Datakey Announces 2003 Third Quarter Results

The third quarter loss from continuing operations was $670,000, or $.07 per share, compared to a loss of $723,000, or $.07 per share, in the year-earlier period. Revenue for the nine-month period ended September 30, 2003 was $3,095,000 compared to $5,750,000 for the same period last year. Net loss from continuing operations in the nine-month period ended September 30, 2003 was $3,091,000, or $.31 per share, compared to a net loss from continuing operations of $1,907,000, or $.19 per share, in the year-earlier period. Highlights of the Quarter Include: New Financing Earlier this week we announced that we have obtained $3.12 million in new financing from a group of accredited investors including three of our largest existing shareholders. In two separate transactions, the Company received $1.12 million from the exercise of existing warrants and $2 million from a convertible debt financing. This is an important accomplishment as it provides the funding needed to successfully launch Datakey Axis and continue to execute our plan. Datakey Axis Status We are encouraged by the positive reception that our Datakey Axis product is receiving from customers and reseller partners. During the quarter we recruited and trained over 20 reseller partners to distribute Axis and we initiated several evaluation and pilot programs including pilots at a large US health care organization and multiple US Government agencies. We are focused on continued marketing and sales efforts and are developing our indirect sales channel, recently launched our Single Point Partner program and hosted our first European reseller conference. New Customers During the third quarter, Datakey obtained orders from several new customers including the US General Services Administration (GSA), a large Dutch bank and a large health care organization in the US. Additionally, several large customers continued their production deployments during the quarter including the US Patent and Trademark Office, Rabobank and the US Department of State. These continued deployments demonstrate the value of Datakey CIP (PKI) and Axis single sign-on products to discriminating customers and partners worldwide. Guidance Our principal objectives for the balance of 2003 are to broaden our sales and marketing efforts to establish Axis in the marketplace and grow the sales of our current PKI-focused products in selected markets. Due to the uncertainty of our customers PKI project implementation plans, PKI market growth, IT spending growth and speed of market introduction of the new Datakey Axis solution, we are not providing specific forward-looking revenue guidance at this time. We anticipate continued pressure on revenues through the balance of 2003 and we will not be profitable in the fourth quarter. Nevertheless we believe that execution of our current plan will positively impact future financial results. Nasdaq Listing Status As previously reported, the Company has been advised by Nasdaq that it was not in compliance with its minimum net equity and bid price listing requirements. The Company believes it will be able to satisfy the minimum bid price requirement and the Company is currently in compliance with the minimum net equity requirement, but will need significant additional equity to maintain compliance. Two broker-dealers have expressed an interest in raising the necessary capital for the Company to allow the Company to meet its net equity requirement. However, the Company has no assurance that Nasdaq will grant an extension to allow the Company to complete an equity offering, or, even if an extension is granted, that an offering could be successfully completed.