8-K/A 1 a2030417z8-ka.txt FORM 8-K/A#1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 ------------- FORM 8-K (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) AUGUST 31, 2000 WAVE SYSTEMS CORP. (Exact Name of Registrant as Specified in Charter) DELAWARE 0-24752 13-3477246 ------------------------------------------------------------------------------ (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 480 PLEASANT STREET, LEE, MASSACHUSETTS 01238 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (413) 243-1600 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. This Form 8-K/A amends the current report filed on Form 8-K filed on September 15, 2000 to incorporate Item 7. On August 31, 2000, Wave Systems Corp. ("Wave"), a provider of electronic commerce, content distribution and security services, acquired substantially all of the assets of Indigo Networks LLC, a Delaware limited liability company ("Indigo") which provides website portals through which consumers may access the websites of merchants engaged in e-commerce. The acquired assets consist primarily of developed software, commercial software, computer equipment, customer lists, contracts with merchants, internet website and domain names, and intellectual property. Wave also hired the former employees of Indigo. The aggregate consideration paid by Wave to Indigo consisted of 374,889 shares of Wave's Class A Common Stock. The closing price per share for Wave's Class A Common Stock as of August 31, 2000 was $20.625. The terms of the Asset Purchase Agreement (the "Agreement") pursuant to which the transaction was consummated were determined in arm's-length negotiations between Wave and Indigo. There were no material relationships requiring disclosure pursuant to Item 2. Indigo operates an on-line shopping mall at www.ishophere.com which allows consumers to visit a number of merchant websites on the internet. Founded in 1998, Indigo is located in Nashville, Tennessee. All information required by Item 2 is set forth herein. For reference, the Agreement is filed as Exhibit 99.1 hereto. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS Item 7 is hereby amended to state as follows: (a) Financial Statements of Business Acquired. (b) Pro Forma Financial Information. (c) Exhibits. Exhibit 99.1*Asset Purchase Agreement, dated as of August 31, 2000, by and between Wave and Indigo. (Does not include Exhibits or Disclosure Schedules. Wave will furnish a copy of any such omitted exhibit or schedule to the Commission upon request.) *Previously filed. 2 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Report of Independent Auditors The Board of Directors Indigo Networks LLC We have audited the accompanying balance sheet of Indigo Networks LLC as of December 31, 1999 and 1998, and the related statement of operations and members' equity and cash flows for the periods then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Indigo Networks LLC at December 31, 1999 and 1998, and the results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, the Company has incurred significant losses relating to the development of its platform and website. There is substantial doubt about its ability to continue as a going concern if it is unable to generate sufficient revenues or raise additional capital to continue funding operations. The 1999 financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Ernst & Young LLP Birmingham, AL April 5, 2000 3 Indigo Networks LLC Balance Sheets
June 30, December 31, 2000 1999 1998 (Unaudited) ---------------- ---------------- ------------- Assets Current assets: Cash and cash equivalents $ 54,239 $ 731,377 $ 10,344 Accounts receivable 26,108 - 8,440 Prepaid and other assets 12,825 2,881 14,457 ------------------------------------------------ Total current assets 93,172 734,258 33,241 Fixed assets, net 278,829 178,581 611,805 Software development costs, net 118,206 187,836 95,327 ------------------------------------------------ Total assets $ 490,207 $1,100,675 $ 740,373 ================================================ Liabilities and shareholders' equity Current liabilities: Accrued expenses $ 229,638 $ 133,547 $ 408,486 Capital lease obligation 17,091 8,954 18,475 Current portion of note payable to former member 54,396 - 74,000 Note payable - related party 940,000 - 2,024,375 ------------------------------------------------ Total current liabilities 1,241,125 142,501 2,525,336 Capital lease obligation, less current portion 11,270 - 1,673 Note payable to former member 189,796 - 161,351 Note payable to On Display, Inc. - - 257,845 Members' equity: Capital contributions from Class A members 2,222 1,500 1,722 Capital contributions from Class B members, net of issuance costs of $167,545 and $85,505, respectively 2,782,455 1,724,495 2,723,886 Notes receivable from Class A members (722) - (167) Accumulated deficit (3,735,939) (767,821) (4,931,273) ------------------------------------------------- Total members' equity (951,984) 958,174 (2,205,832) ------------------------------------------------- Total liabilities and members' equity $ 490,207 $1,100,675 $ 740,373 =================================================
SEE ACCOMPANYING NOTES. 4 Indigo Networks LLC Statements of Operations
For the period from September 14, Six Months Six Months 1998 Ended Ended Year ended (inception) to June 30, June 30, December 31, December 31, 2000 1999 1999 1998 (Unaudited) (Unaudited) ------------------ ------------------ -------------- -------------- Revenues $ 32,592 $ - $ 40,450 $ 5,011 Operating expenses: Sales and marketing 1,044,465 104,852 432,777 379,635 Product development 1,133,391 461,456 451,669 645,402 General and administrative 677,824 174,818 205,869 455,419 Depreciation 139,785 25,954 141,009 51,686 --------------------------------------------------------------------- Total operating expenses 2,995,465 767,080 1,231,324 1,532,142 --------------------------------------------------------------------- Operating loss (2,962,873) (767,080) (1,190,874) (1,527,131) Interest income (expense), net (5,245) (741) (4,460) 3,917 --------------------------------------------------------------------- Net loss $(2,968,118) $ (767,821) $(1,195,334) $(1,523,214)
SEE ACCOMPANYING NOTES. 5 Indigo Networks LLC Statements of Members Equity
NOTES RECEIVABLE FROM CLASS A CLASS B CLASS A ACCUMULATED MEMBERS MEMBERS MEMBERS DEFICIT TOTAL ---------------------------------------------------------------- Balance, September 14, 1998 $ - $ - $ - $ - $ - Capital contribution, net of issuance costs of $85,505 1,500 1,724,495 - 1,725,995 Net loss - - (767,821) (767,821) ------------------------------------------------------------------- Balance, December 31, 1998 1,500 1,724,495 (767,821) 958,174 Capital contribution, net of issuance costs of $82,040 722 1,057,960 - 1,058,682 Notes receivable form Class A members - - (722) - (722) Net loss - - (2,968,118) (2,968,118) ------------------------------------------------------------------- Balance, December 31, 1999 $ 2,222 $2,782,455 $ (722) $(3,735,939) $ (951,984) =================================================================== (Unaudited) Issuance costs - (58,569) - - (58,569) Notes paid by Class A Members, net (500) - 555 - 55 Net loss - - - (1,195,334) (1,195,334) ------------------------------------------------------------------- $ 1,722 $2,723,886 $ (167) $(4,931,273) $ (2,205,832) ===================================================================
SEE ACCOMPANYING NOTES. 6 Indigo Networks LLC Statements of Cash Flows
For the period from September 14, Six Months Six Months 1998 Ended Ended Year ended (inception) to June 30, June 30, December 31, December 31, 2000 1999 1999 1998 (Unaudited) (Unaudited) ------------------------------------------------------------------------------- Cash flows from operating activities Net loss $ (2,968,118) $ (767,821) $(1,195,334) $(1,523,214) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 139,785 25,954 141,009 51,686 Write-off of software costs 224,600 - 22,879 224,600 Severance expense 290,545 - - - Changes in operating assets and liabilities: Accounts receivable (26,108) - 17,668 - Prepaid and other assets (9,944) (2,882) (1,632) (6,812) Accrued expenses 96,091 133,548 178,848 (38,301) -------------------------------------------------------------------------------- Net cash used in operating activities (2,253,149) (611,201) (836,562) (1,292,041) Cash flows from investing activities Purchases of fixed assets (186,233) (183,535) (473,985) (147,000) Software development costs (174,035) (187,836) - (125,654) -------------------------------------------------------------------------------- Net cash used in investing activities (360,268) (371,371) (473,985) (272,654) Cash flows from financing activities Capital contributions, net of issuance costs of $82,040 and $85,505, respectively 1,057,960 1,725,995 (59,069) 863,887 Proceeds from note payables - related party 940,000 - 1,342,220 270,192 Payments on long-term debt (46,353) - (8,286) - Payments on capital lease obligations (15,328) (12,046) (8,213) (8,954) -------------------------------------------------------------------------------- Net cash provided by financing activities 1,936,279 1,713,949 1,266,652 1,125,125 -------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (677,138) 731,377 (43,895) (439,570) Cash and cash equivalents at beginning of period 731,377 - 54,239 731,377 -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 54,239 $ 731,377 $ 10,344 $ 291,807 ================================================================================ Supplemental disclosures of cash flow information: Assets acquired under capital leases $ 34,735 $ 21,000 $ - $ -
SEE ACCOMPANYING NOTES. 7 1. Summary of Significant Accounting Policies Organization and Operations Indigo Networks LLC (the Company) (d/b/a ishophere.com) was organized on September 14, 1998 as a limited liability company under the laws of the State of Delaware and began operations in August 1999. The Company maintains a shopping website called "ishophere.com" that links users to various participating retail websites. Prior to August 1999, the Company was a development stage enterprise engaged in the development of its website. The Company will be dissolved on December 31, 2048, unless the term is extended within 90 days of the end of the term. Basis of Presentation The Company has incurred significant losses relating to the marketing and development of its platform and website. The Company plans to obtain additional funding from current inventors and seek new equity investors as additional sources of financing. If the Company is unable to obtain additional financing, there is substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Interim financial information included herein is unaudited. Revenue Recognition The Company recognizes revenue on commissions at the time an on-line purchase is completed through "ishophere.com" at one of the Company's participating websites. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with a maturity of three months or less at the time of purchase. Income Taxes The Company is taxable as a partnership for federal and state income tax purposes. Income or loss of the partnership is included in the income tax returns of the members and, therefore, the financial statements do not include a provision for income taxes. 8 1. Summary of Significant Accounting Policies (continued) Start-Up Costs In accordance with Statement of Position 98-5, Reporting on the Costs of Start-up Activities, all costs of start-up activities are expensed as incurred. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the accompanying financial statements and notes. Actual results could differ from those estimates. Fixed assets Fixed assets are stated at cost. Depreciation and amortization are computed using the straight-line method over its estimated useful life, generally the shorter of the applicable lease term or three-to-five years for financial reporting purposes. Software Development Costs The Company has capitalized qualifying internal and external software development costs incurred during the application development stage. These costs consist of designing software configuration and software interfaces, coding programs, installing hardware and testing systems. These costs are amortized over a three-year period. Reclassification Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. 9 2. Members' Equity Members' equity consists of Class A members and Class B members. At December 31, 1999 and 1998, capital contributions for Class A member consists of $2,222 and $1,500, respectively. At December 31, 1999 and 1998, capital contributions for Class B members' consists of $2,950,000 and $1,810,000, respectively. The majority of both Class A members' and Class B members' votes are required to admit new members, amend the bylaws, sale substantial assets of the Company or dissolve the Company. Voting rights are calculated by dividing each members' capital balance by the total capital balance for each class of member. Losses are allocated to Class B members who have positive capital balances. Thereafter, losses are allocated to Class B members proportionately based on capital balances. Profits are allocated to both Class A and Class B members in accordance with respective negative capital balances until their capital balances have been increased to zero. Thereafter, profits are allocated proportionately based on capital balances. Discretionary distributions are allocated proportionately based on capital balances as follows:
Class A Class B Amount Distributed Members Members -------------------------------------------------------------------------------- Less than or equal to 20% return on investment of the Class B members' capital accounts 0% 100% Greater than 20% but less than 35% return on investment of the Class B members' capital accounts 25% 75% Greater than 35% but less than 50% return on investment of the Class B members' capital accounts 65% 35% Greater than 50% return on investment of the Class B members' capital accounts 70% 30% No distributions were made in 1999 or 1998.
10 3. Fixed Assets, net Fixed assets, net consists of the following at December 31:
1999 1998 ----------------------------------------- Leasehold improvements $ 62,796 $ 62,796 Furniture and fixtures 11,855 6,816 Computer equipment and software 350,852 134,923 ----------------------------------------- 425,503 204,535 Less accumulated depreciation (146,674) (25,954) ----------------------------------------- $ 278,829 $ 178,581 =========================================
4. Software Development Costs, net Software development costs, net consists of the following at December 31:
1999 1998 ----------------------------------------- Software development costs $ 137,271 $ 187,836 Less accumulated depreciation (19,065) - ----------------------------------------- $ 118,206 $ 187,836 =========================================
Software development costs of $224,600 associated with abandoned software was written-off in 1999. 5. Note payable - related party During 1999, the Company borrowed $940,000 from one of its members. This note does not bear interest and is payable on demand. 11 6. Capital Lease Obligation During 1999, the Company leased computer equipment with a cost of $34,735. This obligation has been accounted for as a capital lease and has been recorded in the accompanying balance sheet at the present value of future minimum lease payments. Future minimum lease payments are as follows:
2000 $ 20,345 2001 11,868 -------------- 32,213 Less amount representing imputed interest (3,852) -------------- Present value of minimum lease payments $ 28,361 ==============
At December 31, 1999, the equipment purchased under capital lease had a net book vale of $29,911 and is recorded in fixed assets. 7. Class A Membership Buyout In January 1999, the Company agreed to buy the interest of one of its members who also was an officer of the Company. The Company agreed to pay the former member semi-monthly payments of $2,812.50 for five years. The Company recorded approximately $290,000 as severance expense for the excess of the present value of the future payments over the former member's original basis. Future payments under this obligation are as follows:
2000 $ 67,500 2001 67,500 2002 67,500 2003 67,500 2004 5,625 --------------- 275,625 Less amount representing imputed interest (31,433) --------------- Present value of future payments 244,192 Less current portion (54,396) --------------- $ 189,796 ===============
This amount is classified as note payable to former member in the accompanying balance sheet. 12 8. Operating Lease The Company leases it corporate offices under a lease which expires on September 30, 2000. Future minimum lease payments are $13,650 for 2000. Total rent expense for the period ending December 31, 1999 and 1998 was $30,400 and $10,945, respectively. 9. Year 2000 - Unaudited In 1999, the Company completed its remediation and testing of its systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology system and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its website, its internal systems or the products or services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year to ensure that any latent Year 2000 matters that may arise are addressed promptly. (B) PRO FORMA FINANCIAL INFORMATION WAVE SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The following unaudited pro forma condensed consolidated financial statements give effect to the acquisition, by Wave Systems Corp. (Wave), on August 31, 2000, of substantially all the assets of Indigo Networks, LLC (Indigo) and its e-commerce shopping network, iShopHere.com. The aggregate consideration paid by Wave to Indigo consisted of 374,889 shares of Class A Common Stock priced at $19.30 per share, for a total value of $7,235,000. The purchase price was based on the average closing price of the company's Class A common stock for the ten trading days immediately preceding the date of the purchase, in accordance with the purchase agreement. The terms of the Agreement were determined in arm's-length negotiations between Wave and Indigo. The Indigo asset acquisition was accounted for using the purchase method of accounting. SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The selected unaudited pro forma condensed consolidated financial information presented below has been derived from the audited and unaudited historical financial statements of Wave and Indigo, and reflects management's present estimate of pro forma adjustments, including a preliminary estimate of the purchase price allocations, which ultimately may be different. This pro forma presentation does not purport to represent what our financial position or results of operations would actually have been if such transactions and events had in fact occurred on those dates or to project our results of operations for any future period. 13 The unaudited pro forma consolidated statements of operations give effect to the acquisition of Indigo as if it had occurred on January 1, 1999. The unaudited pro forma consolidated balance sheet also gives effect to the acquisition of Indigo as if it had occurred on, June 30, 2000 pursuant to the purchase method of accounting. These statements are based on historical financial statements of Wave and Indigo and the estimates and assumptions set forth in the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Information. WAVE SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
PRO FORMA PRO FORMA WAVE INDIGO ADJUSTMENTS CONSOLIDATED ---------------- ------------- --------------- ------------------ Net revenue $ 187,515 $ 32,592 $ - $ 220,107 Cost of Sales 93,170 - - 93,170 ---------------- ------------- --------------- ------------------ Gross Margin 94,345 32,592 - 126,937 ---------------- ------------- --------------- ------------------ Operating expenses: Selling, general & administrative 16,749,276 1,862,074 - 18,611,350 Research and development 10,697,971 1,133,391 - 11,831,362 Goodwill Amortization - - (1) 1,650,636 1,650,636 In process R&D - - (2) 2,176,000 2,176,000 Acquisition Costs 1,494,000 - - 1,494,000 ---------------- ------------- --------------- ------------------ 28,941,247 2,995,465 3,826,636 35,763,348 ---------------- ------------- --------------- ------------------ Other income (expense): License fee 1,250,000 - - 1,250,000 Interest income 617,306 - - 617,306 Interest expense (832,976) (5,245) - (838,221) Other (expense) (240,000) - - (240,000) ---------------- ------------- --------------- ------------------ 794,330 (5,245) - 789,085 ---------------- ------------- --------------- ------------------ Net loss $(28,052,572) $(2,968,118) $(3,826,636) $ (34,847,326) ================ ============= =============== ================== Accrued dividends on preferred stock 13,239 - - 13,239 Net loss to common stockholders $(28,065,811) $(2,968,118) $(3,826,636) $(34,860,565) ================ ============= =============== ================== Weighted average common shares outstanding during period the 38,365,873 - 374,889 38,740,762 Loss per common share $ (0.73) $ - $ - $ (0.90) ================ ============= =============== ==================
14 WAVE SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
PRO FORMA PRO FORMA WAVE INDIGO ADJUSTMENTS CONSOLIDATED ---------------- ------------- -------------- ----------------- Net revenue $ 77,349 $ 40,450 $ - $ 117,799 Cost of Sales 50,203 - - 50,203 ---------------- ------------- -------------- ----------------- Gross Margin 27,146 40,450 - 67,596 ---------------- ------------- -------------- ----------------- Operating expenses: Selling, general & administrative 12,019,582 779,655 - 12,799,237 Research and development 8,068,705 451,669 - 8,520,374 Goodwill Amortization - - (1) 825,318 825,318 ---------------- ------------- -------------- ----------------- 20,088,287 1,231,324 825,318 22,144,929 ---------------- ------------- -------------- ----------------- Other income (expense): Interest income 2,069,755 - - 2,069,755 Interest expense - (4,460) - (4,460) Gain on Sale of Marketable Securities 542,457 - 542,457 ---------------- ------------- -------------- ----------------- 2,612,212 (4,460) - 2,607,752 ---------------- ------------- -------------- ----------------- Net loss $(17,448,929) $(1,195,334) $(825,318) $(19,469,581) ================ ============= ============== ================= Accrued dividends on preferred stock - - - - ---------------- ------------- -------------- ----------------- Net loss to common stockholders $(17,448,929) $(1,195,334) $(825,318) $(19,469,581) ================ ============= ============== ================= Weighted average common shares outstanding during the period 45,893,036 374,889 46,267,925 Loss per common share $ (0.38) $ - $ - $ (0.42) ================ ============= ============== =================
15 WAVE SYSTEMS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2000
PRO FORMA PRO FORMA WAVE INDIGO ADJUSTMENTS CONSOLIDATED ----------------- ---------------- ---------------- --------------- ASSETS Current Assets: Cash $105,231,677 $10,344 (3) $(10,344) $105,231,677 Marketable Securities 4,096,301 - 4,096,301 Inventories 476,552 - 476,552 Prepaid Expenses & Other receivables 603,557 22,897 626,454 ----------------- ---------------- ---------------- --------------- Total Current Assets 110,408,087 33,241 (10,344) 110,430,984 ----------------- ---------------- ---------------- --------------- Property and Equipment, net 3,639,194 707,132 (3) (39,417) 4,306,909 Goodwill & Other Intangibles, net - - (3) 4,578,746 4,578,746 Other Assets 3,882,119 - 3,882,119 ----------------- ---------------- ---------------- --------------- Total Assets $117,929,400 $740,373 $4,528,985 $123,198,758 ================= ================ ================ =============== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable and Accrued Expenses 4,886,908 408,486 (3) 210,000 5,096,908 (3) (408,486) Capital Lease Obligation - 18,475 (3) (18,475) - Notes Payable to related parties - 2,098,375 (3) (2,098,375) - ----------------- ---------------- ---------------- --------------- Total Current Liabilities 4,886,908 2,525,336 (2,315,336) 5,096,908 ----------------- ---------------- ---------------- --------------- Capital lease obligation less current portion - 1,673 (3) (1,673) - Note Payable related party - 161,351 (3) (161,351) - Notes Payable, On Display, Inc. - 257,845 (3) (257,845) - Stockholders' & Members' Equity: Common Stock, $.01 par value. Authorized 75,000,000 Class A Shares; issued and outstanding 45,909,925 459,099 (3) 3,749 462,848 Capital Contribution from Class A members - 1,722 (3) (1,722) - Common Stock, $.01 par value. Authorized 13,000,000 Class B shares; issued and outstanding 1,002,117 10,021 10,021 Capital Contributions from Class B members, net of issuance costs of $226,114 - 2,723,886 (3) (2,723,886) - Notes receivable from Class A members - (167) (3) 167 - Capital in Excess of Par Value 219,193,173 (3) 7,231,609 226,424,782 Deficit Accumulated during the development (2) (2,176,000) stage (110,716,102) (4,931,273) (3) 4,931,273 112,892,102 Accumulated other Comprehensive Income- unrealized gain on marketable securities 4,096,301 - 4,096,301 ----------------- ---------------- ---------------- --------------- Total Stockholders'/members' equity 113,042,492 (2,205,832) 7,265,190 $118,101,850 Total liabilities and stockholders' equity $117,929,400 $ 740,373 $4,528,985 $123,198,758 ================= ================ ================ ===============
16 Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information. PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to the unaudited condensed consolidated statements of operations for the year ended December 31, 1999 and the six months ended June 30, 2000, and the condensed consolidated statement of financial position as of June 30, 2000. (1) To record amortization expense for the acquisition of goodwill and other intangibles resulting from the allocation of purchase price noted below, using useful lives not exceeding three years, as if the acquisition of Indigo had been completed as of January 1, 1999. (2) To record in-process research and development expense based on a preliminary valuation and purchase price allocation. (3) To eliminate the equity, cash and liabilities of Indigo not acquired or assumed, and to record the issuance of 374,889 shares of Wave Class A common stock, at an issuance price of $19.30 per share, as if the acquisition of Indigo had occurred on June 30, 2000. The total purchase price of $7,445,358 (including $210,000 in estimated transaction costs) was based on a share price of $19.30, the average closing price of Wave stock for the ten trading days immediately prior to the date of closing. The purchase price was allocated to the assets acquired on a preliminary basis using the fair value of the assets acquired on a preliminary basis. This preliminary allocation is still subject to review, and is subject to change. The pro forma adjustments included herein, were based on this preliminary allocation. Pursuant to the purchase method of accounting, the excess of purchase price over fair value of net assets and in-process research and development acquired has been recorded as goodwill and is being amortized over periods not to exceed 3 years. The amount allocated to in-process research and develoment totaling $2,176,000 was expensed upon acquisition because technological and/or commercial feasibility had not been established. A final allocation of purchase price will be determined during the final quarter of 2000, and changes, if any, will result in a change to the amount of goodwill and in process research and development recorded in connection with the acquisition. The following is a summary of the allocation of the purchase price used for purposes of the pro forma presentations included herein: Purchase consideration $7,235,358 Direct Acquisition costs 210,000 ---------- Total Purchase Price $7,445,358 Less tangible and intangible assets acquired: Fair market value of tangible assets 690,612 In-Process R&D 2,176,000 ---------- 4,578,746 Goodwill & other intangible assets: Developed Technology $ 779,000 Assembled Work force 310,000 Contracts 77,300 Excess over identifiable assets 3,412,446 ----------- Goodwill and other intangible assets $4,578,746
17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WAVE SYSTEMS CORP. By: ----------------------- Steven Sprague Chief Executive Officer Dated: November 14, 2000 18 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 99.1* Asset Purchase Agreement, dated as of August 31, 2000, by and between Wave and Indigo. (Does not include Exhibits or Disclosure Schedules. Wave will furnish a copy of any such omitted exhibit or schedule to the Commission upon request.) * Previously filed. II-1