Solid Progress in Consumer Electronics and Government Markets; Long-Term Growth Strategy on Track

Webcast URL: English French

Highlights:

• Signed intellectual property licensing agreements with consumer electronics leader D&M Holdings and cryptography security leader nCipher.
• Launched Certicom KeyInject, a product to prevent cloning of consumer electronic devices, and Security Builder SSL, the first protocol module to meet the National Security Agency’s (NSA) Suite B requirements.
• Appointed renowned cryptographic expert as Chief Technology Officer.

Mississauga, Ontario (December 8, 2005) – Certicom Corp. (TSX: CIC) today announced results for the second quarter of fiscal year 2006 ended October 31, 2005. All figures are in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.

Second quarter revenue for fiscal 2006 was $2.2 million compared to $2.6 million in the second quarter of fiscal 2005, and $3.5 million in the first quarter of fiscal 2005. The decline was primarily a result of the timing in closing anticipated contracts. Certicom is at various stages of the sales cycle for significant multi-year contracts with large, multinational corporations.

“While we’re disappointed with our second quarter results, the last three months provided evidence that our long-term strategy is on track. We had wins in both intellectual property licensing and on the product side, and made significant progress in two key vertical markets – consumer electronics and government,” said Ian McKinnon, President and Chief Executive Officer. “The contract delays that affected our revenues for the quarter are partly due to the fact that we are negotiating with more multinational companies for recurring revenues over a number of years, and these strategic agreements take longer to conclude. Our growth strategy is on track, ECC adoption is increasing, our long-term outlook is positive and we expect to conclude more contracts in the future.”

SECOND QUARTER FINANCIAL REVIEW

Operating expenses¹ for the quarter were $4.1 million, in line with guidance, compared to operating expenses of $3.4 million in the same period last year. The increase in year-over-year operating expenses was due to the strengthening Canadian dollar, higher third party direct cost of sales resulting from product sales mix and the initiation of accruing a portion of annual bonus payments.

The net loss on a GAAP basis for the quarter was $2.3 million, or $0.06 per basic and diluted share, compared with a net loss of $1.0 million, or $0.03 per basic and diluted share last year. 

Certicom had $22.5 million in cash² at quarter-end, compared to $25.1 million at the end of the first quarter and $29.1 million at October 31, 2004. The Company has no debt.

“While continuing to monitor and control expenses, we are maintaining our current expense structure to ensure we have the resources to execute our long-term strategy,” said Hervé Séguin, Chief Financial Officer. “We have a debt-free balance sheet and financial strength, and are well positioned to achieve our long-term goal of sustainable, profitable growth.”

SIX MONTH FINANCIAL REVIEW

For the first six months of fiscal 2006, Certicom reported revenue of $5.7 million, compared to $5.5 million in the same period last year.

Operating expenses¹ for the period were $8.0 million compared with operating expenses of $6.7 million for the first six months of fiscal 2005.

The company posted a net loss on a GAAP basis of $3.1 million or $0.08 per basic and diluted share, compared to $2.2 million, or $0.06 per basic and diluted share for the first six months of fiscal 2005.

SECOND QUARTER OPERATIONAL HIGHLIGHTS

• Consumer electronics leader D&M Holdings, Inc., the maker of the popular Denon, Marantz, McIntosh and ReplayTV brands, licensed Certicom’s ECC intellectual property to implement the digital rights management (DRM) standards, digital transmission content protection (DTCP), in many of its digital audio and video products. This was an important first for Certicom as it pushes ECC into the DRM arena and is a significant validation of its intellectual property portfolio in the consumer electronics market.
• Leading cryptography security company nCipher licensed Certicom’s intellectual property portfolio to meet customer demand for ECC and also to meet the latest requirements from the National Security Agency (NSA) for securing classified and unclassified government communications.
• The Company launched Certicom KeyInject, a trusted platform for anti-cloning and to secure manufacturing of devices and chips. The product gives producers of devices such as set-top boxes, mobile handsets and printers more control over their outsourced manufacturing process to help prevent cloning of devices and replacement parts.
• Certicom launched Security Builder® SSL™, the industry’s first security protocol module to meet the NSA’s cryptographic specifications for securing both classified and unclassified communications, known as Suite B.

Certicom announced it has developed a method to accelerate verification of the elliptic curve digital signatures algorithm (ECDSA). Certicom has reduced the time needed to verify these digital signatures by 40 percent, making ECDSA more efficient than open source and legacy systems.

• Certicom appointed renowned cryptographic expert William Lattin as Chief Technology Officer, effective October 31, 2005. Mr. Lattin has more than 20 years of experience in the security industry, in particular in the development of encryption products and standards. He will lead the Company’s technology strategy.
• The Company hosted its second annual Certicom ECC Conference in Toronto. During the three-day conference held in October, world leaders in cryptography and security representing Australia, Canada, Europe, and the United States gathered to discuss the many current and future applications and standards employing ECC. More than 100 attendees heard speakers from Bell Canada, Intertrust, Nokia, Research In Motion, XM Satellite Radio, Freescale and others discuss a number of topics related to ECC.

SUBSEQUENT TO QUARTER END

Certicom earned FIPS 140-2 Validation for the Java version of Security Builder® GSE™, certifying another toolkit in its security solutions to help vendors sell into the government market. Certicom is the first company to offer FIPS 140-2-Validated (Federal Information Processing Standards) security modules in multiple programming languages that also meet the NSA’s cryptographic recommendations known as Suite B.

Realm Systems licensed Security Builder® IPSec™ to build a proven, standards-based virtual private network (VPN) into its mobile enterprise platform.

The Company launched Certicom Security for DRM, a comprehensive platform that delivers robust digital rights management (DRM) implementation for multimedia capable phones, consumer electronic devices and set-top boxes. As part of this solution, Certicom announced a partnership with Elliptic Semiconductor to offer pre-integrated hardware intellectual property cores that enable chip designers to include hardware-based security for DRM.

OUTLOOK

Certicom does not provide guidance for revenue and cash, but does provide quarterly guidance for operating expenses. Operating expenses¹ in the third quarter of fiscal 2006, including cost of sales and bonus accrual, are expected to range from $3.8 million to $4.1 million. 
Certicom continues to work diligently to maximize the potential of its business and to build recurring revenue. The management team expects to grow market share to achieve sustainable, profitable growth.

CONFERENCE CALL

Management will host a conference call to discuss Certicom’s performance for the first quarter and fiscal year 2006 starting at 10 a.m. (ET) (7 a.m. PT) on December 8, 2005. The call may be accessed at: 1-800-814-4859 or 416-644-3414. It will also be webcast with supporting slides and subsequently archived at http://www.certicom.com. To listen to the webcast, participants will require Windows Media Player™ which can be downloaded via Certicom’s website, prior to accessing the event. A taped rebroadcast will be available from December 8 at 7 p.m. (ET) until December 15 at midnight. For access, please call 1-877-289-8525 or 416-640-1917 and enter the passcode 21163731#.

Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Operations and Retained Earnings

ABOUT CERTICOM

Certicom protects the value of your content, software and devices with government-approved security. Adopted by the National Security Agency (NSA) for classified and sensitive but unclassified government communications, Elliptic Curve Cryptography (ECC) provides the most security per bit of any known public-key scheme. As the undisputed leader in ECC, Certicom security offerings are currently licensed to more than 300 customers including General Dynamics, Motorola, Oracle, Research In Motion and Unisys. Founded in 1985, Certicom’s corporate offices are in Mississauga, ON, Canada with worldwide sales headquarters in Reston, VA and offices in the US, Canada and Europe. Visit www.certicom.com

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