borrowings, net
                  
                  
                  (241
                  )
                  
                  
                  693Repayments
      of long-term debt
                  
                  
                  (4
                  )
                  
                  
                  (65
                  )Other
                  
                  
                  —
                  
                  
                  
                  6Purchase
      of additional shares of DSIT
                  
                  
                  (294
                  )
                  
                  
                  —Purchase
      of treasury shares
                  
                  
                  (1,062
                  )
                  
                  
                  —Net
      cash provided by (used in) financing activities
                  
                  
                  (507
                  )
                  
                  
                  14,682Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  (97
                  )
                  
                  
                  208Net
      decrease in cash and cash equivalents
                  
                  
                  (530
                  )
                  
                  
                  (1,203
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  15,142
                  
                  
                  
                  11,208Cash
      and cash equivalents at end of period
                  
                  $
                  14,612
                  
                  
                  $
                  10,005




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


4


ACORN
ENERGY, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows(unaudited)


(dollars
in thousands)





Non-cash
      items:Unrealized
      gain (loss) from Comverge shares
                    
                    $
                    384Intangibles
      acquired by Coreworx in consideration for future royalties
                    
                    $
                    99Adjustment
      of additional paid-in-capital and non-controlling interests from
      investment in CoaLogix by non-controlling interests
                    
                    $
                    245
                    
                    
                    $
                    492Adjustment
      of additional paid-in-capital and non-controlling from exercise of option
      by Acorn in USSI
                    
                    
                    
                    
                    
                    $
                    176Value
      of Acorn shares issued in the acquisition of Decision
    Dynamics
                    
                    
                    
                    
                    
                    $
                    5,640Value
      of Acorn shares issued in the acquisition of GridSense
                    
                    
                    
                    
                    
                    $
                    1,867Schedule
      A:Assets/liabilities
      acquired in the acquisition of USSI:Other
      current assets
                    
                    
                    
                    
                    
                    $
                    (55
                    )Property
      and equipment
                    
                    
                    
                    
                    
                    
                    (56
                    )Intangibles
                    
                    
                    
                    
                    
                    
                    (2,565
                    )Goodwill
                    
                    
                    
                    
                    
                    
                    (1,402
                    )Current
      liabilities
                    
                    
                    
                    
                    
                    
                    285Prior
      year investment in USSI
                    
                    
                    
                    
                    
                    
                    200Non-controlling
      interests
                    
                    
                    
                    
                    
                    
                    3,600$
                    7Schedule
      B:Assets/liabilities
      acquired in the acquisition of Decision Dynamics:Other
      current assets
                    
                    
                    
                    
                    
                    $
                    (1,149
                    )Property
      and equipment
                    
                    
                    
                    
                    
                    
                    (339
                    )Intangibles
                    
                    
                    
                    
                    
                    
                    (1,248
                    )Goodwill
                    
                    
                    
                    
                    
                    
                    (2,476
                    )Current
      liabilities
                    
                    
                    
                    
                    
                    
                    593Value
      of Acorn shares issued in the acquisition of Decision
    Dynamics
                    
                    
                    
                    
                    
                    
                    5,640$
                    1,021Schedule
      C:Assets/liabilities
      acquired in the acquisition of GridSense:Inventory
                    
                    
                    
                    
                    
                    $
                    (833
                    )Other
      current assets
                    
                    
                    
                    
                    
                    
                    (482
                    )Property
      and equipment
                    
                    
                    
                    
                    
                    
                    (71
                    )Other
      assets
                    
                    
                    
                    
                    
                    
                    (370
                    )Intangibles
                    
                    
                    
                    
                    
                    
                    (2,314
                    )Goodwill
                    
                    
                    
                    
                    
                    
                    (3,587
                    )Current
      liabilities
                    
                    
                    
                    
                    
                    
                    1,935Long-term
      debt
                    
                    
                    
                    
                    
                    
                    23Non-current
      liabilities
                    
                    
                    
                    
                    
                    
                    90Gain
      on step-up of investment
                    
                    
                    
                    
                    
                    
                    1,327Consideration
      paid – see Note 4(b) for detail
                    
                    
                    
                    
                    
                    
                    4,406Less
      cash included in consideration paid
                    
                    
                    
                    
                    
                    
                    (1,476
                    )$
                    (1,352
                    )Schedule
      D:Assets/liabilities
      acquired in the acquisition of OMI:Other
      current assets
                    
                    
                    
                    
                    
                    
                    (39
                    )Property
      and equipment
                    
                    
                    
                    
                    
                    
                    (41
                    )Intangibles
                    
                    
                    
                    
                    
                    
                    (322
                    )Current
      liabilities
                    
                    
                    
                    
                    
                    
                    402$
                    —




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


5


ACORN
ENERGY, INC. AND SUBSIDIARIES


Notes to Consolidated Financial
Statements(unaudited)


(dollars
in thousands)




Note
1: Basis of Presentation




The
accompanying unaudited consolidated financial statements of Acorn Energy, Inc.
and its subsidiaries (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included.  Operating results for the six-month period ended June
30, 2010 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010. 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, 2009.




Note
2: Recent Authoritative Guidance




In
March 2010, the Financial Accounting Standard Board (“FASB”) ratified a
consensus of the Emerging Issues Task Force related to the milestone method of
revenue recognition. The consensus will codify a method of revenue recognition
that has been common practice. Under this method, contingent consideration from
research and development activities that is earned upon the achievement of a
substantive milestone is recognized in its entirety in the period in which the
milestone is achieved. This guidance is effective for annual periods beginning
on or after June 15, 2010 but may be early adopted as of the beginning of
an annual period. The Company is currently evaluating the effect that this
guidance will have on its consolidated financial position, results of operations
and cash flows.




In
September 2009, the FASB issued authoritative guidance regarding
multiple-deliverable revenue arrangements. This guidance addresses how to
measure and allocate consideration to one or more units of accounting.
Specifically, the guidance requires that consideration be allocated among
multiple deliverables based on relative selling prices. The guidance establishes
a selling price hierarchy of (1) vendor-specific objective evidence,
(2) third-party evidence and (3) estimated selling price. This
guidance is effective for annual periods beginning on or after June 15,
2010 but may be early adopted as of the beginning of an annual period. The
Company is currently evaluating the effect that this guidance will have on its
consolidated financial position, results of operations and cash
flows.




Note
3: Inventory





As of
                    December 31,
                    2009
                  
                  
                  As of
                    June 30,
                    2010Raw
      materials
                  
                  $
                  550
                  
                  
                  $
                  959Work-in-process
                  
                  
                  1,298
                  
                  
                  
                  2,240Finished
      goods
                  
                  
                  —
                  
                  
                  
                  531$
                  1,848
                  
                  
                  $
                  3,730


6




Note
4: Acquisitions




(a)
            Acquisition
      of Decision Dynamics Technology
Ltd.





On April
30, 2010, the Company's Coreworx subsidiary completed the acquisition of all of
the issued and outstanding common shares of Decision Dynamics Technology Ltd.,
a Canadian corporation (“Decision Dynamics”), in consideration for issuance
of 1,000,000 shares of the Company's common stock to the stockholders of
Decision Dynamics in accordance with terms of a previously announced agreement
that the Company entered into on March 2, 2010 with Coreworx and Decision
Dynamics.  Decision Dynamics is a leading provider of capital project
controls and cost management software for normal operations and capital projects
in the energy industry and, until completion of the acquisition by Coreworx, had
been a TSX Venture Exchange-traded company.





The
acquisition was structured as a plan of arrangement under the Canada Business
Corporations Act and was subject to approval by the holders of at least
two-thirds of the outstanding common shares and options of Decision Dynamics,
each voting as a separate class, which was obtained at a meeting held on April
27, 2010.  The acquisition was also approved on April 29, 2010 by the
Court of Queen's Bench of Alberta, which conducted a hearing upon the fairness
of the terms of the transaction.





Of the
Company's shares issued in connection with completion of the acquisition,
approximately 340,000 were escrowed at closing, with one-half released 90 days
after the date of closing (July 29, 2010) and the balance to be released 180
days after the date of closing (October 27, 2010).  Subject to such escrow,
the shares issued to the Decision Dynamics stockholders are freely tradable
under US federal securities laws.  The issuance of the Company’s common
stock to the Decision Dynamics stockholders was made without registration under
the Securities Act of 1933, as amended, in reliance upon Section 3(a)
(10).




The
transaction is accounted for as a purchase business combination. Decision
Dynamics’ results from operations for the period from acquisition (April 30,
2010) to June 30, 2010 have been included in the Company’s consolidated
statement of operations.




The
purchase price of $5,640 represents the market value of the 1,000,000 shares of
Acorn common stock issued to the former stockholders of Decision Dynamics (based
on the closing price of Acorn shares on the date of the transaction in
accordance with generally accepted accounting principles).




The
assets and liabilities of Decision Dynamics are required to be adjusted to their
fair values.  The fair value of Decision Dynamics is allocated to
identifiable tangible and intangible assets and liabilities assumed based on
their fair values as of the date of the completion of the transaction. The
Company is in the process of finalizing third-party valuation of intangible
assets as of that date, for the purposes of allocating the $5,640 purchase price
to assets and liabilities and has preliminarily allocated the purchase price as
follows:





Cash
                  
                  $
                  1,021Other
      current assets
                  
                  
                  1,149Property
      and equipment
                  
                  
                  339Intangible
      assets
                  
                  
                  1,248Goodwill
                  
                  
                  2,476Total
      assets acquired
                  
                  
                  6,233Current
      liabilities
                  
                  
                  (593
                  )Fair
      value acquired
                  
                  $
                  5,640




7




Intangible
assets with estimated useful lives are amortized over that period. The acquired
intangible assets with useful lives include approximately $367 for the estimated
market value of Decision Dynamics’ customer contracts and relationships
(estimated useful life of eight years) and approximately $881 for the estimated
market value of Decision Dynamics’ software (estimated useful life of 12 years).
The goodwill of $2,476 will not be amortized for financial statement purposes in
accordance with generally accepted accounting principles. The intangible assets
and the goodwill acquired were assigned to the Company’s Coreworx
segment.




(b)
            Acquisition
      of GridSense





Under the
terms of a Share Sale Agreement entered into by and among the Company, GridSense
Pty.  (“GridSense”), the GridSense stockholders and certain note
holders of GridSense on May 12, 2010, the Company acquired the outstanding
GridSense shares that were not owned by it (69.86%).





The total
purchase price of $4,406 is comprised of the following: (1) the market value of
the 206,995 shares of Acorn common stock issued to the former stockholders of
GridSense ($1,085 - based on the market price of Acorn shares on the date of the
transaction in accordance with generally accepted accounting principles); (2)
the $882 of cash paid and the market value of the 149,201 shares of Acorn common
stock issued ($782) for the purchase of the promissory notes; (3) $594 of cash
that was provided to GridSense at closing to pay a stockholder loan; (4) an
earn-out which is estimated to be $287 and is recorded as a liability in Other
current liabilities (see below); and (5) $750 of loans provided to GridSense in
2009 ($550) and in 2010 ($200) in contemplation of the acquisition and accrued
interest ($26) on those loans.





Under the
Share Sale Agreement, the Company agreed to pay an earn-out to the stockholders
of GridSense as part of the consideration for their shares.  To the
extent that GridSense’s sales for the period April 1, 2010 through March 31,
2011 exceed $4,384, the Company will pay the GridSense stockholders an amount
equal to 50% of that excess, up to $2,435, multiplied by 69.86% (representing
their ownership interest in GridSense) for a maximum earn-out payment of
$1,701.  The Company has the option of paying any earn-out in cash
and/or shares of its common stock and has estimated this amount to be $287,
which is included in the purchase price above.




In
connection with the acquisition of GridSense, the Company recorded a gain of
$1,327 on the step-up of the Company’s previous carrying value of its investment
in GridSense to fair value in accordance with generally accepted accounting
principles for step acquisitions.




The
transaction is accounted for as a purchase business combination. GridSense’s
results from operations for the period from acquisition (May 12, 2010) to June
30, 2010 have been included in the Company’s consolidated statement of
operations.




In
accordance with generally accepted accounting principles, the fair value of
GridSense is allocated to GridSense’s identifiable tangible and intangible
assets and liabilities assumed based on their fair values as of the date of the
completion of the transaction. The Company is in the process of finalizing
third-party valuation of intangible assets as of that date, for the purposes of
allocating the purchase price to assets and liabilities and has preliminarily
allocated the purchase price as follows:




8





Cash
                      
                      $
                      124Inventory
                      
                      
                      833Other
      current assets
                      
                      
                      482Property
      and equipment
                      
                      
                      71Other
      assets
                      
                      
                      370Intangible
      assets
                      
                      
                      2,314Goodwill
                      
                      
                      3,587Total
      assets acquired
                      
                      
                      7,781Current
      liabilities
                      
                      
                      (1,935
                      )Long-term
      debt
                      
                      
                      (23
                      )Non-current
      liabilities
                      
                      
                      (90
                      )Fair
      value acquired
                      
                      $
                      5,733Total
      purchase price
                      
                      $
                      4,406Previous
      carrying value of investment
                      
                      
                      -Gain
      on step-up of fair value of prior ownership interest
                      
                      
                      1,327$
                      5,733




Intangible
assets with estimated useful lives are amortized over that period. The acquired
intangible assets with useful lives include approximately $1,793 for the
estimated market value of GridSense technologies, (weighted average estimated
useful life of 11 years), $253 for the estimated market values of acquired
customer relationships (estimated useful life of 10 years), $187 for the
estimated market value of the GridSense trade name (estimated useful life of 15
years) and $81 for the estimated market value on non-compete agreements
(estimated useful life of three years). The goodwill will not be amortized for
financial statement purposes in accordance with generally accepted accounting
principles. The intangible assets and the goodwill acquired were assigned to the
Company’s new GridSense segment.




(c)
US Sensor Systems Inc. (USSI)





(i) Acorn
Investment and Option Agreements




On
February 23, 2010, following its $200 investment in USSI common stock in
November 2009, the Company entered into an option agreement with USSI and a
related option agreement with certain stockholders of USSI (the “Option
Agreements”).




Under the
terms of the Option Agreements, the Company has the right to acquire up to an
additional 254,854 shares of USSI’s common stock for a purchase price of $800 as
follows:




·
            The
      Company had the right to acquire 95,469 of these shares under the option
      in consideration for payment of $300 on or before March 31, 2010. (This
      option was exercised immediately following the signing of the Option
      Agreements – see below).




·
            The
      Company had the right to acquire 63,646 of these shares in consideration
      for payment of $200 on or before May 31, 2010.  (This option was
      exercised on May 23, 2010 – see
below)




·
            The
      Company has the right to acquire an additional 95,469 shares on or before
      August 27, 2010 in consideration for payment of $300 (This option was
      partially exercised on June 14, 2010 – see
  below).


9




In
addition, the Company has the right to acquire 516,378 shares of USSI
common stock held by stockholders in consideration for payment to them of
$2,112 on or before August 27, 2010.  The purchase price is
payable in the Company’s common stock which shall be priced on the basis of the
average of the daily volume weighted average of the Company’s common stock for
the 20 trading days ending on the day that is five days preceding the date that
the Company exercises its option to acquire the shares of the USSI
stockholders.  The shares of the Company’s common stock that are
issued to the USSI stockholders in consideration for their shares would be
restricted securities under Securities Act of 1933 and would be subject to a
lock-up by certificate legend.  The shares would be released from the
lock-up over a one year period, with 25% being released each three months. If
the Company exercises the options described in this and in the preceding
paragraph, the Company would own common stock of USSI representing approximately
57.6% of USSI’s capitalization (approximately 51% fully diluted).




Under the
Option Agreements, if the Company exercises all of the previously mentioned
options, the Company would have the right to acquire 1,693,391 additional shares
of USSI’s common stock from USSI on or before November 30, 2010 in consideration
for payment of $1,500.  If the Company exercises this option, it would
have the right to acquire 1,693,391 additional shares of common stock from USSI
on or before May 30, 2011 in consideration for payment of $1,500.




If the
Company purchases all of the USSI common stock it is entitled to purchase under
the Option Agreements, the Company would hold USSI shares representing
approximately 87.4% of USSI’s capitalization (approximately 84.0% fully
diluted).




Immediately
following the signing of the Option Agreements, the Company exercised an option
and purchased an additional 95,469 shares of USSI on February 23, 2010 for $300.
Of the $500 the Company initially paid to USSI with respect to the acquisition
of shares and options, the Company has allocated $100 of the purchase price to
the value of the options received with the remaining $400 being allocated to the
initial 10% investment in USSI imputing a fair value of USSI of
$4,100.




On May
23, 2010, the Company exercised an option and purchased an additional 63,646
shares of USSI’s common stock for $200. On June 14, 2010, the Company partially
exercised an option and purchased an additional 12,729 shares of USSI’s common
stock for $40. The Company currently owns 222,761 shares of USSI’s common stock
which represents approximately 16.6% of USSI’s capitalization (approximately
14.4% fully diluted). Accordingly, the Company recorded an adjustment of $176 to
the non-controlling interests balance initially recorded with respect to the
Company’s investment in USSI to reflect the updated balance of the
non-controlling interests share in USSI to $3,424.





(ii) USSI
as a Consolidated Variable Interest Entity




As a
result of the above-mentioned investments and option agreements, USSI is a
variable interest entity by virtue of the Company's initial $500 investment and
the call options that can give the Company control of USSI within a short period
of time and that may be considered "in-the-money".  USSI was dependent upon
the Company exercising its options under the Option Agreements for it cash
requirements.   The Company considered several factors to determine
whether it or another stockholder is the primary beneficiary of the activities
of USSI, including the existence of the Company's options in USSI and the
likelihood of the Company's exercising those options as well as the level of
control and influence the Company has in USSI and USSI's dependence on the
Company's exercising its options in order to finance its
operations.  Based on those factors, the Company determined that it is
most closely associated with USSI and is therefore the primary
beneficiary.  Accordingly, the financial results of USSI are included
in the Company’s consolidated financial statements effective February 23, 2010
and all amounts pertaining to other stockholders’ interests in USSI are reported
as non-controlling interests in subsidiaries. USSI is presented as the Company’s
new Energy and Security Sensor System segment.




The
transaction is accounted for as a purchase business combination. USSI’s results
from operations for the period from acquisition (February 23, 2010) to June 30,
2010 have been included in the Company’s consolidated statement of
operations.


10




In
accordance with generally accepted accounting principles, the $4,100 of initial
fair value of USSI is allocated to USSI’s identifiable tangible and intangible
assets and liabilities assumed based on their fair values as of the date of the
completion of the transaction. The Company has received third-party valuation of
intangible assets as of that date, for the purposes of allocating the purchase
price to assets and liabilities and has allocated the purchase price as
follows:




Cash
                      
                      $
                      307Other
      current assets
                      
                      
                      37Property
      and equipment
                      
                      
                      56Other
      assets
                      
                      
                      18Intangible
      assets
                      
                      
                      2,565Goodwill
                      
                      
                      1,402Total
      assets acquired
                      
                      
                      4,385Current
      liabilities
                      
                      
                      (285
                      )Fair
      value acquired
                      
                      $
                      4,100




The
third-party valuation of intangible assets with estimated useful lives are
amortized over that period. The acquired intangible assets with useful lives is
comprised of approximately $2,565 for the estimated fair market value of USSI's
sensor technologies (estimated useful life of 20 years). Both the goodwill and
the intangibles resulting from the acquisition are not deductible for income tax
purposes. The goodwill will not be amortized for financial statement purposes in
accordance with applicable accounting principles. The intangible assets and the
goodwill acquired were assigned to the Company’s new Energy and Security Sensor
System segment.




(d)
On-Line Monitoring Inc.





On May
20, 2010, GridSense acquired the assets of On-Line Monitoring Inc. (“OMI”), a
manufacturer of on-line substation monitoring equipment based in Exton,
PA.




Under the
terms of the Asset Purchase Agreement, GridSense acquired all the assets
(including receivables, inventory, fixed assets and intellectual property) and
assumed certain liabilities of OMI as defined. The net liabilities assumed by
GridSense in the transaction were $352. In addition, GridSense agreed to pay to
the seller of OMI an incremental sales payment equal to the dollar amount of
orders received for OMI products for the period from July 1, 2010 to June 30,
2011 which is in excess of $450. In accordance with the Asset Purchase
Agreement, the incremental sales payment can be no more than $200 and is payable
in either cash or shares of the Company’s common stock at the discretion of
GridSense. The Company estimates the incremental sales payment to be $50, and
accordingly, the purchase price of OMI is $402.




The
transaction is accounted for as a purchase business combination. Accordingly,
OMI’s results from operations for the period from acquisition (May 23, 2010) to
June 30, 2010 have been included in the Company’s consolidated statement of
operations.




In
accordance with generally accepted accounting principles, the purchase price of
$402 of OMI is allocated to identifiable tangible and intangible assets and
liabilities assumed based on their fair values as of the date of the completion
of the transaction. The Company has allocated the purchase price as
follows:


11





Accounts
      receivable
                      
                      $
                      16Inventory
                      
                      
                      23Property
      and equipment
                      
                      
                      41Intangible
      assets
                      
                      
                      322Total
      assets acquired
                      
                      
                      402Current
      liabilities
                      
                      
                      (352
                      )Estimated
      earn-out payment
                      
                      
                      (50
                      )Total
      liabilities acquired
                      
                      $
                      (402
                      )




The
acquired intangible assets with estimated useful lives is comprised of
approximately $222 for the estimated fair market value of OMI’s intellectual
property (estimated useful life of 5 years) and $100 for non-compete agreements
to certain employees (estimated useful life of 2 years). The intangible assets
resulting from the acquisition are not deductible for income tax purposes. The
intangible assets acquired were assigned to the Company’s new GridSense
segment.




(e)
Pro Forma Information




The
following are certain unaudited pro forma information assuming that the
acquisition of Decision Dynamics occurred on January 1, 2010 and 2009,
respectively. The unaudited pro forma financial information is not necessarily
indicative of the combined results that would have been attained had the
acquisition of Decision Dynamics occurred as of January 1, 2010 and 2009,
respectively, nor is it necessarily indicative of future results.




Pro forma
information with respect to GridSense, USSI and OMI are not included in the
table below as they are not material.





Six months
                      ended June
                      30, 2010
                    
                    
                    Six months
                      ended June
                      30, 2009
                    
                    
                    Three
                      months
                      ended June
                      30, 2010
                    
                    
                    Three
                      months
                      ended June
                      30, 2009In
      thousands (except per share data)(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Results
      of OperationsSales
                    
                    $
                    17,462
                    
                    
                    $
                    18,126
                    
                    
                    $
                    8,723
                    
                    
                    $
                    9,259Net
      loss*
                    
                    $
                    (7,715
                    )
                    
                    $
                    (1,233
                    )
                    
                    $
                    (4,244
                    )
                    
                    $
                    (254
                    )Net
      loss per share – basic and diluted
                    
                    $
                    (0.53
                    )
                    
                    $
                    (0.10
                    )
                    
                    $
                    (0.27
                    )
                    
                    $
                    (0.02
                    )




*
              Net
      loss during the six and three month periods ended June 30, 2010 include
      approximately $406 of costs recorded on Decision Dynamics books with
      respect to Coreworx’ acquisition of
them.





Note
5:  CoaLogix





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


12


Through December 31, 2009, the Company
funded $2,747 of its $5,624 commitment under the Purchase Agreement and its
interest in CoaLogix was diluted to approximately 77.4%. In the first six months
of 2010, CoaLogix issued capital calls of $4,660 of which the Company's share
was $2,277, which capital calls were funded by the Company, EnerTech and
CoaLogix’ senior management. At June 30, 2010, the Company’s interest in
CoaLogix was diluted to approximately 73.2%. (See Note 15 – Subsequent
Events.)





In accordance with applicable
accounting principles, the Company recorded an increase of $492 in additional
paid-in-capital as a result of the $2,383 investment by non-controlling
interests in 2010.




Note
6: Non-Controlling Interests




The
composition of the net income (loss) attributable to non-controlling interests
(“NCI”) is as follows:




Six months ended
                          June 30,
                        
                        
                        Three months ended
                          June 30,2009
                        
                        
                        2010
                        
                        
                        2009
                        
                        
                        2010Net
      income (loss) attributable to NCI in CoaLogix
                        
                        $
                        78
                        
                        
                        $
                        (41
                        )
                        
                        $
                        (9
                        )
                        
                        $
                        (45
                        )Net
      income attributable to NCI in DSIT
                        
                        
                        66
                        
                        
                        
                        110
                        
                        
                        
                        46
                        
                        
                        
                        50Net
      loss attributable to NCI in USSI
                        
                        
                        —
                        
                        
                        
                        (384
                        )
                        
                        
                        —
                        
                        
                        
                        (270
                        )Net
      income (loss) attributable to NCI
                        
                        $
                        144
                        
                        
                        $
                        (315
                        )
                        
                        $
                        37
                        
                        
                        $
                        (265
                        )




13


Note
7:  Goodwill and Other Intangible Assets




The
changes in the carrying amounts of goodwill from December 31, 2009 to June
30, 2010 were as follows:




CoaLogix
                          segment
                        
                        
                        Naval & RT
                          Solutions
                          segment
                        
                        
                        Coreworx
                          segment
                        
                        
                        GridSense
                          segment
                        
                        
                        USSI segment
                        
                        
                        TotalBalance
      as of December 31, 2009
                        
                        
                        3,714
                        
                        
                        $
                        534
                        
                        
                        $
                        2,431
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        6,679Goodwill
      recorded in the acquisition of USSI (see Note 4(c)(ii))
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,402
                        
                        
                        
                        1,402Goodwill
      recorded in the acquisition of Decision Dynamics (see Note
      4(a))
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        2,476
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        2,476Goodwill
      recorded in the acquisition of GridSense (see Note 4(b))
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        3,587
                        
                        
                        
                        —
                        
                        
                        
                        3,587Translation
      adjustment
                        
                        
                        —
                        
                        
                        
                        (14
                        )
                        
                        
                        (144
                        )
                        
                        
                        (238
                        )
                        
                        
                        —
                        
                        
                        
                        (396
                        )Balance
      as of June 30, 2010
                        
                        $
                        3,714
                        
                        
                        $
                        520
                        
                        
                        $
                        4,763
                        
                        
                        $
                        3,349
                        
                        
                        $
                        1,402
                        
                        
                        $
                        13,748




The
changes in the carrying amounts and accumulated amortization of intangible
assets from December 31, 2009 to June 30, 2010 were as
follows:




CoaLogix
      segment
                              
                              
                              Naval
      & RT
                                Solutions
      segment
                              
                              
                              Coreworx
      Segment
                              
                              
                              GridSense
      segment
                              
                              
                              USSI
      segmentSCR
      Technologies**
                              
                              
                              Naval
                                Technologies
                              
                              
                              Software
      and
                                Customer
                                Relationships
                              
                              
                              Software
      and
                                Customer
                                Relationships
                              
                              
                              Sensor
      TechnologiesCost
                              
                              
                              A.A.*
                              
                              
                              Cost
                              
                              
                              A.A.*
                              
                              
                              Cost
                              
                              
                              A.A.*
                              
                              
                              Cost
                              
                              
                              A.A.*
                              
                              
                              Cost
                              
                              
                              A.A.*
                              
                              
                              TotalBalance
      as of December 31, 2009
                              
                              $
                              5,511
                              
                              
                              $
                              (1,184
                              )
                              
                              $
                              527
                              
                              
                              $
                              (128
                              )
                              
                              $
                              3,841
                              
                              
                              $
                              (373
                              )
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              8,194Acquisition
      of license
                              
                              
                              82
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              82Intangibles
      recorded in the acquisition of USSI (see Note 4(c)(ii))
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              2,565
                              
                              
                              
                              —
                              
                              
                              
                              2,565Intangibles
      recorded in the acquisition of Decision Dynamics (see Note
      4(a))
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              1,248
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              1,248Intangibles
      recorded in the acquisition of GridSense (see Note 4(b))
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              2,314
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              2,314Intangibles
      recorded in the acquisition of OMI (see Note 4(d))
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              322
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              322Amortization
                              
                              
                              —
                              
                              
                              
                              (273
                              )
                              
                              
                              —
                              
                              
                              
                              (33
                              )
                              
                              
                              —
                              
                              
                              
                              (169
                              )
                              
                              
                              —
                              
                              
                              
                              (56
                              )
                              
                              
                              —
                              
                              
                              
                              (43
                              )
                              
                              
                              (574
                              )Cumulative
      translation adjustment
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (14
                              )
                              
                              
                              4
                              
                              
                              
                              (104
                              )
                              
                              
                              8
                              
                              
                              
                              (101
                              )
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (207
                              )Balance
      as of June 30, 2010
                              
                              $
                              5,593
                              
                              
                              $
                              (1,457
                              )
                              
                              $
                              513
                              
                              
                              $
                              (157
                              )
                              
                              $
                              4,985
                              
                              
                              $
                              (534
                              )
                              
                              $
                              2,535
                              
                              
                              $
                              (56
                              )
                              
                              $
                              2,565
                              
                              
                              $
                              (43
                              )
                              
                              $
                              13,944




*    Accumulated
amortization




**   SCR
Technologies includes regeneration, rejuvenation, on-site cleaning and licensed
technologies.


14




In April
2010, CoaLogix signed an agreement to acquire a license to use certain
technology developed by a third-party for $82. CoaLogix is amortizing the
license over its estimated useful life of 115 months. Under the license
agreement, CoaLogix is required to pay the greater of (1) royalties to the
third-party of 2% of certain sales defined in the agreement or (2) minimum
annual royalties of $5, $5, $10, $20, $30 $40 and $50 for the periods ending
June 30, 2010 through 2016 and thereafter. The license agreement may be
terminated by CoaLogix at any time with 60 days written notice.




All
intangible assets are being amortized over their estimated useful lives, which
were estimated to be ten years for SCR Technologies, seven years for Naval
Technologies, 14 years for software and customer relationships in the Coreworx
segment, 10 years for software and customer relationships in the GridSense
segment and twenty years for Sensor Technologies. Amortization expense for each
of the six months ended June 30, 2009 and 2010 amounted to $527 and $574,
respectively.  Amortization expense with respect to intangible assets
is estimated to be $1,505, $1,475, $1,431, $1,372 and $1,322 for each of the
years ending June 30, 2011 through 2015.





Note
8:  Stockholders’ Equity




(a)
Capital Raise




On March
8, 2010, the Company completed a registered direct offering through a placement
agent of 2,231,818 shares of its common stock pursuant to separate subscription
agreements between the Company and each of the investors at $5.50 per share to
certain accredited investors for gross proceeds of approximately
$12,275.




The
aggregate net proceeds from the Offering, after deducting the placement agent’s
fee and the offering expenses payable by the Company in connection with the
offering, was $11,445.




(b)
Authorized Shares




At the
annual meeting of stockholders on June 10, 2010, the Company’s stockholders
approved an amendment to its Certificate of Incorporation to increase the number
of authorized shares of capital stock from 20,000,000 shares to 30,000,000
shares, all of which shall be Common Stock.  The increase in authorized
shares was effected pursuant to a Certificate of Amendment to the Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on, and
effective as of, June 15, 2010.




Note
9:  Stock Options and Warrants




(a)
Acorn Stock Options





A summary
of stock option activity for the six months ended June 30, 2010 is as
follows:





Number of
                                              Options
                                              (in shares)
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Contractual
                                              Life
                                            
                                            Aggregate
                                              Intrinsic
                                              ValueOutstanding
      at December 31, 2009
                                            
                                            
                                            1,745,165
                                            
                                            
                                            $
                                            3.52Granted
                                            
                                            
                                            195,000
                                            
                                            
                                            $
                                            6.00Exercised
                                            
                                            
                                            (67,500
                                            )
                                            
                                            $
                                            2.36Forfeited
      or expired
                                            
                                            
                                            —Outstanding
      at June 30, 2010
                                            
                                            
                                            1,872,665
                                            
                                            
                                            $
                                            3.82
                                            
                                            3.8
      years
                                            
                                            $
                                            2,873Exercisable
      at  June 30, 2010
                                            
                                            
                                            1,424,121
                                            
                                            
                                            $
                                            3.55
                                            
                                            3.6
      years
                                            
                                            $
                                            2,484




15


The
weighted average grant date fair value of the 195,000 stock options granted
during the first six months of 2010 was $3.89 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
                  
                  
                  68
                  %Expected term
      (years)
                  
                  
                  6.4Risk
      free interest rate
                  
                  
                  3.1
                  %Expected
      dividend yield
                  
                  None




At the
Company’s Annual Meeting of Stockholders on June 10, 2010, the
Company’s stockholders approved an amendment to its 2006 Stock Incentive
Plan (the “Plan”) to increase the aggregate number of shares of common stock
which may be awarded under the Plan from 665,000 to 1,665,000 and the aggregate
number of shares which may be awarded pursuant to incentive stock options by
800,000 to 1,000,000.   As a result of the approval of the amendment,
1,008,000 shares are available for new awards under the Plan, of which 800,000
may be granted as incentive stock options.





(b)
Stock-based compensation expense




Total
stock-based compensation expense included in the Company’s statements of
operations for the three and six months ended June 30, 2009 and 2010,
respectively, was:




Six
                      months
                      ended
                      June 30,
                      2009
                    
                    
                    Six
                      months
                      ended
                      June 30,
                      2010
                    
                    
                    Three
                      months
                      ended
                      June 30,
                      2009
                    
                    
                    Three
                      months
                      ended
                      June 30,
                      2010Cost
      of sales
                    
                    $
                    98
                    
                    
                    $
                    9
                    
                    
                    $
                    49
                    
                    
                    $
                    4Research
      and development expense
                    
                    
                    40
                    
                    
                    
                    62
                    
                    
                    
                    21
                    
                    
                    
                    31Selling,
      general and administrative expenses
                    
                    
                    628
                    
                    
                    
                    625
                    
                    
                    
                    287
                    
                    
                    
                    305Total
      stock based compensation expense
                    
                    $
                    766
                    
                    
                    $
                    696
                    
                    
                    $
                    357
                    
                    
                    $
                    340





16


(c)
Warrants





A summary
of stock warrants activity for the six months ended June 30, 2010 is as
follows:





Number of
                      Warrants
                      (in shares)
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      LifeOutstanding
      at December 31, 2009
                    
                    
                    246,904
                    
                    
                    $
                    4.50
                    
                    2.3
      yearsGranted
                    
                    
                    —Exercised
                    
                    
                    (13,598
                    )Forfeited
      or expired
                    
                    
                    —Outstanding
      and exercisable at June 30, 2010
                    
                    
                    233,306
                    
                    
                    $
                    4.50
                    
                    1.8
      years





Note
10: Warranty Provision





The
following table summarizes the changes in accrued warranty liability from the
period from December 31, 2009 to June 30, 2010:





Gross Carrying
                    AmountBalance
      at December 31, 2009
                  
                  $
                  284Warranties
      issued
                  
                  
                  135Adjustment
      of provision
                  
                  
                  (3
                  )Warranty
      claims
                  
                  
                  —Balance
      at  June 30, 2010*
                  
                  $
                  416




* $292 of
the warranty provision is included in Other Current Liabilities and $124 in
Other Liabilities at June 30, 2010.





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





Note
11: Fair Value Measurement





Financial
items measured at fair value are classified in the table below in accordance
with the hierarchy established in applicable accounting principles.





As
      at June 30, 2010Level
      1
                  
                  
                  Level
      2
                  
                  
                  Level
      3
                  
                  
                  TotalCash
      and cash equivalents
                  
                  $
                  10,005
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  10,005Restricted
      deposits – current and non-current
                  
                  
                  2,748
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,748Derivative
      liabilities
                  
                  
                  (34
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (34
                  )Total
                  
                  $
                  12,719
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  12,719




17




As
      at December 31, 2009Level
      1
                  
                  
                  Level
      2
                  
                  
                  Level
      3
                  
                  
                  TotalCash
      and cash equivalents
                  
                  $
                  11,208
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  11,208Restricted
      deposits – current and non-current
                  
                  
                  2,238
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,238Derivative
      liabilities
                  
                  
                  (5
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (5
                  )Total
                  
                  $
                  13,441
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  13,441





Derivative
assets and liabilities that are classified in Level 1 consist of forward
contracts for the purchase of New Israeli Shekels for which market prices are
readily available. Unrealized gains or losses from forward contracts are
recorded in Finance expense, net.





Note
12:  EnerTech





In March
2010, the Company received a distribution of $135 from EnerTech relating to the
Company’s investment in EnerTech. The distribution is recorded as dividends
received from EnerTech in the Company's Consolidated Statement of
Operations.





In March
2010, the Company received a capital call of $500 from EnerTech relating to the
Company’s investment in EnerTech. The Company funded the capital call in April
2010. The Company has currently funded $2,650 of its $5,000 investment
commitment in EnerTech.


18




Note
13: Segment Information




The
Company currently operates in five operating segments:




·
            The
      Company’s CoaLogix segment provides SCR (Selective Catalytic Reduction)
      catalyst and management services through the Company’s CoaLogix
      subsidiary. SCR systems are used by coal-fired power plants to reduce
      nitrogen oxides (NOx) emissions.




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




·
            The
      Company’s Coreworx segment (formerly known as the Energy Infrastructure
      Software segment) provides software for integrated project information and
      cost control solutions in the energy exploration and power generation
      markets. The software is used primarily for management of large capital
      projects. The software and solutions are provided by the Company's
      Coreworx subsidiary and by Decision Dynamics which was acquired by
      Coreworx in April 2010 (see Note 4(a)). As Decision Dynamics was acquired
      in April 2010, Coreworx segment information for the three and six month
      period ended June 30, 2010 is not comparable to the three and six month
      periods ended June 30, 2009.




·
            The
      Company’s GridSense segment provides Smart Grid Distribution Automation
      products and services.  As these activities were acquired in May
      2010 (see Note 4(b)), there are no comparative results reported for these
      activities for the three and six month periods ended June 30, 2009. The
      Company’s GridSense segment also includes the activities of OMI which was
      acquired in May 2010 (see Note
4(d)).




·
            The
      Company’s USSI segment provides Energy and Security Sensor Systems
      services.  USSI was effectively acquired in February 2010 (see
      Note 4(c)). USSI's primary focus is to develop and produce fiber optic
      sensing systems for the energy and security markets.  As these
      activities were effectively acquired in February 2010, there are no
      comparative results reported for these activities for the three and six
      month periods ended June 30, 2009.




Other operations include various
operations in DSIT that do not meet the quantitative thresholds under applicable
accounting principles.




19




CoaLogix
                  
                  
                  Naval and RT
                    Solutions
                  
                  
                  Coreworx
                  
                  
                  GridSense
                  
                  
                  USSI
                  
                  
                  Other
                  
                  
                  TotalSix
      months ended June 30, 2010:Revenues
      from external customers
                  
                  $
                  9,333
                  
                  
                  $
                  4,815
                  
                  
                  $
                  1,667
                  
                  
                  $
                  517
                  
                  
                  $
                  32
                  
                  
                  $
                  614
                  
                  
                  $
                  16,978Intersegment
      revenues
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Segment
      gross profit
                  
                  
                  3,787
                  
                  
                  
                  2,256
                  
                  
                  
                  1,287
                  
                  
                  
                  327
                  
                  
                  
                  10
                  
                  
                  
                  212
                  
                  
                  
                  7,879Stock
      compensation expense
                  
                  
                  213
                  
                  
                  
                  —
                  
                  
                  
                  196
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  409Depreciation
      and amortization expense
                  
                  
                  589
                  
                  
                  
                  88
                  
                  
                  
                  257
                  
                  
                  
                  63
                  
                  
                  
                  64
                  
                  
                  
                  12
                  
                  
                  
                  1,073Segment
      income (loss) before income taxes
                  
                  
                  (204
                  )
                  
                  
                  970
                  
                  
                  
                  (5,204
                  )
                  
                  
                  (324
                  )
                  
                  
                  (436
                  )
                  
                  
                  4
                  
                  
                  
                  (5,194
                  )Six
      months ended June 30, 2009:Revenues
      from external customers
                  
                  $
                  9,937
                  
                  
                  $
                  3,636
                  
                  
                  $
                  2,102
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  583
                  
                  
                  $
                  16,258Intersegment
      revenues
                  
                  
                  —
                  
                  
                  
                  5
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  5Segment
      gross profit
                  
                  
                  3,471
                  
                  
                  
                  1,549
                  
                  
                  
                  1,686
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  163
                  
                  
                  
                  6,869Stock
      compensation expense
                  
                  
                  230
                  
                  
                  
                  2
                  
                  
                  
                  111
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  343Depreciation
      and amortization expense
                  
                  
                  613
                  
                  
                  
                  93
                  
                  
                  
                  173
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  14
                  
                  
                  
                  893Segment
      income (loss) before income taxes
                  
                  
                  533
                  
                  
                  
                  413
                  
                  
                  
                  (603
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (21
                  )
                  
                  
                  322Three
      months ended June 30, 2010:Revenues
      from external customers
                  
                  $
                  4,855
                  
                  
                  $
                  2,534
                  
                  
                  $
                  897
                  
                  
                  $
                  517
                  
                  
                  $
                  32
                  
                  
                  $
                  289
                  
                  
                  $
                  9,124Intersegment
      revenues
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Segment
      gross profit
                  
                  
                  1,855
                  
                  
                  
                  1,208
                  
                  
                  
                  693
                  
                  
                  
                  327
                  
                  
                  
                  10
                  
                  
                  
                  78
                  
                  
                  
                  4,171Stock
      compensation expense
                  
                  
                  92
                  
                  
                  
                  —
                  
                  
                  
                  106
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  198Depreciation
      and amortization expense
                  
                  
                  305
                  
                  
                  
                  44
                  
                  
                  
                  157
                  
                  
                  
                  63
                  
                  
                  
                  51
                  
                  
                  
                  6
                  
                  
                  
                  626Segment
      income (loss) before income taxes
                  
                  
                  (224
                  )
                  
                  
                  509
                  
                  
                  
                  (3,022
                  )
                  
                  
                  (324
                  )
                  
                  
                  (309
                  )
                  
                  
                  (3
                  )
                  
                  
                  (3,373
                  )Three
      months ended June 30, 2009:Revenues
      from external customers
                  
                  $
                  4,547
                  
                  
                  $
                  1,840
                  
                  
                  $
                  1,075
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  318
                  
                  
                  $
                  7,780Intersegment
      revenues
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Segment
      gross profit
                  
                  
                  1,616
                  
                  
                  
                  831
                  
                  
                  
                  931
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  112
                  
                  
                  
                  3,490Stock
      compensation expense
                  
                  
                  129
                  
                  
                  
                  —
                  
                  
                  
                  57
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  186Depreciation
      and amortization expense
                  
                  
                  308
                  
                  
                  
                  48
                  
                  
                  
                  92
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  8
                  
                  
                  
                  456Segment
      income (loss) before income taxes
                  
                  
                  (43
                  )
                  
                  
                  215
                  
                  
                  
                  224
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  21
                  
                  
                  
                  417




20




Reconciliation
of Segment Income (Loss) to Consolidated Net Income





Six months ended
                  June 30,
                
                
                Three months ended
                  June 30,2009
                
                
                2010
                
                
                2009
                
                
                2010Total
      income (loss) for reportable segments
                
                $
                343
                
                
                $
                (5,198
                )
                
                $
                396
                
                
                $
                (3,370
                )Other
      operational segment income (loss)
                
                
                (21
                )
                
                
                4
                
                
                
                21
                
                
                
                (3
                )Total
      operating income (loss)
                
                
                322
                
                
                
                (5,194
                )
                
                
                417
                
                
                
                (3,373
                )Share
      of losses in GridSense
                
                
                (129
                )
                
                
                —
                
                
                
                —
                
                
                
                —Non-controlling
      interests
                
                
                (144
                )
                
                
                315
                
                
                
                (37
                )
                
                
                265Impairments
                
                
                (80
                )
                
                
                —
                
                
                
                (10
                )
                
                
                —Gain
      on investment in GridSense
                
                
                —
                
                
                
                1,327
                
                
                
                —
                
                
                
                1,327Gain
      on sale of Comverge shares
                
                
                1,227
                
                
                
                —
                
                
                
                810
                
                
                
                —Dividends
      received
                
                
                —
                
                
                
                135
                
                
                
                —
                
                
                
                —Income
      tax expense*
                
                
                —
                
                
                
                (198
                )
                
                
                —
                
                
                
                (123
                )Net
      loss of corporate headquarters and other unallocated
    costs**
                
                
                (1,916
                )
                
                
                (2,660
                )
                
                
                (837
                )
                
                
                (1,248
                )Net
      income (loss) attributable to Acorn Energy Inc.
                
                $
                (720
                )
                
                $
                (6,275
                )
                
                $
                343
                
                
                $
                (3,152
                )





*    Tax
expense relates primarily to DSIT's consolidated net income.





**Includes stock
compensation expense of $423 and $299 for the six month periods ending June 30,
2009 and 2010, respectively. Includes stock compensation expense of $171 and
$154 for the three-month periods ending June 30, 2009 and 2010,
respectively.





Note
14: Lawsuit by Environmental Energy Services, Inc.





In
connection with the lawsuit brought by Environmental Energy Services, Inc.
(“EES”) against CoaLogix Inc. and CoaLogix’ CEO William McMahon, on May 11,
2010, CoaLogix, Mr. McMahon and EES entered into a Settlement and Release
Agreement (the “Settlement Agreement”) providing for EES’ agreement to dismiss
its suit against CoaLogix and Mr. McMahon with prejudice following the payment
by CoaLogix to EES of an undisclosed sum. Under the terms of the Settlement
Agreement the amount paid to EES by CoaLogix is to remain
confidential.  CoaLogix paid such sum of money to EES on May 11, 2010,
and EES dismissed its suit with prejudice.  In addition, EES and
CoaLogix together with Mr. McMahon agreed to mutually release one another from
claims related to the EES suit.





Note
15: Subsequent Events





(a)
CoaLogix Capital Call





In July
2010, CoaLogix issued the remaining capital call under the Purchase Agreement of
$1,227 which was funded by the Company, EnerTech and certain members of
CoaLogix’ senior management. The Company’s share was $600 and its interest in
CoaLogix was diluted to approximately 72.3%.





(b)
CoaLogix Credit Facility





On July
22, 2010, the subsidiaries of CoaLogix executed an amendment of its credit
facility which extended and increased its credit availability to a $4 million
formula based line-of-credit, a $1 million non-formula based line-of-credit and
$1 million non-formula based letter of credit. The credit facility expires June
30, 2011 and carries an interest rate of the greater of 1.50% above prime rate
or 5.50% on the formula line of credit and the greater of 2.00% above prime rate
or 6.00% on the non-formula line of credit. The maximum amount of outstanding
credit under the facility is $5 million.




21




ACORN
ENERGY, INC.


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations





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




The
following discussion includes statements that are forward-looking in nature.
Whether such statements ultimately prove to be accurate depends upon a variety
of factors that may affect our business and operations.  Certain of
these factors are discussed in this report and in our Annual Report on Form 10-K
for the year ended December 31, 2009.





REVENUES
BY COMPANY




The
following table shows, for the periods indicated, the dollar amount (in
thousands) of the consolidated revenues attributable to each of our consolidated
companies.




The
financial results of GridSense are included in our consolidated financial
statements effective May 12, 2010. The financial results of Decision Dynamics
are included in our Coreworx results effective April 30, 2010. The financial
results of USSI are included in our consolidated financial statements effective
February 23, 2010. Accordingly, there are no comparative results reported for
these activities for the three and six month periods ended June 30,
2009.





Six months ended
                  June 30,
                
                
                Three months ended
                  June 30,2009
                
                
                2010
                
                
                2009
                
                
                2010CoaLogix
                
                $
                9,937
                
                
                $
                9,333
                
                
                $
                4,547
                
                
                $
                4,855DSIT
      Solutions
                
                
                4,219
                
                
                
                5,429
                
                
                
                2,158
                
                
                
                2,823Coreworx
                
                
                2,102
                
                
                
                1,667
                
                
                
                1,075
                
                
                
                897GridSense
                
                
                —
                
                
                
                517
                
                
                
                —
                
                
                
                517USSI
                
                
                —
                
                
                
                32
                
                
                
                —
                
                
                
                32Total
                
                $
                16,258
                
                
                $
                16,978
                
                
                $
                7,780
                
                
                $
                9,124





BACKLOG




As of
June 30, 2010, our backlog of work to be completed was as follows (amounts in
millions of U.S. dollars):




Backlog at
                      June 30,
                      2010CoaLogix
                    
                    $
                    11.6DSIT
      Solutions
                    
                    
                    5.9Coreworx
                    
                    
                    1.3GridSense
                    
                    
                    0.2USSI
                    
                    
                    0.4Total
                    
                    $
                    19.4




22




RECENT
DEVELOPMENTS





New
Member of the Board of Directors





On July
30, 2010, we announced the appointment of Steven Ledger as a new member of our
Board of Directors, bringing the total membership of the Board to
seven.  Mr. Ledger is Managing Member of Tamalpais Partners, which he
founded, and was previously President of Merriman Asset Management and Chief
Investment Officer of Merriman Focus Fund. He also previously served as
co-founder and managing partner of eCompanies Venture Group where he managed an
Internet focused, strategic venture capital fund with investors that included
Sprint, Disney, EarthLink and Sun America.





OVERVIEW
AND TREND INFORMATION




During
the 2010 period included in this report, we had operations in five reportable
segments:




·
            Catalyst
      regeneration technologies and management services for SCR systems which
      are provided through our CoaLogix
subsidiary.




·
            Sonar
      and acoustic related solutions for energy, defense and commercial markets
      and other real-time embedded hardware & software development is
      reported in our Naval and RT Solutions segment whose activities are
      conducted through our DSIT
subsidiary.




·
            Software
      for integrated project information and cost control solutions for energy
      exploration and power generation markets provided through our Coreworx
      subsidiary. The reported operations of Coreworx include the operations of
      Decision Dynamics Inc. which was acquired by Coreworx in April
      2010.




·
            Smart
      grid distribution automation products and services provided through our
      GridSense subsidiary which was acquired in May
  2010.




·
            Energy
      and security sensor systems services which is provided by USSI which was
      effectively acquired by us in February
2010.




Accordingly,
our results for the three and six month periods ending June 30,
2010  are not comparable to the three and six month periods ending
June 30, 2009 with respect to Coreworx’, GridSense’s and USSI’s
results.




The
following analysis should be read together with the segment information provided
in Note 13 to the interim unaudited consolidated financial statements included
in this quarterly report.





CoaLogix




Our CoaLogix segment reported decreased
revenues in the first six months of 2010 as compared to the first six months of
2009, however, despite decreased revenues CoaLogix still reported increased
gross profit as well as increased gross margin. Second quarter 2010 revenues
reflected a modest increase over second quarter 2009 revenues with a
commensurate increase in gross profit as gross margin increased
slightly.





Revenues of $9.3 million represent a
decrease of approximately $0.6 million or 6% in the first half of 2010 as
compared to the first half of 2009. The decrease in revenues from the first half
of 2009 was primarily due to revenue recognition timing on completed catalyst
modules (“modules”) awaiting third party test results which caused approximately
$0.7 million of revenue to be deferred from the fourth quarter of 2008 into the
first quarter of 2009.  Second quarter 2010 revenues of $4.8 million
reflected an increase of $0.3 million or 7% compared to second quarter 2009
revenues of $4.5 million. Second quarter 2010 revenues also reflected a $0.4
million or 8% increase over first quarter 2010 revenues. In addition to
directing its resources to processing modules for revenue, some of CoaLogix'
processing resources were directed to processing its own inventory of modules
which increased by $0.9 million in the first half of 2010.




23




Despite the decreased revenues, gross
profit in the first half of 2010 increased by approximately $0.3 million, or 9%,
over first half 2009 gross profit. The increase in gross profit was due to the
significantly increased gross margin which increased from 35% for the 2009
period to 41% in the 2010 period. The increased gross margin is primarily due to
higher regeneration margins resulting from improved processing efficiencies and
the processing of some mechanical cleaning jobs that typically have higher
margins.





During
the quarter, CoaLogix received new orders totaling $9.3 million and at the end
of June 2010 had a backlog of $11.6 million. We expect revenues in the second
half of 2010 to accelerate as the new Steele Creek plant becomes operational in
August of 2010 which will significantly increase our capacity to process
modules.





In April
2009, we entered into an agreement with CoaLogix, EnerTech and certain members
of CoaLogix’ senior management pursuant to which Acorn and EnerTech each agreed
to invest $5.6 million, and certain members of CoaLogix’ senior management
agreed to invest an aggregate of approximately $260,000, in
CoaLogix.  Through June 30, 2010, CoaLogix received $10.3 million
(including $5.0 million from Acorn) out of the $11.5 million investment
commitment from Acorn, EnerTech and CoaLogix' senior management, including $4.7
million invested ($2.3 million by Acorn) in 2010.  Proceeds of the
investment have been or will be used by CoaLogix primarily for development of
CoaLogix’ new Steele Creek facility, technology development, legal expenses and
computer software. The remaining committed funds of $1.2 million were called and
received in July 2010, and are expected to be used for development of CoaLogix'
new Steele Creek facility.





DSIT
Solutions




DSIT
reported significantly increased revenues in the first half of 2010 as compared
to the first half of 2009 as well as significantly increased gross profit, gross
margin and net income. DSIT's revenues of $5.4 million for the first half of
2010 represents an increase of approximately $1.2 million or 29% as compared to
the first half of 2009. Second quarter 2010 revenues also reflected
increases  compared to second quarter 2009 revenues of $2.2 million
($0.7 million or 31%) and first quarter 2010 revenues ($0.2 million or 8%). The
increase in revenues was primarily due to increased revenues in our Naval and RT
Solutions segment which reported first half 2010 revenues of $4.8 million
compared to $3.6 million in the first half of 2009 and $2.5 million in the
second quarter of 2010 compared to $1.8 million in the second quarter of 2009.
The increase in revenues was due to the revenues recorded from the $4.4 million
AquaShield DDS order received at the end of 2009 and another non-DDS naval
solution project received in 2010.





DSIT's gross profit in the first half
of 2010 increased by approximately $0.8 million or 44% over first half 2009
gross profit. Gross margins also increased in the first half of 2010 to 45% as
compared to 41% in the first half of 2009. The increase in gross profit was
attributable to the increased margins on projects as the current mix of projects
has higher margins than those in 2009, particularly the Naval and RT Solutions'
AquaShield DDS projects.





In 2010,
DSIT increased its net income to $0.7 million as compared to $0.4 million in the
first half of 2009 (an increase of 92%) due to the increased gross profit ($0.8
million) which more than offset the increased general and administrative costs
($0.3 million) and income tax expense ($0.2 million).




24




At December 31, 2009, DSIT had a
backlog of approximately $7.6 million. During the first half of 2010, we
received new orders totaling approximately $3.8 million and at the end of
June 2010 had a backlog of approximately $5.9 million. Based on our backlog, and
pending orders, we expect that DSIT's revenues for the remainder of 2010 will
continue to be at least at first half 2010 levels.





Coreworx




Coreworx’
revenues of $1.7 million (which includes approximately $0.2 million attributable
to Decision Dynamics which was acquired in April 2010) in the first half of 2010
represents a decrease of $0.4 million or 21% from Coreworx’ first half 2009
revenues of $2.1 million. The decrease in revenues is mainly due to lower
license fee revenues which were partially offset by the above-mentioned revenues
from Decision Dynamics, as professional services and maintenance fees were
stable in 2010 compared with 2009. The decrease in license fee revenues was the
result on significant 2009 license orders that did not repeat in the first half
of 2010.




Coreworx’
gross profit in the first half of 2010 was $1.3 million (of which $0.1 million
was attributable to Decision Dynamics) compared to 2009 first half gross profit
of $1.7 million – a decrease of 24%.  The decrease in Coreworx’ gross
profit in 2010 was primarily attributable to the decrease in revenues as
Coreworx’ gross margin decreased slightly from 80% in the first half of 2009 to
77% in the first half of 2010. The first half 2010 gross profit and margin were
negatively impacted by a one-time charge to expense in the first quarter of
2010.




Coreworx'
net loss of $5.2 million in the first half of 2010 was $4.6 million greater than
its first half 2009 net loss due in part to the approximately $0.5 million of
loss attributable to Decision Dynamics activities in the period since Coreworx’
acquisition and due to lower gross margins ($0.9 million) on reduced sales. The
balance of Coreworx’ increased loss was caused by a combination of factors.
Coreworx’ results were negatively impacted by the change in the value of the
Canadian dollar during the six month period ended June 30, 2009 compared to the
six month period ended June 30, 2010. The average exchange rate of the Canadian
dollar during the 2010 period was approximately 17% greater than the average
exchange rate of the Canadian dollar during the 2009 period.  As most
of Coreworx’ costs are denominated in Canadian dollars, this change in the value
of the Canadian dollar caused an increase in Coreworx’ reported costs in U.S.
dollars. In addition, Coreworx had increased development costs related to
additional developer, architect, product management and quality assurance
personnel in the development of new products, as well as increased selling and
marketing costs as it expanded its sales force to penetrate new markets and
costs related to the acquisition of Decision Dynamics.




During
the first half of 2010, Acorn lent Coreworx $3.75 million and an additional
$0.65 million in July 2010 to finance its working capital needs. In the second
quarter of 2010, Coreworx borrowed against a credit facility ($0.3 million)
which it arranged with a major commercial bank in Canada during the second
quarter of 2010 secured by its refundable SR&ED tax credits. The loan is
repayable in the fourth quarter of 2010 to coincide with the receipt of
SR&ED credits from the Canada Revenue Agency and the Ontario Ministry of
Revenue tax authorities. As Coreworx sales have not improved as expected, Acorn
continues to provide funds for Coreworx’ working capital needs. We believe that
as Coreworx introduces its new suite of products (Interface Management, Project
Controls and Contract Management), its sales will improve and it will require
less working capital support. We have no assurance that Coreworx will be able to
reduce its need for additional financing to support its working capital needs in
2010 and beyond. This support may be in the form of a new bank line, new
investment by others, additional investment by Acorn, or a combination of the
above. There is no assurance that such support will be available from such
sources in sufficient amounts, in a timely manner and on acceptable
terms.  The availability and amount of any additional investment from
us in Coreworx may be limited by the working capital needs of our corporate
activities and other operating companies.





In July
2010, in connection with Coreworx’ acquisition of Decision Dynamics, Coreworx
effected a tax reorganization of Decision Dynamics which enabled certain of its
SR&ED activities to be refundable as investment tax credits from the Canada
Revenue Agency and the Ontario Ministry of Revenue tax authorities.




25




GridSense





In
accordance with applicable accounting standards, we began consolidating the
results of GridSense beginning May 12, 2010, the date we acquired the
outstanding GridSense shares not previously owned by us (see Note 4(b) to the
interim unaudited consolidated financial statements included in this quarterly
report).  Prior to that date we accounted for our GridSense investment
using the equity method. As our investment in GridSense was reduced to zero in
2009, we recorded no equity income or loss in GridSense during the period in
2010 prior to May 12, 2010.




In
addition, we recorded a gain of $1.3 million on the step-up of the previous
carrying value of our investment in GridSense to fair value in accordance with
generally accepted accounting principles for step acquisitions.




In May
2010, GridSense acquired the assets of On-Line Monitoring Inc. (“OMI”), a
manufacturer of on-line substation monitoring equipment based in Exton,
PA.  OMI is recognized as a leader in the monitoring of transformer
bushings and offers products that provide continuous online testing and
measurement of critical substation assets.  OMI’s capabilities complement
those of GridSense, especially the Transformer IQ.  In addition to
expanding GridSense’s product offering, OMI will add critical know-how and
technology for the development of new products.





During
the period following our acquisition, we reported revenues of $0.5 million and a
net loss of $0.3 million with respect to GridSense. Subsequent to our
acquisition of GridSense, we transferred $1.25 million to GridSense for its
working capital needs and for expansion of its sales and marketing team. 
Sales are expected to increase as funds related to the US smart grid stimulus
grants are released to utilities.  A number of GridSense’s utility
customers have been awarded such grants and the company expects to benefit from
these grants as projects move forward in deployment.





USSI





In
accordance with applicable accounting standards, we began consolidating the
results of USSI beginning February 23, 2010, the date we entered into the Option
Agreements with USSI and certain stockholders of USSI.  We recorded
minimal revenues during this period and a net loss of $0.4 million (prior to
adjusting for attribution to non-controlling interests) with respect to USSI
results. USSI continues to submit proposals and await responses for numerous
projects related to its fiber-optic sensor systems for the energy market (4D
Seismic products) and the security markets. Since February 23, 2010, USSI has
received approximately $0.4 million in new orders including a $0.3 million order
from Penn State Electro-Optics Center for Phase II of the Harbor Sentinel
project, which calls for the development and testing of a prototype harbor
security system being designed to protect 360 U.S. ports and
harbors.





Corporate




At our
annual meeting of stockholders on June 10, 2010, our stockholders approved an
amendment to our Certificate of Incorporation to increase the number of
authorized shares of capital stock from 20,000,000 shares to 30,000,000 shares,
all of which are Common Stock.  In addition, our stockholders also approved
an amendment to our 2006 Stock Incentive Plan (the “Plan) to increase the
aggregate number of shares of common stock which may be awarded under the Plan
from 665,000 to 1,665,000 and the aggregate number of shares which may be
awarded pursuant to incentive stock options by 800,000 to 1,000,000.  
As a result of the approval of the amendment, 1,008,000 shares are available for
new awards under the Plan, of which 800,000 may be granted as incentive stock
options.




26




In April
2010, we funded a capital call of $0.5 million from EnerTech in connection with
our investment in EnerTech.  Following this capital call, we have
funded approximately $2.7 million of our $5.0 million commitment to
EnerTech.





In March
2010, we raised approximately $11.4 million (after transaction costs) in a
registered direct offering. At the end of July 2010, we had approximately $6.6
million in unrestricted cash and restricted cash of $0.6 million which we expect
to be released in the fourth quarter of 2010. We continue to have significant
corporate cash expenses and expect to continue to finance the working capital
requirements of our current portfolio of companies as required. In addition, we
expect to continue to expend in the future significant amounts on professional
fees and other costs in connection with our strategy to seek out and invest in
companies that fit our target business model.





Corporate
general and administrative expense in the first half of 2010 reflected a $0.9
million increase to $2.6 million as compared to $1.7 million of expense in the
first half of 2009. The increase in corporate general and administrative expense
in 2010 is due primarily to bonuses recorded in the first quarter of 2010
combined with increased professional fees (primarily associated with the SEC
inquiry and our acquisitions), increased investor relations costs and corporate
personnel. Second quarter corporate general and administrative expense reflected
a decrease of $0.3 million as compared to the first quarter of 2010. In coming
quarters, we expect our corporate general and administrative costs to
approximate second quarter 2010 costs.




27




Results
of Operations




The
following table sets forth certain information with respect to the consolidated
results of operations of the Company for the six and three month periods ended
June 30, 2009 and 2010, 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.  For
segment data see Note 13 to the Unaudited Consolidated Financial Statements
included in this quarterly report.




The
financial results of GridSense are included in our consolidated financial
statements effective May 12, 2010. The financial results of Decision Dynamics
are included in our Coreworx results effective April 30, 2010. The financial
results of USSI are included in our consolidated financial statements effective
February 23, 2010. Accordingly, there are no comparative results reported for
these activities for the three and six month periods ended June 30,
2009.




Six months ended June 30,
                              
                              
                              Three months ended June 30,2009
                              
                              
                              2010
                              
                              
                              Change
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              Change($,000)
                              
                              
                              % of
                                sales
                              
                              
                              ($,000)
                              
                              
                              % of
                                sales
                              
                              
                              From
                                2009 to
                                2010
                              
                              
                              ($,000)
                              
                              
                              % of
                                sales
                              
                              
                              ($,000)
                              
                              
                              % of
                                sales
                              
                              
                              From
                                2009 to
                                2010Sales
                              
                              $
                              16,258
                              
                              
                              
                              100
                              %
                              
                              $
                              16,978
                              
                              
                              
                              100
                              %
                              
                              
                              4
                              %
                              
                              $
                              7,780
                              
                              
                              
                              100
                              %
                              
                              $
                              9,124
                              
                              
                              
                              100
                              %
                              
                              
                              17
                              %Cost
      of sales
                              
                              
                              9,389
                              
                              
                              
                              58
                              
                              
                              
                              9,099
                              
                              
                              
                              54
                              
                              
                              
                              (3
                              )
                              
                              
                              4,290
                              
                              
                              
                              55
                              
                              
                              
                              4,953
                              
                              
                              
                              54
                              
                              
                              
                              15Gross
      profit
                              
                              
                              6,869
                              
                              
                              
                              42
                              
                              
                              
                              7,879
                              
                              
                              
                              46
                              
                              
                              
                              15
                              
                              
                              
                              3,490
                              
                              
                              
                              45
                              
                              
                              
                              4,171
                              
                              
                              
                              46
                              
                              
                              
                              20R&D
      expenses, net
                              
                              
                              (348
                              )
                              
                              
                              (2
                              )
                              
                              
                              1,542
                              
                              
                              
                              9
                              
                              
                              
                              (543
                              )
                              
                              
                              (624
                              )
                              
                              
                              (8
                              )
                              
                              
                              872
                              
                              
                              
                              10
                              
                              
                              
                              (240
                              )Dividends
      from EnerTech
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (135
                              )
                              
                              
                              (1
                              )
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —SG&A
      expenses
                              
                              
                              8,807
                              
                              
                              
                              54
                              
                              
                              
                              13,886
                              
                              
                              
                              82
                              
                              
                              
                              58
                              
                              
                              
                              4,629
                              
                              
                              
                              59
                              
                              
                              
                              7,565
                              
                              
                              
                              83
                              
                              
                              
                              63Operating
      loss
                              
                              
                              (1,590
                              )
                              
                              
                              (10
                              )
                              
                              
                              (7,414
                              )
                              
                              
                              (44
                              )
                              
                              
                              366
                              
                              
                              
                              (515
                              )
                              
                              
                              (7
                              )
                              
                              
                              (4,266
                              )
                              
                              
                              (47
                              )
                              
                              
                              728Finance
      income (expense), net
                              
                              
                              (84
                              )
                              
                              
                              (1
                              )
                              
                              
                              (305
                              )
                              
                              
                              (2
                              )
                              
                              
                              263
                              
                              
                              
                              85
                              
                              
                              
                              1
                              
                              
                              
                              (355
                              )
                              
                              
                              (4
                              )
                              
                              
                              (518
                              )Gain
      on investment in GridSense
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              1,327
                              
                              
                              
                              8
                              
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              1,327
                              
                              
                              
                              15Gain
      on sale of Comverge shares
                              
                              
                              1,227
                              
                              
                              
                              8
                              
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              (100
                              )
                              
                              
                              810
                              
                              
                              
                              10
                              
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              (100
                              )Income
      before taxes on income
                              
                              
                              (447
                              )
                              
                              
                              (3
                              )
                              
                              
                              (6,392
                              )
                              
                              
                              (38
                              )
                              
                              
                              1,330
                              
                              
                              
                              380
                              
                              
                              
                              5
                              
                              
                              
                              (3,294
                              )
                              
                              
                              (36
                              )
                              
                              
                              (967
                              )Taxes
      on income
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (198
                              )
                              
                              
                              (1
                              )
                              
                              
                              
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (123
                              )
                              
                              
                              (1
                              )Income
      (loss) from operations of the Company and its consolidated
      subsidiaries
                              
                              
                              (447
                              )
                              
                              
                              (3
                              )
                              
                              
                              (6,590
                              )
                              
                              
                              (39
                              )
                              
                              
                              1,374
                              
                              
                              
                              380
                              
                              
                              
                              5
                              
                              
                              
                              (3,417
                              )
                              
                              
                              (37
                              )
                              
                              
                              (999
                              )Share
      of losses in GridSense
                              
                              
                              (129
                              )
                              
                              
                              (1
                              )
                              
                              
                              —
                              
                              
                              
                              
                              
                              
                              
                              (100
                              )
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Net
      income (loss)
                              
                              
                              (576
                              )
                              
                              
                              (4
                              )
                              
                              
                              (6,590
                              )
                              
                              
                              (39
                              )
                              
                              
                              1,044
                              
                              
                              
                              380
                              
                              
                              
                              5
                              
                              
                              
                              (3,417
                              )
                              
                              
                              (37
                              )
                              
                              
                              (999
                              )Net
      (income) loss attributable to  non-controlling
      interests
                              
                              
                              (144
                              )
                              
                              
                              (1
                              )
                              
                              
                              315
                              
                              
                              
                              2
                              
                              
                              
                              (319
                              )
                              
                              
                              (37
                              )
                              
                              
                              (1
                              )
                              
                              
                              265
                              
                              
                              
                              3
                              
                              
                              
                              (816
                              )Net
      income (loss) attributable to Acorn Energy Inc.
                              
                              $
                              (720
                              )
                              
                              
                              (4
                              )
                              
                              $
                              (6,275
                              )
                              
                              
                              (37
                              )
                              
                              
                              772
                              
                              
                              $
                              343
                              
                              
                              
                              4
                              
                              
                              $
                              (3,152
                              )
                              
                              
                              (35
                              )
                              
                              
                              (1,019
                              )




Revenues.  Revenues
in the first half of 2010 increased by $0.7 million or 4% from $16.3 million in
the first half of 2009 to $17.0 million in the first half of 2010. The increase
is attributable to revenues of $0.5 million and $0.2 million from GridSense and
Decision Dynamics, respectively, both of which were acquired by us during 2010
combined with the changes in revenues in our other subsidiaries. CoaLogix’
revenues decreased by $0.6 million (6%) to $9.3 million compared to first half
2009 sales of $9.9 million. Coreworx’ revenues decreased by $0.4 million (21%)
to $1.7 million. The $1.7 million of Coreworx revenues includes the $0.2 million
of reported Decision Dynamics’ revenues since our acquisition in April 2010.
DSIT’s revenues increased $1.2 million (29%) to $5.4 million. The decrease in
CoaLogix’ revenues from the first half of 2009 was primarily due to revenue
recognition timing on completed modules awaiting third party test results which
caused approximately $0.7 million of revenue to be deferred from the fourth
quarter of 2008 into the first quarter of 2009. In addition, some of CoaLogix'
processing resources were directed to processing its own inventory of modules
which increased by $0.9 million in the first half of 2010. The decrease in
Coreworx’ revenues was due to lower license revenues as significant license
orders recognized in the first half of 2009 did not rematerialize in the first
half of 2010. DSIT's increased revenue was primarily due to revenues recorded
from the $4.4 million AquaShield DDS order received at the end of 2009 and an
additional non-DDS naval solution project received in 2010.




28




Gross profit.Gross profit in
the first half of 2010 increased by $1.0 million (15%) as compared to the first
half of 2009. The increase is partially attributable to gross profit of $0.3
million and $0.1 million from GridSense and Decision Dynamics,
respectively.  In addition, gross profit at CoaLogix increased by $0.3
million (9%) in the first half of 2010 compared to the first half of 2009
despite the reduction in revenues. The increase in CoaLogix’ gross profit is
attributable to an increase in CoaLogix' gross margin from 35% to 41% which is
primarily due to higher regeneration margins from improved processing
efficiencies.  DSIT's first half 2010 gross profit increased by $0.8
million (44%) over first half 2009 gross profit. The increase in DSIT's gross
profit was attributable to the reported increased revenues as well as increased
margins which improved from 41% in 2009 to 45% in 2010. DSIT's increased gross
margins in 2010 was due to greater revenues reported on higher margin projects
such as its AquaShield DDS worked on in 2010. Coreworx’ gross profit decreased
$0.4 million (24%) as compared to the same period in 2009. The $1.3 million of
Coreworx’ gross profit for the first half of 2010 includes the $0.1 million of
reported Decision Dynamics’ gross profit since our acquisition. Coreworx’ gross
margin decreased slightly from 80% to 77% over the periods.




Research and development (“R&D”)
expenses. R& D expenses increased from a net benefit of $0.3 million
in the first half of 2009 to $1.6 million of expense in the first half of 2010.
In 2009, we recorded a benefit of approximately $1.0 million from R&D
expense following the approval of a claim by Coreworx for scientific and
development tax credit refunds for a prior period from the Canada Revenue Agency
of the Ontario Ministry of Revenue.




Selling, general and administrative
expenses(“SG&A”).SG&A costs in the first half of 2010
increased by $5.1 million as compared to the first half of 2009. The increased
SG&A costs are partly attributable to the $0.3 million, $0.5 million and
$0.3 million of SG&A expenses reported by USSI, GridSense and Decision
Dynamics - our newly acquired subsidiaries. CoaLogix’ SG&A costs in the
first half of 2010 increased by $1.1 million as compared to the first half of
2009 reflecting increased overhead costs resulting from the company’s growth and
a provision recorded for the settlement of the suit with EES. Coreworx’ SG&A
costs increased by $2.1 million in the first half of 2010 of which $0.3 million
was attributable to Decision Dynamics’ SG&A expenses and the balance due
primarily to increased selling and marketing costs as the company has expanded
its sales force to penetrate new markets as well as for costs related to the
acquisition of Decision Dynamics. Coreworx’ SG&A costs were also negatively
impacted by the increased value of the Canadian dollar in 2010 as compared to
2009 which increased the reported costs of Coreworx in U.S. dollars. DSIT’s
SG&A increased $0.3 million primarily as a result of increased salary costs
and non-recurring provisions recorded associated with salary adjustments.
Corporate general and administrative costs increased by $0.9 million due to $0.3
million of bonuses recorded in the first half combined with increased
administrative and salary costs and professional and investor relation
fees.




Net loss.We had a
net loss of $6.3 million in the first half of 2010 compared with net loss of
$0.7 million in the first half of 2009. Our loss in 2010 was primarily due to
Coreworx’ losses of $5.2 million and corporate expenses of $2.6 million,
partially offset by net income from our DSIT subsidiary of $0.7 million and a
gain of $1.3 million we recorded with respect to the step-up of the previous
carrying value of our investment in GridSense to fair value in accordance with
generally accepted accounting principles for step acquisitions.




29




Liquidity
and Capital Resources




As of
June 30, 2010, we had working capital of $16.1 million, including $10.0 million
of non-restricted cash and cash equivalents. Our working capital includes
restricted deposits of approximately $1.9 million of which we expect $0.9
million to be released by the end of 2010.  Net cash decreased during
the six months ended June 30, 2010 by $1.2 million, of which approximately $8.7
million was used in operating activities. The primary use of cash in operating
activities during the first six months of 2010 was the $5.5 million, $1.3
million and $0.8 million used by Coreworx, GridSense and CoaLogix in their
respective operations combined with the $1.7 million of cash used in our
corporate operating activities. This was partially offset by the $1.1 million of
cash provided by operating activities from our DSIT subsidiary.




Cash used
in investment activities during the first six months of 2010 was $7.4
million.  Our primary uses of cash during the first six months of 2010
were (1) $5.6 million used for the acquisition of property and equipment
(primarily at CoaLogix for its new Steele Creek facility), (2) approximately
$1.4 million used in the acquisition of GridSense (net of cash acquired), (3)
$0.5 million used to fund a capital call at EnerTech, and (4) approximately $0.5
million, net for restricted deposits. These uses of cash were partially offset
by the approximate $1.0 million of cash received in our acquisition of Decision
Dynamics which was acquired for Acorn common stock.




Net cash
of $14.7 million was provided by financing activities. Cash provided by
financing activities was primarily from our recent sale of shares ($11.4 million
net of transaction costs), from the issuance of shares to non-controlling
interests in CoaLogix ($2.4 million) and proceeds from the utilization of credit
lines ($0.7 million).




On June
30, 2010, the subsidiaries of CoaLogix had a $2 million formula based
line-of-credit available to it for utilization from a bank.  On July
22, 2010, the subsidiaries of CoaLogix executed an amendment of its credit
facility which extended and increased its credit availability to a $4 million
formula based line-of-credit, a $1 million non-formula based line-of-credit and
$1 million non-formula based letter of credit. The credit facility expires June
30, 2011 and carries an interest rate of the greater of 1.50% above prime rate
or 5.50% on the formula line of credit and the greater of 2.00% above prime rate
or 6.00% on the non-formula line of credit. The maximum amount of outstanding
credit under the facility is $5 million.   At June 30, 2010, CoaLogix
was utilizing $200,000 of the formula based line-of-credit.  The
line-of-credit is used to finance CoaLogix’ working capital and to finance its
growth and is subject to certain financial covenants. CoaLogix was in compliance
with its financial covenants at June 30, 2010. We believe that CoaLogix will
have sufficient liquidity to finance its operating activities and plant
expansion from cash flows from its own operations, cash received from Acorn,
EnerTech and certain members of CoaLogix senior management (see below) and bank
financing over the next 12 months.




In April
2009, Acorn, EnerTech and certain members of CoaLogix’ senior management agreed
to invest approximately $11.5 million in CoaLogix.  Through July 31,
2010, the entire $11.5 million ($5.9 million in 2010) had been invested
including $5.6 million from Acorn ($2.9 million in 2010).




At June
30, 2010, DSIT had NIS 2.0 million ($516,000) of Israeli credit lines available
to it by an Israeli bank of which $445,000 was then being used. The
line-of-credit is subject to certain financial covenants. DSIT was in compliance
with its financial covenants at June 30, 2010. In addition, DSIT also has a term
loan of approximately NIS 1.8 million ($456,000) which is payable in monthly
payments through December 31, 2013.  DSIT has recently received a
proposal from another Israeli bank for additional credit lines. DSIT is
currently awaiting the finalization of documentation with respect to the
additional credit lines. We believe that DSIT will have sufficient liquidity to
finance its activities from cash flow from its own operations over the next 12
months.  This is based on continued utilization of its lines of credit
and expected continued improvement of operating results stemming from
anticipated growth in sales.




30




Through
July 2010, we lent Coreworx $4.4 million to finance its working capital needs.
In the second quarter of 2010, Coreworx borrowed against a credit facility ($0.3
million) which it arranged with a major commercial bank in Canada during the
second quarter of 2010 secured by its refundable SR&ED tax credits (at a
rate of 370 basis points above the Prime rate in Canada, currently 2.75%). The
loan is repayable in the fourth quarter of 2010 to coincide with the receipt of
SR&ED credits from the Canada Revenue Agency and the Ontario Ministry of
Revenue tax authorities. As Coreworx’ sales have not improved as expected, Acorn
continues to provide funds for Coreworx’ working capital needs. We believe that
as Coreworx introduces its new suite of products (Interface Management, Project
Controls and Contract Management), its sales will improve and it will require
less working capital support. We have no assurance that Coreworx will be able to
improve its sales or reduce its need for additional financing to support its
working capital needs in 2010 and beyond. This support may be in the form of a
new bank line, new investment by others, additional investment by Acorn, or a
combination of the above. There is no assurance that such support will be
available from such sources in sufficient amounts, in a timely manner and on
acceptable terms.  The availability and amount of any additional
investment from us in Coreworx may be limited by the working capital needs of
our corporate activities and other operating companies.




USSI
currently has no other sources of financing other than its internally generated
sales and the funds from the exercise of our options. Our next option (exercise
price of $260,000) expires on August 27, 2010. If we do not exercise the option,
we have no assurance that USSI will not need additional financing from
time-to-time to finance its working capital needs. This support may be in the
form of a bank line or new investment by others, or a combination of the above.
There is no assurance that such support will be available from such sources in
sufficient amounts, in a timely manner and on acceptable terms.  The
amount of any additional investment from us in USSI may be limited by the
working capital needs of our corporate activities and other operating
companies.




As of
August 1, 2010, the Company’s corporate operations had a total of approximately
$7.2 million in cash and cash equivalents (including the $0.6 million deposited
in an account as a security for a guarantee for DSIT), reflecting a $1.6 million
decrease from the balance as of June 30, 2010. The decrease from June 30, 2010
includes $650,000 and $250,000 transferred to our Coreworx and GridSense
subsidiaries, respectively, and $600,000 transferred to CoaLogix as part of our
agreement to invest in CoaLogix (see above).




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





Contractual
Obligations and Commitments




Our
contractual obligations and commitments at June 30, 2010 principally include
obligations associated with our outstanding indebtedness, future minimum
operating lease obligations and potential severance obligations, investment and
purchase commitments and are set forth in the table below.




Cash Payments Due During Year Ending June 30,(amounts in thousands)Contractual Obligations
                    
                    Total
                    
                    
                    2011
                    
                    
                    
                    2012-
                      2013
                    
                    
                    
                    2014-
                      2015
                    
                    
                    2016 and
                      thereafterLong-term
      bank debt and utilized lines-of-credit
                    
                    $
                    1,476
                    
                    
                    $
                    1,121
                    
                    
                    $
                    286
                    
                    
                    $
                    69
                    
                    
                    $
                    —Operating
      leases
                    
                    
                    6,747
                    
                    
                    
                    2,219
                    
                    
                    
                    2,562
                    
                    
                    
                    1,011
                    
                    
                    
                    955Potential
      severance obligations (1)
                    
                    
                    3,287
                    
                    
                    
                    28
                    
                    
                    
                    —
                    
                    
                    
                    1,009
                    
                    
                    
                    2,250Investment
      in EnerTech(2)
                    
                    
                    2,350
                    
                    
                    
                    2,350
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Investment
      in CoaLogix (3)
                    
                    
                    600
                    
                    
                    
                    600
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Purchase
      commitments
                    
                    
                    2,674
                    
                    
                    
                    2,674
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Royalties
      (4)
                    
                    $
                    155
                    
                    
                    
                    5
                    
                    
                    
                    30
                    
                    
                    
                    70
                    
                    
                    
                    50Total
      contractual cash obligations
                    
                    $
                    17,289
                    
                    
                    $
                    8,997
                    
                    
                    $
                    2,878
                    
                    
                    $
                    2,159
                    
                    
                    $
                    3,255




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




31




(1) Under
Israeli law and labor agreements, DSIT is required to make severance payments to
dismissed employees and to employees leaving employment under certain other
circumstances. The obligation for severance pay benefits, as determined by the
Israeli Severance Pay Law, is based upon length of service and ending salary.
These obligations are substantially covered by regular deposits with recognized
severance pay and pension funds and by the purchase of insurance
policies.  As of June 30, 2010, we accrued a total of $3.3 million for
potential severance obligations of which approximately $2.1 million was funded
with cash to insurance companies.




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




Our
obligation under this commitment is presented as an obligation due in the next
12 months, though it is uncertain as to when actual payments may be made.
Through June 30, 2010, we have funded capital calls of $2,650,000 to
EnerTech.




(3) In
April 2009, we entered into an agreement with CoaLogix, EnerTech and certain
members of CoaLogix’ senior management to invest up to $5,624,000 in CoaLogix.
Through June 30, 2010, we invested $5,024,000 of our $5,624,000 commitment. Our
remaining obligation under this commitment was made in July 2010.




(4) In
April 2010, CoaLogix signed an agreement to acquire a license to use certain
technology developed by a third-party. Under the license agreement, CoaLogix is
required to pay the greater of (1) royalties to the third-party of 2% of certain
sales defined in the agreement or (2) minimum annual royalties of  $5,
$10, $20, $30 $40 and $50 for the periods ending June 30, 2011 through 2016 and
thereafter. The agreement may be terminated by CoaLogix at any time. The above
table includes only the minimum annual royalty payment and assumes the minimal
payment through June 2016 though the agreement does not have an expiration date.




32




Item
4.  Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




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




Changes
in Internal Coltrol Over Financial Reporting




There was
no change in our internal control over financial reporting (as such term is
defined in Rule 13a-15(f) under the Exchange Act) during the period covered by
this report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




33




PART
II – OTHER INFORMATION




Item
1. Legal Proceedings





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


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





As
reported previously in our Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K filed since November 13, 2008, on July 30, 2008, SCR-Tech LLC
(“SCR-Tech”), a subsidiary of CoaLogix, filed suit in Mecklenburg County, North
Carolina, Superior Court against Evonik Energy Services LLC (“Evonik LLC”),
Hans-Ulrich Hartenstein and Brigitte Hartenstein (the “Hartensteins”), and three
of Evonik LLC’s German parent companies: Evonik Energy Services GmbH, Evonik
Steag GmbH and Evonik Industries AG (the “German Defendants”).  The
Hartensteins, Evonik LLC and the German Defendants are collectively referred to
as the “Evonik Defendants.”





On
February 25, 2010, the Evonik Defendants filed motions for summary judgment on
the non-existence of SCR-Tech’s trade secrets or confidential information,
statutes of limitation, release and lack of standing and a motion requesting
that the court stay discovery.  SCR-Tech filed responses to these
motions.  The court, after hearing argument on these motions, issued
its order dated July 12, 2010 denying the Evonik Defendants’ motions for summary
judgment on statutes of limitation, release and lack of standing, and with
respect to the motion for summary judgment on non-existence of trade secrets or
confidential information the court held such motion in abeyance pending
completion of limited discovery as directed by the court.  Such
limited discovery is to be taken over a period of 100 days from the date of such
order, and such discovery is presently in process.





In the
answers filed by the Evonik Defendants, the Evonik Defendants have asserted
counterclaims against SCR-Tech with unspecified amounts of
damages.  CoaLogix believes that such counterclaims are without merit,
and that any award of any material amount with respect to such counterclaims is
remote.  Therefore, no accrual for any contingency relating to such
counterclaims has been made nor can the range of any possible loss due to such
counterclaims be reasonably estimated at this time.




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





1.           As
more fully described in Amendment No.1 to our Current Report on Form 8-K/A filed
on May 5, 2010, our Coreworx subsidiary completed the acquisition of all of the
issued and outstanding common shares of Decision Dynamics Technology Ltd.,
a Canadian corporation (“Decision Dynamics”) on April 30, 2010, in
consideration for issuance of 1,000,000 shares of our common stock to the
shareholders of Decision Dynamics in accordance with terms of a previously
announced agreement that we entered into on March 2, 2010 with Coreworx and
Decision Dynamics.





2.           On
November 4, 2009 we entered into a binding letter of intent with GridSense Pty
Ltd (“GridSense”) and the principal stockholders of GridSense to acquire all of
the outstanding shares of GridSense that the Company did not already own. This
letter of intent had expired but served as the basis for the parties to
negotiate the Share Sale Agreement which the parties executed and closed on May
12, 2010 with an effective date as of April 28, 2010. Prior to the acquisition,
we owned shares of GridSense representing approximately 30% of GridSense’s
outstanding shares. GridSense provides remote monitoring and control
systems to electric utilities and industrial facilities worldwide.




34




The total
purchase price of $4,406,000 is comprised of the following: (1) the market value
of the 206,995 shares of Acorn common stock issued to the former stockholders of
GridSense ($1,085,000 - based on the market price of Acorn shares on the date of
the transaction in accordance with generally accepted accounting principles);
(2) the $882,000 of cash paid and the market value of the 149,201 shares of
Acorn common stock issued ($782,000) for the purchase of the promissory notes;
(3) $594,000 of cash that was provided to GridSense at closing to pay a
stockholder loan; (4) an earn-out which is estimated to be $287,000 and is
recorded as a liability in Other current liabilities; and (5) $750,000 of loans
provided to GridSense in 2009 ($550,000) and in 2010 ($200,000) in contemplation
of the acquisition and accrued interest ($26,000) on those loans.





The
issuance of our common stock in this transaction was made without registration
under the Securities Act of 1933, as amended, in reliance upon Section 4(2)
thereof, in that it did not involve a public offering.





Under the
Share Sale Agreement, we agreed to pay an earn-out to the stockholders of
GridSense as part of the consideration for their shares.  To the
extent that GridSense’s sales for the period April 1, 2010 through March 31,
2011 exceed $4,384, we will pay the GridSense stockholders an amount equal to
50% of that excess, up to $2,435, multiplied by 69.86% (representing their
ownership interest in GridSense) for a maximum earn-out payment of
$1,701.  We have the option of paying any earn-out in cash and/or
shares of our common stock and have estimated this amount to be $287, which is
included in the purchase price above. If we use shares as all or part of the
payment, each share would be valued as the volume weighted average price of our
common stock on the 20 trading days preceding the date of the issuance of the
auditor’s report relating to the Company’s 2010 financial
statements.





The
shares of common stock which were issued in consideration for acquiring the
debt, including any shares issued in payment of the earn-out, are subject
to an escrow for possible indemnity claims and restrictive legend, with 50% of
the shares released after six months and the balance one year after
issuance. The shares of common stock which have been and may be issued
in consideration for acquiring Gridsense’s shares would be subject to
restrictive legends. The escrow arrangement and the restrictive legends provide
that 50% of the shares will be available for trading after six months and the
balance available for trading one year after issuance.





Pursuant
to the terms of the Share Sale Agreement, we have agreed to provide GridSense
with up to an additional $1,800,000 in working capital which may be in the form
of debt or equity.




35




Item
6. Exhibits.




3.1
            
            Certificate
      of Incorporation of the Registrant, with amendments thereto (incorporated
      herein by reference to Exhibit 3.1 to the Registrant’s Registration
      Statement on Form S 1 (File No. 33 70482)).3.2
            
            Certificate
      of Ownership and Merger dated September 15, 2006 effecting the name change
      to Acorn Factor, Inc. (incorporated herein by reference to Exhibit 3.1 to
      the Registrant’s Current Report on Form 8-K filed September 21,
      2006).3.3
            
            Certificate
      of Ownership and Merger dated December 21, 2007 effecting the name change
      to Acorn Energy, Inc. (incorporated herein by reference to Exhibit 3.1 to
      the Registrant’s Current Report on Form 8-K filed January 3,
      2008).3.4
            
            Certificate
      of Amendment to the Certificate of Incorporation, filed with the Secretary
      of State of the State of Delaware on June 15, 2010 (incorporated herein by
      reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
      filed June 16, 2010).10.1
            
            Acorn
      Energy, Inc. 2006 Amended and Restated Stock Incentive Plan (as amended
      and restated effective June 10, 2010) (incorporated herein by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 16,
      2010).31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.#31.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.#32.1
            
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.#32.2
            
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.#




#  This
exhibit is filed or furnished herewith.




36




SIGNATURES




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





ACORN
      ENERGY, INC.Dated:  August
      12, 2010By:
            /s/Michael
      BarthMichael
      BarthChief
      Financial Officer




37