1036044--3/17/2006--SCM_MICROSYSTEMS

related topics

{customer, product, revenue}

{product, market, service}

{operation, international, foreign}

{provision, law, control}

{personnel, key, retain}

{acquisition, growth, future}

{stock, price, operating}

{stock, price, share}

{property, intellectual, protect}

{regulation, change, law}

{product, liability, claim}

{control, financial, internal}

{cost, operation, labor}

{tax, income, asset}

{condition, economic, financial}

{competitive, industry, competition}

{operation, natural, condition}

{financial, litigation, operation}

It is difficult to estimate operating results prior to the end of a quarter. Our strategy to grow revenue and become profitable depends on our ability to identify and secure new customers and market opportunities at a faster rate than the rate of decline in our sales from legacy customers and products. Our listing on the Prime Standard of the Frankfurt Stock Exchange exposes our stock price to additional risks of fluctuation. Our stock price has been and is likely to remain volatile. A significant portion of our sales typically comes from a small number of customers and the loss of one of more of these customers could negatively impact our operating results. Sales of our products depend on the development of several emerging markets. Our products may have defects, which could damage our reputation, decrease market acceptance of our products, cause us to lose customers and revenue and result in costly litigation or liability. If we do not accurately anticipate the correct mix of products that will be sold, we may be required to record charges related to excess inventories. We have paid taxes related to products previously purchased by a customer for which we may not receive reimbursement. Our business could suffer if our third-party manufacturers cannot meet production requirements. We have a limited number of suppliers of key component, and may experience difficulties in obtaining components for which there is significant demand. Our future success will depend on our ability to keep pace with technological change and meet the needs of our target markets and customers. Our markets are highly competitive. Sales of our smart card readers to the U.S. government are impacted by uncertainty of timelines and budgetary allocations, as well as by the delay of standards for information technology (IT) projects. We may have to take back unsold inventory from our customers. Large stock holdings outside the U.S. make it difficult for us to achieve quorum at stockholder meetings and this could restrict, delay or prevent our ability to implement future corporate actions, as well as have other effects, such as the delisting of our stock from the Nasdaq Stock Market. We have global operations, which require significant financial, managerial and administrative resources. The restructuring of our business could result in significant cost and disruptions in our operations. We conduct a significant portion of our operations outside the United States. Economic, political, regulatory and other risks associated with international sales and operations could have an adverse effect on our results of operation. Fluctuations in the valuation of foreign currencies could result in currency transaction losses. Our key personnel are critical to our business, and such key personnel may not remain with us in the future. We are subject to a lengthy sales cycle and additional delays could result in significant fluctuations in our quarterly operating results. We face risks associated with strategic transactions. We may be exposed to risks of intellectual property infringement by third parties. Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. We face costs and risks associated with maintaining effective internal controls over financial reporting. We face risks from litigation. We are exposed to credit risk on our accounts receivable. This risk is heightened in times of economic weakness. Factors beyond our control could disrupt our operations. Provisions in our agreements, charter documents, Delaware law and our rights plan may delay or prevent our acquisition by another company, which could decrease the value of your shares.

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1036044--3/17/2006--SCM_MICROSYSTEMS_INC