1036044--3/31/2009--SCM_MICROSYSTEMS

related topics

{customer, product, revenue}

{interest, director, officer}

{stock, price, operating}

{condition, economic, financial}

{acquisition, growth, future}

{regulation, change, law}

{stock, price, share}

{cost, operation, labor}

{investment, property, distribution}

{product, market, service}

{operation, international, foreign}

{personnel, key, retain}

{property, intellectual, protect}

{product, liability, claim}

{control, financial, internal}

{provision, law, control}

{competitive, industry, competition}

It is difficult to estimate operating results prior to the end of a quarter. We are subject to a lengthy sales cycle and additional delays could result in significant fluctuations in our quarterly operating results. 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. We have incurred and will incur significant expenses as a result of our proposed merger with Hirsch, which has reduced and will reduce the amount of capital available to fund our business. If our proposed merger with Hirsch occurs, we may not realize all of its anticipated benefits. Our proposed merger with Hirsch may not occur. We may incur substantial costs or other damages associated with pending or future litigation related to the proposed merger of the Company and Hirsch, which may prevent or delay the closing of the proposed merger, and adversely affect our business, financial condition and results of operations. If the Company and Secure Keyboards cannot resolve the litigation arising out of the proposed merger, and the general partners do not consent to become a party to and be bound by the letter of understanding or consent to the merger, a condition to the Company s obligation to close the proposed merger will not have been satisfied. If our proposed merger with Hirsch is not consummated, we may not be successful in our strategy to grow revenue and become profitable. The issuance of shares of SCM common stock to Hirsch shareholders in connection with the proposed merger will substantially reduce the percentage ownership of current SCM stockholders. SCM common stock has historically traded at a very low volume. If we complete the proposed merger with Hirsch, the market price of SCM common stock could decline as a result of the large number of shares that would become eligible for sale in the future. If the proposed merger is completed, Hirsch s current shareholders will own a large percentage of SCM common stock, and will have significant influence over the outcome of corporate actions requiring stockholder approval; the former Hirsch shareholders priorities for our business may be different from ours or our other stockholders. We may not have uncovered all the risks associated with the proposed merger with Hirsch and a significant liability may be discovered. The representations and warranties contained in the merger agreement between SCM and Hirsch were made solely for purposes of the contract among SCM, Hirsch, and the merger subsidiaries, and used as a tool for allocating risk among the parties, and therefore they may not accurately characterize the actual state of facts or conditions of SCM or Hirsch. The amount of merger consideration is fixed and not subject to adjustment based on the market price of our common stock. As a result, we may pay a higher price for the merger if our stock price increases. The financial projections for both our business and Hirsch s business that were prepared in connection with our proposed merger with Hirsch are only estimates of future results and there is no assurance that actual results will not be different. Provisions of the merger agreement regarding the payment of a termination fee by us to Hirsch could negatively affect our business operations if the merger agreement is terminated. The date on which the proposed merger with Hirsch will close is uncertain. Disruption in the global financial markets may adversely impact the availability and cost of credit. Disruption in the global financial markets may adversely impact SCM s customers and customer spending patterns and we could experience heightened credit risk to our accounts receivable. Disruption in the global financial markets may adversely impact our suppliers. 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 and on diversifying and expanding our customer base in new markets and geographic regions, and with new products. A significant portion of our revenue is dependent upon sales to 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. Some of our sales are made through distributors, and the loss of such distributors could result in decreased revenue. 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. 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. One of our directors is a partner in the largest shareholder of SCM, and both of them have significant influence over the outcome of corporate actions requiring board and shareholder approval, respectively; the shareholder s priorities for our business may be different from ours or our other shareholders. 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. 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, 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.

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1036044--3/31/2009--SCM_MICROSYSTEMS_INC