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Investment in Dsit Solutions, Ltd. ('DSIT')

6 Months Ended

Jun. 30, 2017

Investment In Dsit Solutions Ltd. Dsit

Investment in Dsit Solutions, Ltd. ('DSIT')

NOTE 3—INVESTMENT IN DSIT SOLUTIONS, LTD. (“DSIT”)

On April 21, 2016 (the “Closing Date”), the Company closed on a transaction (the “DSIT Transaction”) for the sale of a portion of its interests DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems Ltd., a major Israeli defense company. 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, the Company no longer consolidates the results of DSIT, but rather accounts for its investment in DSIT under the equity method. DSIT’s results and the Company’s share of its net income for the six and three month periods ended June 30, 2017 can be seen below:

	Six months ending June 30, 2017			Three months ending June 30, 2017

Revenue	$	8,062		$	4,001
Cost of sales		5,315			2,549
Gross profit		2,747			1,452
Research and development expenses, net		564			321
Selling, general and administrative expenses		1,921			968
Operating income		262			163
Finance expense, net		(49	)		(57	)
Income before income taxes		213			106
Income tax expense		(44	)		(23	)
Net income	$	169		$	83

Acorn’s share of net income in DSIT	$	69		$	33

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

	June 30, 2017		December 31, 2016
Current assets:
Cash and cash equivalents	$	2,215	$	1,047
Restricted deposits		785		2,648
Accounts receivable, net		3,322		2,825
Unbilled revenue		4,561		4,918
Inventory		424		481
Other current assets		957		795
Total current assets		12,264		12,714
Property and equipment, net		604		569
Severance assets		4,523		3,915
Restricted deposits		45		646
Due from Acorn		1,429		1,171
Other assets		325		339
Total assets	$	19,190	$	19,354

Current liabilities:
Short-term bank credit and current maturities of long-term bank debt	$	—	$	1,239
Accounts payable		1,238		1,461
Accrued payroll, payroll taxes and social benefits		1,345		1,142
Deferred revenue		1,658		431
Other current liabilities		1,561		2,736
Total current liabilities		5,802		7,009
Accrued severance		6,182		5,374
Other non-current liabilities		77		9
Total liabilities	$	12,061	$	12,392

The Due from Acorn balance at June 30, 2017 includes a loan of $340 from DSIT and unreimbursed expenses of $827, both of which accrue interest at 3.15% per annum. Such balances are due the earlier of April 30, 2018 or the sale of Acorn’s remaining shares in DSIT. In addition to the above balances, the Due from Acorn balance also includes $262 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 six month periods ending June 30, 2016 can be seen below:

	January 1, 2016 to the Closing Date			April 1, 2016 to the Closing Date

Revenue	$	5,074		$	1,154
Cost of sales		3,443			729
Gross profit		1,631			425
Research and development expenses, net		469			181
Selling, general and administrative expenses		1,063			206
Operating income		99			38
Finance expense, net		(39	)		(13	)
Income before income taxes		60			25
Income tax expense		(19	)		(10	)
Net income		41			15
Net income attributable to non-controlling interests		(9	)		(3	)
Net income attributable to Acorn Energy Inc.	$	32		$	12