Discontinued Operations

6 Months Ended

Dec. 31, 2017

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure

4. Discontinued Operations

Content Delivery business

As noted above, on December 31, 2017, we completed the sale of our Content Delivery business and other related assets to Vecima pursuant to an Asset Purchase agreement, dated as of October 13, 2017, between the Company and Vecima (the “CDN APA”) for a purchase price of $29,000 (subject to an adjustment for net working capital). The sale included our Content Delivery business assets and related liabilities in the United States, United Kingdom, and Germany, as well as the sale of all equity in our Japanese subsidiary.

Gross proceeds from the sale were paid to us as follows: (1) a $29,020 cash payment on December 31, 2017 (including a preliminary adjustment for estimated working capital as defined in the CDN APA of $1,470) and (2) $1,450 placed in escrow as security for the Company’s indemnification obligations to Vecima under the CDN APA, which amount will be released to the Company on or before December 31, 2018 (less any portion used to make indemnification payments to Vecima).

Additionally, we may receive additional consideration, or be required to return a portion of the consideration received on the closing date, based on a final determination of the Content Delivery business’ net working capital as of the closing date. This final calculation is required to be presented to us by Vecima no later than March 31, 2018 and we have 30 days after its receipt to agree with or contest those calculations. Subsequent to December 31, 2017, based on our estimate of the working capital of the Content Delivery business as of the closing date, calculated in accordance with the procedures set forth in the CDN APA, we have accrued our estimate of the final post-closing working capital adjustment within our current liabilities on our December 31, 2017 balance sheet, to be paid by us to Vecima during the latter half of our fiscal year 2018. In addition, we have reduced our estimate of the gain on the sale of the Content Delivery business by the amount of the estimated final post-closing working capital adjustment payment.

In conjunction with the CDN APA, we and Vecima entered into Transition Services Agreements (the “CDN TSA”) for the U.S. Under the CDN TSA, we and Vecima have each agreed to provide and receive various services to and from the other party on an arms-length, fee-for-service basis for a term of twelve months as of the date of the closing, unless terminated earlier by either party.

Results associated with the Content Delivery business are classified within income (loss) from discontinued operations, net of income taxes, in our condensed consolidated statements of operations. Operating expenses recorded in discontinued operations include costs incurred directly in support of the Content Delivery business.

The closing of the sale of the assets to Vecima resulted in a “change in control” under our Amended and Restated 2011 Stock Incentive Plan. As a result, the Company recognized expense of approximately $1,745 in share-based compensation expense due to the acceleration of the vesting and the lapse of restrictions on substantially all restricted stock granted under our Amended and Restated 2011 Stock Incentive Plan (see Note 7 – Share-based Compensation). This expense is reflected in general and administrative expenses of continuing operations in our condensed consolidated statement of operations for the three and six months ended December 31, 2017. Payment of associated accrued dividends related to these released shares was made in January 2018.

For the three and six months ended December 31, 2017 and 2016, income (loss) from discontinued operations related to our Content Delivery business is comprised of the following:

	Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016
Revenue	$	8,148	$	7,237	$	16,018	$	12,356
Cost of sales		3,122		2,982		6,342		5,634
Gross margin		5,026		4,255		9,676		6,722
Operating expenses:
Sales and marketing		2,091		2,722		4,235		5,723
Research and development		1,612		1,854		3,290		4,104
General and administrative		473		651		951		1,363
Total operating expenses		4,176		5,227		8,476		11,190
Operating income (loss)		850		(972)		1,200		(4,468)
Gain on sale of Content Delivery business, net		22,609		-		22,609		-
Other income (expense), net		(33)		120		(143)		205
Income (loss) from discontinued operations before income taxes		23,426		(852)		23,666		(4,263)
Provision for income taxes		698		(30)		570		(68)
Income (loss) from discontinued operations	$	22,728	$	(822)	$	23,096	$	(4,195)

A reconciliation of the gain before income taxes recorded on the sale of the Content Delivery business for three and six months ended December 31, 2017 is as follows:

	Three and Six Months Ended December 31, 2017
Closing consideration	$	29,000
Preliminary adjustments for working capital		812
Net book value of assets sold		(5,274)
Other adjustments		(184)
Transaction costs		(1,745)
Gain on sale of Content Delivery business	$	22,609

Transaction costs directly associated with the sale of the Content Delivery business include legal, accounting, investment banking and other fees paid to external parties.

In connection with the sale of our Content Delivery business (1) we entered into a Separation and Consulting Agreement and General Release of Claims with Derek Elder, our former President and Chief Executive Officer, as a result of which (A) Mr. Elder’s role as president and chief executive officer was terminated, (B) Mr. Elder ceased to be a member of our Board of Directors and all committees thereof, and (C) we recorded severance related expenses of $544 pursuant to his Separation and Consulting Agreement (see Note 12 – Commitments and Contingencies – Separation of Chief Executive Officer), (2) we terminated the employment of another executive of the Company and recorded severance expenses of $132, (3) we paid transaction bonuses that had previously been approved by our compensation committee of $479 to internal executives and staff and (4) we accepted the resignation of an independent director of the Company (see Note 12 – Commitments and Contingencies – Resignation of Directors). All of the above expenses are included in general and administrative expenses of continuing operations in our condensed consolidated statement of operations for the three and six months ended December 31, 2017.

At June 30, 2017, the carrying amounts of assets and liabilities of discontinued operations in our consolidated balance sheet were as follows:

ASSETS
Current assets:
Cash	$	419
Accounts receivable, net		6,886
Inventories		1,865
Prepaid expenses and other current assets		495
Total current assets		9,665
Property and equipment, net		1,724
Other long-term assets, net		598
Total noncurrent assets		2,322
Total assets of discontinued operations	$	11,987
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	3,643
Deferred revenue		1,454
Total current liabilities		5,097
Long-term liabilities:
Deferred revenue		66
Other long-term liabilities		206
Total noncurrent liabilities		272
Total liabilities of discontinued operations	$	5,369

Proceeds from the sale of the Content Delivery business have been presented in the condensed consolidated statement of cash flows under investing activities for the six months ended December 31, 2017. Proceeds from the sale of the Content Delivery business were net of $106 of cash transferred with the equity sale of our Japanese subsidiary. In accordance with ASC Topic 205-20, additional disclosures relating to cash flow is required for discontinued operations. Cash flow information relating to the Content Delivery business for the six months ended December 31, 2017 and 2016 is as follows:

	Six Months Ended December 31,
	2017		2016
Operating cash flow data:
Depreciation and amortization	$	605	$	750
Share-based compensation		170		154
Provision for (recovery of) excess and obsolete inventories		(23)		188
Foreign currency exchange gains		144		(48)
Investing cash flow data:
Capital expenditures		(275)		(459)

A reconciliation of our cash and cash equivalents as of June 30, 2017 is as follows:

	June 30, 2017
Cash and cash equivalents per balance sheet	$	35,474
Cash and cash equivalents classified within current assets of discontinued operations		419
Beginning cash and cash equivalents balance per statement of cash flows	$	35,893

Real-Time business

On May 15, 2017, we completed the sale and transfer of certain assets and certain liabilities primarily related to our Real-Time business pursuant to an Asset Purchase Agreement (the “RT APA”) dated as of May 15, 2017 with Real Time, Inc. (the “RT Purchaser”), an investment company owned by Battery Ventures, a private-equity firm based in Boston, Massachusetts, for $35,000 less agreed upon adjustments for working capital. Pursuant to the terms of the RT APA, we sold and transferred certain respective equity interests in one of our subsidiaries, which constituted the European operations of the Real-Time business, upon receipt of French regulatory approval on May 30, 2017. The RT APA includes customary terms and conditions, including provisions following closing that require us to indemnify the Purchaser for certain losses that it incurs as a result of a breach by us of our representations and warranties in the RT APA and certain other matters.

Gross proceeds from the sale were paid to us as follows: (1) a $30,200 cash payment on May 15, 2017 (subject to an adjustment for estimated working capital as defined in the RT APA), (2) a $2,800 cash payment made concurrently with the transfer of the European operations of the Real Time business to the Purchaser received on May 30, 2017 and (3) $2,000 placed in escrow as security for certain purchase price adjustments and for our indemnification obligations to the Purchaser under the RT APA which amount will be released to us on or before May 15, 2018 (less any portion of the escrow used to make indemnification or purchase price adjustment payments to the RT Purchaser). In September 2017, the final working capital computation was completed and resulted in no additional consideration paid to or from either party.

 

In conjunction with the RT APA, we and the RT Purchaser entered into Transition Services Agreements (the “TSAs”) for U.S/Europe and Japan. Under the TSAs, we have agreed to provide and receive various services to and from the Purchaser on an arms-length fee-for-service basis for a term of six months as of the date of the TSAs, subject to a renewal term of up to eighteen months. We renewed the TSA for an additional six months after the end of the initial six-month term. Net amounts charged from the Purchaser under the TSAs for the three and six months ended December 31, 2017 are $37 and $32, respectively, and are recorded within operating expenses.

Results associated with the Real-Time business are classified as income from discontinued operations, net of income taxes, in our condensed consolidated statements of operations. Operating expenses recorded in discontinued operations include costs incurred directly in support of the Real-Time business. For the three and six months ended December 31, 2016, income from discontinued operations for our Real-Time business is comprised of the following:

	Three Months Ended December 31,		Six Months Ended December 31,
	2016		2016
Revenue	$	8,310	$	16,307
Cost of sales		3,116		6,395
Gross margin		5,194		9,912
Operating expenses:
Sales and marketing		1,620		3,067
Research and development		962		2,019
General and administrative		209		385
Total operating expenses		2,791		5,471
Operating income		2,403		4,441
Other expense, net		(66)		(18)
Income from discontinued operations before income taxes		2,337		4,423
Provision for income taxes		119		278
Income from discontinued operations	$	2,218	$	4,145

In accordance with ASC Topic 205-20, Discontinued Operations, additional disclosures relating to cash flow are required for discontinued operations. Cash flow information relating to the Real-Time business for the six months ended December 31, 2016 is as follows:

	Six Months Ended December 31, 2016
Operating cash flow data:
Depreciation and amortization	$	169
Share-based compensation		49
Provision for (recovery of) excess and obsolete inventories		(37)
Provision for bad debts		-
Foreign currency exchange gains		(70)
Investing cash flow data:
Capital expenditures		(78)