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

9 Months Ended

Sep. 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 nine- and three-month periods ended September 30, 2017 can be seen below:

	Nine months ending September 30, 2017			Three months ending September 30, 2017

Revenue	$	12,893		$	4,831
Cost of sales		8,332			3,017
Gross profit		4,561			1,814
Research and development expenses, net		904			340
Selling, general and administrative expenses		2,861			940
Operating income		796			534
Finance income (expense), net		(36	)		13
Income before income taxes		760			547
Income tax expense		(134	)		(90	)
Net income	$	626		$	457

Acorn’s share of net income in DSIT	$	258		$	189

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

	September 30, 2017		December 31, 2016
Current assets:
Cash and cash equivalents	$	666	$	1,047
Restricted deposits		827		2,648
Accounts receivable, net		1,886		2,825
Unbilled revenue		6,882		4,918
Inventory		431		481
Due from Acorn		1,513		—
Other current assets		749		795
Total current assets		12,954		12,714
Property and equipment, net		574		569
Severance assets		4,614		3,915
Restricted deposits		2		646
Due from Acorn		—		1,171
Other assets		379		339
Total assets	$	18,523	$	19,354

Current liabilities:
Short-term bank credit and current maturities of long-term bank debt	$	—	$	1,239
Accounts payable		1,006		1,461
Accrued payroll, payroll taxes and social benefits		1,223		1,142
Deferred revenue		577		431
Other current liabilities		1,784		2,736
Total current liabilities		4,590		7,009
Accrued severance		6,283		5,374
Other non-current liabilities		66		9
Total liabilities	$	10,939	$	12,392

The Due from Acorn balance at September 30, 2017 is comprised of a loan of $340 from DSIT and unreimbursed expenses of $909, 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 $264 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 nine-month period ending September 30, 2016 can be seen below:

		January 1, 2016 to the Closing Date

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