Quarterly report pursuant to Section 13 or 15(d)

Disposals of Subsidiaries

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Disposals of Subsidiaries
6 Months Ended
Jun. 30, 2017
Disposals of Subsidiaries [Abstract]  
DISPOSALS OF SUBSIDIARIES

3. DISPOSALS OF SUBSIDIARIES

 

On January 31, 2017, the Company sold the Highwire division of ADEX. This division accounted for approximately $0 and $2,966 in revenues for the three months ended June 30, 2017 and 2016, respectively, and approximately $365 and $4,571 in revenues for the six months ended June 30, 2017 and 2016, respectively. Under the terms of the sale, the Company received $4,000 in total proceeds and is expected to receive an additional working capital adjustment of approximately $500 to be paid in August 2017. The Company used proceeds from the sale to make payments on term loans (refer to Note 8, Term Loans, for further detail). In connection with the sale, the Company completed an ASC 350-20 goodwill fair value assignment, which allocated $3,003 from the reporting unit to Highwire. 

  

Per ASC 350-20-40-7, when a portion of goodwill is allocated to a business to be disposed of, the goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment in accordance with paragraphs 350-20-35-3A through 35-19 using its adjusted carrying amount. As a result of the sale, the Company identified indicators of potential impairment of goodwill and intangible assets. 

 

Based on the Company’s analysis, the Company recorded goodwill impairment for ADEX and SDNE of $2,885 and $261, respectively, and intangible asset impairment for ADEX and SDNE of $637 and $160, respectively, in the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017. 

 

As a result of the disposal of the Highwire division of ADEX, the Company recorded a gain on disposal of subsidiaries of $695 to the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017. 

 

On April 25, 2017, the Company sold 80.1% of the assets associated with its AWS Entities subsidiaries. The AWS Entities accounted for approximately $0 and $2,865 in revenues for the three months ended June 30, 2017 and 2016, respectively, and approximately $2,738 and $6,772 in revenues for the six months ended June 30, 2017 and 2016, respectively. The purchase price paid by buyer for the assets included the assumption of certain liabilities and contracts associated with the AWS Entities, the issuance to the Company of a one-year convertible promissory note in the principal amount of $2,000 (refer to Note 4, Loans Receivable, for further detail), and a potential earn-out after six months in an amount equal to the lesser of (i) three times EBITDA of the AWS Entities for the six-month period immediately following the closing and (ii) $1,500. In addition, the asset purchase agreement contains a working capital adjustment.

 

Based on the Company’s analysis in accordance with ASC 350-20-40-7, the Company recorded goodwill impairment for TNS and RME of $596 and $25, respectively, and intangible asset impairment for TNS and RME of $123 and $39, respectively, in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2017, as a result of the sale of the AWS Entities.

 

As a result of the disposal of the AWS Entities, the Company recorded a loss on disposal of subsidiaries of $6,051 to the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2017. 

 

On May 15, 2017, the Company sold its SDNE subsidiary. SDNE accounted for approximately $165 and $853 in revenues for the three months ended June 30, 2017 and 2016, respectively, and approximately $1,671 and $1,360 in revenues for the six months ended June 30, 2017 and 2016, respectively. Under the terms of the sale, the Company was to receive $1,400 in cash and a working capital adjustment of $61 to be paid within 150 days of closing. The Company received cash proceeds of $1,411, with $50 being held in escrow as of June 30, 2017. $1,000 of the proceeds received were included in restricted cash on the unaudited condensed consolidated balance sheet as of June 30, 2017.

 

Based on the Company’s analysis in accordance with ASC 350-20-40-7, the reporting units in the Company’s professional services segment were not impaired as a result of the SDNE sale.

 

As a result of the disposal of SDNE, the Company recorded a gain on disposal of subsidiaries of $585 to the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2017. 

 

The Company completed the below pro forma data for the three and six months ended June 30, 2017 and 2016 to reflect the impact of the sales described above on the Company’s financial results as though the transactions occurred at the beginning of the reported periods:

 

    For the three months ended  
    June 30,  
    2017     2016  
             
Revenue   $ 7,956     $ 15,910  
Income (loss) from continuing operations     5,914       (11,506 )
Net income (loss)     (2,259 )     (12,704 )
Net income (loss) attributable to InterCloud Systems, Inc. common stockholders     (2,138 )     (12,785 )
Income (loss) per share attributable to InterCloud Systems, Inc. common stockholders, basic and diluted:     (0.02 )     (0.41 )

 

    For the six months ended  
    June 30,  
    2017     2016  
             
Revenue   $ 17,297     $ 27,520  
Loss from continuing operations     (13,395 )     (17,048 )
Net loss     (13,395 )     (16,583 )
Net loss attributable to InterCloud Systems, Inc. common stockholders     (13,257 )     (16,649 )
Loss per share attributable to InterCloud Systems, Inc. common stockholders, basic and diluted:     (0.14 )     (0.54 )