Attached files
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8-K/A - AMENDED CURRENT REPORT - INTERCLOUD SYSTEMS, INC. | f8k010114a2_intercloud.htm |
EX-99.1 - AUDITED FINANCIAL STATEMENTS FOR INTEGRATION PARTNERS NY CORPORATION - INTERCLOUD SYSTEMS, INC. | f8k010114a2ex99i_intercloud.htm |
Exhibit 99.2
INTERCLOUD SYSTEMS, INC.
FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of December 31, 2013, and the unaudited pro forma combined condensed results of operations for the year ended December 31, 2013, are derived from the combined historical financial statements of InterCloud Systems, Inc. (the “Company or “Intercloud”) and IPC, and have been prepared to give effect to the acquisition of by the Company and IPC as of January 1, 2013. The unaudited pro forma combined statements of operations are presented as if the acquisition of IPC by InterCloud had occurred on January 1, 2013.
The historical profit and loss accounts of each of these entities have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP). The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the transactions have been prepared in accordance with business combination accounting guidance as provided in Accounting Standards Codification 805, and reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon the preliminary estimate of fair values, using the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. Pro forma adjustments reflect those adjustments which are factually determined and also include the impact of contingencies that will not be finally determined until the resolution of the contingency.
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and do not purport to reflect the results the combined company may achieve in future periods or the historical result that would have been obtained. The data is not indicative of the operating results or financial position that would have occurred if the transactions had been consummated as of January 1, 2013. Since the entities were not under common control or management for any period presented, the unaudited pro forma condensed combined condensed financial results may not be comparable to, or indicative of, future performance.
These unaudited pro forma condensed combined financial statements, including the notes hereto, should be read in conjunction with (i) the historical consolidated financial statements for the Company included in its Form 10-K filed on April 8, 2014, and (ii) the historical financial statements of IPC incorporated by reference in this Form 8-K, as amended.
1
Unaudited Pro Forma Condensed Combined Balance Sheets
As of December 31, 2013
InterCloud
Systems,
Inc.
|
Historical
Integration
Partners
NY-Corporation
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Pro Forma
Adjustments
(Note 4)
|
Pro Forma
Combined
|
|||||||||||||
ASSETS
|
||||||||||||||||
Current assets;
|
||||||||||||||||
Cash and cash equivalents
|
$ | 17,866,532 | $ | 1,269,625 | (13,451,341 | )(a) | $ | 5,684,816 | ||||||||
Accounts receivable, net
|
7,821,942 | 4,369,242 | - | 12,191,184 | ||||||||||||
Inventory
|
42,424 | - | 42,424 | |||||||||||||
Deferred loan costs
|
1,528,241 | - | - | 1,528,241 | ||||||||||||
Loans receivable
|
285,954 | - | - | 285,954 | ||||||||||||
Due from related party
|
- | 23,883 | - | 23,883 | ||||||||||||
Other current assets
|
804,618 | 465,937 | - | 1,270,555 | ||||||||||||
Total current assets
|
28,307,287 | 6,171,111 | (13,451,341 | ) | 21,027,057 | |||||||||||
Property & equipment, net
|
362,227 | 21,600 | - | 383,827 | ||||||||||||
Goodwill
|
17,070,329 | - | 13,328,840 | (d) | 30,399,169 | |||||||||||
Intangible assets, net
|
12,775,917 | - | 11,513,000 | (c) | 24,288,917 | |||||||||||
Deferred loan costs, net of current portion
|
1,502,152 | - | - | 1,502,152 | ||||||||||||
Other assets
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672,144 | 55,931 | - | 728,075 | ||||||||||||
Total assets
|
$ | 60,690,056 | $ | 6,248,642 | $ | 11,390,499 | $ | 78,329,197 | ||||||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
|
||||||||||||||||
Current liabilities:
|
||||||||||||||||
Accounts payable and accrued expenses
|
$ | 8,880,512 | $ | 4,569,883 | $ | - | $ | 13,450,395 | ||||||||
Deferred revenue
|
50,505 | 780,902 | (195,226 | )(e) | 636,181 | |||||||||||
Income taxes payable
|
430,417 | - | - | 430,417 | ||||||||||||
Bank debt, current portion
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318,050 | - | - | 318,050 | ||||||||||||
Notes, related parties
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4,030,607 | - | - | 4,030,607 | ||||||||||||
Notes, acquisitions
|
508,093 | - | 6,254,873 | (h) | 6,762,966 | |||||||||||
Contingent consideration
|
4,513,937 | - | - | 4,513,937 | ||||||||||||
Term loans, current portion, net of debt discount
|
5,380,185 | - | - | 5,380,185 | ||||||||||||
Total current liabilities
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24,112,306 | 5,350,785 | 6,059,647 | 35,522,738 | ||||||||||||
Other liabilities:
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||||||||||||||||
Bank debt, net of current portion
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123,744 | - | - | 123,744 | ||||||||||||
Notes payable, related parties, net of current portion
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105,694 | - | - | 105,694 | ||||||||||||
Deferred tax liability
|
1,522,516 | - | 4,498,000 | (f) | 6,020,516 | |||||||||||
Term loans payable, net of current portion, net of debt discount
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15,009,498 | - | - | 15,009,498 | ||||||||||||
Long term contingent consideration
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1,614,882 | - | - | 1,614,882 | ||||||||||||
Deferred revenue
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- | 378,497 | (94,624 | )(e) | 283,873 | |||||||||||
Derivative financial instruments at estimated fair value
|
19,877,723 | - | - | 19,877,723 | ||||||||||||
Total long-term liabilities
|
38,254,057 | 378,497 | 4,403,376 | 43,035,930 | ||||||||||||
Total liabilities
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62,366,363 | 5,729,282 | 10,463,023 | 78,558,668 | ||||||||||||
Stockholders' equity (deficit)
|
||||||||||||||||
Common stock
|
856 | 20 | (10 | )(b, g) | 866 | |||||||||||
Common stock warrants, no par
|
2,805 | - | 2,805 | |||||||||||||
Additional paid in capital
|
36,020,424 | - | 1,446,826 | (g) | 37,467,250 | |||||||||||
Accumulated (deficit) earnings
|
(37,943,341 | ) | 519,340 | (519,340 | )(b, g) | (37,943,341 | ) | |||||||||
Total stockholders' equity (deficit)
|
(1,919,256 | ) | 519,360 | 927,476 | (472,420 | ) | ||||||||||
Non-controlling interest
|
242,949 | - | - | 242,949 | ||||||||||||
Total stockholder's equity (deficit)
|
(1,676,307 | ) | 519,360 | 927,476 | (229,471 | ) | ||||||||||
Total liabilities, non-controlling interest and stockholders' equity
|
$ | 60,690,056 | $ | 6,248,642 | $ | 11,390,499 | $ | 78,329,197 |
2
InterCloud Systems, Inc.
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Unaudited Pro Forma Condensed Combined Statement of Operations
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For the Year Ended December 31, 2013
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InterCloud
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Pre-Acquisition Results
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Pro Forma Adjustments
|
Pro Forma
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Integration Partners -
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Pro Forma Adjustments
|
Pro Forma
|
|||||||||||||||||||||||
Systems
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AW Solutions
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(Note 4)
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Combined |
NY Corporation
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(Note 4)
|
Combined
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|||||||||||||||||||||||
Revenues
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$ | 51,407,544 | $ | 3,196,388 | $ | - | $ | 54,603,932 | $ | 26,679,220 | $ | - | $ | 81,283,152 | |||||||||||||||
Cost of revenue
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37,280,044 | 2,034,646 | - | 39,314,690 | 19,787,273 | - | 59,101,963 | ||||||||||||||||||||||
Gross profit
|
14,127,500 | 1,161,742 | - | 15,289,242 | 6,891,947 | - | 22,181,189 | ||||||||||||||||||||||
Operating expenses:
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|||||||||||||||||||||||||||||
Depreciation and amortization
|
1,120,404 | 12,500 | 134,682 | (l) | 1,267,586 | 23,676 | 818,000 |
(i)
|
2,109,262 | ||||||||||||||||||||
Salaries and wages
|
8,341,011 | 136,793 | - | 8,477,804 | - | - | 8,477,804 | ||||||||||||||||||||||
General and administrative
|
7,875,723 | 436,968 | - | 8,312,691 | 4,489,276 | (92,000 | )(j) | 12,709,967 | |||||||||||||||||||||
Change in fair value and loss of contingent consideration
|
3,131,130 | - | - | 3,131,130 | - | - | 3,131,130 | ||||||||||||||||||||||
Total operating expenses
|
20,468,268 | 586,261 | 134,682 | 21,189,211 | 4,512,952 | 726,000 | 26,428,163 | ||||||||||||||||||||||
Income (loss) from operations
|
(6,340,768 | ) | 575,481 | (134,682 | ) | (5,899,969 | ) | 2,378,995 | (726,000 | ) | (4,246,974 | ) | |||||||||||||||||
Other income (expenses):
|
|||||||||||||||||||||||||||||
Change in fair value of derivative instrumentss
|
(14,156,361 | ) | - | - | (14,156,361 | ) | - | - | (14,156,361 | ) | |||||||||||||||||||
Interest expense
|
(5,574,228 | ) | (920 | ) | - | (5,575,148 | ) | - | (500,930 | )(k) |
|
(6,076,078 | ) | ||||||||||||||||
Equity loss attributable to affiliate
|
- | - | - | - | - | - | - | ||||||||||||||||||||||
Net gain on deconsolidation of subsidiary and write-off of related investment in subsdiary
|
- | - | - | - | - | - | - | ||||||||||||||||||||||
Commission income
|
1,823,838 | - | - | 1,823,838 | - | - | 1,823,838 | ||||||||||||||||||||||
Loss on extinguishment of debt
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(992,000 | ) | - | - | (992,000 | ) | - | - | (992,000 | ) | |||||||||||||||||||
Other income
|
(176,000 | ) | - | - | (176,000 | ) | - | - | (176,000 | ) | |||||||||||||||||||
Total other expense
|
(19,074,751 | ) | (920 | ) | - | (19,075,671 | ) | - | (500,930 | ) | (19,576,601 | ) | |||||||||||||||||
(Loss) income from continuing operations before benefit for income taxes
|
(25,415,519 | ) | 574,561 | (134,682 | ) | (24,975,640 | ) | 2,378,995 | (1,226,930 | ) | (23,823,575 | ) | |||||||||||||||||
Provision (benefit) for income taxes
|
(587,662 | ) | 18,192 | 153,361 | (n) | (416,109 | ) | - | 449,305 | (o) |
|
33,196 | |||||||||||||||||
Net income (loss) from continuing operations
|
(24,827,857 | ) | 556,369 | (288,043 | ) | (24,559,531 | ) | 2,378,995 | (1,676,235 | ) | (23,856,771 | ) | |||||||||||||||||
Net income attributable to non-controlling interest
|
76,169 | - | - | 76,169 | - | - | 76,169 | ||||||||||||||||||||||
Net (loss) income attributable to InterCloud Systems, Inc
|
(24,904,026 | ) | 556,369 | (288,043 | ) | (24,635,700 | ) | 2,378,995 | (1,676,235 | ) | (23,932,940 | ) | |||||||||||||||||
Less dividends on preferred stock
|
(1,084,314 | ) | - | - | (1,084,314 | ) | - | - | (1,084,314 | ) | |||||||||||||||||||
Net loss (income) attributable to InterCloud Systems, Inc common stock holders
|
$ | (25,988,340 | ) | $ | 556,369 | $ | (288,043 | ) | $ | (25,720,014 | ) | $ | 2,378,995 | $ | (1,676,235 | ) | $ | (25,017,254 | ) | ||||||||||
Basic and diluted (loss) per share attributable to InterCloud Systems, Inc. common stockholders: | |||||||||||||||||||||||||||||
Net loss per share
|
$ | (8.02 | ) | $ | (7.35 | ) | |||||||||||||||||||||||
Basic and diluted weighted average number of common shares outstanding
|
3,240,230 | 58,609 | (m) | 3,298,839 | 104,528 | (m) |
|
3,403,367 |
3
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. Description of Transactions
Acquisitions and related adjustments
Since January 1, 2013, the Company has completed the following acquisitions:
·
|
AW Solutions, Inc. (AW Solutions). In April 2013, the Company acquired AW Solutions, a professional, multi-service line, telecommunications infrastructure company that provides outsourced services to the wireless and wireline industry. AW Solution’s services include network systems design, architectural and engineering services, program management and other technical services. The acquisition of AW Solutions broadened the Company's suite of services and added new customers to which the Company can cross-sell its other services.
|
·
|
Integration Partners Corporation - NY (IPC). In January 2014, the Company acquired IPC, a managed service provider that consults, designs, builds, implements and services IT networks for enterprise and service provider networks.
|
2. Basis of Presentation
The historical financial information has been adjusted to give pro forma effect to events that are (i) directly attributable to the transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. This historical information includes the following:
Balance Sheet as of December 31, 2013
The unaudited pro forma condensed combined balance sheet of the Company as of December 31, 2013 includes historical information related to the acquisition of IPC as if the transaction occurred on December 31, 2013.
Statement of Operations for the Year Ended December 31, 2013
The unaudited pro forma condensed combined statement of operations of the Company for the year ended December 31, 2013 includes historical information related to the acquisitions of AW Solutions and IPC, as if the transactions occurred as of January 1, 2013.
IPC Transaction
At this time, the Company has not performed detailed valuation analyses to determine the fair values of the IPC assets and liabilities. Accordingly, the pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and the liabilities assumed and have been prepared to illustrate the estimated effect of the transaction and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of January 1, 2014, the date of the transaction, and will be reflected in the Company's financial statements when determined. Accordingly, once the necessary valuation analyses have been performed and the final purchase price allocation has been completed, actual results may differ materially from the information presented in this unaudited pro forma condensed combined financial information.
4
The unaudited pro forma condensed combined financial information of the Company, having acquired all of the outstanding shares of IPC, has been prepared on the basis of assumptions relating to the IPC Purchase Agreement.
3. Consideration Transferred and Purchase Price Allocation
Effective as of January 1, 2014, the Company consummated the acquisition of all of the outstanding capital stock of IPC for the following consideration:
Cash
|
$ | 13,451,341 | ||
Common stock fair value
|
1,446,836 | |||
Convertible note
|
6,254,873 | |||
Total consideration
|
$ | 21,153,050 | ||
Common stock issued
|
104,528 | |||
Common stock par value
|
$ | 10 | ||
Total stock consideration
|
$ | 1,446,826 |
A summary of the preliminary purchase price allocation is as follows.
Current assets
|
$ | 6,171,111 | ||
Goodwill
|
13,328,840 | |||
Intangible assets
|
||||
Customer relationships
|
6,630,000 | |||
Tradenames
|
4,418,000 | |||
Non-competes
|
465,000 | |||
Property and equipment
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21,600 | |||
Other assets
|
55,931 | |||
Current liabilities
|
(4,569,883 | ) | ||
Deferred Revenue | (780,902 | ) | ||
Adjustment to current portion of deferred revenue to reflect fair value | 195,226 | |||
Deferred revenue, net of current portion
|
(378,497 | ) | ||
Adjustment to deferred revenue, net of current portion, to reflect fair value | 94,624 | |||
Long term deferred tax liability
|
(4,498,000 | ) | ||
Total allocation of consideration
|
$ | 21,153,050 |
The amounts assigned to IPC’s identifiable tangible and intangible assets are based on their respective estimated fair values determined as of the acquisition date of January 1, 2014. The excess of the purchase consideration over the tangible and identifiable intangible assets was recorded as goodwill in the amount of approximately $13,328,840. In accordance with current accounting standards, the goodwill is not being amortized and will be tested for impairment as required by ASC 350. The goodwill is not deductible for tax purposes.
4. Adjustments
Adjustments related to the IPC acquisition included in the Pro Forma Condensed Combined Balance Sheet as of December 31, 2013 and Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2013, are as follows:
(a)
|
To record $13,451,341 cash to be paid at closing for the acquisition. The cash consideration includes $941,594 that was placed in escrow for 12 months.
|
(b)
|
Represents the elimination of the equity of the acquired entity.
|
(c)
|
To reflect the estimated fair value of identifiable intangible assets, including customer lists of $6,630,000, non-compete agreements of $465,000 and trade names of $4,418,000.
|
(d)
|
To reflect goodwill of $13,328,840.
|
(e)
|
To record an adjustment to deferred revenue to reflect fair value.
|
(f)
|
To record a deferred tax liability of $4,498,000 for acquired intangible assets of $11,513,000 at an assumed tax rate of 39%.
|
(g)
|
To record the fair value of common stock issued as consideration at the closing, $1,446,836. The shares were issued at a price of $16.99 per share and $10.00 per share, resulting in 104,528 shares issued as consideration. The common stock par value was $10 and the additional paid in capital issued was $1,446,826.
|
(h)
|
To record the issuance of a convertible note payable as part of the consideration in the principal amount of $6,254,873.
|
(i)
|
Adjustment to record amortization expense for the identifiable intangible assets of approximately $818,000 for the period of January 1, 2013 through December 31, 2013, as if the acquisition had occurred on January 1, 2013. The weighted average useful life on the identifiable intangible assets acquired is approximately 9.33 years. The identifiable assets are amortized to depreciation and amortization expense using the straight line method, which approximates the estimated life.
|
5
(j)
|
To record the costs related to the IPC acquisition of $92,000 in 2013, which were one time in nature.
|
(k)
|
To record the incremental costs of the interest on the note issued in connection with the acquisition of $500,930 in the year ended December 31, 2013.
|
AW Solutions
(l)
|
Adjustment to record amortization expense of $134,682 for the identifiable intangible assets of approximately $3,752,000 for the period of January 1, 2013 through April 15, 2013, as if the acquisition had occurred on January 1, 2013. The weighted average useful life on the identifiable intangible assets acquired is approximately 9.31 years. The identifiable assets are amortized to depreciation and amortization expense using the straight line method, which approximates the estimated life.
|
Pro forma Shares
(m)
|
The pro forma shares included in the calculation of the weighted average number of common shares outstanding required to calculate basic loss per share assumes the following as of the first day of the period:
|
The issuance of an aggregate of 104,528 shares of common stock in connection with the acquisition of IPC.
The calculation of the basic weighted average number of common shares outstanding for the year ended December 31, 2013 is as follows:
For the year ended
|
||||
December 31, 2013
|
||||
Weighted average common shares outstanding as of December 31, 2013
|
3,240,230 | |||
Shares issued with the AW Solutions acquisition adjusted to January 1, 2013
|
58,609 | |||
Shares issued with the IPC acquisition as of January 1, 2013
|
104,528 | |||
Pro forma weighted average common shares outstanding
|
3,403,367 |
6
Income Tax Effect of Acquisitions
The following table shows the income tax effect for the year ended December 31, 2013 for the completed acquisition of AW Solutions in April 2013, as if such acquisition had occurred on January 1, 2013.
AW Solutions
|
Pro forma
Adjustments |
Total
|
||||||||||
Income before provision for income taxes
|
$ | 574,561 | $ | (134,682 | ) | $ | 439,879 | |||||
Income tax provision at 39% statutory rate
|
224,079 | (52,526 | ) | 171,553 | ||||||||
Income tax provision recorded on historical financials
|
18,192 | - | 18,192 | |||||||||
Pro forma income tax provision
|
$ | 205,887 | $ | (52,526 | ) | $ | 153,361 |
(n)
|
To record an adjustment for income taxes for the year ended December 31, 2013 for the acquisition of AW Solutions completed in April 2013. AW Solutions had pro forma income before income taxes of $439,879 prior to the date of acquisition. This would have resulted in an income tax provision of $171,553, for which AW Solutions had recorded a provision for income taxes of $18,192, which resulted in a pro forma tax amount of $153,361. The Company's net operating loss carry forward may be sufficient to offset the taxable income of AW Solutions in future periods.
|
The following table shows the income tax effect for the year ended December 31, 2013 for the completed acquisition of IPC in January 2014, as if such acquisition had occurred on January 1, 2013.
Pro forma
|
||||||||||||
IPC
|
Adjustments
|
Total
|
||||||||||
Income before provision for income taxes
|
$ | 2,378,995 | $ | (1,226,930 | ) | $ | 1,152,065 | |||||
Pro forma income tax provision at 39% statutory rate
|
$ | 927,808 | $ | (478,503 | ) | $ | 449,305 |
(o)
|
To record an adjustment for income taxes for the year ended December 31, 2013 for the acquisition of IPC completed in January 2014. IPC had pro forma adjusted income before income taxes of $1,152,065. This would have resulted in an income tax provision of $449,305. The Company's net operating loss carry forward may be sufficient to offset the taxable income of IPC in future periods.
|
7