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Wave Q2 '13 Revenues Rose 16% vs. Q1 '13 to $6.7M on Increased Software Bundling and Services

Wave Q2 '13 Revenues Rose 16% vs. Q1 '13 to $6.7M on Increased Software 
Bundling and Services 
LEE, MA -- (Marketwired) -- 08/08/13 --  Wave Systems Corp. (NASDAQ:
WAVX), the Trusted Computing company, today reported financial
results for its second quarter ended June 30, 2013 (Q2 '13) and
updated investors on recent developments. 
In Q2 '13 Wave's total net revenues increased 16% to $6.7 million as
compared to $5.8 million in Q1 '13. The increase in total net
revenues over Q1 '13 included a $0.25 million improvement in OEM
software bundling revenue -- the first sequential improvement in six
quarters. This improvement resulted from increased OEM PC shipments
of products carrying higher bundling fees/unit, such as
self-encrypting drives and/or biometric readers. Q2 '13 total net
revenues were $1.1 million less than Q2 '12 total net revenues of
$7.8 million principally due to reductions in OEM software bundling
revenues primarily as the result of lower PC shipment volumes. Total
services net revenues were $0.6 million in Q2 '13 compared to $0.4
million in Q2 '12 and $0.8 million in Q1 '13. Total software
licensing and maintenance net revenues in Q2 '13 included $1.1
million from Wave's Safend subsidiary, a decline from $1.6 million in
Q2' 12 and $1.2 million in Q1 '13. 
Total billings for Q2 '13 declined to $5.9 million versus $6.9
million in Q2 '12 and were flat compared to $5.9 million in Q1 '13.
Total billings included $1.1 million from Safend, down from $1.4
million in Q2 '12 but up from $1.0 million in Q1 '13.  
Reflecting ongoing cost containment initiatives, including
initiatives completed in mid-May, Wave's combined SG&A and R&D
expenses declined 27% to $9.7 million in Q2 '13 as compared to $13.3
million in Q2 '12 and 12% as compared to $11.0 million in Q1 '13. Q2
'13 total R&D expenses reflect a credit of $600,000 related to the
completion of an OEM-funded software development arrangement. In
November 2012 Wave received $600,000 for the performance of certain
software development services. The $600,000 was deferred as a current
liability on the consolidated balance sheet at December 31, 2012 and
was offset against research and development expense during the
three-month period ended June 30, 2013 upon completion of the
software development arrangement. 
Wave recorded a Q2 '13 net loss of $3.5 million, or ($0.12) per
share, as compared to a net loss of $6.5 million, or ($0.28) per
share in Q2 '12, and a net loss of $10.2 million (including $4.2
million in non-cash impairment charges), or ($0.40) per share in Q1
'13. Per share figures are based on a weighted average number of
basic shares outstanding during Q2 '13, Q2 '12 and Q1 '13 of 28.3
million, 23.1 million and 26.3 million, respectively. Wave's
loss-per-share figures and weighted average number of shares
outstanding in these periods have been adjusted to reflect the
Company's 1-for-4 reverse stock on July 1, 2013.  
To illustrate its operational performance on a cash-flow basis, Wave
reports EBITDAS, a non-GAAP measure defined as earnings before
impairment expense, interest expense, income taxes, depreciation,
amortization and stock-based compensation expense. Wave's negative
EBITDAS improved to $2.5 million in Q2 '13, compared with negative
EBITDAS of $4.6 million in Q2 '12 and negative EBITDAS of $5.2
million in Q1 '13.  
As of June 30, 2013, Wave's total current assets were $5.7 million
and total current liabilities, including the current portion of
deferred revenue totaling $6.1 million, were $14.0 million. Cash and
cash equivalents were $0.9 million at June 30, 2013 as compared to
$1.8 million at March 31, 2013. Wave raised approximately $1,383,000
during Q2 '13 from the sale of its Class A common stock at an average
adjusted post-split price of $1.65 per share through its
At-The-Market (ATM) share sale facility. Wave also raised an
additional $3.2 million in a registered direct placement of its Class
A common stock at an adjusted post-split price of $2.00 per share.
Investors in this offering also received five-year warrants to
purchase an aggregate of 792,500 post-split shares of Wave's Class A
common stock for an adjusted price of $2.48 per share. Subsequent to
the close of Q2 '13, Wave raised gross proceeds of $1.5 million from
the sale of 1.2 million shares of Class A common stock at $1.27 per
share from a financing completed on July 25, 2013 and an additional
$1.1 million from the sale of 808,000 shares of Class A common stock
at an average price of $1.40 per share through its ATM share sale
CEO Commentary: 
 Wave CEO Steven Sprague, commented, "Trusted
Computing technology addresses the market's need for cyber-security
that is simple and accessible for end users. While the pace of
adoption has been a challenge, we are seeing greater market awareness
of the advantages of moving to a hardware-based model. Businesses are
facing a surge in highly sophisticated cyber threats that can evade
traditional antivirus and malware detection. Combating these threats
requires re-imagining the way we define and enable service access at
the device level. Wave is providing key solutions that can enable the
enterprise to transition to a services model that is based on the
identity of the device rather than the user. This provides
enterprise-level security on every tablet, laptop and workstation --
with the simplicity of a mobile phone -- and without requiring users
to recall numerous passwords. This new model gives the enterprise the
ability to 'know' the devices on their network, but also audit the
capabilities of the device -- so content that might be sent to a
laptop with hardware encryption, might not be allowed to be sent to a
smartphone (with less security). Additionally, Wave's solutions are
designed to assure that the user's device is 'safe to lose,' with a
host of encryption offerings and the ability to restrict access to
only known devices.  
"To commercialize this concept, we are actively educating our
prospects and partners about the commercial applications and benefits
of Trusted Computing. Next month's Trusted Computing Conference in
Orlando, which we are organizing and promoting with the Trusted
Computing Group, will serve as a powerful platform to broadcast this
message. A number of prominent industry names have agreed to sponsor,
keynote or serve on panels, including Microsoft, Intel, Samsung,
Juniper, the NSA and AMD. The conference provides an invaluable
platform for enterprise, government, industry, media and investors to
gain insight into the capabilities and value of Trusted Computing
industry standard solutions. These solutions were developed and are
supported by more than 100 industry leading participants. This is a
'not-to-miss' comprehensive briefing on how to deploy cost effective
device management solutions compatible with hardware security that
has already shipped on hundreds of millions of enterprise devices. 
"As we look back at Q2, another indicator of interest in Wave and
Trusted Computing is evident in our growing base of channel partners.
QWAED and Kedu are now authorized Wave distributors in the Middle
East, and our channel partner agreement with Infinigate, announced
earlier this week, expands our reach throughout Germany, Austria and
the United Kingdom. Axiad IDS, based in the U.S., is now authorized
to resell our solutions and is integrating our software into their
identity and access management solution. Intelligent Decisions, a
prominent name in the federal government space, is another recently
authorized reseller
"Earlier today we announced that NEC Personal Computers has begun
bundling Wave's EMBASSY Security Center client software for TPM
management on its desktop line. This expands our reach into the Asian
market, as NEC Personal Computers is a prominent player in Japan, one
of the largest PC markets in the world," concluded Mr. Sprague. 
About Wave Systems 
 Wave Systems Corp. reduces the complexity, cost
and uncertainty of 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 has
been a leading expert in this growing trend, leading the way with
first-to-market solutions and helping shape standards through its
work as a board member for 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                    
                          Three months ended          Six months ended      
                         June 30,     June 30,     June 30,      June 30,   
                           2013         2012         2013          2012     
                       -----------  -----------  ------------  ------------ 
Net revenues:                                                               
  Licensing and                                                             
   maintenance         $ 6,133,304  $ 7,361,102  $ 11,127,030  $ 14,019,369 
  Services                 608,938      400,372     1,408,938       724,242 
                       -----------  -----------  ------------  ------------ 
Total net revenues       6,742,242    7,761,474    12,535,968    14,743,611 
                       -----------  -----------  ------------  ------------ 
Operating expenses:                                                         
  Licensing and                                                             
   maintenance - cost                                                       
   of net revenues         382,311      792,737     2,607,910     1,482,367 
  Services - cost of                                                        
   net revenues            105,155       74,760       212,516       136,590 
  Selling, general, and                                                     
   administrative        6,774,719    8,290,191    13,953,722    17,837,974 
  Research and                                                              
   development           2,912,128    5,050,625     6,761,110    10,068,104 
  Impairment of                                                             
   goodwill                      -            -     2,590,000             - 
                       -----------  -----------  ------------  ------------ 
  Total operating                                                           
   expenses             10,174,313   14,208,313    26,125,258    29,525,035 
                       -----------  -----------  ------------  ------------ 
  Operating loss        (3,432,071)  (6,446,839)  (13,589,290)  (14,781,424)
                       -----------  -----------  ------------  ------------ 
Other income (expense):                                                     
  Net currency                                                              
   transaction gain                                                         
   (loss)                   (8,363)     (13,812)       (6,732)        9,788 
  Net interest expense     (49,863)     (60,504)     (108,030)      (62,609)
                       -----------  -----------  ------------  ------------ 
  Total other income                                                        
   (expense)               (58,226)     (74,316)     (114,762)      (52,821)
                       -----------  -----------  ------------  ------------ 
Net loss               $(3,490,297) $(6,521,155) $(13,704,052) $(14,834,245)
                       ===========  ===========  ============  ============ 
Loss per common share -                                                     
 basic and diluted     $     (0.12) $     (0.28) $      (0.50) $      (0.65)
Weighted average number                                                     
 of common shares                                                           
 outstanding during the                                                     
 period                 28,317,577   23,120,873    27,326,711    22,839,637 
(1) All shares presented in these consolidated financial statements and     
    accompanying footnotes have been retroactively adjusted to reflect the  
    1-for-4 reverse stock split, which took place on July 1, 2013.          
                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                    Consolidated Supplemental Schedules                     
                          Three months ended          Six months ended      
                               June 30,                   June 30,          
                           2013         2012         2013          2012     
                       -----------  -----------  ------------  ------------ 
Total net revenues     $ 6,742,242  $ 7,761,474  $ 12,535,968  $ 14,743,611 
Increase (decrease) in                                                      
 deferred revenue         (801,964)    (820,021)     (704,575)     (895,599)
                       -----------  -----------  ------------  ------------ 
Total billings (Non-                                                        
 GAAP)                 $ 5,940,278  $ 6,941,453  $ 11,831,393  $ 13,848,012 
                       ===========  ===========  ============  ============ 
Net loss as reported   $(3,490,297) $(6,521,155) $(13,704,052) $(14,834,245)
Net interest expense        49,863       60,504       108,030        62,609 
Depreciation and                                                            
 amortization              231,359      545,731       547,268     1,072,520 
 compensation expense      668,840    1,288,326     1,106,546     2,644,078 
Impairment of goodwill                                                      
 and amortizable                                                            
 intangible assets               -            -     4,205,000             - 
                       -----------  -----------  ------------  ------------ 
EBITDAS (Non-GAAP)     $(2,540,235) $(4,626,594) $ (7,737,208) $(11,055,038)
                       ===========  ===========  ============  ============ 

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.
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

                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                        Consolidated Balance Sheets                         
                                                  June 30,     December 31, 
                                                    2013           2012     
                                               -------------  ------------- 
Current assets:                                                             
  Cash and cash equivalents                    $     922,299  $   2,112,769 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $-0- June 30, 2013 and                              
   December 31, 2012                               3,542,027      5,034,422 
  Collateralized receivables                         743,426      1,801,683 
  Prepaid expenses                                   518,913        421,769 
                                               -------------  ------------- 
    Total current assets                           5,726,665      9,370,643 
  Property and equipment, net                        752,603        871,568 
  Amortizable intangible assets, net               2,121,177      4,028,333 
  Goodwill                                         1,448,000      4,038,000 
  Other assets                                       238,946        324,614 
                                               -------------  ------------- 
Total Assets                                      10,287,391     18,633,158 
                                               =============  ============= 
Liabilities and Stockholders' Deficit                                       
Current liabilities:                                                        
  Secured borrowings                                 631,912      1,537,710 
  Accounts payable and accrued expenses            7,262,409      7,570,723 
  Current portion of capital lease payable             6,501         44,658 
  Deferred revenue                                 6,129,810      5,949,087 
                                               -------------  ------------- 
    Total current liabilities                     14,030,632     15,102,178 
  Other long-term liabilities                        100,583         97,996 
  Royalty liability                                4,497,733      4,486,129 
  Long-term deferred revenue                       1,434,143      1,812,312 
                                               -------------  ------------- 
    Total liabilities                             20,063,091     21,498,615 
                                               -------------  ------------- 
Stockholders' Deficit:                                                      
Common stock, $.01 par value. Authorized                                    
 150,000,000 shares as Class A; 29,219,695                                  
 shares issued and outstanding in 2013 and                                  
 26,251,968 in 2012                                  292,197        262,520 
Common stock, $.01 par value. Authorized                                    
 13,000,000 shares as Class B; 8,889 shares                                 
 issued and outstanding in 2013 and 2012                  89             89 
Capital in excess of par value                   400,552,282    393,788,150 
Accumulated deficit                             (410,620,268)  (396,916,216)
                                               -------------  ------------- 
    Total Stockholders' Deficit                   (9,775,700)    (2,865,457)
                                               -------------  ------------- 
Total Liabilities and Stockholders' Deficit    $  10,287,391  $  18,633,158 
                                               =============  ============= 

All shares presented in these consolidated financial statements and
accompanying footnotes have been retroactively adjusted to reflect
the 1-for-4 reverse stock split, which took place July 1, 2013 

Conference call:         Today, Thursday, August 8, 2013 at 4:30 p.m. EDT   
Webcast / Replay URL:   
Dial-in numbers:         415-226-5359 or 212-231-2922                       

Wave Systems Corp. 
Gerard T. Feeney
Investor Relations
David Collins, Eric Lentini