Wave Systems Corp. (fka WAVXQ)

[boombreaker]

Wave Systems Reports Q2/First Half Results and Highlights Increased Market Momentum
8/14/2003 4:00:00 PM


LEE, Mass., Aug 14, 2003 (BUSINESS WIRE) -- Wave Systems Corp. (NASDAQ: WAVX; www.wave.com), a leader in delivering trusted computing applications and services with advanced products, infrastructure and solutions across multiple trusted platforms, today reported results for its second quarter and six month periods ended June 30, 2003 and reviewed significant recent corporate developments.







Wave Systems reported net revenue principally related to services and license contracts of $34,000 for the second quarter ended June 30, 2003 compared to year-ago second quarter revenue of $78,000. Wave reported a net loss to common stockholders for the quarter of $6,274,000, or $0.12 per basic share, compared to a year-ago net loss to common stockholders of $9,687,000, or $0.19 per basic share. The weighted average number of basic shares outstanding in the second quarter of 2003 and 2002 was 52,096,000 and 50,391,000, respectively.

Wave reported net revenue principally related to services and license contracts of $50,000 for the first six months of 2003 compared to revenue of $323,000 in the comparable year-ago period. Wave reported a net loss to common stockholders for the first six months of $12,668,000, or $0.24 per basic share, compared to a year-ago net loss to common stockholders of $20,932,000, or $0.42 per basic share. The weighted average number of basic shares outstanding in the first half of 2003 and 2002 was 52,096,000 and 50,387,000, respectively.

As of June 30, 2003, Wave had working capital of approximately $4.0 million (including a note receivable from a former officer totaling approximately $1.0 million). The Company has subsequently received approximately $2.6 million in proceeds from the exercise of employee stock options and the note receivable, including all accrued interest, has been paid in full. Reflecting these cash in-flows, Wave expects its current working capital position to be sufficient to fund its operating, sales and marketing and development activities into the first quarter of 2004.

Steven Sprague, Wave's president and CEO, said, "After years of hard work in developing trusted computing solutions, Wave is gratified that industry leaders are now actively embracing this issue, particularly with the formation of the Trusted Computing Group. With announced partnerships with some of the industry's most important participants and an improved financial position, Wave feels it now has established the momentum to play a key role as this very large potential market develops."

Recent Wave Systems developments (for more details, please visit www.wave.com):

-- Intel: In late July, Wave reached an agreement with Intel that
will help enable both companies to accelerate the development
and deployment of trusted applications and services for safer
computing on personal computer platforms. The agreement will
enable Intel to bundle Wave's software and services with a
future Intel desktop motherboard, targeted for trusted
computing platforms for enterprises. Intel said that Wave
helps fill a critical requirement for trusted computing
services and that EMBASSY(R) Trust Suite software will provide
good value for customers looking for trusted computing
applications.

-- IBM: In early August, Wave announced that the Document Manager
Vault and SmartSignature security software applications in its
EMBASSY(R) Trust Suite client software family interoperate
with IBM's Embedded Security Subsystem, a hardware and
software-based security solution already deployed on millions
of IBM PCs and available on select ThinkPad notebooks and
ThinkCentre desktops for business users. The compatibility of
Wave's security software applications with IBM's hardware and
software security solution is a result of Wave's successful
participation in IBM's Independent Software Vendor (ISV)
program.

-- Funding: In April, Wave completed a private placement of $5.5
million of Series H Convertible Preferred Stock and warrants.
The Series H Convertible Preferred Stock is convertible into
7.2 million shares of Wave Systems' Class A Common Stock at an
initial fixed conversion price of $0.76 per share. As part of
the transaction, Wave Systems issued to the investors warrants
to purchase an aggregate of 3.6 million shares of Class A
Common Stock, which have an initial exercise price of $1.13
per share. If exercised in full, these Warrants would generate
approximately $4 million in gross proceeds to the Company.

Wave announced in early August that it had received
approximately $3.6 million in proceeds from recent employee
and ex-employee option exercises and the repayment of a former
officer's loan.

-- Cubic Defense Applications: In late July, the defense segment
of Cubic Corporation forged a strategic partnership to
integrate Wave's EMBASSY(R) technologies into a line of
versatile smart card readers. The readers will be offered in
form factors such as standalone Universal Serial Bus (USB)
devices, trusted computer keyboards, and proximity door access
devices, and will satisfy the new requirements of several U.S.
government agencies, including the Department of Homeland
Security and General Services Administration (GSA). They will
be offered to these agencies and the intelligence community as
part of a new trusted infrastructure concept addressing
multilevel security solutions.

-- Trusted Computing Group (TCG): In April, Wave announced it had
been invited to join the TCG, a new industry group dedicated
to embedding trust and security more broadly into computing
platforms and devices. The TCG works to create open standards
that can be adopted for use in products and solutions across
the spectrum of computing. AMD, HP, IBM, Intel and Microsoft
were the initial promoters of the TCG, with contributing
members including Wave, Atmel, Infineon, National
Semiconductor, Nokia, Philips, Phoenix Technologies and Sony
joining the group to develop, define, and promote
hardware-enabled trusted computing and security technologies.

Recent Wavexpress Developments

-- TVTonic Direct: In May, Wavexpress announced the commercial
availability of TVTonic Direct, a video-caching technology
that is designed to deliver DVD-quality video to the PC. It
avoids bandwidth constraints by saving video files locally on
the PC hard drive. Unlike streaming, the video starts
immediately and can be displayed in full-screen, DVD-quality.
Each video is set to expire automatically, making room for new
content as it arrives. TVTonic Direct customers pay a
per-subscriber license fee, as well as fees for various
related software tools and services.

-- GolfSpan.com: In May, Wavexpress announced that GolfSpan.com,
the number one provider of online golf instruction, had
licensed TVTonic Direct and incorporated it into its website.
GolfSpan uses TVTonic Direct to power "Swing," a service that
delivers video tutorials featuring GolfSpan's elite team of
professional instructors.

-- Howard Dean: In May, Wavexpress announced that Democratic
presidential candidate Howard Dean had licensed TVTonic Direct
and launched " Dean TV," which offers his supporters dedicated
video coverage of the former Vermont governor's campaign.

About Wave Systems


Consumers and businesses are demanding a computing environment that is more trusted, private, safe and secure. Wave is the leader in delivering trusted computing applications and services with advanced products, infrastructure and solutions across multiple trusted platforms from a variety of vendors. Wave holds a portfolio of significant fundamental patents in security and e-commerce applications and employs some of the world's leading security systems architects and engineers.

Safe Harbor for Forward-Looking Statements

Except for statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general economic and business conditions, the ability to fund operations, the ability to forge partnerships required for deployment, the success of partners in their deployment of Wave's technology, changes in consumer and corporate buying habits, chip development and production, the rapid pace of change in the technology industry and other factors over which Wave Systems has little or no control. Wave Systems assumes no obligation to publicly update or revise any forward-looking statements.

Wave Systems Corp. and Subsidiaries
(a development stage corporation)
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
------- ------- ------- -------
Revenues $ 34 $ 78 $ 50 $ 323
Cost of Sales 5 39 9 147

Gross Margin 29 39 41 176

Operating Expenses:
Selling, general and
administrative 2,859 4,712 6,703 10,127
Research and
development 1,594 3,232 4,229 6,273
Restructuring costs
and other special
charges -- -- -- 726
Write-off of
intangibles -- -- -- 905
------- ------- ------- -------
4,453 7,944 10,932 18,031

Net Interest income 33 126 56 308
Recovery of note
receivable from
former officer 1,000 -- 1,000 --
Loss on other than
temporary decline
of marketable equity
securities -- (1,908) -- (3,385)
Other income (expense) (3) -- 47 --
------- ------- ------- -------
1,030 (1,782) 1,103 (3,077)

Net loss (3,394) (9,687) (9,788) (20,932)

Accrued dividends on
preferred stock
(including accretion
of discount of $2,800) 2,880 -- 2,880 --

Net loss to common
stockholders (6,274) (9,687) (12,668) (20,932)
======= ======= ======= =======
Net loss per share
- basic ($0.12) ($0.19) ($0.24) ($0.42)
======= ======= ======= =======
Weighted average shares
outstanding - basic 52,096 50,391 52,096 50,387


Wave Systems Corp. and Subsidiaries
(a development stage corporation)
Consolidated Balance Sheets
(in thousands)

June 30, December 31,
2003 2002
------- -------
Assets (unaudited)

Current assets:
Cash and cash equivalents $ 4,331 $10,221
Cash collected on behalf of
charities -- 236
Notes receivable from
officers/former officers 1,023 278
Inventories 1,113 1,113
Prepaid expenses and other
receivables 158 574
Total current assets 6,625 12,422
------- -------
Property and equipment, net 2,368 2,543
Marketable equity securities 4,546 2,881
Other assets 308 363
------- -------
Total Assets 13,846 18,209
======= =======
Liabilities and Stockholders' equity

Current liabilities:
Accounts payable and accrued
expenses 2,474 3,404
Accrued dividends 91 --
Due to charities -- 263
Deferred revenue 83 --
------- -------
Total current liabilities 2,648 3,667

Redeemable Convertible Preferred
Stock 2,788 --

Total stockholders' equity 8,410 14,542
------- -------
Total liabilities and
stockholders' equity $13,846 $18,209
======= =======

Conference Call: Today, Thursday, August 14, 2003 at 4:30 P.M. E.D.T.
Webcast / Replay URL: http://www.wave.com
Dial-in numbers: 212/346-6410 and 415/537-1934


SOURCE: Wave Systems Corp.

Wave Systems Corp.
Gerard T. Feeney, 413/243-1600
[e-mail]
or
Jaffoni & Collins
David Collins, Richard Land
212/835-8500
[e-mail]


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