1036044--3/18/2008--SCM_MICROSYSTEMS

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{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}

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It is difficult to estimate operating results prior to the end of a quarter. Our listing on both the NASDAQ Stock Market and 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 or more of these customers or variability in the timing of orders could negatively impact our operating results. Sales of our products depend on the development of emerging applications in our target 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. Our business could suffer if our third-party manufacturers cannot meet production requirements. We have a limited number of suppliers of key components, 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. A significant portion of our PC Security business is dependent upon sales for government programs, which are impacted by uncertainty of timelines and budgetary allocations, as well as by delays in developing standards for information technology ( IT ) projects and in coordinating all aspects of large smart card-based security programs. We may choose to take back unsold inventory from our customers. Changes in tax laws or the interpretation thereof, adverse tax audits and other tax matters may adversely affect our future results. 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. 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 impact costs and/or revenues we disclose in U.S. dollars, and could result in foreign currency losses. Our key personnel and directors 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. We face costs and risks associated with maintaining effective internal controls over financial reporting, and if we fail to achieve and maintain adequate internal controls over financial reporting, our business, results of operations and financial condition, and investors confidence in us could be materially affected. We face risks from litigation. We are exposed to credit risk on our accounts receivable. This risk is heightened in times of economic weakness. Provisions in our agreements, charter documents, Delaware law and our rights plan may delay or prevent the acquisition of SCM by another company, which could decrease the value of your shares.

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1036044--3/18/2008--SCM_MICROSYSTEMS_INC