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Dsit Solutions, Ltd. ('DSIT') | 12 Months Ended
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Dec. 31, 2017
Dsit Solutions Ltd. Dsit |
DSIT Solutions, Ltd. ('DSIT') | NOTE 3—DSIT SOLUTIONS, LTD. (“DSIT”) On April 21, 2016 (the “Closing Date”), the Company closed on the 2016 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 also paid an Israeli withholding tax of approximately $266 and incurred transaction costs of $184. In connection with the 2016 DSIT Transaction, the Company recorded a gain of $3,543 (of which $2,574 is the portion related to the step-up in value of the Company’s retained non-controlling investment). 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 2016 DSIT Transaction as management does not believe it is probable that certain thresholds will be met. DSIT did not meet the operating result targets for the 2016 or 2017 earn-out. 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 2016 DSIT Transaction, the Company’s holdings in DSIT were reduced from 78.7% to 41.2%, and subsequent to the 2016 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. The escrow deposit in the 2016 DSIT Transaction was released to the Company in October 2017 less $42 of Israeli withholding taxes. Assets and liabilities related to the deconsolidated operations of DSIT are as follows:
|  | December 31, 2017 |  |  | December 31, 2016 |  |  | At the Closing Date |
|  | (unaudited) |  |  | (unaudited) |  |  | (unaudited) |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 112 |  |  | $ | 1,047 |  |  |  | 516 |
Restricted deposits |  |  | 353 |  |  |  | 2,648 |  |  |  | 2,517 |
Accounts receivable |  |  | 7,601 |  |  |  | 2,825 |  |  |  | 5,166 |
Unbilled revenue |  |  | 3,433 |  |  |  | 4,918 |  |  |  | 4,779 |
Inventory |  |  | 755 |  |  |  | 481 |  |  |  | 297 |
Due from Acorn |  |  | 1,624 |  |  |  | — |  |  |  | — |
Other current assets |  |  | 1,051 |  |  |  | 795 |  |  |  | 935 |
Total current assets |  |  | 14,929 |  |  |  | 12,714 |  |  |  | 14,210 |
Property and equipment, net |  |  | 563 |  |  |  | 569 |  |  |  | 620 |
Severance assets |  |  | 4,168 |  |  |  | 3,915 |  |  |  | 3,762 |
Restricted deposits |  |  | 2 |  |  |  | 646 |  |  |  | 1,815 |
Due from Acorn |  |  | — |  |  |  | 1,171 |  |  |  | 916 |
Goodwill |  |  | — |  |  |  | — |  |  |  | 536 |
Other assets |  |  | 348 |  |  |  | 339 |  |  |  | 80 |
Total assets |  | $ | 20,010 |  |  | $ | 19,354 |  |  |  | 21,939 |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Short-term bank credit and current maturities of long-term bank debt |  | $ | 339 |  |  | $ | 1,239 |  |  |  | 2,655 |
Accounts payable |  |  | 730 |  |  |  | 1,461 |  |  |  | 2,072 |
Accrued payroll, payroll taxes and social benefits |  |  | 1,627 |  |  |  | 1,142 |  |  |  | 1,286 |
Deferred revenue |  |  | 682 |  |  |  | 431 |  |  |  | 2,219 |
Other current liabilities |  |  | 3,088 |  |  |  | 2,736 |  |  |  | 1,615 |
Total current liabilities |  |  | 6,466 |  |  |  | 7,009 |  |  |  | 9,847 |
Accrued severance |  |  | 5,383 |  |  |  | 5,374 |  |  |  | 5,209 |
Other long-term liabilities |  |  | 106 |  |  |  | 9 |  |  |  | 38 |
Total liabilities |  | $ | 11,955 |  |  | $ | 12,392 |  |  |  | 15,094 |
The Due from Acorn balance at December 31, 2017 is comprised of a loan of $340 from DSIT and unreimbursed expenses of $999, 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 $285 with respect to provisions for severance and vacation for the Company’s CFO who is an employee of DSIT. The loan from DSIT to Acorn is secured by the Company’s shares of DSIT. See Note 21 – Subsequent Events for the sale of the Company’s remaining investment in DSIT in February 2018. DSIT’s results that were included in the Company’s Consolidated Statements of Operations for the period from January 1, 2016 until the closing of the 2016 DSIT Transaction can be seen below:
|  | January 1, 2016 – April 21, 2016 |
|  | (unaudited) |
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 loss attributable to Acorn Energy Inc. |  | $ | 32 |
DSIT’s results and the Company’s share of its net income for the year ended December 31, 2017 and the period from the Closing Date to December 31, 2016 and can be seen below:
|  | Year Ended December 31, 2017 |  |  | Closing Date to December 31, 2016 |
|  | (unaudited) |  |  | (unaudited) |
Revenue |  | $ | 17,245 |  |  | $ | 11,777 |
Cost of sales |  |  | 10,644 |  |  |  | 7,795 |
Gross profit |  |  | 6,601 |  |  |  | 3,982 |
Research and development expenses, net |  |  | 1,211 |  |  |  | 642 |
Selling, general and administrative expenses |  |  | 3,979 |  |  |  | 2,721 |
Operating income |  |  | 1,411 |  |  |  | 619 |
Finance expense, net |  |  | (62 | ) |  |  | (134 | )
Income before income taxes |  |  | 1,349 |  |  |  | 485 |
Income tax (expense) benefit |  |  | (256 | ) |  |  | 169 |
Net income |  | $ | 1,093 |  |  | $ | 654 |
Acorn’s share of net income in DSIT |  | $ | 450 |  |  | $ | 268 |
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 ($5,390) was determined based on the fair value of its 41.2% holdings in DSIT following the 2016 DSIT Transaction and the $13,100 value attributed to DSIT in the 2016 DSIT Transaction. In the 2018 DSIT Transaction (see Note 21 – Subsequent Events), the Company received proceeds of $5,800 before transaction costs and withholding taxes which was less than the book value of the Company’s equity investment balance in DSIT at December 31, 2017. Accordingly, the Company recorded an impairment charge of $308 on its DSIT investment to bring its investment balance in DSIT in line with the gross proceeds from the sale transaction.
|  | Equity Investment balance in DSIT |
Balance at the Closing Date |  | $ | 5,390 |
Acorn’s share of net income in DSIT for the period from the Closing Date to December 31, 2016 |  |  | 268 |
Balance at December 31, 2016 |  |  | 5,658 |
Acorn’s share of net income in DSIT for the year ended December 31, 2017 |  |  | 450 |
Impairment |  |  | (308 | )
Balance at December 31, 2017 |  | $ | 5,800 |

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