<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
Indigo Networks LLC
Balance Sheets
<TABLE>
<CAPTION>
June 30,
December 31, 2000
1999 1998 (Unaudited)
---------------- ---------------- -------------
<S> <C> <C> <C>
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
=================================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Indigo Networks LLC
Statements of Operations
<TABLE>
<CAPTION>
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)
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
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)
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Indigo Networks LLC
Statements of Members Equity
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM
CLASS A CLASS B CLASS A ACCUMULATED
MEMBERS MEMBERS MEMBERS DEFICIT TOTAL
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
===================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Indigo Networks LLC
Statements of Cash Flows
<TABLE>
<CAPTION>
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)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $ - $ -
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Class A Class B
Amount Distributed Members Members
--------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
10
<PAGE>
3. Fixed Assets, net
Fixed assets, net consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------
<S> <C> <C>
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
=========================================
</TABLE>
4. Software Development Costs, net
Software development costs, net consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------
<S> <C> <C>
Software development costs $ 137,271 $ 187,836
Less accumulated depreciation (19,065) -
-----------------------------------------
$ 118,206 $ 187,836
=========================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 20,345
2001 11,868
--------------
32,213
Less amount representing imputed interest (3,852)
--------------
Present value of minimum lease payments $ 28,361
==============
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
===============
</TABLE>
This amount is classified as note payable to former member in the accompanying
balance sheet.
12
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WAVE INDIGO ADJUSTMENTS CONSOLIDATED
---------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C>
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)
================ ============= =============== ==================
</TABLE>
14
<PAGE>
WAVE SYSTEMS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WAVE INDIGO ADJUSTMENTS CONSOLIDATED
---------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
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)
================ ============= ============== =================
</TABLE>
15
<PAGE>
WAVE SYSTEMS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION AS OF JUNE 30, 2000
<TABLE>
<CAPTION> PRO FORMA PRO FORMA
WAVE INDIGO ADJUSTMENTS CONSOLIDATED
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
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
================= ================ ================ ===============
</TABLE>
16
<PAGE>
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:
<TABLE>
<S> <C>
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
</TABLE>
17
<PAGE>
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
<PAGE>
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
