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| WAVX > SEC Filings for WAVX > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Overview
Our Business
Wave Systems Corp. develops, produces and markets products for hardware-based digital security, including security applications and services that are complementary to and work with the specifications of the Trusted Computing Group, www.trustedcomputinggroup.org ("TCG"), an industry standards body. Specifications developed by the TCG are designed to address a broad range of current and evolving digital security issues. These issues include: identity protection, data security, digital signatures, electronic transaction integrity, platform trustworthiness, network security and regulatory compliance.
Wave has accepted an invitation from the TCG to assume a permanent seat on its Board of Directors (the "TCG Board"), joining permanent members AMD, HP, IBM, Infineon, Intel, Lenovo, Microsoft, Sun and Seagate Technology. Wave also agreed to elevate its membership status to the highest level of TCG "Promoter." Permanent members of the TCG Board provide guidance to the organization's work groups in the creation of the specifications to protect PCs and other computing devices from attacks and to help prevent data loss and theft. Wave's enhanced membership status allows it to take a more active role in helping to develop, define and promote hardware-enabled trusted computing security technologies, including related hardware building blocks and software interfaces. Wave is now eligible to serve on and chair the TCG Board, Work Groups and Special Committees; is able to submit revisions and addendum proposals for specifications with design guides; and may review and comment on design guides prior to their adoption.
The current TCG specification recommends a hardware-based trusted computing platform, which is a platform that uses a semiconductor device, known as a Trusted Platform Module ("TPM") that performs protected activities, including protected storage, platform authentication, protected cryptographic processes and attestable state capabilities to provide the first level of trust for the computing platform (a "Trusted Platform"). The TPM is a hardware chip that is separate from the platform's main CPU(s) that enables secure protection of files and other digital secrets, and performs critical security functions such as generating, storing and protecting "cryptographic keys," which are secret codes used to decipher encrypted or coded data.
Management has focused on entering into licensing contracts pursuant to which the OEM licenses our applications and distributes them as part of their offering, paying Wave a royalty for each unit shipped. As of September 30, 2008, Wave has signed such bundling agreements with seven separate OEM partners. In mid-October 2008, Wave completed a license agreement with Acer, Wave's eighth OEM partner and the
world's third-largest PC vendor, to bundle Wave EMBASSY® software with Acer's new Veriton™ 670 business PCs. Shipments are expected to begin by the end 2008. The motherboards on the Acer desktops feature an integrated Trusted Platform Module (iTPM). Revenue recognized on these contracts for the three-month periods ended September 30, 2008 and 2007 was approximately $1,770,000 and $1,723,000, respectively. For the nine-month periods ended September 30, 2008 and 2007, revenue recognized on these contracts amounted to approximately $5,288,000 and $4,278,000, respectively.
Management is focused on opportunities for its eSign Transaction Management Suite, also known as eTMS ("eTMS"), to provide digital signing and document management solutions to the financial services and other vertical markets in which there is a clear and identifiable value proposition in implementing these solutions. In June 2008, Wave announced that Xerox Mortgage Services added e-signature - a secure and convenient way to complete mortgage loans without having to sign hardcopy documents - with licensing through Wave's eSign Systems division. Wave's e-signature capabilities build upon Xerox's current Web-based BlitzDocs®Blitz technology - providing customers with a comprehensive solution for paperless mortgage transactions. In mid-October, Wave's eSign division announced enhancements to its Electronic Transaction Management Suite (eTMS). Closing documents can now be signed and notarized in a secure environment and the note then registered through the Mortgage Electronic Registry System (MERS®), the industry-endorsed system for electronically tracking mortgage ownership and servicing rights. We continue to pursue additional opportunities for the eTMS product line.
Wavexpress is focused on building a sustainable revenue stream by establishing partnerships with branded content providers to provide primarily advertising supported video entertainment services. Wavexpress' TVTonic service offers hundreds of video feeds, a significant number of which are signed to revenue sharing agreements for ad placements. The service is designed to support any video channel distributed via RSS. RSS is the standard format for blogs and podcasts and is being increasingly used for open video distribution on the Internet. TVTonic is promoted by Microsoft with all installations of their Media Center software. Media Center is standard with Microsoft Vista Premium and Vista Ultimate, as well as XP Media Center Edition. In addition, Wavexpress is extending its technology so that its subscriber management system can leverage the added security of a TPM and is preparing back-office systems for standalone deployment into enterprise installations. Management plans to devote ongoing development resources toward enhancing the TVTonic client software and services.
Our Products
Client-side Applications
The EMBASSY Trust Suite
The current version of the EMBASSY Trust Suite is a set of applications and services that are designed to bring functionality and user value to TPM-enabled products. Designed to make the TPM easy for users to set up and use, the EMBASSY Trust Suite includes the EMBASSY Security Center (the "ESC"), Trusted Drive Manager ("TDM"), Document Manager ("DM"), Private Information Manager ("PIM") and Key Transfer Manager ("KTM").
The ESC enables the user to set up and configure the TPM platform. In addition to the basic function of making the TPM operational, ESC is designed to enable the user to manage extended TPM-based security settings and policies, including strong authentication, Windows logon preferences to add biometrics and streamlined password policy management. The ESC software was updated to support Seagate's Momentus 5400 FDE.2 hard drive, the latest version of Seagate's FDE drives (the "Seagate Trusted Drives"). Wave's EMBASSY Trust Suite software for TPM and key management also supports Seagate Trusted Drives.
Data Protection is addressed by the DM, which provides document encryption, decryption and client side storage of documents. The DM, which works with Microsoft Windows, and Microsoft Office, secures documents against unauthorized users and hackers. Wave's software is Windows Vista ready and builds upon the operating system's data protection feature set, providing full-featured EMBASSY solutions for data protection and strong authentication.
Password management is a security challenge due to the increasing number of passwords required and the tendency of users to select easily guessed passwords. To help improve these password issues, PIM uses the TPM to securely store and manage user information such as user names, passwords, credit card numbers and other personal information. It retrieves login information to efficiently fill in applications, web forms and web login information.
Backup and recovery of keys used for logon, signing, and protection of data is an essential requirement for deployment of TPM based systems. KTM is an archive application for the cryptographic keys that is designed to provide a simple, yet fully featured, method to securely archive, restore and transfer keys having migratable properties that are secured by the TPM.
Additionally, Wave has developed TPM Wizards as part of the EMBASSY Trust Suite which allow users to setup and use the TPM for securing 802.11x wireless networks, the Windows Encrypting File System and encrypted email.
Wave plans to continue to develop and enhance the current products being developed within this product group and will develop new applications and services as the trusted computing market continues to evolve. Current planned development costs for this product group are expected to be approximately $3.8 million for the twelve-month period ending September 30, 2009.
Middleware and Tools
TCG-Enabled Toolkit
The Wave TCG-Enabled Toolkit is a compilation of software designed to assist application developers writing new applications or modifying existing ones to function on TCG-compliant platforms. Wave provides two versions of the Toolkit, Discovery and Commercial, which enable developers to leverage basic and enhanced TCG services such as integrated key lifecycle management, including key escrow and key recovery. The Discovery Toolkit offers application developers a license for internal evaluation only, whereas the Commercial Toolkit is a license for external redistribution.
Wave TCG-Enabled Cryptographic Service Provider ("CSP")
Wave offers a TCG-enabled CSP, which allows software developers to utilize the enhanced security of a TCG standards-based platform, facilitating a common user experience independent of the platform. It also enables applications to utilize functionality available on TCG-compliant platforms directly through the Microsoft cryptographic application programming interface, without requiring user knowledge of any specific TCG software stack layer.
Current planned development costs for this product group are expected to be approximately $5.3 million for the twelve-month period ending September 30, 2009.
EMBASSY Trust Server Applications
EMBASSY Key Management Server ("EKMS")
EKMS is a server application that is designed to provide corporate-level backup and transition of the TPM keys, a process known as key migration. Key migration using EKMS is designed to help prevent the risk of serious data loss in the event that a TPM, hard drive or motherboard becomes corrupted, or a user leaves the organization. For instance, an organization may require access to a former employee's encrypted data or TPM-secured keys for business continuity or disaster recovery purposes. EKMS enables enterprise level key protection services while ensuring proper archive procedures and recovery capabilities.
EMBASSY Authentication Server ("EAS")
EAS provides centralized management, provisioning and enforcement of multifactor domain access policies. With EAS, authentication policies can be based on TPM credentials, Smart Card credentials, user passwords and fingerprint templates. With EAS, authentication policies can be provisioned and managed from the domain controller. EAS has an integrated biometric template capability with support for a variety of third-party vendors.
EMBASSY Remote Administration Server ("ERAS")
ERAS is a server product that provides centralized management and auditing of Trusted Platform Modules ("TPM") and Seagate Trusted Hard Drives ("Trusted Drive"). ERAS is designed to give IT administrators the ability to deploy and remotely manage Trusted Drives and TPM systems. ERAS will also provide the ability to remotely manage newly available Trusted Drives. It provides for initialization, pre-boot authentication management, recovery, and repurposing of TPMs and Trusted Drives. ERAS is designed to provide auditing capabilities that aid in compliance management by allowing for validation of TPM and Trusted Drive security settings, thus allowing IT administrators to assess the risk of whether a lost or compromised PC is adequately secure. ERAS is designed to facilitate enterprise adoption of TPM and Trusted Drive technology as it provides IT administrators with tools to utilize the security of these devices while reducing deployment and management costs. In early November 2008, Wave announced the availability of enhanced versions of its EMBASSY Trusted Drive Manager and Remote Administration Server to enable security features on Seagate's new 7200 and 5400 line of self-encrypting drives, shipped on Dell's new E-Series notebook PCs. Current planned development costs for this product are expected to be approximately $1.8 million for the twelve-month period ending September 30, 2009.
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