Blue Wave Systems and Red River Engineering Enter into Joint Development Agreement.

CARROLLTON, Texas--(BUSINESS WIRE)--Sept. 3, 1998--Blue Wave Systems Inc. (NASDQ/NMS:BWSI) and Red River Engineering, Inc. have entered into a joint agreement to develop products for the intelligence and surveillance markets. The first products from this joint development are expected to be available in the first quarter of 1999. In addition, Blue Wave Systems has licensed Red River Engineering's product suite and will market and sell it through its worldwide distribution channel.

Product Plan

The joint development plan will use Blue Wave Systems' SoftBand(TM) Software Radio Architecture as a basis for building specific products to meet the unique requirements of the intelligence and surveillance markets. The first product development will focus on a high density, multi-channel digital receiver for large scale surveillance systems.

Software radio technology is rapidly changing how radios are designed. Software radios define their functionality through software rather than hardware. This change in design philosophy allows the radio's protocol to be upgraded easily, permits the radio to switch between protocols quickly and increases the radio's performance using sophisticated digital techniques.

These features are attractive to intelligence and surveillance applications which process a broad spectrum of signals containing a wide variety of modulation formats. Software radios are particularly adept at detecting and monitoring agile, low probability of intercept waveforms. Blue Wave Systems and Red River Engineering are leaders in this evolving technology. The joint development agreement combines Blue Wave Systems' expertise in software radio systems and DSP boards with Red River Engineering's expertise in digital receiver products.

Blue Wave Systems' SoftBand Software Radio Architecture, a scaleable architecture that organizes the radio functions into resource pools, is a highly flexible platform for developing software radios. "The resource pooling feature is critical in meeting the ultra high channel density requirements of the intelligence and surveillance markets," said Jim Kokal, Blue Wave Systems Product Manager. "Resource pooling offers the opportunity to scale the processing requirements in proportion to the number of channels and the processing requirements of each channel. This reduces the cost, complexity and size of the system compared to the dedicated DSP per channel model common in competitive architectures. The high-density, multi-channel receiver under joint development exploits this architectural feature, offering the customer a superior solution."

Joint Development Agreement

"The core engineers in our team have been working with digital receivers since 1990," said Ken Sienski, President of Red River Engineering. "We formed Red River to take advantage of this knowledge and our familiarity with the intelligence and surveillance markets. This agreement allows us to focus on what we know best: digital receivers. Blue Wave Systems' worldwide presence offers us immediate global coverage. They have access to international opportunities that we do not. We are very excited by this joint development and distribution agreement and look forward to a long-term working relationship with Blue Wave Systems."

"The opportunity to work with Red River Engineering will allow us to rapidly expand our product offering to the intelligence and surveillance markets," said Joe Andrulis, Vice President Marketing Blue Wave Systems. "Our sales exceed $10 million in these markets to date. The products from this joint venture along with our new C6000 products will allow us to broaden our presence in this market. This agreement also expands the SoftBand Software Radio product portfolio to the intelligence and surveillance markets without diluting our focus on the wireless market."

Blue Wave Systems (NASDAQ/NMS:BWSI) is the world's leading supplier of DSP solutions and provides digital signal processing (DSP) boards and subsystems to more than one-half of the world's top 40 companies. Blue Wave Systems is principally involved in the development and sale of embedded DSP computers for a variety of industries, with a strategic focus on telecommunications, defense, instrumentation and medical imaging. The Company works closely with the top manufacturers and independent software companies to develop and manufacture the most revolutionary PCI/PC and VME DSP boards to support the latest in DSP chip technology. The Company resulted from the merger of Loughborough Sound Images Ltd and Mizar Inc. in April 1998. Additional information may be obtained at http:://www.bluews.com.

This press release contains forward-looking statements which are based on expectations of the company but involve a number of risks and uncertainties including, but not limited to, rapid technological change, quarterly fluctuations, integration of Mizar and Loughborough Sound Images, dependence on the defense industry, relationship with Texas Instruments/Raytheon, commercial market uncertainties, dependence on key suppliers and employees, competition, and Year 2000 compliance. The foregoing list should not be construed as exhaustive and the company disclaims any obligation subsequently to revise forward-looking statements to reflect unanticipated events.

For a further explanation of risk factors please see the Company's most recent SEC filings. The company further cautions users who may utilize published bookings and backlog information as tools to forecast the Company's revenue during a given time frame since certain purchase orders may be subject to cancellation and/or revision to delivery schedules.

SoftBand is a trademark of Blue Wave Systems Inc.

Red River Engineering, Inc. supplies both products and engineering services to the high performance signal processing and data communication markets. The company specializes in digital receiver solutions for communications and surveillance applications. Red River is a privately held organization located in the "telecom corridor" community of Richardson, TX. Additional information may be obtained at http:://www.red-river-eng.com.

CONTACT: Blue Wave Systems Inc.

Joe Andrulis, 972/277-4688

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BBL Public Relations, Inc.

Lauren Chadwick, 978/263-2255

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