<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): April 30, 1998
---------------------------
CYBERCASH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-27470 54-725021
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2100 RESTON PARKWAY
RESTON, VIRGINIA 20191
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (703) 620-4200
<PAGE> 2
The undersigned registrant hereby reports the following items related
to the Registrant's acquisition of ICVerify, Inc. in a transaction accounted
for as a purchase. The Registrant filed on May 1, 1998 a Current Report on Form
8-K, which disclosed that the acquisition had been completed. The Registrant
indicated in that report its intention to submit the financial statements and
pro forma financial information prescribed by Rule 3-05 of Regulation S-X and
Article 11 of Regulation S-X, respectively, not later than June 29, 1998, in
accordance with Subsection (a)(4) of Item 7 of the General Instructions for the
Current Report on Form 8-K. This Amendment to that Current Report is being
filed to provide that financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<CAPTION>
(a) Financial Statements of Business Acquired
Page
Number
-------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors F-1
ICVerify, Inc. Consolidated Balance Sheets as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited) F-2
ICVerify, Inc. Consolidated Statements of Operations for the Years Ended December
31, 1995, 1996 and 1997 and for the Three Month Periods Ended March 31, 1997 and
1998 (unaudited) F-3
ICVerify, Inc. Consolidated Statements of Changes in Redeemable
Convertible Preferred Stock and Shareholders' Equity (Net Capital Deficiency) for the
Years Ended December 31, 1995, 1996 and 1997 and for the Three Month Period Ended
March 31, 1998 (unaudited) F-4
ICVerify, Inc. Consolidated Statements of Cash Flows for the Years Ended December
31, 1995, 1996 and 1997 and for the Three Month Periods Ended March 31, 1997 and
1998 (unaudited) F-5
Notes to Consolidated Financial Statements F-6
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998 F-16
Unaudited Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1997 and for the Three Month Period Ended March 31, 1998 F-17
Notes to Pro Forma Balance Sheet and Statements of Operations F-19
</TABLE>
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
1
<PAGE> 3
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.
CyberCash, Inc.
May 27, 1998 By: /s/ William N. Melton
---------------------
William N. Melton
President
2
<PAGE> 4
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
ICVerify, Inc.
We have audited the accompanying consolidated balance sheets of ICVerify, Inc.
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in redeemable convertible preferred stock and shareholders'
equity (net capital deficiency), and cash flows for each of the three years in
the period ended December 31, 1997. 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 generally accepted auditing
standards. 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 consolidated 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 consolidated financial position of ICVerify, Inc. at
December 31, 1996 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 27, 1998
F-1
<PAGE> 5
ICVERIFY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997 1998
----------------------------------------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,298,805 $ 2,437,111 $ 1,435,893
Trade receivables, net of allowance for doubtful accounts of $162,851 and
$441,000 at December 31, 1996 and 1997, respectively 948,969 1,010,784 1,083,891
Inventories 124,354 95,054 74,514
Prepaid expenses 75,024 153,414 54,514
------------------------------ -------------
Total current assets 4,447,152 3,696,363 2,648,812
Property and equipment, net 733,448 1,065,013 1,031,845
Deposits and other assets 90,809 126,510 116,456
------------------------------ -------------
$ 5,271,409 $ 4,887,886 $ 3,797,113
============================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and other accrued liabilities $ 806,833 $ 836,737 $ 793,221
Accrued compensation 342,738 381,325 207,029
Deferred revenue 38,151 460,742 536,935
Current portion of equipment financing obligations 128,718 148,503 166,068
------------------------------ -------------
Total current liabilities 1,316,440 1,827,307 1,703,253
Long-term portion of equipment financing obligations 211,842 56,008 52,759
Commitments
Redeemable convertible preferred stock at amounts paid in; 6,049,466 and 7,471,267
shares issued and outstanding at December 31, 1996 and 1997, respectively
(liquidation preference of $10,164,900 at December 31, 1997) 7,049,043 10,027,106 10,027,106
Shareholders' equity (net capital deficiency):
Preferred stock, no par value; 10,000,000 shares authorized, issuable in series;
all series designated represent redeemable convertible preferred stock shown
above - - -
Common stock, no par value; 20,000,000 shares authorized at December 31, 1996
and 1997; 4,801,821 and 5,015,008 shares issued and outstanding at
December 31, 1996 and 1997, respectively 26,630 42,480 54,752
Accumulated deficit (3,332,546) (7,065,015) (8,040,757)
------------------------------ -------------
Total net capital deficiency (3,305,916) (7,022,535) (7,986,005)
------------------------------ -------------
$ 5,271,409 $ 4,887,886 $ 3,797,113
============================== =============
</TABLE>
See accompanying notes.
F-2
<PAGE> 6
ICVERIFY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1995 1996 1997 1997 1998
------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales:
Software $ 2,407,392 $ 4,846,012 $ 6,363,998 $ 1,596,068 $ 1,545,753
Service 238,104 336,359 515,440 48,020 232,077
Hardware and other 78,725 462,129 373,406 87,546 68,672
------------------------------------------------------------------------------
Total net sales 2,724,221 5,644,500 7,252,844 1,731,634 1,846,502
Costs and operating expenses:
Cost of software sales 163,965 284,108 369,686 56,660 54,666
Cost of services 55,832 78,872 2,174,366 514,930 508,677
Cost of hardware and other 43,420 213,783 136,571 34,873 20,602
Research and development 454,596 963,620 2,371,411 559,274 691,798
Selling, general, and administrative 3,225,813 6,365,322 6,045,456 1,417,262 1,561,451
------------------------------------------------------------------------------
Total costs and operating expenses 3,943,626 7,905,705 11,097,490 2,582,999 2,837,194
------------------------------------------------------------------------------
Loss from operations (1,219,405) (2,261,205) (3,844,646) (851,365) (990,692)
Interest income 140,057 50,546 167,402 15,766 23,781
Interest and other expense (7,543) (88,292) (55,225) (2,988) (8,831)
------------------------------------------------------------------------------
Net loss $ (1,086,891) $ (2,298,951) $ (3,732,469) $ (838,587) $ (975,742)
==============================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 7
ICVERIFY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
Balances at December 31, 1994 - $ -
Exchange of all of the outstanding common shares of ICVERIFY,
Inc. for common shares of AAJJ, Inc. - -
Issuance of Series A redeemable convertible preferred stock, net of
issuance costs of $47,000 4,627,665 4,117,420
Net loss - -
---------------------------
Balances at December 31, 1995 4,627,665 4,117,420
Issuance of Series B redeemable convertible preferred stock, net of
issuance costs of $69,000 1,421,801 2,931,623
Stock options exercised - -
Net loss - -
---------------------------
Balances at December 31, 1996 6,049,466 7,049,043
Issuance of Series B redeemable convertible preferred stock, net of
issuance costs of $22,000 1,421,801 2,978,063
Stock options exercised - -
Net loss - -
---------------------------
Balances at December 31, 1997 7,471,267 10,027,106
Stock options exercised (unaudited) - -
Net loss (unaudited) - -
---------------------------
Balances at March 31, 1998 (unaudited) 7,471,267 $10,027,106
===========================
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
--------------------------------------------------------
TOTAL
RETAINED SHAREHOLDERS'
COMMON STOCK EARNINGS EQUITY
--------------------------- (ACCUMULATED (NET CAPITAL
SHARES AMOUNT DEFICIT) DEFICIENCY)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 200 $ 2,000 $ 53,296 $ 55,296
Exchange of all of the outstanding common shares of ICVERIFY,
Inc. for common shares of AAJJ, Inc. 4,555,326 - - -
Issuance of Series A redeemable convertible preferred stock, net of
issuance costs of $47,000 - - - -
Net loss - - (1,086,891) (1,086,891)
--------------------------------------------------------
Balances at December 31, 1995 4,555,526 2,000 (1,033,595) (1,031,595)
Issuance of Series B redeemable convertible preferred stock, net of
issuance costs of $69,000 - - - -
Stock options exercised 246,295 24,630 - 24,630
Net loss - - (2,298,951) (2,298,951)
--------------------------------------------------------
Balances at December 31, 1996 4,801,821 26,630 (3,332,546) (3,305,916)
Issuance of Series B redeemable convertible preferred stock, net of
issuance costs of $22,000 - - - -
Stock options exercised 213,187 15,850 - 15,850
Net loss - - (3,732,469) (3,732,469)
--------------------------------------------------------
Balances at December 31, 1997 5,015,008 42,480 (7,065,015) $(7,022,535)
Stock options exercised (unaudited) 122,720 12,272 - 12,272
Net loss (unaudited) - - (975,742) (975,742)
--------------------------------------------------------
Balances at March 31, 1998 (unaudited) 5,137,728 $ 54,752 $(8,040,757) $(7,986,005)
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 8
ICVERIFY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1995 1996 1997 1997 1998
-------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,086,891) $(2,298,951) $(3,732,469) $(838,587) $(975,742)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 400,663 369,795 316,276 50,413 35,781
Changes in operating assets and liabilities:
Trade receivables (188,307) (626,351) (61,815) (686,139) (73,107)
Inventories (43,868) (72,163) 29,300 (44,087) 20,540
Prepaid expenses (25,178) (9,954) (78,390) (3,177) 138,499
Deposits and other assets (80,809) (10,000) (35,701) (600) 10,054
Accounts payable and other accrued liabilities 204,381 450,922 29,904 233,971 (43,516)
Accrued compensation (65,945) 216,122 38,587 (148,387) (174,296)
Deferred revenue 51,094 (12,943) 422,591 67,497 76,193
-------------------------------------------------------------------------
Net cash used in operating activities (834,860) (1,993,523) (3,071,717) (1,369,096) (985,594)
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (979,630) (501,569) (647,841) (60,840) (2,613)
-------------------------------------------------------------------------
Net cash used in investing activities (979,630) (501,569) (647,841) (60,840) (2,613)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from equipment financing 379,043 82,515 - - -
Payments on equipment lease financing obligations (13,241) (107,757) (136,049) (29,374) (25,283)
Payment of bank borrowings (75,000) - - - -
Net proceeds from sale of preferred stock 4,117,420 2,931,623 2,978,063 - -
Proceeds from exercise of stock options - 24,630 15,850 1,371 12,272
-------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,408,222 2,931,011 2,857,864 (28,003) (13,011)
-------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 2,593,732 435,919 (861,694) (1,457,939) (1,001,218)
Cash and cash equivalents at beginning of year 269,154 2,862,886 3,298,805 3,298,805 2,437,111
-------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,862,886 $ 3,298,805 $ 2,437,111 $1,840,866 $1,435,893
=========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 7,662 $ 63,090 $ 55,225 $ 2,988 $ 8,831
=========================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 9
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
ICVerify, Inc. ("ICVerify" or the "Company"), a California corporation, designs
and markets personal computer credit authorization software. The Company
generally sells its products to original equipment manufacturers ("OEMs"), who
incorporate the product into their own products, financial institutions and
others involved in electronic commerce. The end users of the Company's products,
who may purchase the product from the above sources or directly from the
Company, include general retail establishments and businesses in the food
services, car rental, airline, communications, and travel industries.
Additionally, the Company sells related hardware and services.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, ICVerify GmbH. Intercompany accounts and
transactions have been eliminated in consolidation.
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 the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
FOREIGN CURRENCY
Exchange gains and losses arising from transactions denominated in a foreign
currency are included in other expense. Gains and losses on these transactions
and arising from the translation of the financial statements of the Company's
German subsidiary have been immaterial in all periods presented.
INVENTORIES
Inventories, primarily finished goods, are stated at the lower of cost
(first-in, first-out) or market.
F-6
<PAGE> 10
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
----------------------------------
<S> <C> <C>
Computers and office equipment $ 496,104 $ 818,042
Furniture and fixtures 615,265 891,983
Leasehold improvements 432,163 481,348
----------------------------------
1,543,532 2,191,373
Less accumulated depreciation and amortization (810,084) (1,126,360)
----------------------------------
$ 733,448 $ 1,065,013
==================================
</TABLE>
Depreciation of property and equipment is provided using the straight-line
method over their estimated useful lives, generally three to five years.
Leasehold improvements are depreciated over the term of the lease.
REVENUE RECOGNITION
The Company generally uses third parties to manufacture its software and
hardware products. Revenue is recognized upon shipment of such products by the
third party, provided the intended use of the software is not dependent upon the
completion of services and collectibility is reasonably assured. In those cases
where customers have duplication rights for the software products, revenue is
recognized upon receipt of reports of units produced by the customers.
Maintenance and support revenue is recognized ratably over the term of the
maintenance agreement, which in most cases is one year. Revenue from consulting
services is generally recognized as the services are performed.
STOCK-BASED COMPENSATION
The Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so. In accordance with the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), option grants to all others are accounted for under the fair value
method.
F-7
<PAGE> 11
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments in cash equivalents and
receivables from customers. The Company invests in cash equivalents, primarily
in a money market account. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
allowances for potential credit losses, and such losses have not been
significant to date and have been within management's expectations.
ADVERTISING COSTS
Advertising costs are expensed when incurred and approximated $474,000, $588,000
and $540,000 in 1995, 1996 and 1997, respectively.
RESEARCH AND DEVELOPMENT
Research and Development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the period incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the American Institute of Certified Public Accountants issued Statement
of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition" as amended by
Statement of Position 98-4 ("SOP 98-4", collectively "the SOP's".) The SOP's
supersede SOP 91-1 and are effective for transactions entered into for fiscal
years beginning after December 15, 1997. Based upon its reading and
interpretation of SOP 97-2 the Company believes its current revenue recognition
policies and practices are materially consistent with the SOP. However,
implementation guidelines for this standard have not yet been issued and a wide
range of potential interpretations are being discussed by the accounting
profession. Once available, such implementation guidance could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could be material to the Company's future revenue and earnings.
F-8
<PAGE> 12
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes rules for reporting and
displaying comprehensive income and is effective for the Company during 1998.
The Company does not believe that the adoption of SFAS No. 130 will have a
material impact on the Company's results of operations, cash flows or financial
position.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
2. COMMITMENTS
The Company leases its office facilities under cancelable operating leases (see
Note 6). Rent expense was approximately $52,000, $93,000 and $174,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
Included in property and equipment at December 31, 1996 and 1997 are assets with
costs of $462,000, acquired pursuant to equipment financing arrangements that
mature in May 1999 and July 1999 with interest rates of between 14.5% and 15.4%
per annum, respectively. Accumulated amortization of assets acquired pursuant to
these equipment financing obligations was approximately $214,000 and $462,000 at
December 31, 1996 and 1997, respectively. The equipment loans are secured by the
related property and equipment and a security deposit of approximately $76,000
which is included in deposits and other assets.
Future payments for equipment financing obligations at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Years ending December 31,
1998 $ 168,872
1999 57,965
-----------
Total minimum payments required 226,837
Less amount representing interest (22,326)
-----------
Present value of future lease payments 204,511
Less current portion (148,503)
-----------
$ 56,008
===========
</TABLE>
F-9
<PAGE> 13
3. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Authorized and outstanding preferred stock and its principal terms are as
follows at December 31, 1997:
<TABLE>
<CAPTION>
PER SHARE
-------------------------
ANNUAL LIQUIDATION
DESIGNATED OUTSTANDING DIVIDEND PREFERENCE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A 4,627,665 4,627,665 $0.072 $0.90
Series B 2,843,602 2,843,602 $0.196 $2.11
</TABLE>
Undesignated preferred stock is 2,528,733 shares at December 31, 1997.
Dividends on the preferred stock are payable when and if declared by the board
of directors. The dividend requirements of the preferred stock must be satisfied
prior to payment of any dividends or distributions with respect to the Company's
common stock.
Preferred shareholders are entitled to voting rights equivalent to the number of
common shares into which their shares are convertible. Subject to adjustments
for dilution, each share of Series A and B preferred stock is convertible at any
time into one common share. Series A and B preferred shares convert
automatically to common stock (7,471,267 shares if converted at December 31,
1997) upon the vote of at least 50% or 67% of Series A and B shareholders,
respectively, or in the event of a public offering of the Company's common stock
with aggregate net cash proceeds to the Company of at least $15,000,000 and a
price per share of not less than $5.00 (as adjusted for any stock dividends,
stock splits, or recapitalization).
Upon any liquidation, the Series B preferred stock has a preference of $2.11 per
share. After payment of the full liquidation preference of the Series B
preferred stock, Series A will be paid $0.90 per share. After payment of the
full liquidation preference of Series B and Series A preferred stock, the
remaining assets of the Company legally available for distribution will be
distributed ratably to the holders of common stock and preferred stock on an
as-if-converted basis.
Commencing January 20, 2001 for Series A and December 25, 2002 for Series B,
holders of more than 50% and 67% of the outstanding stock of the respective
series may require the Company to redeem the portion of the shares held by the
shareholder requesting redemption in three equal annual installments at a
redemption price of $0.90 and $2.11, respectively (as adjusted for any stock
dividends, stock splits, or recapitalization).
F-10
<PAGE> 14
3. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
WARRANTS
In April 1997, the holders of the warrants to purchase Series B preferred stock
exercised such warrants paying $3,000,000 in exchange for 1,421,801 shares of
Series B preferred stock. These holders also received warrants to purchase
600,000 shares of common stock at $0.22 per share. These warrants expire in
April 2002. The Company assessed that any value to these warrants would be
immaterial.
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
COMMON STOCK AND STOCK OPTIONS
The Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
The Company's 1995 Stock Option Plan (the "Plan") has authorized the grant of
options to eligible participants for up to 2,200,000 shares of the Company's
common stock. All options granted have 10 year terms and vest over a four-year
period of continued employment.
Pro forma information regarding net loss is required by SFAS 123 for awards
granted after December 31, 1994 as if the Company had accounted for its
stock-based awards under the fair value method of SFAS 123. The Company used the
minimum value method to determine the fair value of stock options at the grant
date issued using the following weighted-average assumptions during 1997 and
1996, respectively: average risk-free interest rate of 6.0% and 5.6% and a
weighted-average expected option life of six years and an assumption of no
dividends. The effect of applying the minimum value method of SFAS 123 in
determining the fair values of stock options did not result in pro forma net
loss that is materially different from historical amounts reported. Therefore,
such pro forma information is not presented herein.
F-11
<PAGE> 15
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
COMMON STOCK AND STOCK OPTIONS (CONTINUED)
A summary of activity under the Plan is set forth below:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE FOR OPTIONS EXERCISE AVERAGE
GRANT OUTSTANDING PRICE EXERCISE PRICE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 - - - -
Initial authorization 2,200,000 - - -
Granted (1,000,000) 1,000,000 $0.09-$0.10 $0.097
-----------------------------
Outstanding at December 31, 1995 1,200,000 1,000,000 $0.09-$0.10 $0.10
Granted (1,004,000) 1,004,000 $0.10 $0.10
Exercised - (246,295) $0.10 $0.10
Canceled 601,276 (601,276) $0.09-$0.10 $0.10
-----------------------------
Outstanding at December 31, 1996 797,276 1,156,429 $0.09-$0.10 $0.10
Granted (930,329) 930,329 $0.22-$0.44 $0.33
Exercised - (213,187) $0.10 $0.10
Canceled 412,667 (412,667) $0.10-$0.44 $0.17
-----------------------------
Outstanding at December 31, 1997 279,614 1,460,904 $0.09-$0.44 $0.23
=============================
</TABLE>
The following table summarizes information about options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------------------------------------------------------------
(In years)
<S> <C> <C> <C>
$0.09-$0.10 754,104 8.24 $0.10
$0.22 260,300 9.14 $0.22
$0.44 446,500 9.73 $0.44
-----------
$0.09-$0.44 1,460,904 8.85 $0.23
===========
</TABLE>
At December 31, 1997, options to acquire 194,217 shares of common stock are
vested at a weighted-average exercise price of $0.10 per share. All options
granted were at the fair value assigned by the board of directors.
F-12
<PAGE> 16
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
COMMON STOCK AND STOCK OPTIONS (CONTINUED)
Common stock issued to founders vests over a period of time not greater than
four years in accordance with the terms as determined by the board of directors.
At December 31, 1997, approximately 308,449 outstanding unvested shares were
subject to repurchase.
5. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $6,000,000. The net operating loss carryforwards
will expire at various dates beginning in 2010 through 2012, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Significant components of the Company's deferred tax assets and liabilities for
federal and state income taxes as of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 1,100,000 $ 2,200,000
Other, net 200,000 100,000
----------------------------------
Net deferred tax assets 1,300,000 2,300,000
Valuation allowance (1,300,000) (2,300,000)
----------------------------------
Total $ - $ -
==================================
</TABLE>
Because of the Company's lack of earnings history, the net deferred tax asset
has been fully offset by a valuation allowance. The valuation allowance
increased by $900,000 during the year ended December 31, 1996.
F-13
<PAGE> 17
6. RELATED PARTIES
During 1995, 1996, and 1997, the Company leased one of its offices from a
relative of an officer. Total payments for the rent of the facility were $52,000
in 1995 and $60,000 for both 1996 and 1997. There were no payments outstanding
as of December 31, 1997 and 1996. The Company also leases, at no cost, certain
office space to another entity which is owned by an officer of the Company. The
spouse of an officer of the Company was paid approximately $39,000 in both 1996
and 1997 without providing services to the Company (none during 1995).
The Company contracts for certain product development services with a Polish
company owned by an officer of the Company. During 1997, the Company incurred
approximately $57,000 in product development and personnel-related costs of
which $10,000 was due at December 31, 1997 (none during 1995 or 1996).
7. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT
In February 1998, the Company entered into a credit agreement with Imperial
Bank. The agreement represented two credit facilities, one is a $750,000
revolving line of credit based upon eligible accounts receivable and the second
is a $500,000 term loan for the purchase of capital equipment.
The Company has incurred cumulative operating losses of $7,100,000 from
inception, including a loss of $3,700,000 in the year ended December 31, 1997.
Management believes that available resources will provide sufficient funding to
enable the Company to meet its obligations through at least December 31, 1998.
If anticipated operating results are not achieved, management has the intent and
believes that it has the ability to delay or reduce expenditures so as to not
require additional financial resources if such resources were not available.
On March 17, 1998, the Company announced that it had agreed to merge with
Cybercash, Inc. in which, upon effectiveness, the shareholders of ICVerify will
receive approximately $16,250,000 in cash and 2,300,000 shares of CyberCash
common stock in exchange for all of the common and preferred shares of ICVerify
in a business combination to be accounted for as a purchase.
8. YEAR 2000 ISSUE (UNAUDITED)
The Company has developed a plan to modify its information technology to be
ready for the Year 2000 and has begun assessing critical data processing
systems. The Company currently expects the project to be substantially complete
by early 1999 and does not expect this project to have a significant effect on
operations. Costs of this project include the costs to upgrade and replace
systems in the normal course of business. The Company will continue to implement
systems with strategic value though some projects may be delayed due to resource
constraints.
F-14
<PAGE> 18
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AND STATEMENTS OF OPERATIONS
The unaudited pro forma combined balance sheet gives effect to the acquisition
of ICVerify, Inc. ("ICVerify"), completed by the Company on April 30, 1998, as
if it had occurred on March 31, 1998.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1997 gives effect to the acquisition of ICVerify as if it had
occurred on January 1, 1997. The unaudited pro forma combined statement of
operations for the three months ended March 31, 1998 gives effect to the
acquisition of ICVerify as if it had occurred on January 1, 1997.
The unaudited pro forma combined balance sheet and statements of operations are
based on available information and on certain assumptions and adjustments
described in the accompanying notes which CyberCash believes are reasonable. The
unaudited pro forma combined statements of operations are provided for
informational purposes only and does not purport to present the results of
operations of CyberCash had the transaction assumed therein occurred on or as of
the date indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future. The unaudited pro forma combined
balance sheet, statements of operations and related notes should be read in
conjunction with the consolidated financial statements of CyberCash filed on
its Form 10-K and the financial statements of ICVerify including the notes
thereto.
F-15
<PAGE> 19
CyberCash, Inc.
Unaudited Pro Forma Combined Balance Sheet
As of March 31, 1998
<TABLE>
<CAPTION>
Historical Historical Acquisition
CyberCash ICVerify Adjustments Pro Forma
(a) (b) (c) Combined
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 31,374,134 $ 1,435,893 (d) $(16,118,000) $ 16,692,027
Restricted cash 270,466 - - 270,466
Accounts receivable 2,260,842 1,083,891 - 3,344,733
Prepaid expenses and other current assets 1,339,803 129,028 - 1,468,831
-------------- ------------- -------------- --------------
Total current assets 35,245,245 2,648,812 (16,118,000) 21,776,057
Property and equipment, net 5,724,398 1,031,845 - 6,756,243
Investments in affiliates 344,127 - - 344,127
Other long-term assets 860,057 116,456 - 976,513
Goodwill and other intangibles, net - - (e) 68,557,859 68,557,859
-------------- ------------- -------------- --------------
Total assets $ 42,173,827 $ 3,797,113 $ 52,439,859 $ 98,410,799
============== ============= ============== ==============
Liabilities and stockholders' equity
Current liabilities
Accounts payable and other accrued expenses $ 2,590,604 $ 793,221 (f) $ 250,000 $ 3,633,825
Accrued bonus and employee benefits 690,195 207,029 - 897,224
Current portion of equipment financing obligations - 166,068 - 166,068
Deferred revenue 208,968 536,935 - 745,903
-------------- ------------- -------------- --------------
Total current liabilities 3,489,767 1,703,253 250,000 5,443,020
Long-term portion of equipment financing obligations - 52,759 - 52,759
-------------- ------------- -------------- --------------
Total liabilities 3,489,767 1,756,012 250,000 5,495,779
Commitments
Series C redeemable convertible Preferred Stock 264,204 - - 264,204
Series D redeemable convertible Preferred Stock 14,529,205 - - 14,529,205
Redeemable convertible preferred stock - 10,027,106 (g) (10,027,106) -
Stockholders' equity:
Common Stock 12,235 54,752 (g) (52,452) 14,535
Additional paid-in capital 94,618,022 - (g) 54,228,660 148,846,682
Accumulated deficit (69,609,899) (8,040,757) (h) 8,040,757 (69,609,899)
Treasury stock, 20,000 shares at cost (120,000) - - (120,000)
Receivable from sale of Common Stock (719,846) - - (719,846)
Accumulated other comprehensive income (214,252) - - (214,252)
Unearned compensatory stock options (75,609) - - (75,609)
-------------- ------------- -------------- --------------
Total stockholders' equity (deficit) 23,890,651 (7,986,005) 62,216,965 78,121,611
-------------- ------------- -------------- --------------
Total liabilities and stockholders' equity (deficit) $ 42,173,827 $ 3,797,113 $ 52,439,859 $ 98,410,799
============== ============= ============== ==============
</TABLE>
F-16
<PAGE> 20
CyberCash, Inc.
Unaudited Pro Forma Combined Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
Historical Historical Acquisition Pro Forma
CyberCash ICVerify Adjustments Combined
(i) (j) (c)
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $ 4,487,173 $ 7,252,844 - $ 11,740,017
Cost of revenues 3,658,196 2,680,623 - 6,338,819
--------------- -------------- -------------- ---------------
Gross profit 828,977 4,572,221 - 5,401,198
Costs and expenses:
Research and development 9,655,885 2,371,411 - 12,027,296
Sales, marketing, general and administrative 15,787,641 6,045,456 (k) 7,585,786 29,418,883
Write-off of NetBill technology license 2,162,500 - - 2,162,500
--------------- -------------- -------------- ---------------
Loss from operations (26,777,049) (3,844,646) (7,585,786) (38,207,481)
Interest income and expense 1,460,568 112,177 - 1,572,745
Other expense (905,429) - - (905,429)
--------------- -------------- -------------- ---------------
Net loss (26,221,910) (3,732,469) (7,585,786) (37,540,165)
Accrued dividends to Preferred Stockholders (282,739) - - (282,739)
--------------- -------------- -------------- ---------------
Net loss available to Common Stockholders $ (26,504,649) $ (3,732,469) $ (7,585,786) $ (37,822,904)
=============== ============== ============== ===============
Basic and diluted loss per share (l) $ (2.43) $ (2.87)
=============== ===============
Weighted average shares outstanding (l) 10,898,036 13,198,036
=============== ===============
</TABLE>
F-17
<PAGE> 21
CyberCash, Inc.
Unaudited Pro Forma Combined Statement of Operations
Three months ended March 31, 1998
<TABLE>
<CAPTION>
Historical Historical Acquisition Pro Forma
CyberCash ICVerify Adjustments Combined
(m) (n) (c)
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 1,141,630 $1,846,502 - $ 2,988,132
Cost of revenues 1,107,830 583,945 - 1,691,775
-------------- ------------ -------------- --------------
Gross profit 33,800 1,262,557 - 1,296,357
Costs and expenses:
Research and development 1,671,498 691,798 - 2,363,296
Sales, marketing, general and administrative 4,643,786 1,561,451 (o) 1,896,447 8,101,684
-------------- ------------ -------------- --------------
Loss from operations (6,281,484) (990,692) (1,896,447) (9,168,623)
Interest income and expense and other expense 607,925 14,950 - 622,875
-------------- ------------ -------------- --------------
Net loss (5,673,559) (975,742) (1,896,447) (8,545,748)
Accrued dividends to Preferred Stockholders (178,916) - - (178,916)
-------------- ------------ -------------- --------------
Net loss available to Common Stockholders $ (5,852,475) $ (975,742) $ (1,896,447) $ (8,724,664)
============== ============ ============== ==============
Basic and diluted loss per share (l) $ (0.53) $ (0.65)
============== ==============
Weighted average shares outstanding (l) 11,060,231 13,360,231
============== ==============
</TABLE>
F-18
<PAGE> 22
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Consolidated Balance Sheet of CyberCash as of March 31, 1998.
(b) Consolidated Balance Sheet of ICVerify as of March 31, 1998.
(c) Represents adjustments for the ICVerify Acquisition based on a purchase
price of approximately $16,250,000 in cash and an aggregate of 2,300,000
shares of CyberCash's Common Stock. The 2,300,000 shares of the Company's
Common Stock were recorded at $20.50 per share, which represents the
closing market price of CyberCash's Common Stock on April 30, 1998. In
addition, CyberCash has issued 371,310 options to purchase Common Stock at
a weighted average exercise price of $1.43 related to options previously
granted to employees of ICVerify. CyberCash has recorded these options in
accordance with the intrinsic value method of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. The purchase
price has been allocated on a preliminary basis to the assets and
liabilities acquired based on the estimated fair values of the assets
acquired and liabilities assumed.
(d) Represents cash proceeds received from ICVerify stockholders, prior to the
acquisition date, related to the exercise of 600,000 warrants to purchase
common stock for $0.22 per share as well as the $16,250,000 cash payment to
the stockholders of ICVerify.
(e) Represents certain intangible assets identified by the Company. The amounts
allocated to intangible assets were as follows: $2,700,000 to developed
technology, $1,000,000 to work force, $1,500,000 to trademarks and trade
name and $63,357,859 to goodwill. The intangible assets will be amortized
on a straight-line basis over the following lives: developed technology
will be amortized over three years, work force will be amortized over five
years, trademarks, trade name and goodwill will be amortized over ten
years.
(f) Represents $250,000 in estimated investment banking, legal, accounting and
printing expenses related to the ICVerify acquisition.
(g) Represents the exercise, prior to the acquisition, of 600,000 ICVerify
warrants to purchase common stock at an exercise price of $0.22 per share,
the elimination of ICVerify's stockholders' equity accounts, and the
issuance of 2,300,000 shares of the Company's Common Stock valued at a
price of $20.50 per share.
(h) Represents the elimination of ICVerify's accumulated deficit of $8,040,757.
(i) Consolidated Statement of Operations for CyberCash for the year ended
December 31, 1997.
(j) Consolidated Statement of Operations for ICVerify for the year ended
December 31, 1997.
(k) Represents amortization expense of $7,585,786 related to the intangible
assets acquired in the ICVerify acquisition.
(l) For the pro forma combined net loss per share (basic) and the weighted
average shares outstanding calculation, 2,300,000 shares of Common Stock
have been included as if the acquisition occurred on January 1, 1997. The
371,310 options to purchase Common Stock, discussed above, have been
excluded from the weighted average shares outstanding calculation because
the effect of their inclusion would be antidilutive due to the pro forma
combined net loss.
(m) Consolidated Statement of Operations for CyberCash for the three months
ended March 31, 1998.
(n) Consolidated Statement of Operations for ICVerify for the three months
ended March 31, 1998.
(o) Represents amortization expense of $1,896,447 related to the intangible
assets acquired in the ICVerify acquisition.
F-19
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
3
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated February 27, 1998 on the consolidated
financial statements of ICVerify, Inc. included in the Amendment to the Current
Report (Form 8-K/A) of CyberCash, Inc. to be filed on May 27, 1998 with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
May 26, 1998
