Wave Systems Reports Q1 Results and Recent Developments.Business Editors LEE, Mass.--(BUSINESS WIRE)--May 14, 2002 Wave Systems Corp. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :WAVX)-- Web Cast/Conference Call Today: Conference Call: Today, Tuesday, May 14, 2002 at 4:30 P.M. E.D.T Webcast / Replay URL: http://www.wave.com Dial-in number: 212/346-0165 and 415/247-8532 Corporate Presentation: http://www.wave.com/presentation/SOL/sld001.htm Wave Systems Corp. (NASDAQ: WAVX, http://www.wave.com), a leader in shared, programmable security technologies and services to authenticate (1) To verify (guarantee) the identity of a person or company. To ensure that the individual or organization is really who it says it is. See authentication and digital certificate. (2) To verify (guarantee) that data has not been altered. identity, provide access to services and protect and sell digital content, today reported results for its first quarter ended March 31, 2002. Wave also highlighted corporate developments so far this year. For the first quarter ended March 31, 2002, Wave Systems reported net revenue of $246,000, principally related to service contract and hardware sales, compared to year-ago first quarter revenue of $73,000. Excluding non-recurring charges for the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of impaired assets Impaired Asset An asset with a market value that is worth less than its book value. Notes: If the sum of all estimated future cash flows is less than the carrying value of the asset, then the asset would be considered impaired and would have to be written down to its fair , restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs and other special charges associated with an office relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. and work force reductions, an amount paid for the settlement of a contractual dispute and a non-operating charge for a loss on marketable Marketable are securities that can be easily converted into cash. Such securities will generally have highly liquid markets allowing the security to be sold at a reasonable price very quickly. equity securities, Wave reported a net loss to common stockholders of $7,648,000, or $0.15 per basic share, for the 2002 first quarter, an improvement from the year-ago net loss to common stockholders of $13,866,000, or $0.28 per basic share. The office relocation referred to above, enabled Wave to reduce its WaveXpress lease costs and shorten (audio, compression) Shorten - A form of lossless audio compression. the remaining term commitment from eight to four years, resulting in an over $4,000,000 reduction in future lease commitments. Non-recurring asset impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges associated with the relocation of the WaveXpress office totaled $905,000, or $0.02 per basic share. Additionally, Wave incurred restructuring and other special charges which consisted of lease cancellation costs and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when payments in the amount of $726,000, or approximately $0.01 per basic share. Wave's results also reflect a charge of $488,000, or $0.01 per basic share, to settle a contractual dispute. Wave also recorded a non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. of $1,477,000, or $0.03 per basic share, for an "other than temporary" decline in market value of its investment in SSP (1) (Service Switching Point) The local exchange node in an SS7 telephone network. The SSP can be part of the voice switch or in a separate computer connected to it. Solutions, Inc. Inclusive of inclusive of prep. Taking into consideration or account; including. these charges, Wave's net loss for the first quarter of 2002 was $11,245,000, or $0.22 per basic share, compared to a net loss of $13,866,000, or $0.28 per basic share, for the first quarter of 2001. The weighted average number of basic shares outstanding in the first quarter of 2002 and 2001 was 50,354,000 and 49,149,000, respectively. At March 31, 2002, Wave had total current assets Current Assets Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. of $33.8 million and total current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. of $5.0 million, providing $28.8 million in working capital, with no long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. . Key year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. developments (for more details, please visit www.wave.com):
-- Trials: Wave's EMBASSY(R) technology is currently in trial in
a financial services network in Europe. In addition, at CeBIT
2002, the world's largest information technology trade show,
Wave disclosed an expected trusted personal computer trial
with NEC Computers International's (NEC CI) Packard Bell
brand. Negotiations continue on specifics of a mass-market
consumer pilot to embed EMBASSY technology into a smart card
reader integrated into a Packard Bell keyboard. Separately, a
leading PC OEM is testing EMBASSY technology for a government
order.
-- Sales/Marketing Progress via Partners and Conferences:
- Wave's Trusted PC capabilities were demonstrated at the CeBIT
2002 (Hannover, Germany) booths sponsored
by NEC CI, Samsung, Aladdin and SIZ.
- Wave showcased its SmartSignature(R) and SmartSAFE(R) digital
signing and storage technologies, which insure the integrity
of legally-binding digital contracts, at the National
Technology in Mortgage Banking Conference.
- Card Tech Secure Tech in April provided a North American venue
to market Wave's solutions, including the Trusted PC and the
Maximus secure PIN entry application, associated with the U.S.
Department of Defense Common Access Card program.
- Also at Card Tech, in conjunction with France's Caisse
d'Epargne National Savings Bank, Wave demonstrated secure
Internet payment applications with Wave's Trusted PC
capabilities running the Caisse d'Epargne secure Internet
payment application, SP Plus, with VISA and Mastercard B0'
smart cards.
-- Windows XP Support: Wave introduced the EMBASSY(R)
Cryptographic Service Provider (CSP) kit, a product that
allows Microsoft Windows developers to quickly and cost
effectively integrate next-generation security features into
their offers. Subsequently, in April, EMBASSY Trusted Client
System Devices earned Microsoft's WHQL (Windows(R) XP Hardware
Quality Labs) certificate for USB-based device drivers for
next-generation smart card readers.
-- Liberty Alliance Project: Wave has joined this group of
companies working towards delivering an open system of
federated identity which can be authenticated and trusted as
the basis for delivering services over the Internet, such as
single sign-on for businesses and consumers. There are
currently 43 sponsoring companies in the Liberty Alliance
Project, including United Airlines, Sun Microsystems,
Citigroup, France Telecom, HP, AOL Time Warner, Bank of
America and American Express.
-- EUROSMART: In April, Wave announced its association with
EUROSMART, the Smart Card Industry Association based in
Brussels. Other members of the Association include Atmel,
Fujitsu, Gemplus, Hitachi, Infineon, Ingenico, NEC, Philips
and Samsung.
-- CMU: In March, Wave and Carnegie Mellon University (CMU)
hosted an Internet security workshop focused on vulnerable
state networks and databases where the issues of privacy and
identity, digital signatures, authentication, and access
control are chief concerns. The CMU Security Research Workshop
series will include additional workshops in 2002 focused on
finding industry solutions to security challenges such as
digital identity, trust infrastructures, privacy, wireless
security and securing electronic infrastructures.
Steven Sprague, Wave's president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , said, "In one of the toughest high tech sales environments in at least a generation, Wave successfully placed our EMBASSY technology into a significant network trial in Europe. We also continue to negotiate a very interesting European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. consumer trial with NEC (NEC Corporation, Tokyo, www.nec.com, www.necus.com) An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98). NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd. CI. Both milestones were supported by our leadership in developing equipment for the FINREAD FINREAD Financial Transactional IC Card Reader FINREAD Financial Reader initiative, a specification for trusted input devices. In addition, we are negotiating an order with a PC OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and that we expect to close during this summer. Across our targeted markets - banking and finance, government and enterprise, broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). media and PC OEMs - we are actively negotiating trials with the aim of mass adoption of EMBASSY technology. We do not underestimate the difficulty of our task during this recession, but the industry is telling us daily that the need for programmable security is becoming clearly understood and that EMBASSY is the premier solution available." "As we pursue and initiate these deployment opportunities, we will continue to actively manage our investment spending and cash balances so as to optimize optimize - optimisation our ability to effect a large scale roll-out of EMBASSY technology," he said. About Wave Systems Corp: Wave Systems' goal is to enable a worldwide network of users based on trusted electronic relationships. Trust @ the Edge defines a new architectural model An architectural model is a tangible representation of a structure (typically a scale model) built to communicate design ideas to clients, owners, committees, customers, and the general public. for the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , which embeds trust and security in every user device. Wave Systems is developing, deploying and licensing its EMBASSY Trusted Client In computing, a trusted client is a device or program controlled by the user of a service, but with restrictions designed to prevent its use in ways not authorised by the provider of the service. technology for the mass adoption of this revolutionary model. Wave is integrating industry standard functions from a wide range of partners that enable reliable, secure digital exchange and commerce. Wave Systems and third parties are building the services that will take advantage of this open model. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. for Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Except for the statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 forge Open furnace for heating metal ore and metal for working and forming, or a workshop containing forge hearths and related equipment. From earliest times, smiths (see smithing) heated iron in forges and formed it by hammering on an anvil. partnerships required for adoption and deployment, 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 Corp. 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 Balance Sheets
(in thousands)
March 31, December 31,
2002 2001
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 29,710 $ 40,437
Cash collected on behalf of charities -- 359
Marketable securities 8 10
Notes receivable from officers 1,399 1,380
Inventories 1,410 582
Prepaid expenses and other receivables 429 625
Security Deposits - Current 860 --
-------------- -----------
Total current assets 33,816 43,393
Property and equipment, net 3,481 4,291
Marketable equity securities 7,214 11,160
Other assets 688 1,390
------------- -----------
Total Assets 45,199 60,234
============= ==========
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable and accrued expenses 5,021 5,808
Due to charities -- 423
Deferred revenue -- 198
------------- ----------
Total current liabilities 5,021 6,429
Total stockholders' equity 40,178 53,805
Total liabilities and stockholders' equity $ 45,199 $ 60,234
====== ======
Wave Systems Corp. and Subsidiaries
(a development stage corporation)
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended March 31,
2002 2001
---- ----
(unaudited) (unaudited)
Revenues, net $ 246 $ 73
Cost of Sales 109 2
Gross Margin 137 71
Operating Expenses:
Selling, general and administrative 5,415 6,595
Research and development 3,041 5,931
Amortization of Goodwill -- 430
Restructuring costs and other special
charges 726 --
Write-off of intangibles and impaired
assets 905 1,563
------- -----
10,087 14,519
Net Interest Income (Expense) 182 1,123
Equity in Losses of Global Wave -- (541)
Loss on Other than Temporary Decline in
Marketable Equity Securities (1,477) --
------- -----
(1,295) 582
Net loss $(11,245) $(13,866)
======== ========
Net loss per share - basic ($0.22) ($0.28)
Weighted average shares outstanding
- basic 50,354 49,149
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