Unassociated Document

Page 4

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

1. Description of business

On May 22, 2008, the name of the company was changed from Software Innovation Inc. to Coreworx Inc. Coreworx Inc. (the “Company”) is a privately owned corporation, incorporated under the Business Corporations Act of Ontario. The Company was formed through the amalgamation of SI Investment Holdings Inc., 612388 N.B. Inc. and Software Innovation Inc. on May 11, 2004. The Company is a leading provider of integrated project collaboration and advanced document management solutions for the Architecture, Engineering and Construction markets, particularly for large capital projects.

2. Significant accounting policies

Basis of presentation

The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and include the accounts of the Company and its wholly owned subsidiary, Software Innovation USA, Inc (“SI USA Inc”). All intercompany balances have been eliminated. A reconciliation of the Company’s consolidated financial statements from Canadian GAAP to accounting principles generally accepted in the United States of America (“US GAAP”) is included in Note 18.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Capital assets

Capital assets are recorded at cost less accumulated amortization. Upon retirement or sale, the cost of the assets disposed of and the related accumulated amortization are removed from the accounts and any resulting gain or loss is credited or charged to earnings. Repairs and maintenance costs are expensed as incurred.

Amortization is calculated on a straight-line basis at rates designed to amortize the cost of the assets over their estimated useful lives, beginning the month after acquisition. The rates are as follows:


Furniture and fixtures	48 months
Computer software	36 months
Computer hardware	24 months
Leasehold improvements	Term of lease

Goodwill

Goodwill representing the excess of purchase price over fair value of the net identifiable assets of acquired businesses is tested for impairment annually or more frequently when an event or circumstance occurs that indicates that goodwill might be impaired. When the carrying amount exceeds the fair value, an impairment loss is recognized in the statement of operations in an amount equal to the excess.

Intangible assets

Intangible assets consist of acquired technology or the right to use technology through a license agreement and are amortized on a straight-line basis over 24 to 36 months. Intangible assets are tested for impairment if events or circumstances indicate that the asset might be impaired.

Page 5

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

2. Significant accounting policies (continued)

Impairment of long lived assets

The Company assesses the recoverability of long lived assets when events or circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of a group of assets is less than its carrying amount, it is considered to be impaired. An impairment loss is measured as the amount by which the carrying amount of the group of assets exceeds its fair value. The Company has determined there was no impairment of long lived assets as at December 31, 2007.

Revenue recognition

The Company’s products and services are generally sold as part of a contract and the terms of the contracts, taken as a whole, determine the appropriate revenue recognition methods. Depending upon the terms of the contract and types of products and services sold, the Company recognizes revenue in accordance with Statement of Position (“SOP”) SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”), issued by the American Institute of Certified Public Accountants (“AICPA”), SOP 97-2, “Software Revenue Recognition” (“SOP 97-2”), Emerging Issues Committee Abstract of Issue Discussed (“EIC”) EIC 141, “Revenue Recognition”, and EIC 142, “Revenue Arrangements with Multiple Deliverables” issued by the Canadian Institute of Chartered Accountants (“CICA”).

For elements related to customized software solutions, revenues are recognized under SOP 81-1, generally using the percentage-of-completion method or the completed contract method. In using the percentage-of-completion method, revenues are recorded based on a measure of the percentage of costs incurred to date on a contract relative to the estimated total expected contract costs. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known. In certain circumstances, where reasonable cost estimates cannot be made for a customized software solution and there is no assurance that a loss will not be incurred on the element, all revenues and certain costs are deferred until the contractual obligations have been fulfilled. (“completed contract method”).

The Company’s revenues are generated principally from (i) software licenses that grant customers the right to use the Company’s software products, (ii) professional services revenues from a variety of services related to the implementation, training in use and support of the Company’s software, including consulting, training and other services, (iii) maintenance and support revenues, which include revenues associated with annual software subscription agreements and annual software maintenance and support services, (iv) reimbursable expenses, and (v) interest and other income.

Page 6

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

2. Significant accounting policies (continued)

Revenue recognition (continued)

(i) License revenues

The Company records product revenue from software licenses and products when persuasive evidence of an arrangement exists, the software product has been shipped or access to use the software has been granted by the Company, there are no significant uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is reasonably assured. The Company uses the residual method to recognize revenue on delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the fair value of all undelivered elements exists. If an undelivered element for the arrangement exists under the license arrangement, revenue related to the undelivered element is deferred based on vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered element. In accordance with SOP 97-2, as amended, revenues derived from multiple-element software sale arrangements are recognized in earnings based on the relative fair values of the individual elements.

The Company’s multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support (“PCS”) are sold together. The Company has established VSOE of the fair value of the undelivered PCS element based on the contracted price for renewal PCS included in the original multiple element sales arrangement, as substantiated by contractual terms and the Company’s significant PCS renewal experience. The Company’s multiple element sales arrangements generally include rights for the customer to renew PCS after the bundled term ends. These rights are irrevocable to the customer’s benefit, are for specified prices and the customer is not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable to the bundled PCS and cover similar terms.

In the renewal transaction, PCS is sold on a stand-alone basis to the licensees one year or more after the license sale arrangement. The renewal PCS price is consistent with the renewal price in the original license sale arrangement although an adjustment to reflect consumer price changes is not uncommon. If VSOE of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered.

The Company assesses whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. The Company’s sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size.

If the revenue recognition criteria above are not satisfied, amounts received from customers are classified as deferred revenue on the balance sheet until such time as the revenue recognition criteria are met.

Page 7

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

2. Significant accounting policies (continued)

Revenue recognition (continued)

(ii) Professional service revenues

Professional service revenues consist of revenues from consulting contracts, customer support agreements, training and integration services contracts and reimbursable expenses. Contract revenues are derived from contracts to develop applications and to provide consulting services. All service revenues are recognized in the period in which the services are performed provided that the revenue recognition criteria in SOP 97-2 are met.

(iii) Maintenance and support revenues

Maintenance and support revenues consist of revenue derived from contracts to provide post contract support to license holders. Maintenance and support revenues are normally billed in advance and recorded as deferred revenue. Deferred revenue resulting from maintenance and support contracts is amortized to earnings ratably over the term of the service period. Prepaid expenses include prepayments of maintenance and support services that have been subcontracted out. These expenses are recognized ratably over the period that the services are provided.

(iv) Reimbursable expenses

In providing services, the Company may incur expenses which are contractually reimbursable from customers. Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included at gross amounts as components of revenue and cost of sales. Expenses paid to the Company’s employees are recorded as cost of sales and amounts receivable from customers for reimbursable expenses are recorded as revenues.

(v) Interest and other income

Interest income is recognized as earned in accordance with the terms of the financial instrument. Other income is recognized when persuasive evidence of an arrangement exists, delivery has occurred and/or the service has been provided, the amount is fixed or determinable and collection of the amount is reasonably assured.

Research and development costs

The Company incurs costs on activities that relate to research and development of new software. These costs are charged to earnings in the period in which they are incurred. Research and development expenditures are reduced by investment tax credits, related government grants and third party contract revenues. Investment tax credits arising from qualifying scientific research and experimental development expenditures are applied to reduce related research and development expenditures when the claims have been accepted by the Canada Revenue Agency (“CRA”) and the Ontario Ministry of Finance.

Stock-based compensation

The Company's stock-based compensation plan is described in Note 11(b). The Company uses the fair value method to measure compensation expense at the date of grant of stock options to employees and non-employees. The fair value of options is determined using the Black-Scholes option pricing model and is amortized to earnings over the vesting period with an offset to Contributed Surplus. When options are exercised, the corresponding Contributed Surplus and the proceeds received by the Company are credited to Capital Stock.

If stock or stock options are repurchased from employees, the excess of the consideration paid over the carrying amount of the stock or stock option repurchased is charged to deficit.

Page 8

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

2. Significant accounting policies (continued)

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies have been translated into Canadian dollars at rates of exchange in effect at the balance sheet date and non-monetary assets and liabilities are translated at historical rates. Gains or losses resulting from such translations are included in income.

Transactions in foreign currencies throughout the year have been converted at the prevailing exchange rate on the date of the transactions.

The foreign operations of SI USA Inc. are considered to be integrated foreign operations of the Company, and are translated to Canadian dollars as described above.

Guarantees

A Company is required to disclose the nature of its obligations under guarantees, the maximum potential amount of future payments and the current carrying amount of the liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur.

The disclosure is required even if it is not probable those payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements.

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, future income taxes are recognized based on the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax basis, using the enacted and substantively enacted income tax rates for the years in which the differences are expected to reverse. Future income tax assets are recognized to the extent it is more likely than not they will be realized.

Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amount of earnings and expenses during the reporting period. Estimates are used when accounting for items and matters such as asset valuations, impairment assessments, discounted liabilities, the fair value of the Company’s common shares, stock-based compensation and contingencies. Actual results could differ from those estimates and assumptions.

Future accounting changes

(i) Financial instruments

In December 2006, the CICA issued Section 3862, Financial Instruments - Disclosures; Section 3863, Financial Instruments - Presentation; and Section 1535, Capital Disclosures. All three Sections will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2007. Accordingly, the Company will adopt the new standards for its fiscal year beginning January 1, 2008. Section 3862 on financial instruments disclosures, requires the disclosure of information about: a) the significance of financial instruments for the entity's financial position and performance and b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 on the presentation of financial instruments establishes standards for presentation of financial instruments and non-financial derivatives.

Page 9

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

2. Significant accounting policies (continued)

(i) Financial instruments (continued)

Section 1535 on capital disclosures requires the disclosure of information about an entity's objectives, policies and processes for managing capital.

(ii) Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company will adopt the new standard for its fiscal year beginning January 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.

The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements. The Company does not expect that the adoption of this new Section will have a material impact on its consolidated financial statements.

3. Changes in accounting policies

The Company adopted the following recommendations of the CICA Handbook as of January 1, 2007:

	a)	Section 3855, Financial Instruments - Recognition and Measurement. This Section describes the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements. Under the new standard, financial assets and liabilities are initially recorded at fair value. Subsequently, financial instruments classified as financial assets or liabilities held for trading, financial assets available-for-sale and derivative financial instruments, part of a hedging relationship or not, have to be measured at fair value on the balance sheet at each reporting date, whereas other financial instruments are measured at amortized cost using the effective interest method.

	b)	Section 1530, Comprehensive Income. This Section describes reporting and disclosure recommendations with respect to comprehensive income and its components. Comprehensive income is the change in Shareholders’ equity, which results from transactions and other events and circumstances from non-shareholder sources. These transactions and events include unrealized gains and losses resulting from changes in fair value of investments classified as available-for-sale and from foreign currency translation of self-sustaining foreign subsidiaries.

	c)	Section 3861, Financial instruments - Disclosure and Presentation. This Section establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them.

	d)	Section 3251, Equity. This Section establishes standards for the presentation of equity and changes in equity during the reporting period.

Page 10

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

3. Changes in accounting policies (continued)

The Company has made the following classifications in respect of its financial instruments:

Cash and cash equivalents are classified as financial assets held for trading and are measured at fair value.

Accounts receivable are classified as loans and receivables and are recorded at amortized cost using the effective interest method.

Demand loan, capital leases, accounts payable and accrued liabilities and long-term debt are classified as other liabilities and measured at amortized cost using the effective interest method.

There was no effect on the opening deficit as at January 1, 2007, or on the financial statements as at and for the year ended December 31, 2007 as a result of adopting the changes in accounting policies noted above. Accordingly, a statement of accumulated other comprehensive income has not been provided.

The Company selected January 1, 2003 as its transition date for accounting for embedded derivatives. Based on a review of the Company’s financial instruments as at January 1, 2007, there were no embedded derivatives at that date that were required to be accounted for separately as derivatives.

Transaction costs

Transaction costs related to held for trading financial assets are expensed as incurred. Transaction costs related to available-for-sale financial assets, held-to-maturity financial assets, other liabilities and loans and receivables are added to the carrying value of the asset or are netted against the carrying value of the liability and are then recognized over the expected life of the instrument using the effective interest method.

4. Capital assets

					2007
			Accumulated		Net book
	Cost		amortization		value
	$		$		$
Furniture and fixtures		445,137		315,748		129,389
Computer hardware		202,481		140,130		62,351
Computer hardware under capital lease		64,145		64,145		-
Computer software		39,525		21,650		17,875
Leasehold improvements		66,953		21,569		45,384
		818,241		563,242		254,999

5. Intangible assets

					2007
					Net book
	Cost		Amortization		value
	$		$		$

Acquired or licensed technology		2,729,812		1,370,755		1,359,057

Page 11

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

6. Obligations under capital leases

Future minimum payments under capital lease obligations are as follows:

	$

2008		23,661
2009		5,161
		28,822
Less: amount representing interest at an approximate rate of 5.67%		1,619
		27,203
Less: current portion		22,294
Balance of obligation		4,909

Interest expense on capital lease obligations during the year amounted to $3,961.

7. Demand loan

The demand loan bears interest at prime plus 1.5%, is payable on demand with minimum monthly installments of $5,000 plus interest, and is secured by the personal property of the Company.

8. Related party transactions

Due to related parties

During the year, the Company entered into transactions with shareholders as follows:

	2007
	$

Direct costs		24,055
Consulting fees		105,886

Direct costs were related to maintenance services performed by a shareholder of the Company.

The above transactions were in the normal course of operations and were measured at the exchange amount of consideration established and agreed to by the related parties.

Page 12

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

9. Convertible debentures

On March 31, 2005, and December 31, 2005, the Company issued $6,400,000 and $3,550,000 convertible debentures (the “convertible debentures”), respectively. The convertible debentures had maturity dates of March 31, 2009 and December 31, 2009, respectively, and accrued interest at 8.5% per annum. The outstanding principal amount of the debentures, plus any unpaid and accrued interest thereon, were convertible into Class A Preferred shares at the option of the holder at any time up to the maturity date and had conversion rates of $1.4827 per share, with the exception of $1,100,000 of the convertible debentures which had a conversion rate of $0.5437 per share. The convertible debentures were secured by a general security agreement over all of the assets of the Company.

The conversion feature required the bifurcation of the financial instrument into debt and equity components based on their relative fair values. The fair value of the debt was determined using discounted cash flows at an estimated cost of borrowing of 16%, which represented management’s estimate of what the Company could borrow secured debt without a conversion option. The fair value of the conversion option was determined as the residual between the principal amount of the convertible debentures and the fair value of the debt component. The resulting allocations resulted in an initial liability component of $7,858,808 and an equity component of $2,091,192.

Interest expense was recorded as a charge to income at the effective rate of 16%, with the difference between the coupon rate of 8.5% and the effective rate of 16% being credited to the carrying value of the liability component, such that, at maturity, the carrying value of the liability component would be equal to the face value of the then outstanding convertible debentures.

(a) Extinguishment of convertible debentures through repurchase

On February 28, 2007, the Company completed a transaction with Software Innovation ASA, a shareholder of the Company, for the license of software technology. The total consideration for this transaction was US$2,300,000 which included the cost of the licensed technology and the early settlement of Software Innovation ASA’s outstanding convertible debentures, which had a face value of $300,000, plus accrued interest of $52,497 at the time of settlement.

The Company adopted the guidance provided by EIC 96, "Accounting for the Early Extinguishment of Convertible securities through (1) early redemption or repurchase and (2) Induced Early Conversion" in accounting for the early extinguishment of the convertible debentures.

Page 13

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

9. Convertible debentures (continued)

(a) Extinguishment of convertible debentures through repurchase (continued)

Following the guidance provided by EIC 96, management allocated the consideration paid on extinguishment of the convertible security to the liability and equity components based on their relative fair values at the date of the transaction. The fair value of the debt as at February 28, 2007 was determined using discounted cash flows at an estimated cost of borrowing of 18%, which represented management’s estimate of the rate that the Company could borrow secured debt without a conversion option. The fair value of the conversion option was determined as the residual between the consideration paid to extinguish the face value of the convertible debenture plus accrued interest, less the fair value of the debt component at the date of settlement. The settlement of the convertible debenture resulted in a gain of $53,120 on the settlement of the liability component and an increase in deficit of $35,094 relating to the equity component calculated as follows:


	Carrying value		Fair value		Gain/(Loss)
	$		$		$

Convertible debentures - liability component		307,472		254,352		53,120
Convertible debentures - equity component		63,051		98,145		(35,094	)

(b) Early extinguishment of convertible debentures through induced early conversion

On June 11, 2007, the Company completed a private placement of $5,254,316 in the form of senior secured debentures as disclosed in Note 10. In order to secure this financing, the existing convertible debenture holders converted their convertible debentures into Class A common shares of the Company. The original conversion terms on the debentures were changed from 1.4827 to 0.5437 Class A common shares for each dollar of outstanding convertible debenture principal plus accrued interest. As of the closing date, debenture holders converted an aggregate of $9,650,000 of debenture principal together with $1,708,092 of accrued interest.

In accordance with EIC 96, management first calculated the total number of Class A common shares issued on conversion (20,890,370 Class A common shares), which included the 11,699,169 incremental Class A common shares that arose as a result of the change in conversion terms, as noted above. The estimated fair value of the incremental Class A common shares issued was determined to be $3,258,661 and was recorded as a capital transaction, resulting in an increase in share capital and a corresponding charge to deficit in the same amount.

Page 14

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

9. Convertible debentures (continued)

As noted above, the fair value of the debt as at February 28, 2007 was determined using discounted cash flows at an estimated cost of borrowing of 18%, which represented management’s estimate of what the Company could borrow secured debt without a conversion option. The fair value of the conversion option was determined as the residual between the consideration paid to extinguish the face value of the convertible debenture plus accrued interest, less the fair value of the debt component at the date of settlement. The settlement of the convertible debentures resulted in a gain of $211,408 on the settlement of the liability component, an increase in deficit of $3,472,757 (which includes the fair value of incremental consideration noted above) and an increase in share capital of $15,333,737 calculated as follows:


	$

Fair value of incremental common shares		3,258,661
Carrying value of convertible debentures		8,338,843
Carrying value of accrued debenture interest payable		1,708,092
Equity portion of convertible debt		2,028,141
Fair value of incremental common shares		15,333,737

During the year, the Company recorded $585,499 of interest expense on the convertible debentures.

The carrying amount of the liability component of the convertible debentures as at December 31 is broken down as follows:


	$

Principal portion of debentures issued		9,950,000
Redeemed through repurchase (Note 9(a))		(300,000	)
Redeemed through induced early conversion (Note 9(b))		(9,650,000	)
Balance, December 31, 2007		-

10. Senior secured debentures

To finance the acquisition of the licensed software technology as described in Note 9(a), the Company entered into a Bridge Loan Arrangement with two existing investors who each advanced $1,500,000. The bridge loans carried an interest rate of 20% per annum, compounded on a semi-annual basis. Each of the lenders also received a $100,000 work fee as a condition to the bridge loan facility. Interest expense on the bridge loans for the year ended December 31, 2007 amounted to $369,316. On June 11, 2007, the principal amount of the bridge loans plus the accrued interest and work fees outstanding were converted into senior secured debentures (“senior debentures”).

On June 11, 2007, the Company completed a private placement of $5,254,316 ($4,885,000 net of the $369,316 bridge loan interest and work fee expense as noted above) in the form of senior debentures which carry no conversion features, bear interest at a rate of 12% compounded semi-annually, and mature on December 31, 2010. As an inducement to subscribe for the senior debentures, the Company issued Class A common shares equal to the principal amount of senior debentures subscribed for divided by 0.2648, for a total of 19,842,583 Class A common shares.

Page 15

Coreworx Inc.

Notes to the consolidated financial statements

December 31, 2007

(in Canadian dollars unless otherwise noted)

10. Senior secured debentures (continued)

The pro-rata method was used to measure the liability and equity components of the financing separately, which adjusts these amounts so that the sum of the components equals the amount of the instrument as a whole.

The equity component was valued by assigning a fair value of $0.2788 per Class A common share, for a total value of $5,532,112. The debt component was valued by using discounted cash flows at an estimated cost of borrowing of 18%, which represented management’s estimate of what the Company could borrow secured debt without a conversion option. The total value assigned to the senior debentures was $4,480,034, for a total assigned value of $10,012,146. A discount was then applied to the debt and equity components based on their relative fair values to the total value assigned which resulted in a carrying value of the debt and equity issued at inception of $2,903,220 and $2,351,096, respectively.

Interest expense on the carrying value of the senior debentures is recorded as a charge to income at an effective rate of 36.1%, with the difference between the coupon rate of 12% and the effective rate of 36.1% being credited to the carrying value of the senior debentures such that, at maturity, the carrying value of the senior debentures would be equal to the face value of the then outstanding senior debentures. During the year, the Company recorded $583,403 of interest expense on the senior debentures and senior debenture interest payable amounted to $350,672 as at December 31, 2007.

The debentures are secured by a general security agreement over all of the assets of the Company.

The carrying amount of the senior secured debentures as at December 31, 2007 is broken down as follows:


	$

Principal portion of senior debentures issued	5,254,316
Less: unamortized senior debenture discount	(2,118,365	)
Principal portion of senior debenture liability as at December 31, 2007	3,135,951

Unaudited interim consolidated financial statements of

Coreworx Inc. (formerly Software Innovation Inc.)

Six months ending June 30, 2008 and 2007

Coreworx Inc.

Table of contents

Unaudited interim consolidated statements of operations, comprehensive loss and deficit	1

Unaudited interim consolidated balance sheets	2

Unaudited interim consolidated statements of cash flows	3

Notes to the unaudited interim consolidated financial statements	4-14

Coreworx Inc.
Interim consolidated statements of operations, comprehensive loss and deficit
(in Canadian dollars, unaudited)
	Six months ended			Six months ended
	June 30,			June 30,
	2008			2007
	$			$

Revenue
License fees		60,486			481,040
Professional service fees		318,046			527,632
Reimbursable expenses		75,638			51,879
Support and maintenance fees		300,939			316,062
		755,109			1,376,613
Cost of sales
Direct costs		551,890			688,980
Reimbursable expenses		76,283			53,118
Amortization of intangible assets		582,453			443,856
		1,210,626			1,185,954
		(455,517	)		190,659

Operating expenses
General and administrative		690,588			871,624
Foreign exchange (gain) loss		(21,976	)		52,409
Research and development		1,405,246			769,275
Sales and marketing		515,777			587,655
Interest expense		606,649			1,009,432
Amortization of capital assets		70,816			62,510
Stock-based compensation (Note 8)		108,083			18,499
		3,375,183			3,371,404
Loss before the undernoted:		(3,830,700	)		(3,180,745	)

Gain on early extinguishment of convertible debentures		-			(264,528	)
Interest and other income		(3,236	)		(40,968	)
Net loss and comprehensive loss		(3,827,464	)		(2,875,249	)

Deficit, beginning of period		(19,968,949	)		(11,141,635	)

Adjustment for fair value of conversion feature on early
extinguishment of convertible debentures		-			(249,190	)

Value of incremental shares issued to settle convertible
debentures		-			(3,258,661	)
Deficit, end of period		(23,796,413	)		(17,524,735	)

Page 1

Coreworx Inc.
Interim consolidated balance sheets
(in Canadian dollars, unaudited)

	June 30,			December 31,
	2008			2007
	$			$

Assets
Current assets
Cash and cash equivalents		838,544			1,024,459
Accounts receivable		350,649			841,717
Prepaid expenses		262,092			291,830
		1,451,285			2,158,006

Capital assets		205,830			254,999
Goodwill		199,850			199,850
Intangible assets (Note 4)		776,605			1,359,057
		2,633,570			3,971,912

Liabilities
Current liabilities
Accounts payable and accrued liabilities		415,003			472,284
Current portion of obligations under capital leases		10,750			22,294
Demand loan (Note 5)		20,000			50,000
Deferred revenue		740,445			393,727
		1,186,198			938,305

Obligations under capital leases		1,371			4,909
Advances from Acorn Energy, Inc. (Note 5)		1,529,550			-
Interest payable on Acorn Energy, Inc. advances		40,565			-
Senior secured debenture interest payable (Note 7)		665,931			350,672
Senior secured debentures (Note 7)		3,387,261			3,135,951
		6,810,876			4,429,837

Commitments and contingencies (Notes 14 and 15)

Capital deficiency
Capital stock (Note 8)		18,978,781			18,978,781
Contributed surplus		640,326			532,243
Deficit		(23,796,413	)		(19,968,949	)
		(4,177,306	)		(457,925	)
		2,633,570			3,971,912

Page 2

Coreworx Inc.
Interim consolidated statements of cash flows
(in Canadian dollars, unaudited)
	Six months ended			Six months ended
	June 30,			June 30,
	2008			2007
	$			$

Operating activities
Net loss		(3,827,464	)		(2,875,249	)
Items not requiring cash
Interest accrued on bridge loan		-			369,316
Accrued interest on convertible debentures		-			361,368
Accretion expense on convertible debentures		-			224,131
Accrued interest on senior secured debentures		315,258			32,831
Accretion expense on senior secured debentures		251,310			21,786
Accrued interest on Advances from Acorn Energy, Inc.		40,565			-
Gain on early settlement of convertible debentures		-			(264,528	)
Amortization of capital assets		70,816			62,510
Amortization of intangible assets		582,453			443,856
Stock-based compensation		108,083			18,499
Changes in non-cash working capital components
Accounts receivable		491,068			201,015
Prepaid expenses		29,738			103,138
Accounts payable and accrued liabilities		(57,281	)		(138,822	)
Due to former shareholder		-			(500,000	)
Deferred revenue		346,718			(413,274	)
		(1,648,736	)		(2,353,423	)

Investing activities
Acquisition of capital assets		(21,647	)		(57,033	)
Acquisition of intangibles		-			(2,329,812	)
		(21,647	)		(2,386,845	)

Financing activities
Proceeds from senior secured debentures		-			4,885,000
Settlement of convertible debentures for cash		-			(352,497	)
Advances from Acorn Energy, Inc.		1,529,550			-
Repayment of demand loan		(30,000	)		(30,000	)
Repayment of capital lease obligations		(15,082	)		(14,288	)
		1,484,468			4,488,215
Net change in cash and cash equivalents		(185,915	)		(252,053	)

Cash and cash equivalents, beginning of period		1,024,459			2,473,600
Cash and cash equivalents, end of period		838,544			2,221,547

Supplemental disclosure
Payments for interest		4,448			5,152
Effect of exchange rate on cash and cash equivalents
denominated in a foreign currency		16,035			135,088

Page 3

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

1.	Description of business
	On May 22, 2008, the name of the company was changed from Software Innovation Inc. to Coreworx Inc. Coreworx Inc. (the “Company”) is a privately owned corporation, incorporated under the Business Corporations Act of Ontario. The Company was formed through the amalgamation of SI Investment Holdings Inc., 612388 N.B. Inc. and Software Innovation Inc. on May 11, 2004. The Company is a leading provider of integrated project collaboration and advanced document management solutions for the Architecture, Engineering and Construction markets, particularly for large capital projects.

2.	Significant accounting policies
	The significant accounting policies are consistent with those discussed within the audited annual consolidated financial statements for the year ended December 31, 2007 except for those outlined in Note 3 below. These interim financial statements do not contain all of the disclosures required by Canadian generally accepted accounting principles (“Canadian GAAP”) for annual financial statements and accordingly, should be read in conjunction with the audited consolidated financial statements prepared for the fiscal year ended December 31, 2007.

3.	Changes in accounting policies
	In December 2006, the Canadian Institute of Chartered Accountants (“CICA”) issued new accounting standards comprised of CICA Handbook sections 1535 “Capital Disclosures”, 3862 “Financial Instruments - Disclosures” and 3863 “Financial Instruments - Presentation”, all of which became effective for the Company beginning January 1, 2008. In accordance with the transitional provisions the Company has adopted these standards prospectively and, accordingly, prior period balances have not been restated.

	Section 1535, “Capital Disclosures”, requires disclosure of both qualitative and quantitative information that enables users of the financial statements to evaluate the Company’s objectives, policies and processes for managing capital. It also includes disclosure with respect to what the Company regards as capital, whether the Company has complied with any external capital requirements and the consequences of not complying with these capital requirements.

	Section 3862, “Financial Instruments - Disclosures”, requires additional disclosure to enhance the users’ ability to evaluate the significance of the Company’s financial instruments and the nature and extent of risks associated with the financial instruments and how the Company manages those risks.

	Section 3863, “Financial Instruments - Presentation”, carries forward, unchanged, the requirements of Section 3861 “Financial Instruments - Disclosure and Presentation” of the CICA Handbook.

	Generally, the purpose of these new standards is to enhance disclosure requirements. Accordingly, they do not have a financial impact on the Company.

4.	Intangible assets

June 30,

December 31,

2008

2007

Accumulated

Net book

Net book

Cost

amortization

value

value

Acquired or licensed technology

2,729,812

1,953,207

776,605

1,359,057

Page 4

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

5.	Interest bearing debt

	The demand loan bears interest at prime plus 1.5%, is payable on demand with minimum monthly installments of $5,000 plus interest, and is secured by the personal property of the Company.

	The advance from Acorn Energy, Inc. bears interest at 12% per annum, matures on December 31, 2010, and is secured by a security interest over all of the present and after-acquired assets of the Company.

6.	Related party transactions

	Due to related parties

	Six months ended June 30,
	2008		2007
	$		$

Direct costs		-		5,796
Consulting fees		-		41,738

	Direct costs were related to maintenance services performed by a shareholder of the Company.

	The above transactions were in the normal course of operations and were measured at the exchange amount of consideration established and agreed to by the related parties.

7.	Senior secured debentures

	The carrying amount of the senior secured debentures is as follows:

	June 30,			December 31,
	2008			2007
	$			$

Principal portion of senior debentures issued		5,254,316			5,254,316
Less: Unamortized senior debenture discount		(1,867,055	)		(2,118,365	)
Principal portion of senior debenture liability as at
December 31, 2007		3,387,261			3,135,951

The senior secured debentures were subsequently repaid as part of the purchase by Acorn Energy, Inc. (Note 17).

Page 5

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

8.	Capital stock

	Authorized and issued

	There have been no changes to the amount of shares authorized and issued since December 31, 2007.

	Stock based compensation
	No options were issued in the six months ending June 30, 2008.

	The weighted average remaining life of options outstanding at the end of the period was 2.852 years (December 31, 2007 - 2.843 years).

	The Company has recognized $108,083 (2007 - $18,499) in stock-based compensation expense to employees, consultants, and directors in the six months ending June 30, 2008.

9.	Economic dependence

	Approximately 72% (2007 - 82%) of the Company’s revenues were from two customers.

10.	Financial instruments

	The fair value of financial assets and liabilities together with the carrying amounts in the unaudited interim consolidated balance sheet are as follows:

	June 30, 2008
	Carrying		Fair
	amount		value
	$		$

Financial assets
Held for trading
Cash and cash equivalents		838,544		838,544
Loans and receivables
Accounts receivable		350,649		350,649

Financial liabilities
Other financial liabilities
Accounts payable and accrued liabilities		415,003		415,003
Demand loan		20,000		20,000
Obligations under capital leases		12,121		12,121
Advance from Acorn Energy, Inc.		1,529,550		1,580,688
Interest Payable on Acorn Energy, Inc. advances		40,565		40,565
Senior secured debentures		3,387,261		4,698,629
Senior secured debentures interest payable		665,931		665,931

	The Company has determined that the fair value of its short-term financial assets and liabilities approximates their respective carrying amounts as at the balance sheet dates because of the short-term maturity of those instruments.

	The fair value of the long term debt was calculated based on the present value of future cash flows.

Page 6

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

10.	Financial instruments (continued)

	The following components of income and expense relating to financial instruments are included in the consolidated statement of operations:

	Interest income on held for trading financial assets consists of interest earned from cash and cash equivalents invested in short-term deposits. Interest expense on other financial liabilities consists of interest on bank loans and the senior secured debentures.

	Six months ended
	June 30, 2008
	$
Interest income and expense
Interest expense on other financial liabilities		(606,649	)
Interest income on held for trading financial assets		3,236
Interest expense, net		(603,413	)

11.	Financial risk management

	This section provides disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, and how the Company manages those risks.

	Credit risk

	Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the Company’s accounts receivables and cash and cash equivalents. The carrying amount of financial assets as disclosed in Note 10 represents the Company’s maximum credit exposure.

	June 30,
	2008
	$
Accounts receivable aging
Current		264,244
Overdue
1-30 days		-
31-60 days		900
61-90 days		5,603
over 90 days		44,519
		315,266

Other accounts receivable		35,383
		350,649

Page 7

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

11.	Financial risk management (continued)

	Liquidity risk

	Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions out of the ordinary course of business including proposals on major investments. Recently, the Company has obtained additional financing via senior secured debentures and advances from Acorn Energy, Inc. The Company’s financial liabilities include the demand loan, accounts payable and accrued liabilities, capital leases, Acorn Energy, Inc. advances, interest payable on Acorn Energy, Inc. advances, and the senior secured debentures and related interest. The demand loan is discussed in Note 5. The maturity dates for the other financial liabilities is as follows:


	Demand loan	Due on demand
	Advance from Acorn Energy, Inc.	December 31, 2010
	Senior secured debentures	December 31, 2010 (Note 17)

	Foreign currency risk

	The Company’s functional and reporting currency is Canadian dollars. Foreign currency risk is primarily related to the sale of licenses and professional services in US dollars and Australian dollars. For the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the Canadian dollar will create volatility in the Company’s cash flows and the reported amounts for sales and cost of goods sold in its consolidated statement of operations, on a period-to-period basis. Additional earnings variability arises from the translation of monetary assets and liabilities denominated in currencies other than Canadian dollars at the rates of exchange at each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in the statement of operations. The Company’s sales are transacted in Canadian dollars, U.S. dollars and Australian dollars.

	With a 1% decrease in the exchange rate from US dollars to Canadian dollars net loss would decrease by $14,798 with the change in value of financial instruments denominated in US dollars as detailed in the following table:


					Effect on
	$1 US = $CDN		Fair value		net loss
			$		$

Sensitivity analysis
Financial assets
Loans and receivable		1.0186		141,445
Financial liabilities		1.0084		140,030		(1,414	)
Advance from Acorn Energy Inc.		1.0186		1,580,688
		1.0084		1,564,881		15,807
Interest payable on advance from Acorn Energy, Inc.		1.0186		40,565
		1.0084		40,159		406
						14,798


	With a 1% decrease in the exchange rate from Australian dollars to Canadian dollars Net Loss would increase by $2,997 with the change in value of financial instruments denominated in Australian dollars as detailed in the following table:

Page 8

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

11.

Financial risk management (continued)

					Effect on
	$1 AUD = $CDN		Fair value		net loss
			$		$
Sensitivity analysis
Financial assets
Loans and receivable		1.02670		299,677
		1.01643		296,681		(2,997	)
						(2,997	)

	Interest rate risk

	As described in Note 5, the advance from Acorn Energy Inc. bears a fixed interest rate of 12% and matures on December 31, 2010. Consequently, the cash flow exposure is not significant but the fair value of the advance is subject to change with changes in prevailing interest rates.

	The demand loan bears interest at prime plus 1.5%. Changes in the interest rate will not significantly affect the monthly interest expense incurred by the Company.

12.	Capital disclosures

	The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth strategy. The Company’s capital is composed of net debt and capital deficiency. Net debt consists of interest-bearing debt less cash and cash equivalents. The Company’s primary uses of capital are to finance increases in non-cash working capital and capital expenditures for capacity expansion.

	The Company is not subject to any capital requirements imposed by a regulator.

	As at
	June 30,
	2008
	$
Capital
Other financial liabilities
Interest payable on Acorn Energy Inc. advances		40,565
Advances from Acorn Energy Inc.		1,529,550
Senior secured debenture interest payable		665,931
Senior secured debentures		3,387,261
Demand loan		20,000
Interest bearing debt		5,643,307

Less:
Cash and cash equivalents		838,544
Net debt		4,804,763

Capital deficiency		(4,177,306	)
Capital		627,457

Page 9

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

13.	Segment disclosures

	The Company reviews its operating results, assesses its performance, makes decisions about resources, and generates discrete financial information at the single enterprise level. Accordingly, it has determined that it operates in one business segment providing integrated project collaboration and advanced document management solutions. The following table provides revenue information by geographic area.

	2008
	$
Revenues
Canada		19,831
Americas, excluding Canada		266,501
Australia		454,912
Other		13,865
		755,109

	Revenue information by revenue type is disclosed in the unaudited interim consolidated statement of operations, comprehensive loss and deficit.

	All of the Company’s long-lived assets belong to the Canadian geographic location.

14.	Commitments

	The Company has entered into commitments for leased premises. Future minimum annual payments are as follows:

	Premises
	$

2008		113,440
2009		226,880
2010		226,880
		567,200

15.	Guarantees
	In the normal course of business the Company enters into a variety of agreements that may contain features that meet the definition of a guarantee under Accounting Guideline-14, Disclosure of Guarantees (“AcG-14”). The following lists out significant guarantees:

	Intellectual property indemnification obligations

	The Company provides indemnifications of varying scope to its customers against claims of intellectual property infringement made by third parties arising from the use of its products. In the event of such a claim, the Company is generally obligated to defend its customers against the claim and is liable to pay damages and costs assessed against its customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of the license agreement with the customer. To date, the Company has not encountered any costs as a result of such indemnifications. Therefore, no provision has been made in the financial statements.

Page 10

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

15.	Guarantees (continued)

	Other indemnification agreements

	In the normal course of operations, the Company enters into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. These indemnifications require the Company, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. Management believes that the likelihood that the Company could incur a significant liability under these obligations is remote. Historically, the Company has not made any payments under such indemnifications. Therefore, no provision has been made in the financial statements.

16.	Differences between Canadian and Generally Accepted Accounting Principles in the United States (“U.S. GAAP”)

	The unaudited interim consolidated financial statements have been prepared in accordance with Canadian GAAP which, in most respects, conforms to U.S. GAAP. The significant differences between Canadian GAAP and U.S. GAAP are described in this note.

	Reconciliation of loss and comprehensive loss under Canadian GAAP to U.S. GAAP

	For the six months ended June 30


	Note		2008			2007
			$			$

Net loss - Canadian GAAP				(3,827,464	)		(2,875,249	)
Increase (decrease) under U.S. GAAP
Accretion on convertible debentures		A		-			224,131
Settlement expense on retirement of		B
convertible debentures				-			(3,258,661	)
Gain on early extinguishment of		B
convertible debentures				-			(264,528	)
Stock-based compensation		C		(20,408	)		(35,448	)
Net loss and comprehensive loss - U.S. GAAP				(3,847,872	)		(6,209,755	)


Accumulated deficit
Balance, beginning of period – U.S. GAAP				(20,648,879	)		(11,955,733	)
Loss – U.S. GAAP				(3,847,872	)		(6,209,755	)
Balance, end of period – U.S. GAAP				(24,496,751	)		(18,165,488	)

Page 11

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

16.	Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

	There have been no changes in the application of U.S. GAAP from the annual financial statements for the year ended December 31, 2007. The application of U.S. GAAP would have the following effect on the unaudited interim consolidated balance sheets as reported:

			June 30, 2008									December 31, 2007
			2008			2008			2008			2007			2007			2007
	Note		as reported			Adjustments			US GAAP			as reported			Adjustments			US GAAP
			$			$			$			$			$			$

Capital deficiency
Capital stock		B		18,978,781			(716,982	)		18,261,799			18,978,781			(716,982	)		18,261,799
Contributed surplus		C		640,326			1,417,320			2,057,646			532,243			1,396,912			1,929,155
Accumulated deficit				(23,796,413	)		(700,338	)		(24,496,751	)		(19,968,949	)		(679,930	)		(20,648,879	)

	Notes:

	(A) Convertible debentures - accounting
	Under Canadian GAAP, the Company's convertible debentures are classified as debt with a portion, representing the value associated with the conversion feature, being allocated to equity. In addition, under Canadian GAAP a non-cash interest expense representing the effective yield of the debt component is recorded in the consolidated statement of operations with a corresponding credit to the convertible debenture liability balance to accrete the balance to the principal due on maturity.

	Under U.S. GAAP, the convertible debentures in their entirety are classified as debt. The non-cash interest expense recorded under Canadian GAAP would not be recorded under U.S. GAAP and accordingly, $224,131 of non-cash interest expense recognized during 2007 and $508,189 from fiscal periods prior to fiscal 2007 has been reversed. As the debentures were converted into shares during the year, a reclassification to liabilities from equity was not required at December 31, 2007.

	Under U.S. GAAP, a portion of the convertible debentures were deemed to have a beneficial conversion feature in the amount of $1,100,000, which would have been recorded as an expense during fiscal 2005, the year during which the debenture was issued, with a corresponding increase to contributed surplus. The beneficial conversion feature was determined in accordance with EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“EITF 98-5”). EITF 98-5 requires that if a conversion feature is issued in the money (that is, at a value less than that of the market price of the share), it is considered a beneficial conversion option. As described in Note 9, $1,100,000 of convertible debentures were issued with a conversion rate of $0.5437, which was less than the fair market value of the shares of $1.48 at the time of issuance, resulting in a beneficial conversion feature.

Page 12

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)

16.	Differences between Canadian and Unites States Generally Accepted Accounting Principles (continued)

	(B) Early extinguishment of convertible debentures

	As described in Note 9 of the annual financial statements, under Canadian GAAP, the allocation of the consideration paid on extinguishment of the convertible security is based on the relative fair values of the debt and equity components at the settlement date, with the difference between the fair value and the carrying value of the debt and equity components being recorded through income and deficit, respectively. Upon conversion, the Company recognized a gain of $264,528 on the debt component, which was recognized in income, and a loss of $249,190 on the equity component, which was recognized as an increase in the deficit. The transaction also resulted an increase in share capital of $12,075,076, which was offset by the decrease in the carrying value of the convertible debenture principal and accrued interest balances, as well as the holder option element which was initially recognized when the instrument was split into its debt and equity components at inception. Under Canadian GAAP, share capital was also increased by $3,258,661, representing the estimated fair market value of the 11,699,169 incremental shares issued in conjunction with the changed conversion terms as described in Note 9(b) of the annual financial statements, with a corresponding increase in deficit.

	Under US GAAP, when convertible debt is converted to equity securities of the debtor pursuant to an inducement offer, the debtor enterprise shall recognize an expense equal to the fair value of all securities and other consideration transferred in the transaction in excess of the fair value of securities issuable pursuant to the original conversion terms. In accordance with this guidance, a settlement expense of $3,258,661 is to be recorded with a corresponding increase to share capital. In addition, under U.S. GAAP, share capital would be credited by $11,358,094 which represented the principal and accrued interest on the convertible debentures at the time of settlement.

	(C) Stock-based compensation

	The Company estimates its stock-based compensation expense using the Black-Scholes option-pricing model. Under Canadian GAAP, a nominal volatility factor was used as the Company is a private company.

	Under U.S. GAAP a reasonable volatility factor must be determined by assessing company and industry specific factors. For U.S. GAAP purposes the Company has determined a volatility factor of 51.9% which results in an additional $20,408 (2007 - $35,448) in stock-based compensation expense during 2007 and an increase in the 2007 opening deficit of $344,661, with a corresponding increase to additional paid-in capital.

17.	Subsequent event

	Purchase by Acorn Energy Inc.

	On March 14, 2008, the Company entered into a Loan Agreement (the “loan”) for a principal amount of $1,000,000 USD with Acorn Energy, Inc. (“Acorn Energy”), a publicly traded Delaware holding company (NASDAQ - ACFN), pursuant to a Letter of Intent (“LOI”) dated February 22, 2008. The loan ranks senior to all other debt, is secured by a general security interest over the assets of the Company, bears interest at a rate of 12% per annum and has a maturity of December 31, 2010. The LOI was amended June 3, 2008 and the loan principal was increased by $500,000 USD to $1,500,000 USD. All other terms of the loan remained unchanged.

	On August 13, 2008, Acorn Energy acquired 100% of the common stock of the Company consisting of 43,183,913 Class A common shares and also retired all of the outstanding senior debentures which were held by former shareholders, with an aggregate principal amount of $5,254,316. The total consideration in respect of this transaction was valued at approximately $7,300,000 USD. In addition, the former shareholders of the Company will also be entitled to a portion of the Company’s 2007 SRED claim if received within six months of the closing date.

Page 13

Coreworx Inc.

Notes to the unaudited interim consolidated financial statements

(in Canadian dollars unless otherwise noted)


17.	Subsequent event (continued)

	As part of the agreement, the Company agreed to take all actions necessary under the Software Innovation Inc. 2004 Employee Stock Option Plan (the “Plan”) to cause the plan, consisting of 4,608,150 options outstanding, to be terminated as of the closing date.

Page 14


Report of Independent Registered Chartered Accountants	1

Consolidated statement of operations, comprehensive loss and deficit	2

Consolidated balance sheet	3

Consolidated statement of cash flows	4

Notes to the consolidated financial statements	5-28

	Deloitte & Touche LLP
	4210 King Street East
	Kitchener ON N2P 2G5
	Canada

	Tel: 519-650-7600
	Fax: 519-650-7601
	www.deloitte.ca


	$

Revenue
License fees		954,800
Professional service fees		1,401,506
Reimbursable expenses		168,329
Support and maintenance fees		654,372
		3,179,007

Cost of sales
Direct costs		1,235,484
Reimbursable expenses		172,347
Amortization of intangible assets		1,026,308
		2,434,139
Gross profit		744,868

Operating expenses
General and administrative		1,766,012
Foreign exchange loss		206,575
Research and development (Note 12)		1,106,702
Sales and marketing		1,183,340
Interest expense		1,552,110
Amortization of capital assets		154,192
Stock-based compensation (Note 11(b))		441,736
		6,410,667
Loss before the undernoted:		(5,665,799	)

Gain on early extinguishment of convertible debentures (Note 9)		(264,528	)
Interest and other income		(81,808	)
Net loss and comprehensive loss		(5,319,463	)

Deficit, beginning of year		(11,141,635	)

Adjustment for fair value of conversion feature on early extinguishment
of convertible debentures (Note 9)		(249,190	)

Value of incremental shares issued to settle convertible debentures
(Note 9(b))		(3,258,661	)
Deficit, end of year		(19,968,949	)

	2007
				Weighted
	Number of			average
	shares			exercise price
				$
Balance, beginning of year		744,315			1.34
Granted		4,083,000			0.05
Expired		(219,165	)		1.49
Balance, end of year		4,608,150			0.19

Exercisable, end of year		1,363,494			0.33


	2007

Expected life (years)		5
Interest rate		4.23	%
Dividend yield		0	%
Volatility		0.1	%
Weighted average fair value		0.16

Coreworx Inc.
Consolidated statement of operations, comprehensive loss and deficit
year ended December 31, 2007
(in Canadian dollars)

Coreworx Inc.
Consolidated balance sheet
as at December 31, 2007
(in Canadian dollars)


____________________________ Signature


____________________________ Signature

	2007
	$
Operating activities
Net loss		(8,693,146	)
Items not requiring cash
Interest on bridge loan		369,316
Accrued interest on convertible debentures		361,368
Accretion expense on convertible debentures		-
Accrued interest on senior secured debentures		350,672
Accretion expense on senior secured debentures		232,731
Gain on early settlement of convertible debentures		-
Amortization of capital assets		154,192
Amortization of intangible assets		1,026,308
Settlement expense on retirement of convertible debentures		3,258,661
Stock-based compensation		516,361
Changes in non-cash working capital components
Accounts receivable		(125,773	)
Prepaid expenses and advances		36,396
Accounts payable and accrued liabilities		(114,021	)
Due to former shareholder		(500,000	)
Deferred revenue		(264,645	)
Cash from operating activities		(3,391,580	)

Cash used in investing activities		(2,500,524	)
Cash from financing activities		4,442,963
Net change in cash and cash equivalents		(1,449,141	)

Cash and cash equivalents , beginning of year		2,473,600
Cash and cash equivalents , end of year		1,024,459

	$

2026		900,000
2027		2,400,000
		3,300,000