Item 4.02(a). Non-Reliance on Previously
Issued Financial Statements or a Related Audit Report or Completed Interim Review.
As previously reported
in the Current Report on Form 8-K, filed May 23, 2016 (the “Form 8-K”), as amended by Amendment No. 1 to the Form 8-K,
filed on May 31, 2016, on May 23, 2016, the Audit Committee of the Board of Directors of InterCloud Systems, Inc., a Delaware corporation
(the “Company”), upon the recommendation of the Company's management, concluded that the Company's previously issued
unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2015, and the disclosures and related communications for that period, should not be relied upon. During the
course of the audit of the Company's financial statements for the year ended December 31, 2015, there were certain errors identified
that affected the Company’s previously-issued financial statements, as discussed below. The Company intends to file an amended
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 as soon as practicable.
During the audit
process with respect to the Annual Report on Form 10-K for the year ended December 31, 2015, the Company identified an error related
to a customer payment received in the second quarter of 2015. This amount was properly recorded as deferred revenue in the second
quarter; however, the revenue and cost of goods sold associated with that transaction were not properly recognized during the
third quarter of 2015. This resulted in an understatement of revenue in the amount of $0.7 million, an overstatement of cost of
goods sold in the amount of $0.2 million, and an understatement of gross profit in the amount of $0.9 million for the third quarter
of 2015. This also resulted in an overstatement of liabilities of $0.9 million at September 30, 2015.
Also during the
third quarter of 2015, in connection with a separate transaction, the Company understated the cost of inventory items sold during
the third quarter of 2015 by $0.9 million. This resulted in an understatement of cost of goods sold by such amount during the
third quarter of 2015 and an overstatement of inventory by such amount at September 30, 2015.
Also during the
course of the current audit, it was determined in the Company’s financial statements for the quarter ended September 30,
2015 that the Company overstated certain revenue items related to the percentage of completion method of accounting. As a result,
during the third quarter of 2015, revenue was overstated in the amount of $0.8 million, cost of goods sold was overstated in the
amount of $0.6 million, and gross profit was overstated in the amount of $0.2 million.
The Audit Committee
and the Company’s management have discussed these matters with the Company’s former independent registered accountants
and the Company’s current independent registered accountants, WithumSmith+Brown, PC (“Withum”), and both the
Audit Committee and Withum are continuing to review the relevant issues. Withum will be reviewing the 2015 financial statements
to be included in the Company’s amended Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and auditing
the financial statements for the year ended December 31, 2015.
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