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Wave Systems Reviews 2005 Results and Highlights its Progress in the Trusted Computing Marketplace

Lee, MA — March 14, 2006 — Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported results for its fourth quarter (Q4) and year ended December 31, 2005 and reviewed recent corporate progress and other developments.

For the year ended December 31, 2005, Wave reported that net revenues rose nearly four-fold to $1,018,000, compared to revenue of $209,000 in 2004. The increase principally reflects initial royalty income related to the shipment of Wave’s software by OEM partners. Reflecting lower SG&A expenses, partially offset by a slight increase in R&D expenses, Wave achieved a modest improvement in operating loss, which was $18.5 million and $19.4 million for the years ended December 31, 2005 and 2004, respectively. Wave’s net loss was $17.6 million for 2005, compared to a 2004 net loss of $14.5 million, which included the benefit of a $4.3 million gain on the sale of marketable securities. On a per share basis, Wave’s net loss per basic share was $0.21 in both 2005 and 2004. The weighted average number of basic shares outstanding in 2005 and 2004 was 83,179,000 and 69,041,000, respectively.

Wave’s Q4 2005 net revenues rose to $348,000, compared to Q4 2004 net revenues of $108,000, principally due to higher royalties earned on increased shipments of Wave software and technology by Wave OEM partners. Wave reported a net loss of $4.5 million, or $0.05 per basic share, for the fourth quarter of 2005, compared to a net loss of $3.0 million, or $0.04 per basic share, in Q4 2004. The year-ago fourth quarter included the benefit of a $1.4 million gain on the sale of marketable securities and a $135,000 charge reflecting an increase in Wave’s liability for outstanding warrants containing cash settlement features. The weighted average number of basic shares outstanding in the fourth quarters of 2005 and 2004 was 89,132,000 and 71,793,000, respectively.

Steven Sprague, Wave’s president and CEO, commented, “The 2005 fourth quarter and full year were productive periods for Wave and the trusted computing industry. Wave has developed and demonstrated a strong set of industry applications for the enterprise to manage an installed base of computers with TPMs. These applications include Key management and backup, Remote management of the TPM, Trusted Drive management, Platform Trust Services and Authentication servers. We feel these applications should provide the justification for an enterprise to upgrade their Wave software which would generate additional revenue from the installed base of computers with TPMs and our bundled solutions. Importantly, the momentum for trusted computing and Wave’s related products appears to be continuing so far this year.”

During the second half of 2005 and to date in 2006, Wave has continued to invest in its products and to make solid progress with its OEM partners. Updated versions of Wave’s EMBASSY Trust Suite software have been delivered to, and accepted by, Wave’s three primary OEM partners for bundling by these partners with certain of their PC and motherboard products. A version of Wave’s software began shipping on PC’s during Q1 2006. Based on Wave’s continuing collaboration with OEM partners, Wave expects that shipments of PC’s and motherboards that include Wave’s software as a bundled feature should increase in Q2 2006 and continue to increase during the latter part of 2006.

While it is not possible to predict with any certainty the volume of anticipated shipments, based on joint marketing and sales discussions with its OEM partners, Wave’s preliminary expectations are that in excess of 50 million PC’s or motherboards that include Wave’s Trusted Computing software could be shipped by Wave’s current OEM partners over the next three years. Wave’s current shipment expectations are based only on the product lines on which Wave’s software is currently expected to be bundled by its existing base of OEM partners. These estimates could change at any time. There are no contractual commitments by OEM partners for minimum royalties or minimum product shipments.   For each unit of its software bundled on an OEM partners’ PC or motherboard that has been shipped, Wave is entitled to royalties which can depend on volumes shipped by each OEM.

Beyond potential royalties from bundling, Wave’s business model also anticipates the possible sale of software upgrades to recipients of its bundled EMBASSY Trust Suite software. Though Wave cannot yet predict the market for such upgrades, the upgrades do provide important functionality aimed at enterprise implementation of Trusted Computing solutions. Wave anticipates average aggregate revenue per seat of approximately $50 for EMBASSY Trust Suite upgrades and related server software. Wave currently expects that such upgrade activity will likely not occur on any meaningful scale until some time in 2007, reflecting the normal enterprise IT adoption/procurement timelines. Wave anticipates that any upgrade activity will be largely limited to enterprises until such time as trusted computing has become more broadly known and understood by consumers. Wave cannot predict when or if software upgrades will provide material revenue.

These forward looking statements are predicated on a variety of factors outside of Wave’s control, including the accuracy of preliminary forecasts by OEM partners, timing of OEM shipments, enterprise demand for trusted computing solutions, the success of OEM marketing efforts, engineering or support requirements of OEM partners, and other related factors.

Balance Sheet Snapshot & Auditor’s Opinion Letter Disclosure
As of December 31, 2005, Wave had total current assets of $2.5 million and no long-term debt. Subsequent to year-end, the Company completed a $4.4 million equity financing pursuant to a $25 million shelf registration statement declared effective by the Securities and Exchange Commission on January 13, 2006. Pursuant to Rule 4350 of the NASD Marketplace Rules, Wave is announcing, as it did last year at this time, that its auditors’ opinion letter which will be contained in Wave’s Form-10-K for the year ended December 31, 2005 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.

Summary of recent progress:
(for more details, please visit www.wave.com):

Wave and Seagate also demonstrated the Seagate Momentus 5400 FDE, a 2.5-inch, 5400-RPM notebook hard drive equipped with hardware-based Full Disc Encryption (FDE), delivering the highest levels of data security, and Wave’s EMBASSY Security Center software. Wave’s Trusted Drive Manager is designed to provide organizations with an easy way to set up and configure the Momentus 5400 FDE drive and to automate protection and management of passwords and encryption keys.
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.

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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

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