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LEE, MA -- (Marketwired) -- 11/06/14 -- Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported third quarter (Q3 '14) results for the period ended September 30, 2014. Wave will host a live webcast http://www.wave.com/resource-center/webcasts and conference call (212-231-2902) today at 4:30 p.m. ET to review its Q3 results and progress to date in 2014.

Q3 Financial Highlights

• Wave's total net revenues for Q3 '14 declined to $4.3 million versus $6.3 million in Q3 '13 and $4.4 million in Q2 '14. The decline in total net revenues from Q3'13 included a decrease in licensing and maintenance net revenues of $1.8 million -- consisting of:
  
  
  • a $1.4 million decrease in OEM software bundling revenue, resulting primarily from a decline in shipments of Wave's solutions under its OEM bundling relationship with Dell and
    
    
  • a $0.4 million decline in consulting revenue from one of the world's leading international oil and gas companies.
    
    
• The decline in total net revenues from Q2'14 consisted of:
  
  
  • a decrease in licensing and maintenance net revenues of $0.4 million, consisting primarily of a quarter-over-quarter decrease in OEM software bundling revenue as described above and
    
    
  • an increase of $0.3 million in revenue earned during Q3 '14 from a service contract with an OEM partner.
    
    
• Q3 '14 total operating expenses declined to $6.4 million versus $9.1 million in Q3 '13. Q2 '14 total operating expenses were $8.2 million.
  
  
• Wave's Q3 '14 net loss narrowed to $2.1 million, or ($0.05) per basic share, compared to a net loss of $2.9 million, or ($0.09) per basic share in Q3 '13, and a net loss of $3.8 million, or ($0.09) per basic share, in Q2 '14.
  
  
• Q3 '14 total billings declined to $3.4 million versus Q3 '13 total billings of $7.1 million. Q2 '14 total billings were $3.6 million. The year-over-year decline was due to a $2.2 million decrease in licensing and maintenance billings, the absence of current services billings versus $0.4 million in Q3 '13, and a $1.1 million decrease in OEM billings, principally due to a decrease in Dell-related OEM bundling activity.
  
  

Working Capital

• Cash and cash equivalents were $4.3 million at September 30, 2014 compared to $2.1 million at December 31, 2013 and $1.8 million at September 30, 2013. Wave's total current assets were $6.7 million at September 30, 2014 and total current liabilities were $8.6 million, including $5.0 million in deferred revenue.
  
  
• On October 15, 2014, Wave entered into an Asset Purchase Agreement with DocMagic, Inc. to sell eSignSystems, a product line of Wave, to DocMagic, Inc. for $1.2 million. The transaction closed on October 16, 2014.
  
  

CEO Commentary:
"Our revenue and billings remained essentially flat compared to last quarter," said Bill Solms, Wave's President and CEO. "We had hoped to see the first signs of increased billings from Wave's revitalized products, sales and marketing efforts in late Q3, but based on the positive interest in Wave's new Virtual Smart Card 2.0 and some of our legacy products, I stand by my previously stated goals. To attain those goals, we will require strong sales execution in Q4 and continuing into 2015. Wave remains committed to improvement in our sales and marketing execution, and I am continuing to take appropriate steps toward that end."

Recent Corporate Developments:

• Partner News: Micron Technology, Wave Systems, Lenovo and American Megatrends Inc. Announce Intention to Create New Industry Standard to Meet Heightened Global Security Requirements
• Wave Systems Completes Sale of eSignSystems for $1.2M
• Gartner Positions Wave Systems as Visionary in 2014 Magic Quadrant for Mobile Data Protection
• Wave Systems Announces First U.S. Federal Government Customer for Wave Virtual Smart Card 2.0

About Wave Systems
Wave Systems Corp. reduces the complexity, cost and uncertainty of authentication and data protection by starting inside the device. Unlike other vendors who try to secure information by adding layers of software for security, Wave leverages the security capabilities built directly into endpoint computing platforms themselves. Wave is a leading expert in this growing trend and is leading the way with first-to-market solutions and helped shape standards through its board seat on the Trusted Computing Group.

Safe Harbor for Forward-Looking Statements
This press release may contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), including all statements that are not statements of historical fact regarding the intent, belief or current expectations of the company, its directors or its officers with respect to, among other things: (i) the company's financing plans; (ii) trends affecting the company's financial condition or results of operations; (iii) the company's growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words "may," "would," "will," "expect," "estimate," "anticipate," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Wave assumes no duty to and does not undertake to update forward-looking statements.

All brands are the property of their respective owners.

                    WAVE SYSTEMS CORP. AND SUBSIDIARIES
                   Consolidated Statements of Operations
                                (Unaudited)

                         Three months ended           Nine months ended
                       September     September     September     September
                       30, 2014      30, 2013      30, 2014      30, 2013
                     ------------  ------------  ------------  ------------
Net revenues:
  Licensing and
   maintenance       $  4,032,104  $  5,851,325  $ 13,804,463  $ 16,978,355
  Services                300,000       400,000       300,000     1,808,938
                     ------------  ------------  ------------  ------------
Total net revenues      4,332,104     6,251,325    14,104,463    18,787,293
                     ------------  ------------  ------------  ------------

Operating expenses:
  Licensing and
   maintenance - cost
   of net revenues        260,828       406,051       912,175     3,105,961
  Services - cost of
   net revenues            73,000        65,149        73,000       277,665
  Selling, general,
   and administrative   4,006,625     6,181,802    14,589,760    20,043,524
  Research and
   development          2,069,272     2,493,354     7,608,358     9,254,464
  Impairment of
   goodwill                     -             -             -     2,590,000
                     ------------  ------------  ------------  ------------
  Total operating
   expenses             6,409,725     9,146,356    23,183,293    35,271,614
                     ------------  ------------  ------------  ------------

  Operating loss       (2,077,621)   (2,895,031)   (9,078,830)  (16,484,321)
                     ------------  ------------  ------------  ------------
Other income
 (expense), net:
  Net currency
   transaction loss        (3,913)       (5,626)       (7,862)      (12,358)
  Net interest
   expense                (24,325)      (43,166)     (108,202)     (151,196)
                     ------------  ------------  ------------  ------------

  Total other income
   (expense), net         (28,238)      (48,792)     (116,064)     (163,554)
                     ------------  ------------  ------------  ------------
Net loss             $ (2,105,859) $ (2,943,823) $ (9,194,894) $(16,647,875)
                     ============  ============  ============  ============

Loss per common share
 - basic and diluted $      (0.05) $      (0.09) $      (0.22) $      (0.58)

Weighted average
 number of common
 shares outstanding
 during the period     45,895,118    31,132,377    42,049,167    28,609,207



                    WAVE SYSTEMS CORP. AND SUBSIDIARIES
                    Consolidated Supplemental Schedules
                                (Unaudited)

                         Three months ended           Nine months ended
                       September     September     September     September
                       30, 2014      30, 2013      30, 2014      30, 2013
                     ------------  ------------  ------------  ------------

Total net revenues   $  4,332,104  $  6,251,325  $ 14,104,463  $ 18,787,293
Increase (decrease)
 in deferred revenue     (958,831)      817,855    (2,200,441)      113,281
                     ------------  ------------  ------------  ------------

Total billings (Non-
 GAAP)               $  3,373,273  $  7,069,180  $ 11,904,022  $ 18,900,574
                     ============  ============  ============  ============

Net loss as reported $ (2,105,859) $ (2,943,823) $ (9,194,894) $(16,647,875)
Net interest expense       24,325        43,166       108,202       151,196
Depreciation and
 amortization             215,418       216,571       677,317       763,840
Stock-based
 compensation expense    (547,950)      512,569       303,894     1,619,115
Impairment of
 goodwill and
 amortizable
 intangible assets              -             -             -     4,205,000
                     ------------  ------------  ------------  ------------

EBITDAS (Non-GAAP)   $ (2,414,066) $ (2,171,517) $ (8,105,481) $ (9,908,724)
                     ============  ============  ============  ============

Non-GAAP Financial Measures:
As supplemental information, we provide the non-GAAP performance measures that we refer to as total billings and EBITDAS. Total billings is provided in addition to, but not as a substitute for, GAAP total net revenues. Total billings means the sum of total net revenues determined in accordance with GAAP, plus the increase or minus the decrease in deferred revenue. We consider total billings an important measure of our financial performance, as we believe it best represents the continued increase in our software license upgrades. Total billings is not a measure of financial performance under GAAP and, as calculated by us, may not be consistent with computations of total billings by other companies. For the three months ended June 30, 2014, total billings were $3,624,909 and consisted of total net revenues of $4,439,820 adjusted for a decrease in deferred revenue of $814,911.

EBITDAS is defined as net income (loss) before interest income (expense), income taxes, depreciation, amortization and stock-based compensation. EBITDAS should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as EBITDAS is not defined by GAAP. However, we regard EBITDAS as a complement to net income (loss) and other GAAP financial performance measures, including an indirect measure of operating cash flow. For the three months ended June 30, 2014, negative EBITDAS was $(3,093,705) and consisted of net loss as reported of $(3,795,530) adjusted for net interest expense of $39,013, depreciation and amortization of $225,251 and stock-based compensation expense of $437,561.

                    WAVE SYSTEMS CORP. AND SUBSIDIARIES
                        Consolidated Balance Sheets
                                (Unaudited)

                                              September 30,   December 31,
                                                  2014            2013
                                             --------------  --------------
Assets
Current assets:
  Cash and cash equivalents                  $    4,332,781  $    2,120,102
  Accounts receivable, net of allowance for
   doubtful accounts of $-0- September 30,
   2014 and December 31, 2013                     1,960,558       2,730,077
  Pledged receivables                                     -       1,683,188
  Prepaid expenses and other current assets         433,366         488,656
                                             --------------  --------------
   Total current assets                           6,726,705       7,022,023
  Property and equipment, net                       451,762         596,820
  Amortizable intangible assets, net              2,153,900       2,590,920
  Goodwill                                        1,448,000       1,448,000
  Other assets                                      172,909         167,146
                                             --------------  --------------
Total Assets                                     10,953,276      11,824,909
                                             ==============  ==============

Liabilities and Stockholders' Deficit
Current liabilities:
  Secured borrowings                                      -       1,430,710
  Accounts payable and accrued expenses           3,624,978       6,789,274
  Deferred revenue                                5,022,767       6,996,239
                                             --------------  --------------
   Total current liabilities                      8,647,745      15,216,223
  Other long-term liabilities                        57,136          78,618
  Royalty liability                               4,388,981       4,509,629
  Long-term deferred revenue                      1,054,443       1,003,614
                                             --------------  --------------
    Total liabilities                            14,148,305      20,808,084
                                             --------------  --------------

Stockholders' Deficit:
Common stock, $.01 par value. Authorized
 150,000,000 shares as Class A; 45,895,118
 shares issued and outstanding at September
 30, 2014 and 35,019,740 at December 31,
 2013                                               458,951         350,197
Common stock, $.01 par value. Authorized
 13,000,000 shares as Class B; 8,885 shares
 issued and outstanding at September 30,
 2014 and December 31, 2013                              89              89
Capital in excess of par value                  422,781,305     407,907,019
Accumulated deficit                            (426,435,374)   (417,240,480)
                                             --------------  --------------
    Total Stockholders' Deficit                  (3,195,029)     (8,983,175)
                                             --------------  --------------
Total Liabilities and Stockholders' Deficit  $   10,953,276  $   11,824,909
                                             ==============  ==============