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Wave Systems Reports Improved Q4 Results and Highlights Progress in Addressing Growing Trusted Computing Marketplace

Lee, MA — March 15, 2005 — Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reviewed recent corporate progress and reported results for its fourth quarter (Q4) and year ended December 31, 2004.

Wave’s Q4 2004 net revenue related to technology licensing and related support services was $108,000, compared to Q4 2003 net revenue of $59,000. Reflecting ongoing management of sales, marketing, administrative and R&D expenses, Wave reported a net loss to common stockholders of $3.0 million, or $0.04 per basic share, for the fourth quarter of 2004, compared to a net loss to common stockholders of $4.3 million, or $0.07 per basic share, in Q4 2003. The weighted average number of basic shares outstanding in the fourth quarters of 2004 and 2003, was 71,793,000 and 65,203,000, respectively.

For the year ended December 31, 2004, Wave Systems reported net revenue of $209,000, compared to revenue of $189,000 in the prior year. Wave reported a net loss to common stockholders of $14.5 million, or $0.21 per basic share, for the full 2004 year, compared to a net loss to common stockholders of $25.3 million, or $0.45 per basic share, in 2003. The weighted average number of basic shares outstanding in 2004 and 2003, was 69,041,000 and 55,887,000, respectively.

As of December 31, 2004, Wave had total current assets of $6.8 million, working capital of $3.5 million and no long-term debt.

Steven Sprague, Wave’s president and CEO, said, “During 2004 and into this year, Wave made significant progress as a leader in the development and delivery of software and services to enable trusted computing. This occurred in an environment where many PC brands made the commitment to offer trusted computers and the Trusted Computing Group grew to more than 90 members globally.

“As trusted PCs become more mainstream, Wave believes there will be a significant business opportunity in delivering trusted computing products that address the typical challenges facing businesses and governments today – implementing secure solutions that fit into existing infrastructure, that reduce costs and that improve communications and customer service.

“As we evaluate our progress, Wave continues to establish itself as an important member of the trusted computing ecosystem: Our software ships with the global leader of PC motherboards; our software is available for sale on the web site of one of the global leaders in PC sales; we have contracts to have our products bundled with two other leading silicon suppliers, and our reseller partners continue to grow.

“Given the challenges and opportunities inherent in our market, we remain optimistic that trusted computing will continue to grow and generate demand for our EMBASSY® Trust Suite secure software client and server solutions.”

Summary of 2004 and year-to-date developments:
(for more details, please visit www.wave.com ):

Auditor’s Opinion Letter – Disclosure:

Pursuant to Rule 4350 of the NASD Marketplace Rules, Wave is also announcing that its auditors’ opinion letter (dated March 15, 2005 and which will be contained in Wave’s Form-10-K for the year ended December 31, 2004) raises “substantial doubt” about Wave’s ability to continue as a going concern given its recurring losses from operations, working capital position and its accumulated deficit.

Wave Logo

About Wave Systems Corp.

Wave is a pioneer in hardware-based PC security that provides software to help solve critical enterprise PC security challenges such as data protection, strong authentication, network access control and the management of these enterprise functions.  Wave is a founding member of the Trusted Computing Group (TCG), a consortium of more than 100 companies that forged open standards for hardware security.  Wave’s EMBASSY® line of client- and server-side software leverages and manages the security functions of the TCG’s industry standard hardware security chip, the Trusted Platform Module (TPM) as well as hard drives that comply with TCG’s “Opal” self-encrypting drive (SED) standard.  Self-encrypting drives are a growing segment of the data protection market, offering increased security and better performance than most existing software-based encryption solutions.  TPMs are standard equipment on many enterprise-class PCs shipping today and have shipped on an estimated 300 million PCs worldwide.  Using TPMs and/or SEDs and Wave software, enterprises can substantially and cost-effectively strengthen their current security solutions.  Visit http://www.wave.com for more information.

Safe Harbor for Forward Looking Statements

Under the Private Securities Litigation Reform Act of 1995. This press release may contain forward-looking information within the meaning of 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.

All brands are the property of their respective owners.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities. No securities are being offered at this time.

For more information please contact:

Wave Contact:
Gerard T. Feeney, CFO
Wave Systems Corp.
413-243-1600
info@wave.com
Wave Investor Relations Contact
David Collins, Richard Land
Catalyst Global LLC
212-924-9800
wavx@catalyst-ir.com

 

Wave Systems Corp. and Subsidiaries
(a development stage company)
Consolidated Balance Sheets
(in thousands)
(Unaudited)

 

December 31, 2004

 

December 31, 2003

       
Assets      

Current Assets:

     

Cash and cash equivalents

$ 5,806

 

$ 8,818

Cash collected on behalf of charities

 

212

Marketable securities

722

 

6,325

Prepaid expenses and other receivables

272

 

205

  Total current assets

6,800

 

15,560

       

Property & equipment, net

1,435

 

2,287

Other assets

219

 

313

Total assets

8,454

 

18,160

       

Liabilities and Stockholders’ Equity

     

Current Liabilities:

     

Accounts payable and accrued expenses

2,900

 

2,837

Due to charities

 

243

Deferred revenue

351

 

74

  Total current liabilities

3,251

 

3,154

       

Liability for warrants containing cash settlement provisions

493

 

992

  Total liabilities

3,744

 

4,146

       

  Total stockholders’ equity

4,710

 

14,014

Total Liabilities and Stockholders’ Equity

$ 8,454

 

$ 18,160



Wave Systems Corp. and Subsidiaries
(a development stage corporation)
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)

   
Three Months Ended
 
Year Ended
   
December 31,
 
December 31,
   
2004
2003
 
2004
2003
Revenues   $       108 $      59   $     209 $    189
  Cost of Sales  
86
15
 
151
55
   

 

Gross Margin  
22
44
 
58
134
             
Operating Expenses:            
Selling, general and administrative  
2,560
3,164
 
12,255
12,699
Research and development  
1,724
1,546
 
6,853
7,385
Inventory Provision  
 
1,114
Write-off of impaired assets  
 
302
   

 

   
4,284
4,710
 
19,410
21,198
             
Net Interest income  
6
9
 
25
75
Gain on sale of marketable securities  
1,423
240
 
4,330
235

Liquidated damages

 
(156)
 
(156)

Unrealized gain (loss) in value of warrant liability

 
(135)
263
 
499
263
Recovery of officer note receivable  
 
1,000
Other income (expense)  
 
52
   

 

   
1,294
356
 
4,854
1,469
             
Net loss  
(2,968)
(4,310)
 
(14,498)
(19,595)

Accrued dividends on preferred stock (including $5,485 accretion of discount in 2003)

 
1
 
5,697
Net loss to common stockholders  
(2,968)
(4,311)
 
(14,498)
(25,292)
Net loss per share – basic  
($0.04)
($0.07)
 
($0.21)
($0.45)

Weighted average shares outstanding – basic

 
71,793
65,203
 
69,041
55,887
             
             
             

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