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Dsit Solutions, Ltd. ('DSIT')
 6 Months Ended
Jun. 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:

 

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

 

The Due from Acorn balance is comprised of a loan of $340 from DSIT and unreimbursed expenses of $328, 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 $248 with respect to provisions for severance and vacation for the Company’s CFO who is an employee of DSIT. DSIT’s balance sheet at June 30, 2016 is not materially different from its balance sheet at the Closing Date.

 

DSIT’s results are included in the Company’s Condensed Consolidated Statements of Operations through the Closing Date and are presented below:

 

    January 1, 2015
to
June 30, 2015		     January 1, 2016 to the Closing Date     April 1, 2015 to
June 30, 2015		     April 1, 2016 to the Closing Date  
                         
Revenue   $ 6,452     $ 5,074     $ 3,415     $ 1,154  
Cost of sales     4,357       3,443       2,124       729  
Gross profit     2,095       1,631       1,291       425  
Research and development expenses, net     610       469       343       181  
Selling, general and administrative expenses     1,556       1,063       844       206  
Operating income (loss)     (71 )     99       104       38  
Finance expense, net     (61 )     (27 )     (61 )     (13 )
Income (loss) before income taxes     (132 )     72       43       25  
Income tax benefit (expense)     13       (19 )     20       (10 )
Net income (loss)     (119 )     53       63       15  
Net (income) loss attributable to non-controlling interests     17       (9 )     (3 )     (3 )
Net income (loss) attributable to Acorn Energy Inc.   $ (102 )   $ 44     $ 60     $ 12  

 

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 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. In the period following the Closing Date, the Company recorded $25 as its 41.2% share of DSIT’s net income for the period from the Closing Date to June 30, 2016.