850313--3/16/2006--SAFENET

related topics

{product, market, service}

{acquisition, growth, future}

{stock, price, operating}

{system, service, information}

{property, intellectual, protect}

{customer, product, revenue}

{product, liability, claim}

{provision, law, control}

{control, financial, internal}

{personnel, key, retain}

{regulation, change, law}

{condition, economic, financial}

{tax, income, asset}

{operation, international, foreign}

{debt, indebtedness, cash}

{stock, price, share}

Risks Related to Our Business We have a history of losses and if we fail to execute our growth strategy, our business could be materially and adversely affected. The loss of significant customers could have a material adverse effect on our business and results of operations. We may not be able to successfully execute our growth strategy through acquisitions Growing our business through acquisitions involves the risk that we may not successfully integrate the business or assets acquired or that we may not achieve the expected benefits from the acquisition. Our quarterly operating results may fluctuate and our future revenues and profitability are uncertain. If our subsidiary, Mykotronx, Inc., were to lose its eligibility as a small business under the rules of the Small Business Administration, it would incur additional costs and charges relating to disclosure, accounting and reporting to the U.S. government. Our industry is highly competitive and becoming increasingly consolidated, which may result in our losing customers and declining revenue. We may not be able to protect our proprietary technologies. Due to the nature of the information security industry and our products, our products and technologies could infringe on the intellectual property rights of others, which may cause us to engage in costly litigation and, if we are not successful, could cause us to pay substantial damages and prohibit us from selling our products. We may not be able to maintain effective product distribution channels, which could result in decreased revenue. Delays in product development could adversely affect market acceptance of our products. We may be subject to product liability or other claims that could adversely affect our reputation with existing and potential customers and expose us to significant liability. We rely on single or limited sources for the manufacture and supply of our products. We rely on key technical and management employees and if such employees become unavailable, our business could be adversely affected. Management has identified a material weakness in our internal control over financial reporting that will require significant resources to remediate and could adversely affect our ability to report our financial results accurately. Our future success will depend upon our ability to anticipate and keep pace with technological changes and introduce new products and services in a timely manner. Prolonged economic weakness in the Internet infrastructure, network security and related markets may decrease our revenues and margins. If our products and services do not interoperate with our end-users networks, installations could be delayed or cancelled, which could significantly reduce our revenues. A decrease of average selling prices for our products and services could adversely affect our business. We face risks associated with our international business activities. A breach of network security could harm public perception of our products and services, which could cause us to lose revenue. Because a significant portion of our net assets is represented by goodwill that is subject to mandatory annual impairment evaluations, we could be required to write-off some or all of this goodwill, which may adversely affect our financial condition and results of operations. The conversion of our 2.50% convertible subordinated notes could adversely affect our available cash. RISKS RELATED TO OUR COMMON STOCK Anti-takeover provisions in our charter documents and under Delaware law and certain provisions of our 2.50% convertible subordinated notes could discourage an acquisition of us by a third party. The price of our common stock may be volatile.

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850313--3/16/2006--SAFENET_INC