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Wave Reports Q1 ’06 Revenues of $493,000
up from $78,000 in Q1 ’05

Lee, MA — May 10, 2006 — Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported results for its first quarter (Q1) ended March 31, 2006 and reviewed recent corporate progress and other developments.

Wave’s Q1 2006 net revenues rose over five-fold to $493,000, compared to Q1 2005 net revenues of $78,000. This was also an increase over Wave’s Q4 2005 net revenues of $348,800. The increase over Q1 2005 net revenues was principally due to higher royalties earned from increased shipments of Wave software by partners as well as an increase in services revenue. For Q1 2006 Wave reported a net loss of $5.0 million, or $0.05 per basic share, including non-cash, share-based compensation expense of $352,000 which was recorded in accordance with the implementation of SFAS 123(R) for “Share-based Payments,” effective January 1, 2006. Wave’s Q1 2005 net loss of $4.5 million, or $0.06 per basic share, did not include any SFAS 123(R) expense. The weighted average number of basic shares outstanding in the first quarters of 2006 and 2005 were 97,692,000 and 77,212,000, respectively.

Steven Sprague, Wave’s president and CEO, commented, “Wave’s EMBASSY® Trust Suite software is now being bundled on PCs from two major PC OEMs and a leading motherboard manufacturer. As virtually all PC manufacturers are offering Trusted Computing solutions on at least some of their product lines, we believe we have many opportunities to increase our industry penetration. Importantly, we believe that the EMBASSY Trust Suite is compatible with all ‘flavors’ of Trusted Computing solutions that have been shipped or are currently being shipped by industry suppliers, no matter the OEM or TPM involved. The EMBASSY Trust Suite’s interoperability, combined with its unique server-based enterprise management tools, provides a strong value proposition for enterprises looking to deploy trusted computing solutions to aide them in protecting their PC data, authenticating their users, and improving and securing network access.

“Our first quarter results primarily reflect revenue contributions from our license agreements with manufacturers of Trusted Platform Module (TPM) chips as well as service fees related to engineering projects on behalf of partners and customers. We expect the benefit of our software bundling agreements with our PC and motherboard OEM partners to begin to gain traction in the current quarter – in conjunction with their launch of product shipments at the end of March.”

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. Wave is also working diligently to develop additional PC OEM customers as well as to secure new design wins from existing partners, all of which would be incremental to the current expectations expressed above.

Mr. Sprague added, “Wave is also working with its OEM partners to offer client and server software upgrades to enterprises, which we expect to provide additional average revenue of $50.00 per seat. Wave cannot yet predict the market for such upgrades. Wave currently expects that any such upgrade activity will likely not occur on any meaningful scale before 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

As of March 31, 2006 Wave had total current assets of $2.3 million and no long-term debt. Subsequent to the quarter’s close, in early May, the Company completed an equity financing generating net proceeds of approximately $4.5 million. Additionally, on May 8th the Company received additional net proceeds of approximately $600,000 from the exercise of common stock warrants at $0.72 and $0.80 per share.

Summary of recent progress/developments:

(for more details, please visit www.wave.com ):

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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