Wave Systems Corp. (fka WAVXQ)

[SPIN]

"We have tried to be a very straightforward company."

ROFLMAO!

btw, the "working link" was to Yahoo! the company, not to the Yahoo! wavx board.

SO, wavoid David Stone gets his stock tips from the old man's stable hand?

poetic.

After 16 years of struggle, Wave awaits its big break
By Scott Kirsner  /  June 14, 2004

Hope springs eternal in the world of high-tech. But sometimes the industry's hard-coded optimism can start to seem more than a little delusional.

A case study: Wave Systems, based in Lee, a Berkshire County town, has portrayed itself as being on the verge of the big time -- the next Microsoft! the next Comcast! -- since it was founded in 1988. Reagan was still in office, and Terence Trent D'Arby was on the pop charts.

Wave Systems has been through at least three different business strategies and racked up a quarter-billion dollars in losses, but still has not managed to turn a profit.

You could compare Wave to the kid voted "Most Likely to Succeed" at your high school who is still living in his parents' basement when the 16-year reunion rolls around.

Wave now sells software that supports "trusted computing," an initiative that combines a special chip with software in order to better protect passwords, credit card numbers, and other sensitive information you keep on your PC; manage your subscriptions; and ensure that people you deal with electronically are who they say they are.

Trusted computing has great promise, just as Wave's original business did -- facilitating pay-as-you-go software usage. But Wave's revenue for the most recent quarter was a paltry $50,000. In March, the company's auditors expressed "substantial doubt" that Wave, which sells the software that accompanies trusted computing chips, would be able to continue as a going concern.

In April, Wave announced a plan to raise $25 million in a stock sale. "That will carry us to cash-flow positive, or very close to it," says Wave chief executive Steven Sprague, son of the founder. Hope springs eternal.

Wave has been touted as an up-and-comer throughout the years by George Gilder, the Western Massachusetts newsletter publisher and telecom theorist, who also happens to sit on Wave's board. But the company's most solid supporters have been the Wavoids: individual investors who swap information and opinions about the company on various online bulletin boards, like Yahoo Finance and Investor's Hub.

Through the boom and bust, when Wave's stock sold for $50 a share and when it sold for less than a buck, when the company was delisted from the Nasdaq in 1997 and then reinstated in 1999, the Wavoids have been predicting that Wave will be bigger than Intel, AOL, or Yahoo -- and searching for clues that Wave's software is about to become the gold standard of trusted computing, an indispensable part of the 150 million PCs shipped yearly.

David Stone is a Wavoid of long standing; he bought 10,000 shares of the stock in 1995, a year after Wave went public. Stone, who owns a photographic cleaning company and lives on Cape Cod, found out about the company when his family visited Undermountain Farm, a riding stable in Lenox owned by Peter Sprague. (If the Sprague name sounds familiar, Peter Sprague is the grandson of the founder of Sprague Electric Co., which was long an industrial giant in Western Massachusetts. Its former plant is now the Mass MoCA museum.)

"The stable hand was basically saying, 'Do you know about Peter's new invention?' He'd gotten some stock at Christmas, and I started to look into it," Stone recalls.

Stone praises the company's ability to reinvent itself, and says he is convinced Microsoft will one day license Wave's trusted computing software, which would be Wave's crowning achievement. "One of the big mistakes is that people are waiting to see revenue, and they're ignoring the potential of the technology," he says.

But Wavoids like Stone are good at ignoring things, too. The company took in just $189,000 in revenue last year, but paid its chief executive $411,000. (Peter Sprague, the founder, continues as head of the company's WaveExpress division, which focuses on distributing video content to PCs.) Despite having just 85 employees, the company maintains offices around the globe: in Lee; New York City; Princeton, N.J.; Cupertino, Calif.; and Orvault, France.

The company also had a habit of making loans to its executives, including its chief financial officer, and then awarding them bonuses so they could repay the loans. The 2002 Sarbanes-Oxley Act made that illegal.

And trusted computing hasn't taken off, in part because of fears the chips will make it easier for companies to track what you do on the Internet, such as downloading illegal music or spamming millions with your vacation photos.

"We still have to deal with the demand-generation side," says Rob Enderle, a technology analyst and adviser to the Trusted Computing Group, a standards body. "The chips are out there already, but people aren't turning on the full capability. [Trusted computing isn't] seen as one of the key benefits."

There's also the possibility that chip makers or big companies like Microsoft will opt to create their own trusted computing software.

Not least, there's also an ongoing investigation by the Securities and Exchange Commission into public statements Wave executives made in August, and trading in the company's stock around that time. The investigation was followed by a raft of shareholder lawsuits alleging that Wave misrepresented the revenue potential of deals it had announced last year with IBM and Intel.

Steven Sprague says the company is cooperating with the SEC and defending itself against the suits. "We're doing our best to keep it out of the way of our business," he says. "We have tried to be a very straightforward company." He envisions a day --not far off -- when it would be silly to buy an untrustworthy PC without his software on it. "I think it's starting," he says. "The window has probably begun to open."

But can Wave raise the $25 million it needs to keep going? I wouldn't be surprised -- the company has pulled rabbits from its hat before, as when it raised $23 million in 1999, enabling it to return in temporary triumph to the Nasdaq National Market.

Stone, the Wavoid, acknowledges that Wave "looks like it's on the verge of going bankrupt," but says he's encouraged that the company is actively trying to raise money. "To me, this is a perfect stock for the average investor to get into," he says.

The above average investor, though, should probably stay out.

Scott Kirsner is a contributing editor at Fast Company. He can be reached at [e-mail]. 

© Copyright 2004 Globe Newspaper Company.

© 2004 The New York Times Company.

http://www.boston.com/business/technology/articles/2004/06/14/after_16_years_of_struggle_wave_awaits...