Dsit Solutions, Ltd. ('DSIT')

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Dsit Solutions, Ltd. ("DSIT")

NOTE 3—DSIT SOLUTIONS, LTD. (“DSIT”)

On April 21, 2016 (the “Closing Date”), the Company closed on a transaction (the “DSIT Transaction”) initially entered into on January 28, 2016 for the sale of a portion of its interests DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems Ltd., a major Israeli defense company. At closing, Acorn received gross proceeds of $4,913 before escrow, fees and taxes. From the gross proceeds, the Company deposited approximately $579 to satisfy the escrow requirements in the sale. The Company expects the escrow deposit to be released 18 months from the Closing Date. The Company also paid an Israeli withholding tax of approximately $266 and incurred transaction costs of $184. In connection with the DSIT Transaction, the Company recorded a gain of $3,543. The Company is also eligible to receive its 82.4% pro-rata share of a $1,000 earn-out over a three-year period if certain operating results targets are met. The earn-out is not included in the determination of the gain in the DSIT Transaction and will only be recorded as a gain if and when the parties agree that the earn-out has in fact been earned.

Prior to the Closing Date, all options in the DSIT Key Employee Stock Option Plan were exercised and DSIT received proceeds of $391, and the Company’s holdings in DSIT were reduced from 88.3% to 78.7%. As a result of the DSIT Transaction, the Company’s holdings in DSIT were reduced from 78.7% to 41.2%, and subsequent to the DSIT Transaction, the Company has limited representation on the DSIT Board of directors. Accordingly, after the Closing Date, the Company no longer consolidates the results of DSIT.

Assets and liabilities related to the deconsolidated operations of DSIT are as follows:

	September 30, 2016		At the Closing Date		December 31, 2015
Current assets:
Cash and cash equivalents	$	9	$	516		7
Restricted deposits		1,885		2,517		2,172
Accounts receivable		4,221		5,166		5,826
Unbilled revenue		4,440		4,779		3,849
Inventory		323		297		230
Other current assets		923		935		698
Total current assets		11,801		14,210		12,782
Property and equipment, net		598		620		654
Severance assets		3,860		3,762		3,558
Restricted deposits		1,652		1,815		2,951
Due from Acorn		1,066		916		802
Goodwill		--		536		516
Other assets		86		80		124
Total assets	$	19,063	$	21,939		21,387
Current liabilities:
Short-term bank credit and current maturities of long-term bank debt	$	1,317	$	2,655		1,917
Accounts payable		984		2,072		1,869
Accrued payroll, payroll taxes and social benefits		1,106		1,286		1,261
Deferred revenue		1,454		2,219		3,487
Other current liabilities		2,351		1,615		1,417
Total current liabilities		7,212		9,847		9,951
Accrued severance		5,343		5,209		4,894
Other long-term liabilities		43		38		82
Total liabilities	$	12,598	$	15,094		15,017

The Due from Acorn balance at September 30, 2016 is comprised of a loan of $340 from DSIT and unreimbursed expenses of $476, both of which accrue interest at 3.15% per annum. Such balances are due the earlier of December 31, 2017 or the sale of Acorn’s remaining shares in DSIT. In addition to the above balances, the Due from Acorn balance also includes $250 with respect to provisions for severance and vacation for the Company’s CFO who is an employee of DSIT.

DSIT’s results that were included in the Company’s Condensed Consolidated Statements of Operations in the three and nine month periods ending September 30, 2015 can be seen below:

	Three months ending September 30, 2015			Nine months ending September 30, 2015
Revenue	$	3,616		$	10,068
Cost of sales		2,228			6,585
Gross profit		1,388			3,483
Research and development expenses, net		200			810
Selling, general and administrative expenses		790			2,346
Operating income		398			327
Finance expense, net		(17	)		(78	)
Income before income taxes		381			249
Income tax expense		(33	)		(46	)
Net income		348			203
Net income attributable to non-controlling interests		(46	)		(29	)
Net income attributable to Acorn Energy Inc.	$	302		$	174

As indicated above, after the Closing Date, the Company no longer consolidates the results of DSIT. After the Closing Date, the Company accounts for its investment in DSIT under the equity method. The initial balance of the Company’s investment in DSIT ($5,391) was determined based on the fair value of its 41.2% holdings in DSIT following the DSIT Transaction and the $13,100 value attributed to DSIT in the DSIT Transaction.

DSIT’s results and the Company’s share of its net income for the three months ended September 30, 2016 and for the period from the Closing Date to September 30, 2016 can be seen below:

	Three months ending September 30, 2016			From the Closing Date to September 30, 2016
Revenue	$	4,009		$	6,805
Cost of sales		2,883			4,803
Gross profit		1,126			2,002
Research and development expenses, net		235			341
Selling, general and administrative expenses		737			1,394
Operating income		154			267
Finance expense, net		(51	)		(89	)
Income before income taxes		103			178
Income tax expense		(12	)		(23	)
Net income		91			155
Acorn’s share in net income in DSIT	$	38		$	63