Summary of ACORN ENERGY, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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

The following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Certain of these factors are discussed in this report and in our Annual Report on Form 10-K for the year ended December 31, 2007.

Recent Developments

DC Circuit Court Vacates Clean Air Interstate Rule

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

The EPA adopted CAIR in March 2005 to provide a federal framework to limit the emission of sulfur dioxide (SO2) and nitrogen oxides (NOx). The rule required 28 eastern states and the District of Columbia to permanently cap SO2 and NOx, thereby significantly reducing emissions in the affected states.

Under CAIR, the affected states had to achieve required emission reductions using one of two compliance options: (1) meet the state's emission budget by requiring power plants to participate in an EPA-administered interstate cap-and-trade system that caps emissions in two stages, or (2) meet an individual state emissions budget that is administered through measures of the state's choosing. The EPA-administered interstate cap-and-trade system did not establish quotas on individual states with respect to SO2 or NOx, but instead created a regional framework with regional caps. CAIR was to be phased in under a two part plan, with a Phase I cap for NOx and SO2 beginning in 2009 and 2010, respectively, and Phase II beginning with respect to both pollutants in 2015.

Although the court's ruling eliminated the CAIR program, including the related SO2 and NOx cap-and-trade programs, the court noted that, in the absence of CAIR, the NOx SIP Call program will continue. In addition state allowances for NOx under the Clean Air Act remain in effect. However, by striking down CAIR and the cap-and-trade regime, the CAIR-promulgated annual NOx allowances have been eliminated, leaving the validity of the states' regulations regarding these allowances in question. The EPA has announced that it is reviewing the decision and analyzing its effects. It is unclear when new regulation will be proposed or adopted or if legislation to revamp the Clean Air Act may overtake or supersede new regulatory action.

Subsequently, petition for review of the July 11, 2008 decision were filed by the Utility Air Group and the National Mining Association, stating that the court erred in vacating NOx trading programs claiming it was inconsistent with a prior court ruling on NOx trading programs in 2000. Environmental advocates have also petitioned the court to reconsider the remedy of vacating the rule, and have asked that the court entertain other options such as keeping the program in place and directing the EPA to improve it. Additionally, in a procedural order, the U.S. court of Appeals for the D.C. Circuit has asked the parties seeking en banc review of the July 11, 2008 vacatur of CAIR to file additional responses on two questions, whether any party is seeking vacatur of CAIR and whether the court should stay its earlier mandate until the EPA develops a revised rule.. While the D.C Circuit's order would vacate the air emissions program, the procedural order suggests that there may be a possibility that the program might remain in force for several more years.

CoaLogix

In October 2008, CoaLogix signed an agreement with Square 1 Bank for a $500,000 term loan and a $2 million formula based line-of-credit. The term loan is for a period of 36 months and bears interest at prime plus 1.5%. The line-of-credit is for a period of one year and bears interest at prime plus 0.75%. Both the term loan and the line-of-credit are to finance CoaLogix's working capital and to finance its growth and are subject to certain financial covenants.

Coreworx acquisition

On August 13, 2008, we entered into and closed an agreement for the acquisition of all of the outstanding capital stock of Coreworx, Inc. ("Coreworx"). Coreworx is headquartered in Kitchener, Ontario, Canada, and is engaged in the design and delivery of project collaboration solutions for large capital projects. The acquisition of Coreworx was completed pursuant to a Securities Purchase Agreement (the "Purchase Agreement"), dated August 13, 2008, by and among us, former debenture holders in Coreworx and former shareholders in Coreworx.

Prior to and in contemplation of the completion of the acquisition, we lent Coreworx $1,500 which bore interest at 12% per year.

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

In consideration for the Coreworx shares, we issued 287,500 shares of our Common Stock. Under the Purchase Agreement, a portion of these shares will be held in escrow until one year after the closing.

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

A contingent payment of one-half of the expected net receipt (less fees) by Coreworx of monies due from the Canada Revenue Agency or the Ontario Ministry of Revenue in connection with Coreworx's 2007 scientific research and experimental development tax credit refund claim or Ontario innovation tax credit refund claim for 2007 (collectively, the "SRED Claim") during the six months immediately following the closing date, is not included in the purchase price as the receipt of the SRED Claim within the six months following the closing date is less than beyond a reasonable doubt.

The final purchase price will be dependent upon the actual amount of the SRED refund (if any) and the actual transaction costs.

Coreworx currently anticipates that sales for 2009 will be below the levels forecasted at the time of our acquisition. Coreworx is in the process of revising its operating plans for 2009 in order to reduce its costs and expenses. Coreworx believes that under the revised plan, it will be able to reduce its operating losses and minimize its need for additional liquidity from Acorn or other sources. However, it is expected that Coreworx will require additional working capital support in order to effectuate the revised plan and finance its operations in 2009. This support may be in the form of a bank line, new investment by others, additional investment by Acorn, or a combination of the above. Coreworx is exploring bank financing and possible new investment, but 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 may be limited by the working capital needs of our corporate activities and other operating companies.

Based upon analysis of the revised operating plan for Coreworx for 2009 and future periods and other information relating to Coreworx's business and prospects, including the global economic slowdown and crisis in the credit markets and its possible effect on Coreworx's customers, we will evaluate the goodwill and intangibles recorded upon acquisition for possible impairment. Such impairment could have a material adverse effect on the Company's results of operations and financial condition.

Comverge

During the third quarter of 2008, we sold 503,798 of our Comverge shares for approximately $5.7 million and recorded a pre-tax gain of approximately $3.1 million. On September 30, 2008 we held 502,500 common shares of Comverge. During the period from October 1, 2008 to November 12, 2008, we did not sell any additional Comverge shares. As of November 12, 2008, the total market value of our remaining Comverge shares was approximately $2.4 million based on a November 10, 2008 closing market price of $4.71 per share.

Paketeria

In 2008, we provided Paketeria with approximately $2.6 million of loans in order to provide it with additional temporary financing to help it support its operations until it is able to raise funds through the sale by existing shareholders of shares through the escrow arrangement from Paketeria's listing on the Frankfurt Stock Exchange (further described on page F-20 of our Annual Report on Form 10-K) or other sources.

Paketeria has changed its business model from a franchise concept to a partnering concept with Volksbank in Germany. This change of focus will cause Paketeria to incur significant expenditures. We have decided that we can no longer provide any additional financing to Paketeria to help it support its operations until it can raise funds from other sources. As a result, we have significant doubt as to Paketeria's ability to repay its debt to us and its ability to continue as a going concern. We have accordingly, taken a loss provision on our loans to Paketeria and reduced our investment balance in Paketeria to zero.

GridSense

On January 2, 2008, we participated in a transaction where we were the lead investor in a private placement by GridSense Systems Inc. ("GridSense"), acquiring 15,714,285 shares and 15,714,285 warrants for C$1.1 million (approximately $1.1 million). The warrants acquired expired in July 2008. The 15,714,285 shares acquired by us in the placement represented approximately 24.5% of GridSense's issued and outstanding shares at the time. Our holdings in GridSense were subsequently diluted to approximately 23.4% as a result of a transaction by GridSense. In July 2008, we provided GridSense with a C$750,000 loan ($736,000). The loan bears interest at a rate of 8% per year was initially due on October 30, 2008. The due date of the loan has been extended to January 31, 2009. The loan is secured by a security interest in all the assets of GridSense's principal operating subsidiary.

On October 18, 2008, GridSense and certain of its significant shareholders, including Acorn, entered into agreements to privatize the operations of GridSense in a corporation organized in Australia. If and when the proposed privatization is completed, we would own approximately 39.1% of the outstanding shares of GridSense as compared to the 23.4% interest we maintain in the publicly held GridSense. In addition, the privatized GridSense will assume all indebtedness owed to us by the public GridSense. The privatization is subject to regulatory approval in Canada and approval by a majority of GridSense's disinterested public shareholders. GridSense will be seeking approval of its shareholders at a meeting of the shareholders which it plans to hold before the end of 2008.

Share Repurchase Program

On October 6, 2008, our Board of Directors authorized a share repurchase program of up to 1,000,000 shares of our common stock. The share repurchase program will be implemented at management's discretion from time to time. Through November 12, 2008, we repurchased 34,000 shares of our common stock at an average price of $2.42 per share.

Overview and Trend Information

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

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

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

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

� Energy Infrastructure Software services are provided through our recently acquired Coreworx subsidiary. Coreworx provides unique solutions for engineering, procurement and construction companies that manage capital projects.

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

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

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

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

� Local Power, Inc. Provides consultation services for community choice aggregation.

During the 2008 periods included in this report, we had operations in three reportable segments: providing catalyst regeneration technologies and management services for SCR systems through our CoaLogix subsidiary, Energy Infrastructure Software ("EIS") services provided through our recently acquired Coreworx subsidiary and RT Solutions which is conducted through our DSIT subsidiary. The following analysis should be read together with the segment information provided in Note 15 to the interim unaudited consolidated financial statements included in this quarterly report, which information is hereby incorporated by reference into this Item 2.

RT Solutions

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

� A NIS 30 million (approximately $8.0 million at September 30, 2008) order for a sonar and underwater acoustic system for the Israeli Ministry of Defense, and

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

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

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

Our continued growth in sales projected for the fourth quarter of 2008 and into 2009 is expected to come primarily from our naval solutions projects with sales from our embedded hardware and software development projects. We project continued growth based on our abovementioned contract with the Israeli MOD for which we currently have a backlog of approximately $4.3 million and we anticipate receiving in the fourth quarter of 2008 and the beginning of 2009 a number of significant naval solutions contracts for additional underwater surveillance systems to protect strategic coastal energy installations.

CoaLogix/SCR

In the first nine months of 2008, SCR-Tech secured new contracts from major U.S. companies representing more than triple its entire 2007 sales. At the end of the third quarter, CoaLogix had a backlog of approximately $14.4 million (up from approximately $12.5 million and the end of the second quarter) which we expect to realize over the next 2 years. CoaLogix has recently completed a program to expand its facilities to meet increased demand.

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

Revenues increased significantly in the third quarter of 2008 as compared to the relatively low revenues in second quarter of 2008. Revenues and margins for the second and third quarters are generally lower than those of first and fourth quarters due to seasonal factors since power plants do not schedule service of their catalyst systems during the spring and summer ozone months.

Coreworx

Coreworx expects to continue to incur operating losses for the balance of 2008. Coreworx also anticipates that sales for 2009 will be below the levels forecasted at the time of our acquisition. Coreworx is in the process of revising its operating plans for 2009 in order to reduce its costs and expenses. Coreworx believes that under the revised plan, it will be able to reduce its operating losses and minimize its need for additional liquidity from Acorn or other sources. However, it is expected that Coreworx will require additional working capital support in order to effectuate the revised plan and finance its operations in 2009. This support may be in the form of a bank line, new investment by others, additional investment by Acorn, or a combination of the above. Coreworx is exploring bank financing and possible new investment, but 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 may be limited by the working capital needs of our corporate activities and other operating companies.

Paketeria

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

Thus far in 2008, we have provided Paketeria with approximately $2.6 million of loans in order to provide it with additional temporary financing to help it support its operations until it is able to raise funds from other sources. The loans are to be repaid by March 31, 2009. If the loans are not repaid, we are entitled to convert the loans and any unpaid accrued interest into equity of Paketeria at the rate of �2.31 ($3.34 at current exchange rates) per share. In addition, Paketeria granted warrants to Acorn to acquire Paketeria shares. The warrants are exercisable at �7.71 ($11.14 at current exchange rates) per share to acquire the number of Paketeria shares derived by dividing the Combined Loan's outstanding principal plus accrued interest by �7.71. The warrant may only be exercised to the extent the loan is not converted.

Paketeria has changed its business model from a franchise concept to a partnering concept with Volksbank in Germany. This change of focus will cause Paketeria to incur significant expenditures. We have decided that we will no longer provide any additional financing to Paketeria to help it support its operations until it can raise funds from other sources. As a result, we have significant doubt as to Paketeria's ability to repay its debt to us and its ability to continue as a going concern. We have, accordingly, taken a loss provision on our loans to Paketeria and reduced our investment balance in Paketeria to zero.

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

GridSense

We acquired our interest in GridSense by participating as the lead investor in their January 2008 private placement. In the private placement, we acquired 15,714,285 shares for C$1.1 million (approximately $1.1 million) plus transaction costs. The 15,714,285 shares we acquired represents approximately 25% of GridSense's issued and outstanding shares. Our holdings in GridSense were diluted to approximately 24% following the first quarter acquisition by GridSense of Transformer Contracting, Inc. in which they issued an additional 3,000,000 shares.

In July 2008, we lent GridSense C$750,000 ($736,000 at the then exchange rate) under a secured promissory note which bears interest at 8% and is currently due on January 31, 2009. The note is secured by all the assets of GridSense's principal operating subsidiary.

We account for our GridSense investment the equity method and, as such, we record approximately 24% of its income/loss in our consolidated results. We record our share of income or loss in GridSense with a lag of three months as we are not able to receive timely financial information. In the third quarter of 2008, we recorded a loss of $126,000 representing our approximate 24% share of GridSense's losses for the period from January 2, 2008 to June 30, 2008. We also recorded $69,000 as our share of losses in GridSense which represents the amortization of certain intangible assets acquired by us in our initial investment and the write-off of an option to acquire additional GridSense shares which expired. We will record our share of GridSense's third quarter results in the fourth quarter of 2008.

Corporate

As noted above in "Recent Developments", on October 6, 2008, our Board of Directors authorized a share repurchase program of up to 1,000,000 shares of our common stock. The share repurchase program will be implemented at management's discretion from time to time. Through November 12, 2008, we repurchased 34,000 shares of our common stock at an average price of $2.42 per share.

At the end of October 2008, we had corporate debt of $3.4 million related to our acquisition of Coreworx and approximately $13,0 million in unrestricted cash. In addition, we have restricted cash of $2.5 million of which we expect a significant portion to be released in the first quarter of 2009. We continue to have significant corporate cash expenses and will continue to expend in the future, significant amounts of funds on professional fees and other costs in connection with our strategy to seek out and invest in companies that fit our target business model. We have begun to implement cost-cutting measures with respect to our corporate expenses, most of which will not come into effect until 2009.

Results of Operations

The following table sets forth certain information with respect to the consolidated results of operations of the Company for the three and nine months ended September 30, 2007 and 2008, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period to period percentage changes in such components. Our results for the three and nine months ended September 30, 2008 include the results of our newly acquired SCR-Tech and Coreworx subsidiaries. As such, results for the three and nine months ended September 30, 2008 may not be comparable to the results for the three and nine months ended September 30, 2007 without negating the effect of SCR-Tech's and Coreworx's results.

                                      Nine months ended September 30,                     Three months ended September 30,
                                   2007                 2008           Change           2007                2008           Change
                                                                        From                                                From
                                        % of                 % of      2007 to                % of                % of     2007 to
                            ($,000)     sales    ($,000)     sales      2008      ($,000)    sales    ($,000)    sales      2008
Sales                       $  3,315       100 % $ 12,530       100 %       278 % $  1,595      100 % $  4,628      100 %       190
Cost of sales                  2,501        75      9,203        73         268      1,122       70      3,731       81         233
      Gross profit               814        25      3,327        27         309        473       30        897       19          90
R&D expenses                     310         9        510         4          65         77        5        402        9         422
Acquired IPR&D                     -                  551         4                      -                 551       12
SG&A expenses                  3,012        91      8,094        65         169      1,153       72      3,401       73         195
Impairment of loans and
investments                        -                3,000        24                      -               2,454       53
     Operating loss           (2,508 )     (76 )   (8,828 )     (70 )       252       (757 )    (47 )   (5,911 )   (128 )       681
Gain on early redemption
of Debentures                      -         -      1,259        10                      -        -          -
Finance expense, net            (729 )     (22 )   (2,950 )     (24 )       305       (358 )    (22 )      (50 )     (1 )       (86 )
Gain on public offering
of Comverge                   16,169       488          -                                -        -          -
Gain on sale of Comverge
shares                             -         -      8,861        71                      -        -      3,079       67
Gain (loss) on outside
investment in Company's
equity investments, net          (37 )      (1 )        7         0        (119 )      (37 )     (2 )        7        0        (119 )
Income before taxes on
income                        12,895       389     (1,651 )     (13 )      (113 )   (1,152 )    (72 )   (2,875 )    (62 )       150
Taxes on income                   (9 )       0       (689 )      (5 )                   (4 )      0       (691 )    (15 )
Income (loss) from
operations of the Company
. . .