Form: 8-K

Current report

November 13, 2007

Documents

Published on November 13, 2007


[COMPANY LOGO]


Contacts:
Stephan Rohaly Darby Dye
Chief Financial Officer Investor Relations-US
+49 89 95 95 5101 510 249 4883
srohaly@scmmicro.de ddye@scmmicro.com


SCM MICROSYSTEMS REPORTS THIRD QUARTER 2007 RESULTS Strong revenue growth in PC
Security business, record gross margin and continued low operating expenses
highlight quarter

Ismaning, Germany - November 13, 2007 - 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, 2007.

Financial highlights of the 2007 third quarter include:

o Improved PC Security revenues, following project delays in the previous
quarter;
o Gross margin of 45%, the highest level in two years;
o Operating expenses under $4 million; and
o Loss from continuing operations approaching break even for the quarter.

Revenues from continuing operations in the third quarter of 2007 were $7.6
million, up 3% from revenues of $7.4 million in the third quarter of 2006.
Revenues for the first nine months of 2007 were $20.7 million, down 14% from
revenues of $24.2 million for the first nine months of 2006. By product segment,
third quarter 2007 PC Security revenues, reflecting sales of smart card readers
and other products for secure network and physical access, were $6.1 million, up
20% from sales of $5.1 million in the third quarter of 2006. Flash Media Reader
revenues, reflecting sales of OEM digital media reader technology, were $1.5
million, down 36% compared with sales of $2.3 million in the year ago quarter.

"Smart card reader sales improved significantly from the previous quarter, as
budget freezes in the U.S. government sector appeared to relax, demand increased
for the Company's CHIPDRIVE line of smart card-based small office solutions, and
order patterns in Asia, which are variable, were once again favorable," said
Stephan Rohaly, chief financial officer of SCM Microsystems. "Sales of the
Company's digital media readers also improved from the second quarter, as demand
increased from one of two major customers, although prior year sales levels were
not reached."



Page 2 of 6

"Stronger demand from customers in the third quarter reflected both the recovery
of some of our markets and increasing traction in others," said Felix Marx,
chief executive officer of SCM Microsystems. "To comply with federal mandates,
the U.S. government is expected to implement smart card based security systems
on an ongoing basis across a number of agencies, and SCM continues to be very
active in serving this market. In Europe, we continue to work closely with
various government groups to prepare for large scale smart card programs
including e-passports and ehealth cards. We have also begun selling our
CHIPDRIVE small office solutions across Europe and are seeing increasing demand
for these products. Additionally, in the last three months we have added sales
resources in each region, underlining our commitment to leverage expanding
market opportunities to deliver revenue growth."

Gross margin in the third quarter of 2007 was 45%, the highest level in two
years, compared with gross margin of 29% in the third quarter of 2006. The
increase in gross margin compared with the prior year, and with the Company's
guidance of 40% for the third quarter, primarily reflects a more favorable mix
of higher margin products, better inventory management and product cost
reductions in the Company's PC Security business.

Operating expenses in the third quarter of 2007, as reported in accordance with
GAAP, were $3.8 million, below previous guidance of $4.0 million to $4.5 million
per quarter. This compares with GAAP operating expenses of $6.2 million in the
third quarter of 2006, which included amortization of intangibles of $0.2
million and restructuring and other charges of $0.4 million. Lower base
operating expenses in the third quarter of 2007 compared with the prior year
resulted primarily from restructuring actions completed by the Company in late
2006.

Operating loss for the third quarter of 2007, as reported in accordance with
GAAP, was $(0.4) million, compared with operating loss of $(4.0) million in the
year ago quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the
third quarter of 2007 was $(0.4) million, compared with EBITDA of $(3.8) million
in the third quarter of 2006. (See reconciliation of EBITDA to GAAP accounting
contained within this press release.)

As reported in accordance with GAAP, loss from continuing operations in the
third quarter of 2007 was $(0.1) million, or $(0.01) per share, compared with
loss from continuing operations of $(3.7) million, or $(0.24) per share, in the
third quarter of 2006.

Cash and cash equivalents at September 30, 2007 were $33.1 million, compared
with cash and cash equivalents of $34.5 million at June 30, 2007.

Guidance
- --------

For the fourth quarter of 2007, the Company expects revenue between $7.5 million
and $9.0 million and gross margin of approximately 40%. Additionally, the
Company expects base operating expenses in the fourth quarter to be between $4.0
million and $4.5 million. Consistent with its previous guidance, the Company
expects that full year 2007 revenues will be down 10% to 15% from the previous
year's levels and expects to realize a small operating loss for the second half
of 2007.



Page 3 of 6

Additional Information
- ----------------------

SCM does not plan to hold a conference call or webcast to discuss the results of
its 2007 third quarter. For more information on SCM's third quarter results,
please see the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, 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 Ismaning, Germany. For additional
information, visit the SCM Microsystems web site at 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 of $7.5 million and $9.0
million, gross margin of approximately 40% and operating expenses of $4.0
million to $4.5 million in the fourth quarter of 2007; that revenues will
decrease 10% to15% in the full year 2007 compared to prior year levels; that we
will record a small operating loss for the second half of 2007; and that demand
will continue to increase for our CHIPDRIVE products. 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; the markets in which we participate or target may not
grow, converge or standardize at anticipated rates or at all, including the
government and enterprise security markets which we are targeting; 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 successful in maintaining operating expenses at current or lower levels. 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 our amended Annual Report on Form 10-K/A for the year ended December 31,
2006, filed with the U.S. Securities and Exchange Commission.

###

All trade names are trademarks or registered trademarks of their
respective holders.

- FINANCIALS FOLLOW -
---------------------




Page 4 of 6
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,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------

Revenues $ 7,617 $ 7,396 $ 20,721 $ 24,185
Cost of revenues 4,170 5,271 12,201 16,251
---------- ---------- ---------- ----------
Gross profit 3,447 2,125 8,520 7,934
---------- ---------- ---------- ----------
Operating expenses:
Research and development 815 1,085 2,327 3,115
Sales and marketing 1,625 2,292 4,802 6,053
General and administrative 1,374 2,208 5,653 6,340
Amortization of intangible assets -- 170 272 495
Restructuring and other charges (credits) (4) 400 (4) 1,066
---------- ---------- ---------- ----------
Total operating expenses 3,810 6,155 13,050 17,069
---------- ---------- ---------- ----------
Loss from operations (363) (4,030) (4,530) (9,135)
Interest and other, net 279 367 999 809
---------- ---------- ---------- ----------
Loss from continuing operations before
income taxes (84) (3,663) (3,531) (8,326)
Benefit (provision) for income taxes (32) (17) (124) (46)
---------- ---------- ---------- ----------
Loss from continuing operations (116) (3,680) (3,655) (8,372)
Income (loss) from discontinued operations (83) (213) (202) 2,793

Gain (loss) on sale of discontinued
operations 16 24 1,569 5,287
---------- ---------- ---------- ----------
Net income (loss) $ (183) $ (3,869) $ (2,288) $ (292)
========== ========== ========== ==========
Loss per share from continuing operations:
Basic and diluted $ (0.01) $ (0.24) $ (0.23) $ (0.54)

Gain (loss) per share from discontinued operations:
Basic and diluted $ (0.00) $ (0.01) $ 0.08 $ 0.52
---------- ---------- ---------- ----------
Net income (loss) per share:
Basic and diluted $ (0.01) $ (0.25) $ (0.15) $ (0.02)
---------- ---------- ---------- ----------
Shares used in computing loss per share:
Basic and diluted 15,736 15,648 15,722 15,623


Note: Financial results contained in this release reflect continuing operations
of the Company's PC Security and Flash Media Reader businesses only. The Company
completed the sale of its Digital TV solutions business in May 2006; therefore,
financial results for the Digital TV solutions business are being accounted for
as discontinued operations.




Page 5 of 6

SCM MICROSYSTEMS, INC.
Reconciliation of EBITDA Calculation to GAAP Accounting
(in thousands)
(unaudited)



Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------

EBITDA $ (424) $ (3,772) $ (4,265) $ (8,455)

Interest income 423 368 1,234 943
Provision for income taxes (32) (17) (124) (46)
Depreciation and amortization (83) (259) (500) (814)

---------- ---------- ---------- ----------
Net loss from continuing operations $ (116) $ (3,680) $ (3,655) $ (8,372)
========== ========== ========== ==========



We conduct a significant amount of our business in Europe, we are dually traded
on the U.S. Nasdaq and German Prime Standard stock exchanges and the majority of
our investors are German-based. In addition, we have recently moved our
corporate headquarters from the U.S. to Germany. Based on these factors, we have
determined that EBITDA is a relevant measure of performance for our company, as
it is a metric commonly used among companies doing business in Europe and is
therefore a helpful tool for communicating our performance to our investors and
analysts and for comparisons to other companies in Europe and within our
industry.

EBITDA should be considered in addition to, but not as a substitute for, other
measures of financial performance reported in accordance with accounting
principles generally accepted in the United States. While we believe that EBITDA
is useful within the context described above, it is in fact incomplete and not a
measure that should be used to evaluate the full performance of the Company or
its prospects. Such evaluation needs to consider all of the complexities
associated with our business including, but not limited to, how past actions are
affecting current results and how they may affect future results, how we have
chosen to finance the business and how regulations and the other aforementioned
items affect the final amounts that are or will be available to shareholders as
a return on their investment. Net income determined in accordance with U.S. GAAP
is the most complete measure available today to evaluate all elements of our
performance. Similarly, our Consolidated Statement of Cash Flows, as presented
in our most recent filings with the Securities and Exchange Commission, provide
the full accounting for how we have decided to use resources provided to us from
our customers, lenders and shareholders.





Page 6 of 6

SCM MICROSYSTEMS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)




ASSETS September 30, 2007 December 31, 2006
------------------ ------------------

Current assets:
Cash, cash equivalents and short-term investments $ 33,091 $ 36,902
Accounts receivable, net 6,156 6,583
Inventories 2,870 1,927
Other current assets 1,049 2,489
------------------ ------------------
Total current assets 43,166 47,901

Property, equipment and other assets, net 3,454 3,182
Intangibles, net -- 272
------------------ ------------------
Total assets $ 46,620 $ 51,355
================== ==================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,995 $ 4,572
Accrued expenses and other current liabilities 8,014 11,362
------------------ ------------------
Total current liabilities 10,009 15,934
Long-term income taxes payable 195 --
Deferred tax liability 101 103

Stockholders' equity 36,315 35,318
------------------ ------------------
Total liabilities and stockholders' equity $ 46,620 $ 51,355
================== ==================