1044777--3/16/2010--VASCO_DATA_SECURITY_INTERNATIONAL

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{operation, international, foreign}

{property, intellectual, protect}

{product, market, service}

{provision, law, control}

{personnel, key, retain}

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Risks Related to Our Business The worldwide recession and credit crisis have impacted our business. The current worldwide economic conditions may affect our liquidity and capital resources. We have a long operating history, but only a small accumulated profit. We derive revenue from a limited number of products and do not have a broadly-diversified product base. The sales cycle for our products and technology is long, and we may incur substantial expenses for sales that do not occur when anticipated. We have a great dependence on a limited number of suppliers and the loss of their manufacturing capability could materially impact our operations. We have a significant dependence on major customers and losing any of these customers could result in a significant loss in revenue. Our customers have the ability to reschedule their deliveries. Our success depends on establishing and maintaining strategic relationships with other companies to develop, market and distribute our technology and products and, in some cases, to incorporate our technology into their products. We may not be able to maintain effective product distribution channels, which could result in decreased revenue. We depend on our key personnel for the success of our business and the loss of one or more of our key personnel could have an adverse effect on our ability to manage our business or could be negatively perceived in the capital markets. If we fail to continue to attract and retain qualified personnel, our business may be harmed. Changes in our effective tax rate may have an adverse effect on our results of operations. Our worldwide income tax provisions and other tax accruals may be insufficient if any taxing authorities assume taxing positions that are contrary to our positions. Any acquisitions we make could disrupt our business and harm our financial condition. Reported revenue may fluctuate widely due to the interpretation or application of accounting rules. Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses. Risks Related to the Market We face significant competition and if we lose or fail to gain market share our financial results will suffer. A decrease of average selling prices for our products and services could adversely affect our business. We may need additional capital in the future and our failure to obtain capital would interfere with our growth strategy. We experience variations in quarterly operating results and sales are subject to seasonality, both of which may result in a volatile stock price. Our stock price may be volatile for reasons other than variations in our quarterly operating results. A small group of persons control a substantial amount of our common stock and could delay or prevent a change of control. Certain provisions of our charter and of Delaware law make a takeover of our company more difficult. Future issuances of blank check preferred stock may reduce voting power of common stock and may have anti-takeover effects that could prevent a change in control. Risks Related to Technology and Intellectual Property Technological changes occur rapidly in our industry and our development of new products is critical to maintain our revenue. Our products contain third-party, open-source software and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to sell our products or otherwise result in claims of infringement. We must continue to attract and retain highly skilled technical personnel for our research and development department. We cannot be certain that our research and development activities will be successful. We depend significantly upon our proprietary technology and intellectual property and the failure to protect our proprietary rights could require us to redesign our products or require us to enter into royalty or licensing agreements, any of which could reduce revenue and increase our operating costs. Our patents may not provide us with competitive advantages. We are subject to warranty and product liability risks. There is significant government regulation of technology exports and to the extent we cannot meet the requirements of the regulations we may be prohibited from exporting some of our products, which could negatively impact our revenue. We employ cryptographic technology in our authentication products that uses complex mathematical formulations to establish network security systems. Risks Related to International Operations We face a number of risks associated with our international operations, any or all of which could result in a disruption in our business and a decrease in our revenue. We are subject to foreign exchange risks, and improper management of that risk could result in large cash losses. We must comply with European governmental regulations setting environmental standards. We or our suppliers may be impacted by new regulations related to climate change. U.S. investors may have difficulties in making claims for any breach of their rights as holders of shares because some of our assets and executives are not located in the United States. Our business in countries with a history of corruption and transactions with foreign governments increase the risks associated with our international activities.

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1044777--3/16/2010--VASCO_DATA_SECURITY_INTERNATIONAL_INC