Completion of consolidation and restructuring expected to help
Company achieve or approach break even in the fourth quarter
FREMONT, Calif., Nov. 14 /PRNewswire-FirstCall/ -- SCM
Microsystems, Inc. (Nasdaq: SCMM; Prime Standard: SMY), a leading
provider of solutions that open the Digital World, today announced
results for the third quarter ended September 30, 2006. SCM's
reported financial results for the three and nine months ended
September 30, 2006 and September 30, 2005 reflect continuing
operations of the Company's PC Security and Flash Media Interface
businesses only. The Company completed the sale of its Digital TV
solutions business on May 22, 2006; therefore, financial results
for the Digital TV solutions business are being accounted for as
discontinued operations. Third Quarter Results Revenues from
continuing operations in the third quarter of 2006 were $7.4
million, within previous management guidance of $7 million to $8
million and down 8% from revenues of $8.1 million in the third
quarter of 2005. By product segment, third quarter 2006 revenues
included $5.1 million from sales of smart card readers and other
products for secure network and physical access, compared with
sales of $3.9 million in the third quarter of 2005; and $2.3
million from sales of OEM digital media reader technology, compared
with sales of $4.2 million in the same period of 2005. Growth in
sales of smart card readers was driven primarily by demand for
SCM's Class I readers, used for personal ID and network security by
various governments both in the U.S. and internationally, as well
as by corporate enterprises. Lower digital media reader sales
reflect the comparison with an unusually high volume of products
sold in the prior year period. Gross profit in the third quarter of
2006 was 29%, below previous management guidance of gross profit in
the mid 30% range. Lower than anticipated gross profit resulted
primarily from pricing pressure in some of the Company's product
lines, the impact of lower margin digital media reader products
sold during the quarter and additional inventory reserves of $0.4
million related to the transition to lead-free products and the
transfer of in-house manufacturing to contract manufacturers.
Operating expenses in the third quarter of 2006, as reported in
accordance with GAAP, were $6.2 million, including amortization of
intangibles of $0.2 million and restructuring and other charges of
$0.4 million. Sales and marketing expense in the third quarter of
2006 also included severance charges of $0.3 million, and general
and administrative expense included $0.1 million in charges for
severance, contract termination and office consolidation related to
SCM's consolidation and restructuring of its global business
operations. Operating expenses in the third quarter of 2005 were
$5.3 million, including amortization of intangibles of $0.2 million
and restructuring and other charges of $22,000. Operating loss for
the third quarter of 2006, as reported in accordance with GAAP, was
$(4.0) million, compared with operating loss of $(2.2) million in
the third quarter of 2005. Loss from continuing operations for the
third quarter of 2006, as reported in accordance with GAAP, was
$(3.7) million, or $(0.24) per share, compared with loss from
continuing operations of $(2.0) million, or $(0.12) per share in
the third quarter of 2005. Cash and cash equivalents as of
September 30, 2006 were approximately $36.3 million, compared with
$36.4 million as of June 30, 2006. Robert Schneider, chief
executive officer of SCM Microsystems commented, "During the third
quarter, we completed both the move of our corporate finance and
compliance functions from the U.S. to Germany and the transition of
our manufacturing and supply chain operations to contract
manufacturers. We expect that these actions will result in a
reduction in our operating expenses in the fourth quarter and going
forward. "We expect that our involvement in large security
projects, such as the electronic healthcard in Germany, the U.S.
government's various Personal Identity Verification (PIV) card and
global e-passport programs, will provide on-going opportunity for
SCM," continued Schneider. "Year to date, sales of our smart card
readers are up 31%, driving an 18% increase in sales overall. In
recent weeks, we have put in place components cost reduction
programs to help strengthen margins. We have also demonstrated
effective working capital management in the third quarter,
resulting in a stable cash position for the period despite
recording a net loss. Given all of these factors, we believe that
we now have in place a business model that can help us to achieve
our goal of becoming profitable, as we take advantage of the
expected array of smart card-based security programs in the
financial, enterprise and government markets." For the fourth
quarter of 2006, management currently estimates that revenues from
continuing operations will be in the range of $8.5 million to $9.5
million, based primarily on expected sales orders and customer
projects. Gross profit is expected to increase to the high 30%
range based primarily on the anticipated mix of product sales in
the quarter and expected reductions in component costs. Reduced
components costs are expected to help offset continuing pricing
pressure in the Company's markets. With the completion of the
Company's restructuring initiatives, SCM expects to have lower
headcount related expenses and, therefore, total operating expenses
are expected to decrease to below $4.0 million. If the Company is
able to achieve revenues at the high end of the estimated range and
if gross profit and operating expense are within their estimated
ranges, SCM expects to achieve or approach break even in the fourth
quarter of 2006. SCM does not plan to hold a conference call or
webcast to discuss the results of its 2006 third quarter. For more
information on SCM's third quarter results, please see the
Company's Quarterly Report on Form 10-Q for quarter ended September
30, 2006, filed with the U.S. Securities and Exchange Commission.
About SCM Microsystems SCM Microsystems is a leading supplier of
solutions that open the Digital World by enabling people to
conveniently access digital content and services. The company
develops, markets and sells the industry's broadest range of smart
card reader technology for secure PC, network and physical access
and digital media readers for transfer of digital content to OEM
customers in the government, financial, enterprise, consumer
electronics and photographic equipment markets worldwide. Global
headquarters are in Fremont, California, with European headquarters
in Ismaning, Germany. For additional information, visit the SCM
Microsystems web site at http://www.scmmicro.com/. NOTE: This press
release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
include, without limitation, our statements regarding our
expectations for revenues, gross profit, operating expenses and
operating performance in the fourth quarter of 2006; our
expectations that we will be able to reduce operating expenses to
below $4.0 million in the fourth quarter and to achieve or approach
break even; our expectation for ongoing revenues from sales of our
smart card readers for financial, government and enterprise
security projects; our expectation that we will be able to reduce
the cost of our components, that these reductions will help offset
continued pricing pressure in our markets, and that we will be able
to improve gross margins; our expectation for lower headcount
related costs in the fourth quarter and going forward; and our
expectation that the combination of expected lower expenses, higher
gross margin and continued smart card reader sales will allow the
Company to become and remain profitable in the future. These
statements are subject to risks and uncertainties which may cause
actual results to differ materially from those contemplated herein.
Our financial results may not meet expectations. Some of the risks
and uncertainties that could cause our actual business and
operating results to differ include, but are not limited to, our
ability to grow market share and revenues based on a strategy of
participating in specific early stage markets; our ability to
successfully develop and introduce new products that satisfy the
evolving and increasingly complex requirements of customers; our
ability to identify and complete strategic market opportunities;
the markets in which we participate or target may not grow,
converge or standardize at anticipated rates or at all; we may not
successfully compete in the markets in which we participate or
target; competitors could take market share or create pricing
pressure; and we may not be able to improve our operational
performance through the consolidation of our corporate headquarters
into one location. For a discussion of further risks and
uncertainties related to our business, please refer to our public
company reports, including our Annual Report on Form 10-K and Form
10-K/A for the year ended December 31, 2005 filed with the U.S.
Securities and Exchange Commission. All trade names are trademarks
or registered trademarks of their respective holders. NOTE: The
unaudited financial results contained within this release for the
three and nine months ended September 30, 2006 reflect continuing
operations only, as SCM sold its retail Dazzle(TM)-branded digital
media and video business in July 2003 and sold its Digital TV
solutions business in May 2006. SCM's continuing business is
focused on providing solutions for the smart card reader and
digital flash media reader markets. Financial results for the
retail digital media and video business and the Digital TV
solutions business are being accounted for as discontinued
operations. SCM MICROSYSTEMS, INC. Condensed Consolidated
Statements of Operations (in thousands, except per share data)
(unaudited) Three months ended Nine months ended September 30,
September 30, 2006 2005 2006 2005 Revenues $7,396 $8,051 $24,185
$20,534 Cost of revenues 5,271 4,948 16,251 12,501 Gross profit
2,125 3,103 7,934 8,033 Operating expenses: Research and
development 1,085 1,048 3,115 2,947 Sales and marketing 2,292 1,609
6,053 5,282 General and administrative 2,208 2,492 6,340 6,958
Amortization of intangible assets 170 163 495 513 Restructuring and
other charges (credits) 400 22 1,066 174 Total operating expenses
6,155 5,334 17,069 15,874 Loss from operations (4,030) (2,231)
(9,135) (7,841) Interest and other, net 367 416 809 2,029 Loss from
continuing operations before income taxes (3,663) (1,815) (8,326)
(5,812) Benefit (provision) for income taxes (17) (135) (46) (128)
Loss from continuing operations (3,680) (1,950) (8,372) (5,940)
Income (loss) from discontinued operations (213) (8) 2,793 (2,604)
Gain (loss) on sale of discontinued operations 24 (89) 5,287 (74)
Net income (loss) $(3,869) $(2,047) $(292) $(8,618) Loss per share
from continuing operations: Basic and diluted $(0.24) $(0.12)
$(0.54) $(0.39) Gain (loss) per share from discontinued operations:
Basic $(0.01) $(0.01) $0.52 $(0.17) Diluted $(0.01) $(0.01) $0.52
$(0.17) Net income (loss) per share: Basic $(0.25) $(0.13) $(0.02)
$(0.56) Diluted $(0.25) $(0.13) $(0.02) $(0.56) Shares used in
computing loss per share: Basic 15,648 15,542 15,623 15,517 Diluted
15,648 15,542 15,646 15,517 SCM MICROSYSTEMS, INC. Condensed
Consolidated Balance Sheets (in thousands) (unaudited) September
30, December 31, ASSETS 2006 2005 Current assets: Cash, cash
equivalents and short-term investments $36,277 $32,440 Restricted
short-term investments 2,000 --- Accounts receivable, net 4,344
6,904 Inventories 2,226 6,005 Other current assets 2,808 2,038
Total current assets 47,655 47,387 Property, equipment and other
assets, net 3,348 4,468 Intangibles, net 432 879 Total assets $
51,435 $ 52,734 LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $4,959 $5,700 Accrued expenses and
other current liabilities 13,047 14,316 Deferred tax liability 100
101 Total liabilities 18,106 20,117 Stockholders' equity 33,329
32,617 Total liabilities and stockholders' equity $51,435 $52,734
DATASOURCE: SCM Microsystems, Inc. CONTACT: Stephan Rohaly, Chief
Financial Officer, +49 89 9595 5101, or , or Darby Dye, Investor
Relations-US, +1-510-249-4883, or , or Manfred Mueller, Investor
Relations-Europe, +49 89 9595 5140, or , all of SCM Microsystems,
Inc. Web site: http://www.scmmicro.com/
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