<SUBMISSION>
<ACCESSION-NUMBER>0000898430-03-003060
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>4
<PERIOD>20030331
<FILING-DATE>20030515
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>ACTIVCARD CORP
<CIK>0001183941
<ASSIGNED-SIC>7372
<IRS-NUMBER>450485038
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-50223
<FILM-NUMBER>03704327
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>6623 DUMBARTON CIRCLE
<CITY>FREMONT
<STATE>CA
<ZIP>94555
<PHONE>5105710100
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>6623 DUMBARTON CIRCLE
<CITY>FREMONT
<STATE>CA
<ZIP>94555
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML><HEAD>
<TITLE>Form 10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <hr size="4" width="100%" noshade color=black> <p align="center"><font size="5" face="Times New Roman"><b>UNITED STATES<br> SECURITIES AND EXCHANGE COMMISSION</b></font></p> <p align="center"> <font size="3"
face="Times New Roman"><b>WASHINGTON, D.C. 20549</b></font></p> <p align="center"> <font size="5" face="Times New Roman"><b>FORM 10-Q</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="4%" valign="top"> <p> <font size="3" face="Wingdings">x</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="95%" colspan="3" valign="bottom"> <p> <font size="3" face="Times New Roman"><b>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</b></font></p> </td> </tr>
<tr>
<td width="4%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="95%" colspan="3" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>For the fiscal period ended March 31, 2003 </b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>OR</b></font></p> </td> </tr>
<tr>
<td width="4%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="95%" colspan="3" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="4%" valign="top"> <p> <font size="3" face="Wingdings">o</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="95%" colspan="3" valign="bottom"> <p> <font size="3" face="Times New Roman"><b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</b></font></p> </td> </tr>
<tr>
<td width="4%"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="95%" colspan="3" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"><font size="2" face="Times New Roman"><b>For the transition period from __________ to __________</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>Commission File Number 000-50223</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="6" face="Times New Roman"><b>ACTIVCARD CORP.</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Exact name of Registrant as specified in its charter)</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="48%" colspan="3" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>Delaware</b></font></p> </td>
<td width="4%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="48%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>450485038</b></font></p> </td> </tr>
<tr>
<td width="48%" colspan="3" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(State or other jurisdiction of incorporation of organization)</b></font></p> </td>
<td width="4%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="48%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(I.R.S. Employer Identification Number)</b></font></p> </td> </tr>
<tr>
<td width="48%" colspan="3" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="48%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>6623 Dumbarton Circle, Fremont, California 94555</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Address of principal executive offices including Zip code)</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"><font size="2" face="Times New Roman"><b>(510)&nbsp;574-0100</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Registrant&#146;s telephone number, including area code)</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman"><b>NOT APPLICABLE</b></font></p> </td> </tr>
<tr>
<td width="100%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(Former name, former address and former fiscal year, if changed since last report)</b></font></p> </td> </tr>
<tr>
<td width=29 style='border:none'></td>
<td width=7></td>
<td width=310></td>
<td width=29></td>
<td width=346></td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15 (d)&nbsp;of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for such shorter period that the Registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements
for the past 90&nbsp;days.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="13%">
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman">YES&nbsp;&nbsp;</font> <font size="2" face="Wingdings">x</font></p> </td>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">NO&nbsp;&nbsp;</font> <font size="2" face="Wingdings">o</font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule&nbsp;12b-2).</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="13%">
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman">YES&nbsp;&nbsp;</font> <font size="2" face="Wingdings">x</font></p> </td>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">NO&nbsp;&nbsp;</font> <font size="2" face="Wingdings">o</font></p> </td> </tr> </table> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of the Registrant&#146;s Common Stock outstanding on April 30, 2003 was 39,984,110. </font></p> <hr size="4" width="100%" noshade color=black>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

<a name="toc"></a> <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> TABLE OF CONTENTS</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="95%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_1">PART I: FINANCIAL INFORMATION</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p align=right>&nbsp;</p> </td>
<td width="88%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 1 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_2">Financial Statements</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_3">Condensed Consolidated Statements of Operations</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>3</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_4">Condensed Consolidated Balance Sheets</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>4</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_5">Condensed Consolidated Statements of Cash Flows</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>5</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p><font size="2" face="Times New Roman"><b>
<a href="#tx662_6">Notes to Condensed Consolidated Financial Statements</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>6</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 2 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_7">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>16</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 3 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_8">Quantitative and Qualitative Disclosures about Market Risk</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>36</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 4 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_9">Controls and Procedures</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>36</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="95%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_10">PART II: OTHER INFORMATION</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 1 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_11">Legal Proceedings</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="2" face="Times New Roman"><b>Item 2 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_12">Changes in Securities and Use of Proceeds</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 3 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_13">Defaults Upon Senior Securities</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 4 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_14">Submission of Matters to a Vote of Security Holders</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 5 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_15">Other Information</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman"><b>Item 6 </b></font></p> </td>
<td width="88%" valign="bottom"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_16">Exhibits and Reports on Form 8-K</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="95%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman"><b>
<a href="#tx662_17">SIGNATURES</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>37</b></font></p> </td> </tr>
<tr>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="88%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="top"> <p align=right>&nbsp;</p> </td> </tr>
<tr>
<td width="95%" colspan="2" valign="top"> <p><font size="2" face="Times New Roman"><b>
<a href="#tx662_18">CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</a></b></font></p> </td>
<td width="5%" valign="top"> <p align=right> <font size="2" face="Times New Roman"><b>38</b></font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">2</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p>
<a name="tx662_1"></a> <font size="2" face="Times New Roman"><b>PART I: FINANCIAL INFORMATION</b></font></p> <p>
<a name="tx662_2"></a> <font size="2" face="Times New Roman"><b>ITEM 1. Financial Statements </b></font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br>
<a name="tx662_3"></a>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br> (In thousands, except share and per share data)<br> (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Hardware</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">5,485</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,656</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Software and maintenance</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,582</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,509</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right><font size="2" face="Times New Roman">13,067</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8,165</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Cost of revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Hardware</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">3,784</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,835</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Software and maintenance</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,378</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">810</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,162</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,645</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Gross margin</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,905</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,520</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Operating expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Research and development</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,394</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">4,988</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales and marketing</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,147</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,232</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">General and administrative</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,374</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">927</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Amortization of acquired intangible assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">152</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">566</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Other charges</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,190</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7,771</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total operating expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,257</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">19,484</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(5,352</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(13,964</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest expense</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(7</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest income</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,245</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,249</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Foreign exchange (loss) gain</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(216</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">35</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from continuing operations before income taxes and minority interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,323</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(12,687</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Income tax expense</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(62</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(1</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Minority interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">49</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from continuing operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,336</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(12,688</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from discontinued operations</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(228</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(15,918</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net loss</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,564</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(28,606</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Basic and diluted loss per common share:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">From continuing operations</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.10</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.31</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">From discontinued operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.01</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.40</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.11)</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.71</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Shares used in the calculation of loss per common share:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Basic and diluted</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">40,614,240</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">40,511,626</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Other charges were comprised of:</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Acquired in process research and development</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Amortization of deferred stock compensation:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Cost of revenue</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Research and development</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">156</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">190</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales and marketing</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">106</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">128</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">General and administrative</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">26</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">26</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Restructuring and business realignment expenses</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">947</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7,352</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Re-incorporation expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">945</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total other charges</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,190</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,771</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">See accompanying notes to unaudited condensed consolidated financial
statements.</font></p> <p align="center"> <font size="2" face="Times New Roman">3</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br>
<a name="tx662_4"></a>CONDENSED CONSOLIDATED BALANCE SHEETS<br> (In thousands, except per share data)<br> (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>December 31, 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>ASSETS</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Current assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Cash and equivalents</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">43,629</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">158,880</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Short-term investments</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">201,468</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">89,502</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Accounts receivable (net of allowance for doubtful accounts of $522 and $525 at March&nbsp;31, 2003 and December
31, 2002, respectively)</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">10,888</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">9,192</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other receivables</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,283</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,579</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Inventories</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,298</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,488</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Assets held for sale</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">262</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other current assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,278</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,959</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total current assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">264,844</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">264,862</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Restricted investments</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">524</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">432</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Property and equipment</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6,976</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,313</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10,600</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10,600</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Other intangible assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,144</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,311</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Other long-term assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">848</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">874</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">285,936</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">286,392</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Current liabilities</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Accounts payable and accrued liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">12,749</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">10,493</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Current portion of restructuring and business realignment accruals</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">835</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">867</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Deferred revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,383</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,997</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Liabilities held for sale</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">250</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Current portion of long-term debt</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Current portion of obligations under capital lease</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">6</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Total current liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">16,973</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15,629</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Long-term portion of restructuring and business realignment accruals</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,267</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,429</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Other long-term liabilities</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">580</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">525</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total long-term liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,847</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,954</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Minority interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,603</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Commitments and contingencies</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Shareholders&#146; equity</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Preferred shares, $0.001 par value, none issued</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Common shares, $0.001 par value, 39,887 shares issued and outstanding at March 31, 2003; &#128;1.00 nominal value, 41,690 shares
issued and outstanding at December 31, 2002</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">40</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">45,117</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Additional paid-in capital</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">380,452</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">354,400</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Accumulated other comprehensive loss</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(13,642</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(14,817</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Deferred stock compensation</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(2,154</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(3,122</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Accumulated deficit</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(114,183</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(115,769</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Total shareholders&#146; equity</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">250,513</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">265,809</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">285,936</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">286,392</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">See accompanying notes to unaudited condensed consolidated financial
statements.</font></p> <p align="center"> <font size="2" face="Times New Roman">4</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br>
<a name="tx662_5"></a>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<br> (In thousands)<br> (Unaudited)</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>Operating activities</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from continuing operations</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(4,336</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(12,688</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Adjustments to reconcile loss from continuing operations to net cash used in continuing operations:</font></p>
</td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Depreciation and amortization</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">827</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">924</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Amortization of acquired intangible assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">152</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">587</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">In process research and development</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Amortization of deferred stock compensation</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">298</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">351</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Non-cash restructuring and business realignment expenses</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">520</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,054</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Other non-cash items, net</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">159</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">50</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Increase (decrease) in cash, net of the effects of business combinations, from:</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Accounts receivable</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(1,623</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,445</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Other receivables</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(678</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(662</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Inventories</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(695</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(382</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Other current assets</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(78</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="2" face="Times new roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(598</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Accounts payable and accrued liabilities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,651</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(1,776</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Restructuring and business realignment accruals</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(198</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">5,135</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Deferred revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(640</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(233</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net cash used in continuing operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,641</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(5,725</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net cash used in discontinued operations</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(106</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(76</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net cash used in operating activities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,747</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(5,801</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Investing activities</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Business acquisitions, net of cash acquired</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">606</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Loans to related parties</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(24</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Purchases of property and equipment</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(385</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(452</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Purchases of short term investments</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(136,935</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Proceeds from sales and maturities of short term investments</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">24,748</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other long-term assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(29</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="78%" colspan="2" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net cash (used in) provided by investing activities</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(112,601</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">131</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>Financing activities</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Proceeds from exercise of stock options</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,637</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">814</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Repayment of long-term debt</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(13</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(24</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net cash provided by financing activities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,624</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">790</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Effect of exchange rate changes on cash and equivalents</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">473</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(214</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net decrease in cash and equivalents</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(115,251</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(5,094</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Cash and equivalents, beginning of period</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">158,880</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">248,444</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Cash and equivalents, end of period</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">43,629</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">243,350</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">See accompanying notes to unaudited condensed consolidated financial
statements.</font></p> <p align="center"> <font size="2" face="Times New Roman">5</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br>
<a name="tx662_6"></a>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<br> (In thousands, except share and per share data)<br> (Unaudited)</b></font></p> <p> <font size="2"
face="Times New Roman"><b>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basis of Presentation and Significant Accounting Policies</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ActivCard Corp. was incorporated in the State of Delaware in August 2002 for the purpose of changing the domicile of the publicly listed company in the ActivCard
group of companies, previously ActivCard S.A., from the Republic of France to the United States. ActivCard S.A. was organized as a soci&#233;t&#233; anonyme, or limited liability corporation, under the laws of the Republic of France. On January 6,
2003 ActivCard Corp. commenced a registered public exchange offer in which holders of ActivCard S.A. securities were offered one share of ActivCard Corp. common stock for each ActivCard S.A. common share and each ActivCard S.A. American depositary
share (&#147;ADS&#148;) duly tendered. The registered exchange offer closed on February 3, 2003 with 24,409,937 common shares and 15,417,729 ADS&#146;s exchanged for an equivalent number of shares of ActivCard Corp. common stock. The exchanged
common shares and ADS&#146;s represented 94.8% of the outstanding securities of ActivCard S.A. The common shares and ADS&#146;s of ActivCard S.A. not exchanged have been recorded as a minority interest on the consolidated balance sheet. These
consolidated financial statements present the financial position and results of operations and cash flows for ActivCard S.A. for those periods preceding the change in domicile.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company develops and markets digital identity solutions that enable customers to securely issue, use and maintain digital identities. The Company&#146;s solutions
provide customers with the ability to authenticate a user to a network, a system or an application through a variety of personal devices as well as the ability to manage credentials remotely post-issuance. The Company markets its solutions to
governments, enterprises and financial institutions directly and indirectly through system integrators, value-added resellers, original equipment manufacturers and distributors. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America has been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, these condensed consolidated financial statements include all normal recurring adjustments necessary for the fair presentation of the Company&#146;s consolidated financial position as at
March&nbsp;31, 2003, consolidated results of operations for the three months ended March 31, 2003 and 2002, and consolidated statements of cash flows for the three months ended March 31, 2003 and 2002. The consolidated results of operations for the
three months ended March 31, 2003 are not necessarily indicative of the consolidated operating results for the Company&#146;s full fiscal year ending December&nbsp;31, 2003 or any future periods. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These unaudited condensed consolidated financial statements should be read in conjunction with the Company&#146;s audited consolidated financial statements included
in ActivCard Corp.&#146;s Annual Report on Form 10-K for the fiscal year ended December 31,&nbsp;2002.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications &#150; Certain
reclassifications have been made to the 2002 financial statement presentation to conform to the 2003 presentation. These reclassifications had no effect on reported net loss or shareholders&#146; equity.</font></p> <p align="center"><font size="2"
face="Times New Roman">6</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>Revenue Recognition </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are derived primarily from the
sale of software licenses, hardware and service agreements. The Company applies the provisions of Statement of Position 97-2 and related guidance. Revenues from software license agreements are generally recognized upon shipment, provided that
evidence of an arrangement exists, the fee is fixed or determinable, no significant obligations remain and collection of the corresponding receivable is probable. In software arrangements that include hardware products, rights to multiple software
products, maintenance and/or other services, the Company allocates the total arrangement fee among each deliverable, based on vendor-specific objective evidence of fair value of each element if vendor-specific objective evidence of each element
exists. The Company determines vendor specific evidence of fair value of an element based on the price charged when the same element is sold separately. For an element not yet sold separately, vendor specific evidence of fair value of an element is
established by management having the relevant authority as long as it is probable that the price, once established, will not change before separate introduction of the element in the marketplace. When arrangements contain multiple elements and
vendor specific objective evidence of fair value exists for all undelivered elements, the Company recognizes revenue for the delivered elements based on the residual value method. For arrangements containing multiple elements wherein vendor specific
objective evidence of fair value does not exist for all undelivered elements, revenue for the delivered and undelivered elements is deferred until vendor specific objective evidence of fair value exists or all elements have been delivered. The
Company does not include acceptance clauses for its shrink-wrapped software products such as ActivCard Gold or Trinity client software. Acceptance clauses usually give the customer the right to accept or reject the software after the Company has
delivered the product. However, the Company has provided certain customers with acceptance clauses for customized or significantly modified software products developed under product development agreements, and on occasion, for hardware products and
client/server software products as well. In instances where an acceptance clause exists, the Company does not recognize revenue until the product is formally accepted by the customer in writing or the defined acceptance period has expired.
</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from the sale of hardware is recognized upon shipment of the product, provided that no significant obligation remains and
collection of the receivable is considered probable. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Post-contract customer support is recognized on a straight-line basis over the
term of the contract. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenues include revenues from training, installation, or consulting. The Company enters into agreements
with customers that require significant production, modification or customization of software in addition to the provision of services. Where the services are essential to the functionality of the software element of the arrangement, separate
accounting for the services is not permitted and contract accounting is applied to both the software and service elements. In these cases, revenue is recognized as the work is performed pursuant to the related contracts and the achievement of
related milestones in accordance with the percentage of completion method based on input measures. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenues are recognized
separately from the software element when the services are performed if vendor specific objective evidence of fair value exists to allocate the revenue to the various elements in a multi-element arrangement, the services are not essential to the
functionality of any other element of the arrangement and the total price of the contract would vary with the inclusion or exclusion of the services. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company normally sells its products to customers with payment terms that are less than 60 days. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In certain specific and limited circumstances, the Company provides product return and price protection rights to certain distributors and resellers. The Company
generally recognizes revenue from product sales upon shipment to resellers, distributors and other indirect channels, net of estimated returns or estimated future price changes. The Company&#146;s policy is to not ship product to a reseller or
distributor unless the reseller or distributor has a history of selling the Company&#146;s products and the end user is known or has been qualified by the Company. The Company has established a reasonable basis through historical experience for
estimating future returns and price changes. Actual returns have not been material to date. Price protection rights typically expire after 30 days and have not been material to date. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts billed in excess of revenue recognized are recorded as deferred revenue in the accompanying consolidated balance sheets. </font></p> <p><font size="2"
face="Times New Roman"> work-in-process is recorded as a receivable in the accompanying consolidated balance sheets. </font></p> <p align="center"> <font size="2" face="Times New Roman">7</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>Stock-based Compensation </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 1995, the Financial
Accounting Standards Board (&#147;FASB&#148;) issued SFAS No. 123, &#147;Accounting for Stock Based compensation&#148;, which recommends that the compensation cost for stock-based plans be measured using a fair value based method. The Company
accounts for its employee stock option plans in accordance with the provisions of APB Opinion No. 25, which provides that no compensation costs be recorded if the exercise price of the options granted is equal to the fair market value of the
Company&#146;s stock as at the date of grant. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with APB Opinion No. 25, the Company allocates to deferred stock
compensation, the fair value of restricted stock when granted to employees of acquired companies if they remain as employees of the Company subsequent to the acquisition date. The Company amortizes the deferred stock compensation to expense using
the straight-line method over the vesting period, which is three years. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro forma information regarding net loss and loss per share is
required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options and warrants under the fair value method of SFAS 123. The fair value for these options and warrants was estimated at the date of grant using
the Black-Scholes option pricing model. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of pro forma disclosures, the estimated fair value of the options granted is
amortized to expense over the options&#146; vesting period. The Company&#146;s pro forma information follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net loss, as reported</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,564</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(28,606</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Less: Stock-based employee compensation expenses included in reported net loss</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">233</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">249</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Add: Total stock-based employee compensation expense determined under fair value based method for all
awards</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(2,613</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(3,582</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Pro forma net loss</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(6,944</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(31,939</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net loss per share, as reported</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Basic and diluted</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.11</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.71</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Pro forma net loss per share</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Basic and diluted</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.17</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.79</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman"><b>Foreign Currency </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reporting currency of the Company and its subsidiaries is the U.S. dollar. All of the companies within the ActivCard Group use their local currency as their
functional currency with the exception of ActivCard Ireland Ltd., which uses the US dollar as its functional currency. For those entities using their non-U.S. dollar currency as their functional currency, assets and liabilities are translated into
the US dollar at exchange rates in effect at the balance sheet date and revenues and expenses are translated at weighted average exchange rates during the year. Translation adjustments arising upon the consolidation of non-U.S. Dollar financial
statements are accumulated in shareholders&#146; equity as a translation adjustment within other comprehensive income. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions
involving a currency other than the functional currency generate a gain or loss from the fluctuation of this currency relative to the functional currency and are recorded in the statement of operations during the respective period. The Company
enters into and designates foreign currency forward exchange contracts to establish fair value hedges to mitigate these foreign transaction gains and losses. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required, the Company adopted Statement of Financial Accounting Standards (&#147;SFAS&#148;) No. 133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148;, on January 1, 2001. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133,
certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. SFAS 133, as amended, requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet measured
at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting.</font></p> <p align="center"><font size="2"
face="Times New Roman">8</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>Recent Accounting Pronouncements </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002, the
Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No. 146, &#147;Accounting for Costs Associated With Exit or Disposal Activities&#148;, which addresses financial accounting and reporting for costs associated with exit or disposal
activities. The provisions of SFAS No. 146 require that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than when an entity commits to an exit plan as previously required. SFAS
146 also requires that such a liability be measured at its fair value and subsequent changes to the liability be measured using the credit-adjusted risk-free rate used when the liability was initially recorded. The Company adopted the provisions of
SFAS 146 for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS&nbsp;146 did not have a material impact on the Company&#146;s results of operations or financial position. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the EITF reached a consensus on Issue No. 00-21 &#147;Accounting for Revenue Arrangements with Multiple Deliverables&#148;. The EITF concluded that
revenue arrangements with multiple elements should be divided into separate units of accounting if the deliverables in the arrangement have value to the customer on a standalone basis, if there is objective and reliable evidence of the fair value of
the undelivered elements, and as long as there are no rights of return or additional performance guarantees by the Company. The provisions of EITF Issue No. 00-21 are applicable to agreements entered into in fiscal periods commencing after June 15,
2003. Management is currently determining what effect, if any, the provisions of EITF Issue No. 00-21 will have on the Company&#146;s operating results or financial condition.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the FASB issued FASB Interpretation No. 45, &#147;Guarantor&#146;s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others&#148; (FIN 45).&nbsp; FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The Company adopted the
disclosure requirements of FIN 45 in the fourth quarter of fiscal 2002 (see Note 11 concerning the reserve for warranty costs).&nbsp; The recognition and measurement provisions apply to guarantees issued or modified after December 31, 2002.&nbsp;
The adoption of FIN 45 did not have a material impact on the Company&#146;s results of operations or financial position.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December
2002, the FASB issued SFAS No.&nbsp;148, &#147;Accounting for Stock-Based Compensation &#150; Transition and Disclosure.&#148;&nbsp; The statement amends SFAS No. 123, &#147;Accounting for Stock-Based Compensation&#148;, to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.&nbsp; In addition, this statement amends the disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method used on reported results.&nbsp; We adopted the disclosure provisions of SFAS No. 148 at December 31, 2002. The Company has not yet determined the impact, if any,
that the transition provisions of&#160; SFAS No.&nbsp;148 may have on its financial position or results of operations.&nbsp; </font></p> <p align="center"> <font size="2" face="Times New Roman">9</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Business Combinations </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2002, the Company established a wholly owned subsidiary in South Africa and acquired certain assets from two privately held companies based in South
Africa. The underlying assets purchased and liabilities assumed comprised a business and as such, the Company used the purchase method of accounting to allocate the purchase price to the assets acquired. The results of operations of the acquired
business have been included in the Company&#146;s condensed consolidated statements of operations from the acquisition date. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the purchase price allocation for ActivCard South Africa, $68 was charged to earnings in the three months ended March 31, 2002 for acquired in-process research and development. The value assigned to acquired in-process research and
development was based on estimated future cash flows over five years and was discounted at a rate of 30%. </font></p> <p> <font size="2" face="Times New Roman"><b>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring and Business Realignment
Expenses </b></font></p> <p><font face="Times New Roman" size="2"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;2002 Restructuring Plan</u></i></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, the Company commenced restructuring its business to enhance operational efficiency and reduce expenses. This restructuring and business realignment plan
included a worldwide reduction in workforce across all functions of 90 employees, a reduction in excess facilities, and other direct costs. Of the terminated employees, 36 were employed in sales and marketing, 42 were employed in research and
development, 7 were employed in general and administrative, 3 were employed in manufacturing and logistics and 2 were employed in corporate functions. The charge for excess facilities was comprised primarily of future minimum lease payments payable
over a nine-year period ending February 2011, net of estimated sublease income of $734. Sublease income was estimated assuming current market lease rates and after estimated vacancy periods. Charges for the reduction in workforce consisted mainly of
severance, outplacement and other termination costs. </font></p> <p><font face="Times New Roman" size="2"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>2003 Restructuring Plan</u></i></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2003, the Company took further measures to restructure its business and reduce its operating costs by implementing a reduction in workforce that resulted in
the termination of 14 employees. Of the terminated employees, 7 were employed in sales and marketing, 6 were employed in research and development and 1 was employed in manufacturing and logistics. Charges for the reduction in workforce consist of
severance, outplacement and other termination costs.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Components of restructuring and business realignment accruals, which are presented
on the condensed consolidated balance sheet and in the condensed consolidated statements of operations for the year ended December 31, 2002 and the three months ended March 31, 2003 were as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="55%" valign="bottom" height="2">&nbsp;</td>
<td width="1%" valign="bottom" height="2">&nbsp;</td>
<td colspan="5" valign="bottom" height="2"> <center> <font size="1"><b>2002<br> Restructuring </b></font> </center> </td>
<td width="2%" valign="bottom" height="2">&nbsp;</td>
<td height="2" colspan="2" valign="bottom"> <center> <b><font size="1">2003 <br> Restructuring </font></b> </center> </td>
<td width="2%" valign="bottom" height="2"><font size="1%"><b></b></font></td>
<td height="2" colspan="2" valign="bottom">&nbsp;</td>
<td width="1%" valign="bottom" height="2">&nbsp;</td> </tr>
<tr>
<td width="55%" valign="bottom">&nbsp;</td>
<td width="1%" valign="bottom">&nbsp;</td>
<td colspan="5" valign="bottom"> <center> <hr size="1" width="100%" noshade color=black> </center> </td>
<td width="2%" valign="bottom">&nbsp;</td>
<td colspan="2" valign="bottom"> <center> <hr size="1" width="100%" noshade color=black> </center> </td>
<td width="2%" valign="bottom"><font size="1%"><b></b></font></td>
<td colspan="2" valign="bottom">&nbsp;</td>
<td width="1%" valign="bottom">&nbsp;</td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Facility Exit Costs </b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Workforce Reduction</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Workforce <br> Reduction</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1%">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Total</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1%">&nbsp;</font></p> </td>
<td colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Accrual balance at January 1, 2002 </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Provisions for restructuring and business realignment costs </font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p align=right> <font size="2">5,423</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,706</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">8,129</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Adjustments to accruals for changes in estimates </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">569</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(112</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;<font size="2">)</font></font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%"></font> </p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">457</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Payments</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(701</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(1,658</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1%"></font> </p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(2,359</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Asset write-offs </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(214</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(717</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%"></font> </p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(931</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Accrual balance at December 31, 2002 </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,077</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">219</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,296</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Provisions for restructuring and business realignment costs </font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">913&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">913</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Adjustments to accruals for changes in estimates </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">34</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">34</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Payments</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(175</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(217</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(229</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="1%" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(621</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Non-cash charges </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(520</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="1%" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(520</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Accrual balance at March 31, 2003 </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,902</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">36</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">164</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,102</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Less current portion</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="4%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">635</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">36</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">164</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="5%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">835</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Long term portion</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,267</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,267</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" height="22"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" height="22"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom" height="22"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom" height="22"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom" height="22"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom" height="22"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom" height="22"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Estimated remaining cash expenditures </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="4%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,902</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">36</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">164</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="5%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,102</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="55%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1%" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="5%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remaining cash expenditures to
complete the facility exit activities will be made over the eight-year period ending February 2011. The Company expects to make remaining cash payments to complete the workforce reduction by September 30, 2003. </font></p> <p align="center"> <font
size="2" face="Times New Roman">10</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Discontinued Operations </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 15, 2002, the Company executed its plan to dispose of the hosting operations of Authentic8. As a result of this decision, the results of operations of the
hosting activities, an impairment of goodwill and other intangible assets and a write-down of fixed assets have been included in loss from discontinued operations in the consolidated statement of operations for the three months ended March 31, 2002.
The Company determined the fair value of the reporting unit by discounting estimated future cash flows to assess whether there was an impairment in the carrying value of the goodwill and other intangibles. &#160;The assets and liabilities related to
the hosting operations have been classified as assets and liabilities held for sale on the consolidated balance sheet at December 31, 2002. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 12, 2003, the Company entered into an agreement with VeriSign for the disposition of the assets and certain liabilities of the hosting operations of
Authentic8. The results of operations of the hosting activities to March 14, 2003, the effective date of the agreement with VeriSign, have been included in the loss from discontinued operations in the consolidated statement of operations for the
three months ended March 31, 2003.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss from discontinued operations related to the disposal of the hosting operations of the former
Authentic8 was comprised of the following: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">76</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from discontinued operations consists of:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Operating loss</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">228</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">384</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other charges:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Impairment of goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">13,169</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Impairment of other intangibles</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,818</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Write-down of property and equipment</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">547</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">228</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15,918</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">11</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS&#151;(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss Per Share </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a reconciliation of the numerator and denominator used to determine basic and diluted loss per share: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Numerator:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from continuing operations</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(4,336</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(12,688</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from discontinued operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(228</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(15,918</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,564</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(28,606</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Denominator:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Shares used in computations, basic and diluted</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">40,614,240</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">40,511,626</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Basic and diluted loss per common share:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">From continuing operations</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.10</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.31</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">From discontinued operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.01</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.40</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.11</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(0.71</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No amounts have been presented for
diluted earnings per share for the periods where the effect of including the weighted average number of common shares available under share options, reserved rights, warrants and convertible bonds after applying the treasury stock method is
anti-dilutive. Weighted average common share equivalents excluded in the three months ended March 31, 2003 and 2002 were 995,710 and 1,268,988, respectively. </font></p> <p> <font size="2"
face="Times New Roman"><b>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive Loss </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of comprehensive loss are
as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net loss</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,564</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(28,606</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Other comprehensive income (loss):</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Unrealized losses on short term investments</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(59</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Change in cumulative translation adjustment</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">485</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(272</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total comprehensive loss</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,138</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(28,878</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">12</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative Financial Instruments </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company utilizes a foreign exchange hedging program to mitigate transaction gains and losses resulting from exchange rate fluctuations on assets and liabilities
held by ActivCard companies that were denominated in currencies other than the functional currency of the legal entity holding the related asset or liability. To achieve this objective, the Company regularly enters into various short-term foreign
currency forward contracts that the Company accounts for as fair value hedging instruments to offset these foreign exchange transaction gains and losses. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange gains and losses attributable to fair value hedging instruments reduce the foreign exchange gains and losses in the consolidated statements of
operations. For the three months ended March 31, 2003 and 2002, foreign exchange losses from the fair value hedges were $137 and $146, respectively. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange gains and losses reported on the consolidated statements of operations resulted from the translation of assets and liabilities denominated in a
non-functional currency into the functional currency of the company that held the asset and/or liability. </font></p> <p><font size="2" face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</b>At March 31, 2003, the
Company did not have any forward contracts outstanding to buy or sell foreign currency.</font></p> <p> <font size="2" face="Times New Roman"><b>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term Investments </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March 31, 2003, available-for-sale securities were as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="41%" colspan="11" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2003</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="41%" colspan="11" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Amortized<br> Cost</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Gross<br> Unrealized<br> Gains</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Gross<br> Unrealized<br> Losses</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Estimated<br> Fair<br> Value</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">U.S. government and agency securities</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">200,825</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">652</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">9</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">201,468</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The contractual maturities of
available-for-sale debt securities as of March 31, 2003 were as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>March 31, 2003</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Amortized<br> Cost</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Estimated Fair<br> Value</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Within one year</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">39,085</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">43,072</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Between one year and three years</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">159,740</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">156,394</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Between three years and four years</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,000</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,002</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">200,825</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">201,468</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">13</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related Party Transactions </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the three months ended March&nbsp;31, 2003 and 2002, the Company had purchases of approximately $1,976 and $163, respectively, from SCM Microsystems, Inc.
(&#147;SCM&#148;), a manufacturer of smart card readers. As of March&nbsp;31, 2003 and December&nbsp;31, 2002, amounts owing to SCM were $1,409 and $634, respectively. Although SCM is not a single source supplier to the Company of specific products,
the companies do share the services of Steven Humphreys. Mr.&nbsp;Humphreys is the Chairman and Chief Executive Officer of ActivCard and the non-executive Chairman of SCM&#146;s Board of Directors. Mr.&nbsp;Humphreys is not compensated for revenue
transactions between the two companies. </font></p> <p> <font size="2" face="Times New Roman"><b>10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories consist of the following: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="76%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>March 31,<br> 2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>December 31,<br> 2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">Components</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,003</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">911</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p> <font size="2" face="Times New Roman">Finished goods</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">3,295</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,577</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,298</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">3,488</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman"><b>11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales Warranty Commitments </b></font></p> <p><font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The activity in the allowance for sales warranties is summarized as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Warranty<br> Allowance</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales warranty allowance balance at December 31, 2002</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">43</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Warranty costs incurred</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(8</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Additions related to current period sales</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">16</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Adjustments to accruals related to prior period sales</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(7</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales warranty allowance balance at March 31, 2003</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">44</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">14</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center"> <font size="2" face="Times New Roman"><b>ACTIVCARD CORP.<br> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b>&#151;<b>(Continued)<br> (In thousands, except share and per share data)<br>
(Unaudited)</b></font></p> <p> <font size="2" face="Times New Roman"><b>12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Segment Information </b></font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has two operating segments: Digital Identity Solutions and Managed Authentication Services. However, the Managed Authentication Services segment does not meet the quantitative thresholds for separate disclosure since it does not represent
ten percent of any of combined revenues, loss from operations or total assets. Accordingly, the Company is disclosing segmented information by geographic area only. Transfers between geographic areas are eliminated in the consolidated financial
statements. The following is a summary of operations by geographic region for the three months ended March 31, 2003 and 2002 and as of March 31, 2003 and December 31, 2002: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Europe</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>North&nbsp;America</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Asia&nbsp;Pacific</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Total</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>Three months ended March 31, 2003</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net revenues</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">3,455</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">8,914</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">698</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">13,067</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net loss</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(2,779</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(989</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(796</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(4,564</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Three months ended March 31, 2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net revenues</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,834</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,193</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">138</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8,165</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Net loss</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(3,702</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(7,512</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(17,392</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(28,606</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Europe</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>North&nbsp;America</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Asia&nbsp;Pacific</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Total</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>March 31, 2003</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,795</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">8,698</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">107</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10,600</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Long lived assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,682</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">16,064</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">346</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">21,092</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">20,941</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">262,701</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,294</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">285,936</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman"><b>December 31, 2002</b></font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">1,795</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">8,698</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">107</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10,600</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Long lived assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,716</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">16,581</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">233</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">21,530</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="54%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total assets</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">23,311</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">260,908</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">2,173</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">286,392</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">15</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p>
<a name="tx662_7"></a> <font size="2" face="Times New Roman"><b>ITEM 2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</b></font></p> <p> <font size="2"
face="Times New Roman"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Quarterly Report on Form&nbsp;10-Q contains forward-looking statements within the &#147;safe harbor&#148; provisions of the Private Securities Litigation
Reform Act of 1995. All statements included in this Quarterly Report on Form 10-Q, other than statements that are purely historical, are forward-looking statements. Words such as &#147;anticipates,&#148; &#147;expects,&#148; &#147;intends,&#148;
&#147;plans,&#148; &#147;believes,&#148; &#147;seeks,&#148; &#147;estimates&#148; and similar expressions also identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks and
uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Forward-looking statements in this Quarterly Report on Form&nbsp;10-Q include, without limitation, statements
regarding operating results, product development, marketing initiatives, business plans and anticipated trends. The forward-looking statements in this Quarterly Report on Form&nbsp;10-Q are subject to additional risks and uncertainties further
discussed under &#147;Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations &#150; Risk Factors&#148; and are based on information available to us on the date hereof. We assume no obligation to
update any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form&nbsp;10-Q. </i></font></p> <p> <font size="2"
face="Times New Roman"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements
and related notes included in &#147;Item 1. Financial Statements&#148; in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from
those anticipated in the forward looking statements as a result of certain factors, including but not limited to those discussed in &#147;Risk Factors&#148; and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 31, 2003.</i></font></p> <p><font size="2" face="Times New Roman"><b>Overview </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ActivCard Corp. was incorporated
in the State of Delaware in August 2002 for the purpose of changing the domicile of the publicly listed company in the ActivCard group of companies, previously ActivCard S.A., from the Republic of France to the United States. ActivCard S.A. was
organized in 1988 as a soci&#233;t&#233; anonyme, or limited liability corporation, under the laws of the Republic of France. On January 6, 2003 ActivCard Corp. commenced a registered public exchange offer in which holders of ActivCard S.A.
securities were offered one share of ActivCard Corp. common stock for each ActivCard S.A. common share and each ActivCard S.A. American depositary share (&#147;ADS&#148;) duly tendered. The registered exchange offer closed on February 3, 2003 with
24,409,937 common shares and 15,417,729 ADS&#146;s exchanged for an equivalent number of shares of ActivCard Corp. common stock. The exchanged common shares and ADS&#146;s represented 94.8% of the outstanding securities of ActivCard S.A. The common
shares and ADS&#146;s of ActivCard S.A. not exchanged have been reported as a minority interest on the consolidated balance sheet. Unless otherwise indicated, references to &#147;ActivCard&#148;, &#147;we&#148;, &#147;us&#148; and &#147;our&#148;
refer to the consolidated group of ActivCard companies.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop, market and support digital identity solutions that enable our
customers to issue, use and maintain digital identities in a secure, manageable and reliable manner. We market our solutions to the government, financial institutions, network service providers and enterprise customers directly through our own sales
organization and indirectly through system integrators, resellers and original equipment manufacturers. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We focus our development
efforts on smart card related products, primarily in the form of software applications embedded on the smart card and client/server software to support multi-function capabilities including card issuance, provisioning and management of digital
identities. In the three months ended March 31 2003 and 2002, 49% and 64% of revenues were derived from smart card related software, primarily from ActivCard Gold, ActivPack authentication server and license fees from product development agreements
for the ActivCard Identity Management System and ActivCard Java Card Applets, respectively. </font></p> <p><font size="2" face="Times New Roman"><b>Critical accounting policies </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion and analysis of our consolidated financial condition and results of operations is based on our condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period.
Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, sales warranties and allowance for doubtful accounts, long-lived assets, goodwill and intangible assets, income</font></p> <p align="center"> <font
size="2" face="Times New Roman">16</font></p>

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 <p> <font size="2" face="Times New Roman">taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
However, the actual results could differ from those estimates. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial statements: </font></p> <p> <font size="2" face="Times New Roman"><b>Revenue recognition </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derive our revenue primarily from: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">The license of client and/or server software products, such as ActivCard Gold and Trinity secure sign-on software, ActivPack authentication server software, ActivCard Identity
Management Systems and ActivCard Java Card Applets;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Software support and maintenance contracts;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Hardware products such as ActivCard Token, ActivReader and other smart card readers; and</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">License fees from product development agreements for customized and significantly modified software products.</font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant management judgments and estimates must be made and used in connection with the revenue recognized in any reporting period. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For all sales, we use a binding contract, purchase order or other form of documented agreement to evidence an arrangement with a customer. We do not include
acceptance clauses for our shrink-wrapped software products such as ActivCard Gold. Acceptance clauses usually give the customer the right to accept or reject the software after we have shipped the product. However, we have provided certain
customers with acceptance clauses for customized or significantly modified software products developed under product development agreements and, on occasion, for hardware products and client/server software products as well. In instances where an
acceptance clause exists, we do not recognize revenues until the product is formally accepted by the customer in writing or the defined acceptance period has expired. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are derived primarily from the sale of software licenses, hardware and service agreements. We apply the provisions of Statement of Position 97-2 and related
guidance. Revenues from software license agreements are generally recognized upon shipment, provided that evidence of an arrangement exists, the fee is fixed or determinable, no significant obligations remain and collection of the corresponding
receivable is probable. In software arrangements that include hardware products, rights to multiple software products, maintenance and/or other services, we allocate the total arrangement fee among each deliverable, based on vendor-specific
objective evidence of fair value of each element if vendor-specific objective evidence of each element exists. We determine vendor specific evidence of fair value of an element based on the price charged when the same element is sold separately. For
an element not yet sold separately, vendor specific evidence of fair value of an element is established by management having the relevant authority as long as it is probable that the price, once established, will not change before separate
introduction of the element in the marketplace. When arrangements contain multiple elements and vendor-specific objective evidence of fair value exists for all undelivered elements, we recognize revenue for the delivered elements based on the
residual value method. For arrangements containing multiple elements wherein vendor specific objective evidence of fair value does not exist for all undelivered elements, revenue for the delivered and undelivered elements is deferred until vendor
specific objective evidence of fair value exists or all elements have been delivered. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from the sale of hardware products, such
as ActivCard tokens and ActivReader, is recognized upon shipment of the product, provided that no significant obligation remains and collection of the receivable is considered probable. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Post-contract customer support is recognized on a straight-line basis over the term of the contract. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenues include revenues from training, installation or consulting. From time to time, we enter into agreements with customers that require significant
production, modification or customization of software in addition to the provision of services. Where the services are essential to the functionality of the software element of the arrangement, separate accounting for the services is not permitted
and contract accounting is applied to both the software and service elements. In these cases, revenue is recognized as the work is performed pursuant to the related contracts and the achievement of related milestones in accordance with the
percentage of completion method based on input measures. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenues are recognized separately from the software element when the
services are performed if vendor-specific objective evidence of fair value exists to allocate the revenue to the various elements in a multi-element arrangement, the services are not essential to the functionality of any other element of the
arrangement and the total price of the contract would vary with the inclusion or exclusion of the services. </font></p> <p align="center"> <font size="2" face="Times New Roman">17</font></p>

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 <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We normally sell our products to customers with payment terms that are less than 60 days.</font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In certain specific and limited circumstances, we provide product return and price protection rights to certain distributors, resellers and end users. We
generally recognize revenue from product sales upon shipment to resellers, distributors and other indirect channels, net of estimated returns or estimated future price changes. Our policy is to not ship product to a reseller or distributor unless
the reseller or distributor has a history of selling our products and the end user is known or has been qualified by us. We have established a reasonable basis through historical experience for estimating future returns and price changes. Actual
returns have not been material to date. Price protection rights typically expire after 30 days and have not been material to date. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts billed in excess of revenue recognized are recorded as deferred revenue. Unbilled work-in-process is recorded as a receivable. </font></p> <p> <font size="2"
face="Times New Roman"><b>Sales warranties </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses associated with potential warranty claims are accrued at the time of sale,
based on warranty terms and prior experience. We provide for the costs of warranty in excess of warranty coverage provided to us by the product assembly contractors. Our standard warranty period is ninety days for software products and one year for
hardware products. </font></p> <p> <font size="2" face="Times New Roman"><b>Allowance for doubtful accounts </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain an
allowance for doubtful accounts for estimated losses resulting from the inability of our customers to pay outstanding amounts. The provision is based on factors that include account aging, historical bad debt experience, customer creditworthiness
and other known factors. </font></p> <p> <font size="2" face="Times New Roman"><b>Inventories </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower
of cost or market, cost being determined on a first-in, first-out method. Write-downs for slow-moving and obsolete inventories are provided based on historical experience and current product demand. </font></p> <p><font size="2"
face="Times New Roman"><b>Purchase price allocations </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we completed the acquisition of three companies, all of which were
accounted for using the purchase method of accounting. In January 2002, we established a wholly owned subsidiary in South Africa and acquired certain assets from two privately held companies based in South Africa. We allocated the purchase price to
the assets acquired and liabilities assumed at the date of purchase based on their fair values. In order to determine fair values, we had to make assumptions regarding estimated future cash flows and make estimates based on other factors. In certain
cases, an allocation was made to acquired in process research and development which was charged to operations, as the research and development did not have alternative future uses as of the date of the acquisition. The allocation of purchase price
among long-lived assets, which are depreciated, in-process research and development, which is expensed at the time of acquisition and goodwill, which is not amortized starting January 1, 2002, but evaluated periodically for impairment, has a
significant impact on both current and future operating results. </font></p> <p> <font size="2" face="Times New Roman"><b>Valuation of goodwill, long-lived and other intangible assets </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In assessing the recoverability of our goodwill, long-lived and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their related </font></p> <p align="center"> <font size="2" face="Times New Roman">18</font></p>

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 <p> <font size="2" face="Times New Roman">assumptions change in the future, we may be required to record impairment charges against these assets in the reporting period in which the impairment is determined. For
identifiable long-lived assets, this evaluation includes an analysis of estimated expected future undiscounted net cash flows to be generated by the assets over their estimated useful lives. If the estimated future undiscounted net cash flows are
insufficient to recover the carrying value of the assets over their estimated useful lives, we record an impairment charge in the amount by which the carrying value of the assets exceeds their fair value. Fair value for identifiable long-lived
assets is generally determined based on discounted cash flows. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 15, 2002, as a result of changes in strategic plans, we
executed a plan to dispose of the hosting operations of Authentic8 International. As a result of the changed circumstances, the estimates and assumptions for future cash flows from the hosting operation declined indicating that an impairment in the
value of the related assets existed. Accordingly, we recorded a charge to earnings in the amount of $15.6 million in 2002, which included an impairment of the carrying value of goodwill and other intangibles of $15.0 million. </font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under SFAS No.&nbsp;144, <i>Accounting for the Impairment or Disposal of Long-Lived Assets, </i>we recorded an impairment write-down of $5.1 million in the
fourth quarter of 2002 to adjust the carrying value of acquired intangible assets to their estimated fair value as of December&nbsp;31, 2002. The acquired intangible assets determined to be impaired consisted of developed and core technology,
agreements, contracts, and trade names and trademarks.&#160; In the future, any additional impairment charge could be significant and could have a material adverse effect on our consolidated financial position and results of operations. At March 31,
2003, we had $12.7&nbsp;million of goodwill and other intangible assets, which accounted for 4% of our total assets. </font></p> <p> <font size="2" face="Times New Roman"><b>Restructuring activities </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded charges of $0.9 million and $7.4 million in the three months ended March 31, 2003 and 2002, respectively, related to restructuring and business
realignment plans. The plan executed in the first quarter of 2003 was a reduction in workforce consisting primarily of severance, outplacement and other costs. The plan announced in the first quarter of 2002 consisted primarily of a reduction in
work force and facility vacancy costs. Accounting pronouncements in effect for restructuring activities initiated after December 31, 2002 required us to record a liability and charge when the liability was incurred rather than when we formally
committed to the restructuring plan as previously required.&#160; These provisions required us to measure the liability at fair value. Accounting pronouncements for restructuring costs in effect during 2002 required us to record provisions and
charges when we had a formal and committed plan.&#160; In the first quarter of 2002 we were required to make significant estimates related to the subletting of facilities in Fremont, California and Melbourne, Australia. Estimates related to sublease
income are based on assumptions regarding expected vacancy periods required to locate and contract with suitable sublessees and current sublease market rates. In December 2002, we revised our estimate of expected sublease income and recorded an
additional charge to earnings of $620 thousand. If the assumptions for these estimates change in the future due to changes in the market, the ultimate restructuring expenses for these facilities could vary by material amounts. Our policies, as
supported by current authoritative guidance, require us to continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. As management continues to evaluate the business, there may be additional charges for new
restructuring activities, as well as changes in estimates to amounts previously recorded. </font></p> <p><font size="2" face="Times New Roman"><b>Acquisitions </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we acquired three companies, all of which were accounted for using the purchase method of accounting. In January 2002, we established a wholly owned
subsidiary in South Africa and acquired certain assets from two privately held companies based in South Africa. The underlying assets purchased and liabilities assumed comprised a business and as such, we used the purchase method of accounting to
allocate the purchase price to the assets acquired. The results of operations of the acquired businesses have been included in our consolidated statement of operations from their respective acquisition dates. </font></p> <p> <font size="2"
face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ActivCard Asia Pte. Ltd. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March 26, 2001,
we acquired the remaining 20% interest in ActivCard Asia Pte. Ltd. (&#147;ActivCard Asia&#148;) for $111 thousand. ActivCard Asia is now a wholly owned subsidiary. </font></p> <p> <font size="2"
face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Safe Data System S.A. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June 27, 2001, we
acquired 100% of the outstanding shares of Safe Data System S.A. (&#147;Safe Data&#148;), a privately held developer of user authentication software based in Montpellier, France. We acquired Safe Data to replace its existing authentication server as
well as to augment its engineering resources and customer base. </font></p> <p> <font size="2" face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authentic8 International Inc. </b></font></p> <p align="center">
<font size="2" face="Times New Roman">19</font></p>

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 <p> <font size="2" face="Times New Roman">On April 10, 2001, we mutually agreed to terminate an initial agreement to combine with Authentic8 International Inc. (&#147;Authentic8&#148;), a privately held,
Australian-based company offering an outsourced remote access authentication service for banks and service operators. In connection with this, we recorded a charge against earnings in the amount of $3.1 million, which consisted of $2.0 million in
professional fees and $1.1 million in break-up fees. Subsequently, we acquired 100% of the outstanding shares of Authentic8 on September 7, 2001. We acquired Authentic8 to augment our technology and customer base as well as to acquire a managed
authentication service model and obtain expertise associated with outsourcing a service. </font></p> <p><font size="2" face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;American Biometric Company Ltd. (Ankari)
</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November 13, 2001, we acquired 100% of the outstanding shares of American Biometric Company Ltd. (&#147;Ankari&#148;), a
privately held company based in Ottawa, Canada. Ankari&#146;s software framework provides organizations with the ability to verify network user access through the use of any combination of passwords, digital certificates, security tokens, smart
cards and biometrics. We acquired Ankari to augment our technology, customer base and engineering resources. </font></p> <p> <font size="2" face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ActivCard South Africa
(Newshelf 650 Pty. Ltd) </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2002, we acquired certain assets from two privately held companies based in South Africa. The
underlying assets purchased and liabilities assumed comprised a business that develops and markets biometric authentication systems and related software development kits. We acquired the assets to augment our technology and to establish a sales
presence in South Africa. </font></p> <p> <font size="2" face="Times New Roman"><b>Results of operations </b></font></p> <p> <font size="2" face="Times New Roman">The following table sets forth the selected items from our condensed consolidated
statements of operations expressed as a percentage of total revenues for the periods presented: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="21%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman"><b>Percentage of revenue</b></font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p class=H9>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Revenue</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">100.0</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">100.0</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Cost of revenue</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">39.5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">32.4</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Gross profit</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">60.5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">67.6</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Operating expenses</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Research and development</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">33.6</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">61.1</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales and marketing</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">39.4</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">64.1</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">General and administrative</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">10.5</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">11.4</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Amortization of acquired intangible assets</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1.2</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">6.9</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other charges</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">16.8</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">95.1</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Total operating expenses</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">101.5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">238.6</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from continuing operations</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(41.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(171.0</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Non-operating income (expense)</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest expense</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Interest income</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">9.5</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">15.3</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Foreign exchange (loss) gain</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(1.7</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.3</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from continuing operations before income taxes and minority interest </font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(33.2</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(155.4</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Income tax expense</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(0.5</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Minority interest</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0.5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from discontinued operations</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(1.7</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">(194.9</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">)</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em">&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Net loss</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(34.9</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(350.3</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)%</font></p> </td> </tr>
<tr>
<td width="74%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p align=center> <font size="2" face="Times New Roman">20</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman"><b>Revenues</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="19%" colspan="4" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Hardware revenues</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,485</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,656</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+107</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Software and maintenance revenues</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">7,582</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">5,509</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">+38</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">13,067</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">8,165</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+60</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in hardware revenues
of 107% in the first three months of 2003 compared to the first three months of 2002 reflected increased demand from U.S. government agencies for smart card readers and corporate and financial institutional customers for our token-based products in
Europe. The increase in software and maintenance revenues of 38% in the first quarter of 2003 compared to the first quarter of 2002 reflects our continued focus on smart card related products, primarily software applications embedded on the smart
card and client/server software to support multi-function capabilities including card issuance, provisioning, usage and management of digital identities. The increase in software and maintenance revenues was achieved primarily in the United States
with deployments of ActivCard Gold client software, the ActivCard Identity Management System and ActivCard JavaCard Applets by the US Department of Defense. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues by geographic region, expressed as a percentage of total revenues, are as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(% of total revenue)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">North America</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">64</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+4</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Europe</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">27</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">35</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">-8</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Asia</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+4</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">100</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">100</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues by customer segment,
expressed as a percentage of total revenues, are as follows: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(% of total revenue)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Government</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">64</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">55</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+9</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Financial</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">18</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">33</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">-15</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Corporate</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">18</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">12</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+6</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right><font size="2" face="Times New Roman">100</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">100</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in revenues in North
America of 4% and the Government segment of 9% in the first quarter of 2003 compared to the first quarter of 2002 were the result of expanding deployments of smart card based digital identification by the US Department of Defense. Revenues in North
America consisted primarily of ActivCard Gold client software and related smart card readers and ActivCard Identity Management System sales sold indirectly through various system integrators into US government agencies. European revenues were
primarily related to ActivCard Token and ActivPack authentication server sales into European financial institutions for commercial and internal applications. </font></p> <p><font size="2" face="Times New Roman"><b>Gross margin</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended,<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Hardware gross margin as a percentage of hardware revenues</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">31</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">31</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Software and maintenance gross margin as a percentage of software and maintenance revenues</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">82</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">85</font></p> </td>
<td width="2%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">-3</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p class=H9>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Total gross margin</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">60</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-8</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross margin totaled $7.9 million
and $5.5 million in the three months ended March 31, 2003 and 2002, respectively.</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total gross margin decreased 8% in the first quarter of
2003 compared to the first quarter of 2002 due to a shift in the product mix resulting in an increased proportion of hardware sales from lower margin reader sales. The software </font></p> <p align=center> <font size="2"
face="Times New Roman">21</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">and maintenance gross margin percentage declined 3% in the first quarter of 2003 compared to the first quarter of 2002 as a result of increased costs of software support
activities for our large government deployments.</font></p> <p> <font size="2" face="Times New Roman"><b>Research and development expenses </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="1" face="Times New Roman"><b>&nbsp;</b></font></p> <p style="margin-left:1em; text-indent:-1em"> <font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Research and development expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,394</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">4,988</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-12</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses
decreased 12% in the first quarter of 2003 compared to the first quarter of 2002 pursuant to our restructuring and business realignment activities executed during 2002 that included the reductions in headcount and relocation of certain development
activities to lower cost locations.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the purchase of certain assets from two privately held companies based in South
Africa in January 2002, the portion of the purchase price that was attributed to research and development assets was as follows (in thousands): </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="87%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Developed and core technology</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">182</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Acquired in process research and development</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Acquired research and development assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">250</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="87%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The values attributed to acquired
in-process research and development assets were based on discounted estimated future cash flows on a project-by-project basis over periods ranging over four years for developed technologies and five years for core technologies and in process
research and development. The discount rates used ranged from 20% to 25% for developed and core technology and 30% for in process research and development. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The nature of the research and development assets purchased from the two privately held South African companies related to biometric authentication systems and
related software development kits. An initial limited version of the biometric authentication system allows developers and solution providers to offer enhanced fingerprint authentication. At the time of asset purchase, the product was released to a
limited and controlled group of customers. The full-featured product was released to the general marketplace in April 2002 and generated revenues starting in the quarter ended June 30, 2002. No material additional development is planned. The cost to
complete the development work was less than $25 thousand and related to completion of functionality and features. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The portion of the
purchase price of the acquired assets that related to acquired research and development assets that had no alternative future use amounted to $68 thousand and was charged to operations as expense in the first quarter of 2002. </font></p> <p> <font
size="2" face="Times New Roman"><b>Sales and marketing expenses </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended <br> March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales and marketing expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,147</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">5,232</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-2</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the three months ended March 31,
2003, selling and marketing expenses decreased 2% compared to the three months ended March 31, 2002 as a result of headcount reductions implemented as part of our restructuring and business realignment plan and reduced marketing activities in 2002.
</font></p> <p> <font size="2" face="Times New Roman"><b>General and administrative expenses </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">General and administrative expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,374</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">927</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+48</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses
increased 48% in the first quarter of 2003 compared to the first quarter of 2002 as a result of increased professional fees related to the defense of our intellectual property and implementation of new regulatory reporting and compliance
regulations. </font></p> <p align=center> <font size="2" face="Times New Roman">22</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman"><b>Amortization of acquired intangible assets </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Amortization of acquired intangible assets</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">152</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">566</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-73</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amortization of acquired
intangible assets related primarily to the acquisitions of Safe Data and Ankari and decreased 73% in the first quarter of 2003 compared to the first quarter of 2002 as a result of an impairment write-down of $5.1 million in the fourth quarter of
2002 to adjust the carrying value of acquired intangible assets to their estimated fair value as of December&nbsp;31, 2002. The amortization of acquired intangible assets consisted of the amortization of developed and core technology, agreements,
contracts, trade names and trademarks. </font></p> <p> <font size="2" face="Times New Roman"><b>Other charges </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Other charges</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,190</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,771</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-72</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other charges for the respective
comparative periods consisted of the following: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Acquired in process research and development</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">68</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Amortization of deferred stock compensation:</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Cost of revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">10</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Research and development</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">156</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">190</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Sales and marketing</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">106</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">128</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">General and administrative</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">26</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">26</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Restructuring and business realignment expenses</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">947</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,352</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Re-incorporation expenses</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">945</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">2,190</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">7,771</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired in-process research and
development was $68 thousand in the first quarter of 2002 and related to the acquisition of ActivCard South Africa. &nbsp;</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
of deferred stock compensation amounted to $298 thousand and $351 thousand for the three months ended March 31, 2003 and 2002, respectively. These amounts relate to amortization of shares issued to certain employees of Safe Data who remained as
employees of ActivCard as well as amortization of deferred stock compensation related to options and warrants granted at exercise prices that were less than the fair value of our share price on the date of grant. The amount of deferred stock
compensation of $2.2 million on March 31, 2003 will be amortized over the remaining vesting period on a straight-line basis through October 2005. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, we commenced consolidation of certain operations in order to enhance operational efficiency and reduce expenses and recorded restructuring and business
realignment costs of $8.6 million of which $7.4 million was recorded in the three months ended March 31, 2002. Restructuring and business realignment expenses consist of severance and other costs associated with the reduction of employee headcount
of $2.6 million, facility exit costs of $6.0 million, consisting primarily of approximately nine years of minimum lease payments due under certain excess facilities lease agreements, net of estimated sublease revenue. The severance costs were for 90
employees, of which 36 were employed in sales and marketing, 42 were employed in research and development, 7 were employed in general and administrative activities, 3 were employed in manufacturing and logistics and 2 were employed in corporate
functions. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the three months ended March 31, 2003 we took further measures to restructure our business and reduce our operating costs
by implementing a reduction in workforce that resulted in the termination of 14 employees. Of the terminated employees, 7 were employed in sales and marketing, 6 were employed in research and development and 1 was employed in manufacturing and
logistics. Charges for the reduction in workforce were $947 thousand and consisted of severance, outplacement and other termination costs.</font></p> <p align=center> <font size="2" face="Times New Roman">23</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remaining cash expenditures of $4.9 million to complete the facility exit activities will be made over the
eight-year period ending February 2011. We expect to make remaining cash payments of $200 thousand to complete the work force reduction by September 30, 2003. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2003, we incurred charges of $945 thousand related to the change in domicile of the publicly listed company in the ActivCard group from the
Republic of France to the United States, which was completed in February 2003. The charges consisted primarily of share cancellation expenses and professional fees associated with the regulatory filings prepared in connection with the exchange offer
and filed with the SEC and the Belgian Banking and Finance Commission. Total charges incurred to March 31, 2003 to complete the change in domicile were $1.9 million.</font></p> <p><font size="2" face="Times New Roman"><b>Interest income and
expense</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Interest expense</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(7</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-100</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Interest income</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,245</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,249</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">0</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense in the three
months ended March 31, 2002 related to loans and capital lease obligations assumed on the acquisition of Safe Data in 2001 that were repaid in 2002.&#160; </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income in the first quarter of 2003 was at the same level as the first quarter of 2002 as the effects of lower interest rates in effect during the first
quarter of 2003 were offset by higher invested balances in short term investments. &nbsp;</font></p> <p> <font size="2" face="Times New Roman"><b>Foreign exchange gains and losses </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Foreign exchange (loss) gain</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(216</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">35</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-717</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange gains decreased to
a loss of $216 thousand in the first quarter of 2003 compared to the first quarter of 2002. The average exchange rate of the Euro relative to the U.S. dollar was 1.07 and 0.89 for the three months ended March 31, 2003 and 2002,
respectively.</font></p> <p> <font size="2" face="Times New Roman"><b>Income tax expense </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Income tax expense</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(62</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(1</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+6200</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense in the three
months ended March 31, 2003 and 2002 consisted of minimum annual franchise taxes in certain jurisdictions.</font></p> <p> <font size="2" face="Times New Roman"><b>Minority interest</b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Minority interest</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">49</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">+100</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In first quarter of 2003, we
completed the change in domicile of the publicly listed company in the ActivCard group, formerly ActivCard S.A. from the Republic of France to the United States. As a result of the change in domicile, a minority interest was created representing
approximately 5.2% of the outstanding common shares and American Depositary Shares of ActivCard S.A. not exchanged.</font></p> <p align=center> <font size="2" face="Times New Roman">24</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman"><b>Discontinued operations </b></font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>% Change</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="20%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="2" face="Times New Roman">Loss from discontinued operations</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(228</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">(15,918</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">)</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">-99</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">%</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 15, 2002, we executed a
plan to dispose of the hosting operations of Authentic8. The assets and liabilities related to the hosting operations were classified as assets and liabilities held for sale on the consolidated balance sheet at December 31, 2002 and the charge to
earnings classified as a loss from discontinued operations on the consolidated statement of operations for the three months ended March 31, 2002. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 12, 2003, the Company entered into an agreement with VeriSign for the disposition of the assets and certain liabilities of the hosting operations of
Authentic8. The results of operations of the hosting activities to March 14, 2003, the effective date of the agreement with VeriSign, have been included in the loss from discontinued operations in the condensed consolidated statement of operations
for the three months ended March 31, 2003.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss from discontinued operations related to the disposal of the hosting operations of
the former Authentic8 was comprised of the following: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="80%">
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Three months ended<br> </b></font> <font size="1" face="Times New Roman"><b>March 31,</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2003</b></font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>2002</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="9%" colspan="2" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="19%" colspan="5" valign="bottom"> <p align="center"><font size="1" face="Times New Roman"><b>(in thousands)</b></font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Revenue</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">76</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Loss from discontinued operations consists of:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:3em; text-indent:-1em"><font size="2" face="Times New Roman">Operating loss</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">228</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">384</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:3em; text-indent:-1em"> <font size="2" face="Times New Roman">Other charges:</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right>&nbsp;</p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Impairment of goodwill</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">13,169</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:5em; text-indent:-1em"> <font size="2" face="Times New Roman">Impairment of other intangibles</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">1,818</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em"><font size="2" face="Times New Roman">Write-down of property and equipment</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">&#151;&nbsp;&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="8%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">547</font></p> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:5em; text-indent:-1em">&nbsp;</p> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">228</font></p> </td>
<td width="2%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p> <font size="2" face="Times New Roman">$</font></p> </td>
<td width="8%" valign="bottom" bgcolor="#cceeff"> <p align=right> <font size="2" face="Times New Roman">15,918</font></p> </td>
<td width="1%" valign="bottom" bgcolor="#cceeff"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="76%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="2%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="2%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="1%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="8%" valign="bottom"> <hr size="3" width="100%" noshade color=black> </td>
<td width="1%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman"><b>Liquidity and capital resources </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March 31, 2003 we had cash and equivalents and short-term investments of $245.1 million, a decrease of $3.3 million from $248.4 million at December 31, 2002. In
the first quarter of 2003, we consumed $4.6&nbsp;million of cash from continuing operations primarily due to a loss from continuing operations in the period of $4.3 million. We consumed $5.7 million of cash from continuing operations in the first
quarter of 2002 primarily from a net loss from continuing operations of $12.7 million offset by an increase in restructuring and business realignment accruals of $5.1 million.&#160; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowances, increased to $10.9 million as of March 31, 2003 from $9.2&nbsp;million as of December 31, 2002. Days sales outstanding, which
is a measure of the average collection period of trade accounts receivable, increased to 76 days at March 31, 2003 from 69 days as of December 31, 2002. We experienced some seasonality in the government sector in the first two months of the first
quarter of 2003 that resulted in proportionately increased shipments in the last month of the quarter. The credit terms extended to our customers are typically less than 60 days, which has not changed during the periods presented. </font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing activities during the three months ended March 31, 2003 consisted primarily of investments in short-term securities and capital expenditures
in 2002. Purchases of short-term investments, net of proceeds from sales and maturities of short-term investments, totaled $112.2&nbsp;million in the first quarter of 2003 as we invested excess cash and equivalents in U.S. government and government
agency securities. In the first quarter of 2002 we also acquired certain assets and assumed certain liabilities of two privately held companies based in South Africa totaling $1.2 million including acquisition costs and recovered $1.8 million from
closing balance sheet adjustments from the purchase of Safe Data and Authentic8. Capital expenditures of $0.4 million and $0.5 million in the three months ended March 31, 2003 and 2002, respectively, consisted of leasehold improvements, furniture
and fixtures, computers and lab equipment. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financing activities of $1.6 million and $0.8 million for the three months ended March 31,
2003 and 2002, respectively, consisted primarily of proceeds from the issuance of common shares resulting from the exercise of stock options.&#160; </font></p> <p align=center > <font size="2" face="Times New Roman">25</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March 31, 2003 we had $4.3 million of long term restructuring accruals compared to $4.4 million at December 31,
2002. Long-term restructuring accruals represent remaining cash expenditures to complete the facility exit activities and will be paid over the eight-year period ending February 2011. At March 31, 2003 and 2002 we had $580 thousand and $525
thousand, respectively, of other long-term liabilities consisting primarily of deferred rent. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future capital requirements, the
timing and amount of expenditures, and the adequacy of funds available to us will depend on our success in developing and selling new and existing products. Based on our current plans, we believe that existing cash balances will be adequate to
satisfy our capital requirements at least through 2003. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to pursue business acquisition opportunities that provide business,
products, technologies or even sales channels that are complementary to our business. </font></p> <p> <font size="2" face="Times New Roman"><b>Recent accounting pronouncements </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No. 146, &#147;Accounting for Costs Associated With Exit or Disposal
Activities&#148;, which addresses financial accounting and reporting for costs associated with exit or disposal activities. The provisions of SFAS No. 146 require that a liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than when an entity commits to an exit plan as previously required. SFAS 146 also requires that such a liability be measured at its fair value and subsequent changes to the liability be measured using the
credit-adjusted risk-free rate used when the liability was initially recorded. We adopted the provisions of SFAS 146 for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS&nbsp;146 did not have a material impact on
our results of operations or financial position. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the EITF reached a consensus on Issue No. 00-21 &#147;Accounting for
Revenue Arrangements with Multiple Deliverables&#148;. The EITF concluded that revenue arrangements with multiple elements should be divided into separate units of accounting if the deliverables in the arrangement have value to the customer on a
standalone basis, if there is objective and reliable evidence of the fair value of the undelivered elements, and as long as there are no rights of return or additional performance guarantees by the Company. The provisions of EITF Issue No. 00-21 are
applicable to agreements entered into in fiscal periods commencing after June 15, 2003. We are currently determining what effect, if any, the provisions of EITF Issue No. 00-21 will have on our operating results or financial condition.</font></p>
<p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the FASB issued FASB Interpretation No. 45, &#147;Guarantor&#146;s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others&#148; (FIN 45).&nbsp; FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The
adoption of FIN 45 did not have a material effect on our operating results or financial condition.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the FASB issued
SFAS No.&nbsp;148, &#147;Accounting for Stock-Based Compensation &#150; Transition and Disclosure.&#148;&nbsp; The statement amends SFAS No. 123, &#147;Accounting for Stock-Based Compensation&#148;, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee compensation.&nbsp; In addition, this statement amends the disclosures in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results.&nbsp; We adopted the disclosure provisions of SFAS No. 148 at December 31, 2002. We have not yet determined the impact, if any, that the transition provisions
of SFAS No.&nbsp;148 may have on our financial position or results of operations.&nbsp; </font></p> <p><font size="2" face="Times New Roman"><b>Risk Factors</b></font></p> <p align="center"> <font size="2" face="Times New Roman"><b>Risks of the
business</b></font></p> <p> <font size="2" face="Times New Roman"><b>We have a history of losses and we may experience losses in the foreseeable future. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not achieved profitability on an operating basis and we may continue to incur operating losses in the foreseeable future. We incurred losses from continuing
operations of $4.3 million and $12.7 million in the three months ended March 31, 2003 and 2002, respectively. As of March 31, 2003, our accumulated deficit was $114.2 million, which represents our net losses since we began our operations. Even with
our sizable cash balances, we may not become profitable or be able to significantly increase our revenue. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although our revenues have
increased, we will need to achieve significant incremental revenue growth to achieve profitability. Even if we do achieve profitability, we may be unable to sustain profitability on a quarterly or annual basis in the future. It is possible that our
revenues will grow more slowly than we anticipate or that operating expenses will exceed our expectations. </font></p> <p align=center> <font size="2" face="Times New Roman">26</font></p>

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 <p> <font size="2" face="Times New Roman"><b>Our industry is characterized by rapid technological change and we must continually improve our products to remain competitive. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for network security products is characterized by rapid technological advances, changes in customer requirements, evolving industry standards and frequent
new product introductions and enhancements. If we do not continually modify and adapt our products and improve the performance features and reliability of our products in response to advances and changes in technology and standards, our business
could be adversely affected and our products and technology could become obsolete or less marketable. Moreover, if new Internet, networking or telecommunications technologies or standards become widely adopted, or if other technological changes
occur, we may need to adapt our products. Our future operating results will depend upon our ability, on a timely basis, to enhance our current products and to develop and introduce new products that address the increasingly sophisticated needs of
the marketplace and that keep pace with technological developments, new competitive product offerings and emerging industry standards. The process of developing our products and services is extremely complex and requires significant ongoing
development efforts. </font></p> <p><font size="2" face="Times New Roman"><b>Results vary significantly from quarter-to-quarter and it is difficult to forecast future results. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating results are difficult to forecast and may continue to fluctuate. As a result, period-to-period comparisons of our operating results are not necessarily
meaningful. Factors that influence our operating results include: </font></p>
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<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Changes in customer capital spending budgets; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Significant advances in techniques for attacking cryptographic systems; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Publicity regarding the successful circumvention of security features of products similar to our products; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Government regulation limiting the use, scope and strength of the cryptography used in our products; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The size, timing and delivery requirements of individual product orders and related services; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Market acceptance of our new digital identity management products; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Customer order deferrals in anticipation of new product releases or changes in customer deployment plans; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The lack of a significant order backlog; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The lengthy sales cycle of our products due to the complexity of the products and services composition and the challenges in assessing customer environments and interoperability
requirements; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The ability to source third party hardware and software products for inclusion into final product mix; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The ability to obtain acceptance of orders due to changes in customer environment or services delivery; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The level of product and price competition; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Our ability to develop new and enhanced products and control costs; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The mix of products, goods and services sold; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The mix of distribution channels through which our products are sold; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Our ability to integrate the technology and operations of acquired businesses; and </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Foreign currency exchange rate fluctuations. </font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our expense levels are based, in part, on our expectations of future revenues and if such expectations are not met, our operating results will be adversely affected.
Further, net income (loss) may be disproportionately affected by a reduction in revenues because of the relatively small amount of our expenses that vary with our revenues. </font></p> <p align=center> <font size="2"
face="Times New Roman">27</font></p>

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 <p> <font size="2" face="Times New Roman"><b>We experience seasonal fluctuations in sales and, as a result, our revenues may fluctuate significantly from period to period. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a significant portion of our operating expenses are fixed, a small variation in the timing of recognition of revenue can cause significant variations in operating
results from quarter to quarter. As with many companies that have a substantial presence in Europe, the third quarter has typically been a challenging quarter due to the traditional slowdown of economic activity throughout Europe in the summer
months. If, as anticipated, our revenues reflect an increasing proportion of software licenses in the future, we may experience another form of seasonality typical of other software companies. Software customers have a tendency to delay purchases
until the fourth quarter as driven by an annual budgetary phenomenon. This typically causes first quarter revenues to be lower than the previous fourth quarter revenues. In recent years, we have experienced a proportional increase in revenues from
the U.S. federal government whose budgetary year ends September 30. Other companies that derive a significant proportion of their revenues from the U.S. federal government often experience lower fourth quarter revenues than third quarter revenues
due to the annual budgetary process. Although we have not experienced such seasonality in the past, we may in the future if our U.S. federal government revenues continue to increase. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, a significant percentage of our quarterly revenues occur during the last weeks of the quarter. This has reduced the visibility of our quarterly operating
results and increased the risk that revenues expected in a quarter will not be realized until future quarters. </font></p> <p> <font size="2" face="Times New Roman"><b>Our operating margins may decline in future periods as we make significant
expenditures necessary to remain competitive. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depending on market conditions, market opportunities, actual revenues achieved and
the competitive landscape, we may increase our investment in research and development and, to a lesser extent, sales and marketing organizations. In addition, we may make additional investments in our general and administrative infrastructure. As a
result, operating margins may decrease from historical levels. The amount and timing of these additional expenditures are likely to result in fluctuations in operating margins. Any material reduction in gross or operating margins could materially
adversely affect our operating results. In addition, we could receive limited returns on the investments we have made in resources to develop and market new products if we are not successful introducing new products or if these new products are not
accepted in the marketplace. </font></p> <p> <font size="2" face="Times New Roman"><b>We derive revenue from only a limited number of products and we do not have a diversified product base. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues are derived from the sale of our digital identity systems and products. We anticipate that substantially all of the growth in our
revenue, if any, will also be derived from these sources. If for any reason our sale of these products is impeded, and we have not diversified our product offerings, our business and results from operations could be harmed. </font></p> <p> <font
size="2" face="Times New Roman"><b>Our customer base is highly concentrated and the loss of any one of these customers could adversely affect our business. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, we have experienced a concentration of revenues through certain of our channel partners to customers. In the three months ended March 31, 2003 and 2002,
there was a high concentration of revenues through a number of system integrators to the U.S. Department of Defense. Many of our contracts with our significant channel partners are short-term. If any of these channel partners did not renew their
contract upon expiration, or if there was a substantial reduction in sales to any of our significant customers, it could adversely affect our business and operating results. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2003, two customers accounted for 55% of revenues. In the first quarter of 2002, two customers accounted for 30% of revenues. Our customers
consist primarily of system integrators, resellers, distributors and OEMs. We ship product to the U.S. Department of Defense exclusively through system integrators. In the first three months ended March 31, 2003 and the year ended December 31, 2002,
we shipped product to many departments within the U.S. Department of Defense through system integrators such as Northrop Grumman. Our subcontract agreement with Northrop Grumman expires in July 2003. We cannot be certain the subcontract agreement
with Northrop Grumman will be renewed or extended.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the aggregate,&nbsp;the U.S. Department of Defense, as an end-user, accounted for
more than 50% of our consolidated revenues in the three months ended March 31, 2003 and 2002. Three end-users, representing departments within the U.S. Department of Defense, each accounted for 10% of consolidated revenues during these periods. We
expect to continue to depend upon a small number of large customers for a substantial portion of our revenue. </font></p> <p align=center> <font size="2" face="Times New Roman">28</font></p>

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 <p> <font size="2" face="Times New Roman"><b>We have a long and often complicated sales cycle for individual orders, which can result in significant revenue fluctuations from quarter to quarter. </b></font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sales cycle for our products, which is the period of time between the identification of a potential customer and completion of the sale, is
typically long and subject to a number of significant risks over which we have little control. As our operating expenses are based on anticipated revenue levels, a small fluctuation in the timing of sales can cause our operating results to vary
significantly from period to period. If revenue falls significantly below anticipated levels, our business would be seriously harmed. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
typical sales cycle is often six to nine months in the case of an enterprise customer, and more than twelve months in the case of a network service provider customer or government entity. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchasing decisions for our products and systems may be subject to delay due to many factors that are not within our control, such as: </font></p>
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<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The time required for a prospective customer to recognize the need for our products; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The time and complexity for us to assess and determine a prospective customer&#146;s IT environment; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The significant expense of digital identity products and network systems; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The customer&#146;s requirement for customized features and functionalities; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">The customer&#146;s internal budgeting process; and </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="94%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="94%" valign="top"> <p> <font size="2" face="Times New Roman">Internal procedures a customer may require for the approval of large purchases. </font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, the implementation process is subject to delays resulting from network administrative concerns associated with incorporating new technologies into
existing networks, deployment of a new network system or preservation of existing network infrastructure and data migration to the new system. Full deployment of our technology and products for such networks, servers or other host systems is usually
scheduled to occur over a two-to-three-year period and the licensing of digital identity systems and products, including client and server software, smart cards, readers, tokens and the recognition of maintenance revenues would also occur over this
period. </font></p> <p> <font size="2" face="Times New Roman"><b>The market for our products is still developing and if the industry adopts standards or a platform different from our platform, then our competitive position would be negatively
affected. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for digital identity products is still emerging and is also experiencing consolidation. The evolution of the
market is in a constant state of flux that may result in the development of different network computing platforms and industry standards that are not compatible with our current products or technologies. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that smart cards are an emerging platform for providing digital identity for network applications and services. Our business model is premised on the smart
card becoming a common access platform for network computing in the future. Further, we have focused on developing our products for particular operating systems related to smart card deployment and use. Should platforms other than the smart card
emerge as a preferred platform or should operating systems other than the specific systems we have focused on emerge as preferred operating systems, our current product offerings could be at a disadvantage to competitors who have been focusing on
alternative platforms and operating systems. If this were to occur, our future growth and operating results could suffer. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition,
the digital identity market lacks industry-wide standards. While we are actively engaged in discussions with industry peers to define what standards should be, it is possible that any standards eventually adopted could prove disadvantageous to or
incompatible with our business model and product lines. </font></p> <p> <font size="2" face="Times New Roman"><b>The nature of our bidding process and competitive pressures may, in the future, force us to sell products at a loss. </b></font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We engage in competitive bidding practices for some of our contracts that in the future could result in our costs exceeding our revenues for some
contracts. We generate a portion of our revenue from contracts and purchase orders awarded through competitive bidding processes. Our bids will not always be accepted or, if accepted, awarded contracts may not generate enough revenue to be
profitable. The competitive bidding process is typically lengthy and often results in the expenditure of financial, engineering and other resources early in the process and also in connection with bids that are not accepted. Additionally, inherent
in the competitive bidding process is the risk that our costs may exceed projected costs upon which a submitted bid or contract price is based. </font></p> <p align=center> <font size="2" face="Times New Roman">29</font></p>

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 <p> <font size="2" face="Times New Roman"><b>We may be adversely affected by operating in international markets. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our international operations subject us to risks associated with operating in foreign markets, including fluctuations in currency exchange rates that could adversely
affect our results from operations and financial condition. International sales are a substantial portion of our business. A severe economic decline in one of our major foreign markets could make it difficult for customers from those countries to
pay us on a timely basis. Any such failure to pay, or deferral of payment, could adversely affect our results of operations and financial condition. In the first quarter of 2003 and 2002, markets outside of North America accounted for 32% and 36% of
consolidated revenues, respectively. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We face a number of risks inherent in doing business in international markets, including among
others: </font></p>
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<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Unexpected changes in regulatory requirements; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Potentially adverse tax consequences; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Export controls relating to encryption technology; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
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<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Tariffs and other trade barriers; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Difficulties in staffing and managing international operations; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Changing economic or political conditions; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Exposures to different legal standards; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Burdens of complying with a variety of laws and legal systems; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Fluctuations in currency exchange rates; and </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Seasonal reductions in business activity during the summer months in Europe as well as other parts of the world. </font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we prepare our financial statements in U.S. dollars, we have historically incurred a substantial portion of our expenses in Euros and prior to the Euro, French
francs. We expect that a significant portion of our expenses will continue to be incurred in Euros and, to a lesser extent, in other non-U.S. foreign currencies. Fluctuations in the value of the Euro and other currencies relative to the U.S. dollar
have caused and will continue to cause dollar-translated amounts to vary from one period to another. Due to the constantly changing currency exposures and the substantial volatility of currency exchange rates, we cannot predict the effect of
exchange rate fluctuations upon future operating results. </font></p> <p><font size="2" face="Times New Roman"><b>We rely on the services of certain executive officers and key personnel, the loss of whom could adversely affect our operations.
</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success depends largely on the efforts and abilities of our executive officers and senior management and other key
employees, including technical and sales personnel. The loss of the services of any of these persons could harm our business. We do not maintain any key-person insurance for any of our employees.&#160; </font></p> <p> <font size="2"
face="Times New Roman"><b>Our cost reduction initiatives may adversely affect the morale and performance of our personnel and our ability to hire new personnel.</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our effort to streamline operations, reduce costs and bring our staffing and structure in line with industry standards, we restructured our
organization in 2002 and the first quarter of 2003, with substantial reductions in our workforce. There have been and may continue to be substantial costs associated with the workforce reductions, including severance and other employee&#150;related
costs, and our restructuring plan may yield unanticipated consequences, such as attrition beyond our planned reduction in workforce. As a result of these reductions, our ability to respond to unexpected challenges may be impaired and we may be
unable to take advantage of new opportunities. In addition, many of the employees who were terminated possessed specific knowledge or expertise that may prove to have been important to our operations. In that case, their absence may create
significant difficulties. This personnel reduction may also subject us to the risk of litigation, which may adversely impact our ability to conduct our operations and may cause us to incur significant expense.</font></p> <p> <font size="2"
face="Times New Roman"><b>Our ability to remain competitive depends in part on attracting, hiring and retaining qualified technical personnel. </b></font></p> <p class=MsoHeader align="center"> <font size="2" face="Times New Roman">30</font></p>

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 <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success depends in part on the availability of qualified technical personnel, including personnel
trained in software and hardware applications within specialized fields. As a result, we may not be able to successfully attract or retain skilled technical employees, which may impede our ability to develop, install, implement and otherwise service
our software and hardware systems and to efficiently conduct our operations. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information technology and network security industries
are characterized by a high level of employee mobility and the market for technical personnel remains extremely competitive in certain regions. This competition means there are fewer highly qualified employees available to hire, the costs of hiring
and retaining such personnel are high and they may not remain with our company once hired. Furthermore, there is continuing pressure to provide technical employees with stock options and other equity interests in our company, which may dilute our
earnings (loss) per share. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additions of new personnel and departures of existing personnel, particularly in key positions, can be
disruptive, might lead to additional departures of existing personnel and could have a material adverse effect on our business, operating results and financial condition. The addition and assimilation of new personnel may be made more difficult by
the fact that our research and development personnel are split between France, the United States and Canada, and our sales and marketing activities are located on three continents, thus requiring the coordination of organizations separated by
geography and time zones, and the interaction of personnel with disparate business backgrounds, languages and cultures. </font></p> <p> <font size="2" face="Times New Roman"><b>It is difficult to integrate acquired companies, products and
technologies into our operations and our inability to do so could greatly lessen the value of any such acquisitions. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January
2002, we established a wholly owned subsidiary in South Africa and acquired certain assets from two privately held companies based in South Africa. In 2001, we acquired Safe Data System S.A. in Montpellier, France, Authentic8 International Inc. in
Melbourne, Australia and American Biometric Co. Ltd. (Ankari) in Ottawa, Canada. We may make additional strategic acquisitions of companies, products or technologies in the future in order to implement our business strategy. If we are unable to
successfully integrate acquired businesses, products or technologies with our existing operations, we may not receive the intended benefits of such acquisitions. For example, in the first quarter of 2002, we decided to dispose of certain of the
operations of Authentic8. As a result of this decision, we recorded a $16.8 million charge to earnings in year ended December 31, 2002 associated with the impairment of goodwill and other intangibles, write-down of property and equipment and loss
from discontinued operations. Additionally, following the consummation of an acquisition, disputes may arise regarding indemnity, earn-out and other provisions in the acquisition agreement.&#160; For the foregoing reasons, acquisitions may subject
us to unanticipated liabilities or risks, disrupt our operations and divert management&#146;s attention from day-to-day operations. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
date, we have primarily used cash to finance our business acquisitions. We may incur debt or issue equity securities to finance future acquisitions. The issuance of equity securities for any acquisition could be substantially dilutive to our
shareholders. In addition, our profitability may suffer due to acquisition-related expenses and the amortization of acquired intangible assets. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under SFAS No.&nbsp;144, <i>Accounting for the Impairment or Disposal of Long-Lived Assets, </i>we recorded an impairment write-down of $5.1 million in the fourth
quarter of 2002 to adjust the carrying value of acquired intangible assets to their estimated fair value as of December&nbsp;31, 2002. In the future, any additional impairment charge could be significant and could have a material adverse effect on
our consolidated financial position and results of operations. At March 31, 2003, we had $12.7&nbsp;million of goodwill and other intangible assets, which accounted for 4% of our total assets.&nbsp;</font></p> <p> <font size="2"
face="Times New Roman"><b>We rely on strategic relationships with other companies to develop and market our products. If we are unable to enter into any such relationships, or if we lose an existing relationship, our business could be harmed.
</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Part of our business strategy has been to enter into strategic alliances and other cooperative arrangements with other companies in the industry. We
are currently involved in cooperative efforts to incorporate our products into products of others, to jointly engage in research and development efforts and to jointly engage in marketing efforts and reseller arrangements. None of these
relationships are exclusive, and some of our strategic partners also have cooperative relationships with certain of our competitors. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we are unable to enter into cooperative arrangements in the future or if we lose any of our current strategic or cooperative relationships, our business could be harmed. We do not control the time and resources devoted to such activities by parties
with whom we have relationships. In addition, we may not have the resources available to satisfy our commitments, which may adversely affect these relationships. These relationships may not continue, may not be</font></p> <p align=center><font
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 <p> <font size="2" face="Times New Roman">commercially successful, or may require the expenditure of significant financial, personnel and administrative resources from time to time. Further, certain of our products
and services compete with the products and services of our strategic partners. For example, Schlumberger distributes software for logical security applications using smart cards in addition to the smart card products that they license from our
company. This competition may adversely affect our relationships with our strategic partners, which could adversely affect our business. </font></p> <p> <font size="2" face="Times New Roman"><b>The nature of our operations makes us particularly
susceptible to power outages, computer viruses, acts of terrorism and natural disasters. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations are vulnerable to damage or
interruption from computer viruses, human error, natural disasters, telecommunication failures, intentional acts of vandalism or terrorism and similar events. In particular, our U.S. headquarters are located in the San Francisco Bay area, which is
known for seismic activity. We have not established a formal disaster recovery plan, and our back-up operations and business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption would
result in losses or damages incurred and would harm our business. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, we rely on continuous power supply to conduct our
business and energy shortages, similar to those experienced in California during 2001, could disrupt our operations and increase our expenses. We currently do not have alternate sources of power, and our current insurance does not provide coverage
for any damages that we or our customers may suffer as a result of any interruption in our power supply. If we experienced a disruption in power supply, we would be temporarily unable to continue operations at our California facilities. This could
damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. </font></p> <p><font size="2"
face="Times New Roman"><b>Legislative actions, higher insurance cost and potential new accounting pronouncements are likely to impact our future financial position and results of operations. </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and there may potentially be new accounting pronouncements or additional regulatory
rulings which will have an impact on our future financial position and results of operations.&#160; The Sarbanes-Oxley Act of 2002 and other rule changes as well as proposed legislative initiatives following the Enron bankruptcy are likely to
increase general and administrative costs.&#160; In addition, insurers are likely to increase premiums as a result of high claims rates over the past year, which we expect will increase our premiums for our various insurance policies.&#160; Further,
proposed initiatives are expected to result in changes in certain accounting rules, including legislative and other proposals to account for employee stock options as a compensation expense.&#160; These and other potential changes could materially
increase the expenses we report under generally accepted accounting principles and adversely affect our operating results. </font></p> <p align="center"> <font size="2" face="Times New Roman"><b>Risks related to the industry</b></font></p> <p> <font
size="2" face="Times New Roman"><b>Political and economic uncertainty and the recent U.S. economic downturn may cause our company to fail to meet expectations, which could negatively impact the price of our stock.</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating results can vary significantly based upon the impact of changes in global and domestic economic and political conditions. Capital investment by
businesses, particularly investments in new technology, has been experiencing substantial weakness. Political and economic uncertainty and the threat of new terrorist attacks on the United States have contributed to continuing economic and political
uncertainty that could result in a further decline in new technology investments. These uncertainties could cause customers to defer or reconsider purchasing our products or services if they experience a downturn in their business or if there is a
further downturn in the general economy. Such events could have a material adverse effect on our business.</font></p> <p><font size="2" face="Times New Roman"><b>Demand for our products depends, in part, on the continued growth of the Internet and
other communications networks. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the use of the Internet and other communications networks does not continue to grow, demand for
our products may not increase. Successful implementation of our strategy depends in large part on the continued growth in the use of the Internet and other communications networks based on internetworking protocols. If the use of these networks does
not continue to grow, or if it grows more slowly than we expect, the demand for our products may not increase. As certain types of network transactions and applications, such as electronic commerce, are still evolving, we cannot predict the size of
the market and its sustainable growth rate. To date, many businesses and consumers have been deterred from using these networks for a number of reasons, including, but not limited to: </font></p> <p align=center> <font size="2"
face="Times New Roman">32</font></p>

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<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Potentially inadequate development of network infrastructure; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Security concerns including the potential for user impersonation and fraud or theft of stored data and information communicated over networks; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Inconsistent quality of service; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Lack of availability of cost-effective, high-speed network service; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Limited numbers of local access points for corporate users; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Inability to integrate business applications on the networks; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">The need to operate with multiple and frequently incompatible products; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Limitations on networks due to increased users and lack of sufficient infrastructure to support increased levels of use; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Increased governmental regulation and delays in development or adoption of new standards and protocols to handle increased levels of activity; and </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Lack of tools to simplify access to and use of networks. </font></p> </td> </tr> </table> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The adoption of the Internet and other communication networks based on internet protocols will require a broad acceptance of new methods of conducting business and
exchanging information. Companies and government agencies that already have invested substantial resources in other methods of conducting business may be reluctant to adopt new methods. Also, persons with established patterns of purchasing goods and
services and effecting payments through traditional means may be reluctant to change. </font></p> <p> <font size="2" face="Times New Roman"><b>U.S. and French export laws may limit our ability to sell certain of our products internationally. These
restrictions may reduce potential revenue and create a competitive advantage for companies not subject to these laws. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three
months ended March 31, 2003 and 2002, sales in Europe and Asia, were 32% and 36% of consolidated revenues, respectively. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government
regulation of technology exports could limit our ability to market our products and to compete effectively worldwide. Our international sales and operations may be subject to the following risks: </font></p>
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<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Imposition of government controls; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">New or changed export license requirements; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Restrictions on the export of critical technology; </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Import or trade restrictions; and </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Changes in tariffs. </font></p> </td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe our
technology and products are designed to meet the regulatory standards of many foreign markets, any inability to obtain foreign regulatory approvals on a timely basis could have a material adverse effect on our results of operations and financial
condition. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our products are subject to export controls under U.S. and French laws, and we believe that we have obtained all
necessary export approvals when required. However, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, may be revised from time to time. Our failure to obtain required approvals
under these regulations could adversely affect our ability to sell in certain parts of the world. For example, because of the U.S. governmental controls on the exportation of encryption technology, we have been unable to export some of our products
with the most advanced information security encryption technology without providing encryption keys for access by governmental authorities. As a result, non-U.S. competitors facing less stringent controls on their products may be able to compete
more effectively than we can in the global information security market. Continuing concern about terrorist attacks in the U.S. may lead to greater governmental regulation of these products and further restrictions on the export of strong encryption
technologies. These factors may have a material adverse effect on our results of operations and financial condition. </font></p> <p align=center><font size="2" face="Times New Roman">33</font></p>

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 <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the increasing popularity of the Internet and internetworking protocol-based communication networks, it is
possible that laws and regulations may be enacted covering issues such as user privacy, pricing, content and quality of products and services. The increased attention focused upon these issues as a result of the adoption of additional laws and
regulations may reduce the rate of growth of these networks, which in turn could result in decreased demand for our technology. </font></p> <p align="center"> <font size="2" face="Times New Roman"><b>Risks relating to our products</b></font></p> <p>
<font size="2" face="Times New Roman"><b>We depend on a limited number of manufacturers and suppliers and any disruption of our supply chain could adversely affect the results of operations and could impact customer relations. </b></font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend upon a small number of companies for the manufacture of our products and the loss of any one of them could materially harm our business. We
source from IDT and ATM, two Hong Kong-based companies, for the manufacture and assembly of ActivCard tokens and readers. We also purchase PCMCIA smart card readers from SCM Microsystems and cryptoflex smart cards from Schlumberger for distribution
to our end-user customers. The assembly of certain components used in our products is performed in France by Selem. We place purchase orders with these manufacturers, the terms of which are negotiated on an order-by-order basis. The duplication of
CDs for the ActivCard Gold product is performed in the Netherlands by Metatec. These are currently our sole sources for the manufacture and assembly of these products. A reduction or interruption in supply and the failure to identify and establish
relationships with additional manufacturers and assemblers would adversely affect our results of operations and could impact customer relations. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IDT and ATM have manufacturing facilities located in a special economic zone in the Guandong and Shenzhen Provinces in the People&#146;s Republic of China. The
Chinese government has exercised, and continues to exercise, substantial control over many sectors of the Chinese economy, including manufacturing. Consequently, changes in policy by the Chinese government could adversely affect our ability to
source ActivCard tokens in China. The preferential tax treatment granted to enterprises located in these special economic zones could also be withdrawn, which could adversely affect the cost of manufacturing in China. </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although most of the parts and components used in the manufacture of our products are readily available from a number of suppliers, certain components are currently
available only from a single source or from limited sources. Our inability to obtain sufficient source components, or to obtain or develop alternative sources at competitive prices and quality, could result in delays in product shipments or increase
our material costs, either of which would adversely affect our financial condition or results of operations. In particular, the micro-controller chips contained in the older ActivCard Plus tokens are currently purchased from a sole source supplier,
Samsung Semiconductor Europe GmbH, which produces the chips in South Korea. Samsung may not be able to furnish enough chips to meet our demand or we may not be able to continue to purchase chips of acceptable quality from Samsung at commercially
acceptable prices. We believe that if Samsung were to discontinue the manufacture of the chips or to become unwilling or unable to meet our future requirements, we would be able to procure chips of acceptable quality from another supplier, and our
contractual relationship with Samsung would not restrict our ability to do so. We could also redesign our ActivCard Plus tokens for a different microprocessor. However, delay or failure to identify additional suppliers at commercially acceptable
prices or redesign the circuits could adversely affect our results of operations. </font></p> <p> <font size="2" face="Times New Roman"><b>If the security codes in our software were to be broken, our products may be rendered less effective and our
reputation and operating results could be adversely affected. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We employ cryptographic technology in our authentication products
that use complex mathematical formulations to establish network security systems. Many of our products are based on cryptographic technology. With cryptographic technology, a user is given a key that is required to encrypt and decode messages. The
security afforded by this technology depends on the integrity of a user&#146;s key and in part on the application of algorithms, which are advanced mathematical factoring equations. These codes may eventually be broken or become subject to
government regulation regarding their use, which would render our technology and products less effective. The occurrence of any one of the following could result in a decline in demand for our technology and products: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="5%" valign="top"> <p><font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Any significant advance in techniques for attacking cryptographic systems, including the development of an easy factoring method or faster, more powerful computers; </font></p>
</td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Announcement of the successful decoding of cryptographic messages or the misappropriation of keys; or </font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="95%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="5%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="95%" valign="top"> <p> <font size="2" face="Times New Roman">Increased government regulation limiting the use, scope or strength of cryptography. </font></p> </td> </tr> </table> <p align=center> <font size="2"
face="Times New Roman">34</font></p>

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 <p> <font size="2" face="Times New Roman"><b>We may be subject to liability claims brought by our customers alleging flaws in our products. If any such claims were to arise, they may be costly to defend and our
reputation could be damaged. </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our sales agreements typically contain provisions designed to limit our exposure to potential product
liability or related claims. Products as complex as those we offer may contain undetected errors or &#147;bugs&#148; or result in failures when first introduced or when new versions are released. The occurrence of these errors could result in
adverse publicity, delay in product introduction, diversion of resources to remedy defects, loss of or a delay in market acceptance or claims by customers against our company, or could cause us to incur additional costs, any of which could adversely
affect our business. Despite our product testing efforts and testing by current and potential customers, it is possible that errors will be found in products or enhancements after commencement of commercial shipments. We do not maintain insurance to
mitigate losses caused by product defects. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products can be used to prevent unauthorized access to and attacks on critical enterprise
information. As our customers rely on our products for critical security applications, we may be exposed to potential liability claims for damage caused to an enterprise as a result of an actual or perceived failure of our products. An actual or
perceived breach of enterprise network or data security systems of one of our customers, regardless of whether the breach is attributable to our products or solutions, could adversely affect the market&#146;s perception of our products and solutions
and therefore our business. Furthermore, the nature of many of our professional services exposes us to a variety of risks. Many of our professional service engagements involve projects that are critical to the operations of the customers&#146;
businesses. Our failure or inability to meet a customer&#146;s expectations in the performance of our services or products, or to do so in the time frame required by the customer, regardless of our responsibility for the failure, could: </font></p>
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<tr>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="93%" valign="top"> <p> <font size="2" face="Times New Roman">Result in a claim for substantial damages against us by our customers; </font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="93%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="93%" valign="top"> <p> <font size="2" face="Times New Roman">Discourage customers from engaging us for such services; or </font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;</font></p> </td>
<td width="93%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p> <font size="2" face="Times New Roman">&#149;</font></p> </td>
<td width="93%" valign="top"> <p> <font size="2" face="Times New Roman">Damage our business reputation. </font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, as a provider of professional services, a portion of our business involves employing people and placing them in the workplace of other businesses. Therefore, we are also exposed to liability with respect to actions of our employees while
on assignment, such as damages caused by employee errors and omissions, misuse of customer proprietary information, misappropriation of funds, discrimination and harassment, theft of customer property, other criminal activity or torts and other
claims. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently carry general liability insurance, errors and omissions insurance and insurance to guard against losses caused by
employee dishonesty. We believe that this insurance is comparable to other similar companies in our industry. However, that insurance may not continue to be available to us on reasonable terms or in sufficient amounts to cover one or more large
claims, or the insurer may disclaim coverage as to any future claim. We do not maintain insurance coverage for employee errors or security breaches, nor do we maintain specific insurance coverage for any interruptions in our business operations. The
successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductibles or co-insurance requirements, could
adversely affect our business. </font></p> <p> <font size="2" face="Times New Roman"><b>Our operating results could suffer if we are subjected to a protracted intellectual property infringement claim or one with a significant damages award.
</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may face claims of infringement on proprietary rights of others that could subject us to costly litigation and possible
restriction on the use of such proprietary rights. There is a risk that our products infringe on the proprietary rights of third parties. While we do not believe that our products infringe on proprietary rights of third parties, infringement or
invalidity claims may nevertheless be asserted or prosecuted against us and our products may be found to have infringed the rights of third parties. Such claims are costly to defend and could subject us to substantial litigation costs. If any claims
or actions are asserted against us, we may be required to modify our products or may be forced to obtain a license for such intellectual property rights in a timely manner. We may not be able to modify our products or obtain a license on
commercially reasonable terms, or at all. </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2002, we filed a lawsuit against Vasco Data Systems International alleging
infringement of U.S. Patent No. 5,937,068, as well as other matters set forth in the complaint. In May 2002, Vasco filed a response to our complaint and filed counterclaims, including non-infringement and patent invalidity. Litigation carries a
number of significant risks, is often unpredictable and can be very expensive, even if resolved in our favor. Litigation may also divert the attention of management and deplete other resources.</font></p> <p align=center> <font size="2"
face="Times New Roman">35</font></p>

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 <p>
<a name="tx662_8"></a> <font size="2" face="Times New Roman"><b>ITEM 3. Quantitative and Qualitative Disclosure About Market Risk</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that we are exposed to minimal market risks. We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for trading purposes. </font></p> <p> <font size="2" face="Times New Roman"><b><i>Exchange rate
sensitivity </i></b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to currency exchange fluctuations as we sell our products internationally. We manage the sensitivity
of our international sales by denominating substantially all transactions in U.S. dollars. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the three months ended March 31, 2003 and
2002, nearly all of our revenues were invoiced in U.S. dollars. Although we purchase many of our components in U.S. dollars, approximately half of our cost of revenues and operating expenses are denominated in other currencies. </font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2003 the net foreign exchange loss was $216 thousand. The weakening U.S. dollar against the local functional currencies in the first
quarter of 2003 caused this net foreign exchange loss which resulted primarily from revaluation of the assets and liabilities denominated in currencies other than the functional currency. In the first quarter of 2002, the net foreign exchange gain
was $35 thousand.&#160; </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We utilize a foreign exchange hedging program to mitigate transaction gains and losses resulting from exchange
rate fluctuations on assets and liabilities held by ActivCard companies that were denominated in currencies other than the functional currency of the legal entity holding the related asset or liability. To achieve this objective, we regularly enter
into various short-term foreign currency forward contracts that the Company accounts for as fair value hedging instruments to offset these foreign exchange transaction gains and losses. As at March&nbsp;31, 2003 we did not have any forward foreign
currency contracts outstanding.</font></p> <p> <font size="2" face="Times New Roman"><b><i>Interest rate sensitivity </i></b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are
exposed to interest rate risk as a result of our significant cash and equivalent holdings. The interest rate risk that we may be able to obtain on investment securities will depend on market conditions at that time and may differ from the rates we
have secured in the past. </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March 31, 2003, we held $43.6 million of cash and equivalents and $201.5 million in short-term
investments. Our cash and equivalents consist primarily of money-market funds and our short-term investments are primarily comprised of government and government agency securities. We currently have the ability and intention to hold our fixed
investments until maturity, and therefore, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. Due to the low current market yields and the relatively
short-term nature of our investments, a hypothetical 10% change in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.
</font></p> <p>
<a name="tx662_9"></a> <font size="2" face="Times New Roman"><b>ITEM 4. Controls and Procedures</b></font></p> <p> <font size="2" face="Times New Roman"><b>Evaluation and disclosure controls and procedures </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within 90&nbsp;days prior to the date of this report (the Evaluation Date), the Company&#146;s Chief Executive Officer and Chief Financial Officer, carried out an
evaluation of the effectiveness of the Company&#146;s &#147;disclosure controls and procedures&#148; (as defined in the Securities Exchange Act of 1934 Rules&nbsp;13a-14(c) and 15(d)-14(c)). Based on that evaluation, these officers have concluded
that, as of the Evaluation Date, the Company&#146;s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and the Company&#146;s consolidated subsidiaries would be made known to
them by others within those entities. </font></p> <p><font size="2" face="Times New Roman"><b>Changes in internal controls </b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no significant changes in the Company&#146;s internal controls, or to the Company&#146;s knowledge, in other factors that could significantly affect the Company&#146;s disclosure controls and procedures subsequent to the Evaluation Date.
</font></p> <p align=center> <font size="2" face="Times New Roman">36</font></p>

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 <p>
<a name="tx662_10"></a> <font size="2" face="Times New Roman"><b>PART II: OTHER INFORMATION</b></font></p> <p>
<a name="tx662_11"></a> <font size="2" face="Times New Roman"><b>ITEM 1. Legal Proceedings</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.</font></p> <p>
<a name="tx662_12"></a> <font size="2" face="Times New Roman"><b>ITEM 2. Changes in Securities and Use of Proceeds</b></font></p> <p> <font size="2" face="Times New Roman"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</b></font></p> <p>
<a name="tx662_13"></a> <font size="2" face="Times New Roman"><b>ITEM 3. Defaults Upon Senior Securities</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.</font></p>
<p>
<a name="tx662_14"></a> <font size="2" face="Times New Roman"><b>ITEM 4. Submission of Matters to a Vote of Security Holders</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
applicable.</font></p> <p>
<a name="tx662_15"></a> <font size="2" face="Times New Roman"><b>ITEM 5. Other Information</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.</font></p> <p>
<a name="tx662_16"></a> <font size="2" face="Times New Roman"><b>ITEM 6. Exhibits and Reports on Form 8-K </b></font></p> <p> <font size="2" face="Times New Roman">(a) The following documents are filed as part of this report: </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="21%" colspan="2" valign="top"> <p> <font size="1" face="Times New Roman"><b>Exhibit Number</b></font></p> </td>
<td width="2%" valign="top"> <p><font size="1">&nbsp;</font></p> </td>
<td width="75%" valign="top"> <p align="center"> <font size="1" face="Times New Roman"><b>Description</b></font></p> </td> </tr>
<tr>
<td width="12%" valign="top"> <hr size="1" width="100%" noshade color=black> </td>
<td width="9%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="2%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="75%" valign="top"> <hr size="1" width="100%" noshade color=black> </td> </tr>
<tr>
<td width="21%" colspan="2" valign="top"> <p><font size="2" face="Times New Roman">3.2</font></p> </td>
<td width="78%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Bylaws of ActivCard Corp. </font></p> </td> </tr>
<tr>
<td width="21%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">99.1</font></p> </td>
<td width="78%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Certification Filed Pursuant to Section 906 of Sarbanes-Oxley Act of 2002</font></p> </td> </tr>
<tr>
<td width="21%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">99.2</font></p> </td>
<td width="78%" colspan="2" valign="top"> <p> <font size="2" face="Times New Roman">Certification Filed Pursuant to Section 906 of Sarbanes-Oxley Act of 2002</font></p> </td> </tr>
<tr>
<td width=97 style='border:none'></td>
<td width=64></td>
<td width=16></td>
<td width=544></td> </tr> </table> <p> <font size="2" face="Times New Roman">&nbsp;</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="6%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman">(b)</font></p> </td>
<td width="86%" valign="top"> <p> <font size="2" face="Times New Roman">Reports on Form 8-K.&#160; </font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="7%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.</font></p> </td>
<td width="86%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="6%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="7%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="86%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr> </table> <p class=MsoCaption>
<a name="tx662_17"></a> <font size="2" face="Times New Roman"><b>SIGNATURES</b></font></p> <p><font size="2" face="Times New Roman">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant
has duly caused this Report on Form&nbsp;10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California on this 14&nbsp;day of May 2003. </font></p> <p> <font size="2"
face="Times New Roman">ACTIVCARD CORP.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td align="Left" width="25%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="3%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">By:</font></p> </td>
<td width="48%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman">/s/ B<small>LAIR</small> W. G<small>EDDES</small></font></p> </td>
<td width="23%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td align="Left" width="25%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="3%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="48%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="23%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td align="Left" width="25%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="3%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="48%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Blair W. Geddes<br> Vice President and Chief Financial Officer<br> (Principal Financial and Accounting Officer)</b></font></p> </td>
<td width="23%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">37</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p align="center">
<a name="tx662_18"></a> <font size="2" face="Times New Roman"><b>CERTIFICATIONS</b></font></p> <p> <font size="2" face="Times New Roman">I, Steve Humphreys, certify that: </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this quarterly report on Form 10-Q of ActivCard Corp.; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have: </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;&#160; </font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the &#147;Evaluation Date&#148;); and&#160; </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;&#160; </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The
registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent function):
</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant&#146;s
ability to record, process, summarize and report financial data and have identified for the registrant&#146;s auditors any material weaknesses in internal controls; and&#160; </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls; and&#160;
</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. The registrant&#146;s other certifying officers and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses. </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="50%" colspan="2" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman">/s/ S<small>TEVE</small> H<small>UMPHREYS</small></font></p> </td> </tr>
<tr>
<td width="50%" colspan="2" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td> </tr>
<tr>
<td width="50%" colspan="2" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="50%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Chief Executive Officer</b></font></p> </td> </tr>
<tr>
<td width="50%" colspan="2" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="50%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="43%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td>
<td width="6%" valign="bottom"> <p align=right> <font size="2" face="Times New Roman">Dated:</font></p> </td>
<td width="50%" valign="bottom"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;May 14, 2003</font></p> </td> </tr>
<tr>
<td width=314 style='border:none'></td>
<td width=47></td>
<td width=361></td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">38</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>
 <p> <font size="2" face="Times New Roman">I, Blair W. Geddes, certify that: </font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this
quarterly report on Form 10-Q of ActivCard Corp.; </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this quarterly report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; </font></p>
<p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have: </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;&#160; </font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the &#147;Evaluation Date&#148;); and&#160; </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;&#160; </font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The
registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent function):
</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant&#146;s
ability to record, process, summarize and report financial data and have identified for the registrant&#146;s auditors any material weaknesses in internal controls; and&#160; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls; and&#160;
</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. The registrant&#146;s other certifying officers and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses. </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="50%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="top"> <p align="center"> <font size="2" face="Times New Roman">/s/ B<small>LAIR</small> W. G<small>EDDES</small></font></p> </td> </tr>
<tr>
<td width="50%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="top"> <hr size="1" width="100%" noshade color=black> </td> </tr>
<tr>
<td width="50%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="top"> <p align="center"> <font size="1" face="Times New Roman"><b>Chief Financial Officer</b></font></p> </td> </tr>
<tr>
<td width="50%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="50%" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="50%" valign="top"> <p align=right> <font size="2" face="Times New Roman">Dated:</font></p> </td>
<td width="50%" valign="top"> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;May 14, 2003 </font></p> </td> </tr> </table> <p align="center"> <font size="2" face="Times New Roman">39</font></p>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>dex32.htm
<DESCRIPTION>BYLAWS OF ACTIVCARD CORP.
<TEXT>
<HTML><HEAD>
<TITLE>Bylaws of Activcard Corp.</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
  <p align=right><font size="2" face="Times New Roman"><b>EXHIBIT 3.2</b></font></p> <p align="center"> <font size="2" face="Times New Roman"><b>BYLAWS<br> OF<br> ACTIVCARD CORP.</b></font></p> <p align="center"> <font
size="2" face="Times New Roman">a Delaware corporation</font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ARTICLE 1<br> STOCKHOLDERS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Annual Meeting</i>.</b>&#160; An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall
be within 13&nbsp;months of the last annual meeting of stockholders. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Advance Notice; Purpose of Meeting</i>.&#160; </b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nominations of persons for election to the Board of
Directors and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i)&nbsp;pursuant to the notice given by the Corporation with respect to such meeting, (ii)&nbsp;by or at the direction of
the Board of Directors or (iii)&nbsp;by any stockholder of record of the Corporation who was a stockholder of record at the time of the giving of the notice provided for in paragraph (b) below, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this section.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause&nbsp;(iii) of the foregoing paragraph (a), (i)&nbsp;the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, (ii)&nbsp;such business
must be a proper matter for stockholder action under the General Corporation Law of the State of Delaware, (iii)&nbsp;if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation
with a Solicitation Notice, as that term is defined in subclause&nbsp;(C)(3) of this paragraph, such stockholder or beneficial owner must, in the case of a proposal, have delivered prior to such meeting a proxy statement and form of proxy to holders
of at least the percentage of the Corporation&#146;s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered prior to such meeting a proxy statement and form of proxy to
holders of a percentage of the Corporation&#146;s voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have
solicited prior to such meeting a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this section.&#160; To be timely, a stockholder&#146;s notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 45 or more than 75&nbsp;days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year &#145;s annual meeting</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
  <p><font size="2" face="Times New Roman">of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30&nbsp;days prior to or delayed by more than 30&nbsp;days after the
anniversary date of the preceding year&#146;s annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day
following the day on which public announcement of the date of such meeting is first made.&#160; Such stockholder&#146;s notice shall set forth (A)&nbsp;as to each person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person as would be required to be disclosed in solicitations of proxies for the election of such nominees as directors pursuant to Regulation&nbsp;14A under the Securities Exchange Act of 1934, as amended
(the <b>&#147;<i>Exchange Act</i>&#148;</b>), and such person&#146;s written consent to serving as a director if elected; (B)&nbsp;as to any other business that the stockholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C)&nbsp;as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1)&nbsp;the name and address of such stockholder, as they appear on the Corporation&#146;s books, and of such beneficial owner, (2)&nbsp;the class and
number of shares of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner, and (3)&nbsp;whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of a proposal, at least the percentage of the Corporation&#146;s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the
Corporation&#146;s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a <b>&#147;<i>Solicitation Notice</i>&#148;</b>).</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything in the second sentence of
paragraph (b)&nbsp;of this Section&nbsp;2 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 55&nbsp;days prior to the first anniversary of the preceding year&#146;s annual meeting, a stockholder&#146;s notice required by this Bylaw shall also be considered timely,
but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day
on which such public announcement is first made by the Corporation.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only persons nominated in accordance with the procedures set forth in this
Section&nbsp;shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section.&#160; The
chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these Bylaws and, if any proposed
nomination or business is not in compliance with these Bylaws to declare that such defective proposed business or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.</font></p> <p align="center"> <font
size="2" face="Times New Roman">2</font></p>

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  <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Section,
<b>&#147;<i>public announcement</i>&#148;</b> shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section&nbsp;13, 14 or 15(d) of the Exchange Act.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the foregoing provisions of this Section, a stockholder shall also
comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section.&#160; Nothing in this Section&nbsp;shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation&#146;s proxy statement pursuant to Rule&nbsp;14a-8 under the Exchange Act.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Special Meetings</i>.</b>&#160; Special meetings of the stockholders, other than those required by
statute, may be called at any time by the Chairman of the Board of Directors or the President or by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board.&#160; For purposes of these Bylaws, the term
&#147;Whole Board&#148; shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.&#160; The Board of Directors may postpone or reschedule any previously scheduled special
meeting.</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation&#146;s notice of meeting.&#160; Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation&#146;s notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of record&#160; of the Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 2 of this Article I.&#160; Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the stockholder&#146;s notice required by Section 2(b) of this Article I shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the
close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the foregoing
provisions of this Section 3, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 3.&#160; Nothing in this Section 3 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation&#146;s proxy statement pursuant to Rule 14a-8 under the Exchange Act.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Notice of Meetings</i>.</b>&#160; Notice of the place, date, and time of all meetings of the
stockholders, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, shall be given, not less than 10 nor more than 60&nbsp;days before the date on
which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by</font></p> <p align="center"><font size="2" face="Times New Roman">3</font></p>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
  <p> <font size="2" face="Times New Roman">law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation).</font></p>
<p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the
meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30&nbsp;days after the date for which the meeting w as originally noticed, or if a new record date is fixed for the adjourned
meeting, notice of the place, date, and time of the adjourned meeting and the means of communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, shall be given in
conformity herewith.&#160; At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Quorum</i>.</b>&#160; At any meeting of the stockholders, the holders of a majority of all of the
shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.&#160; Where a separate vote by a
class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.</font></p> <p>
<font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date, or time.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Organization.</i></b><i>&#160; </i>Such person as the Board of Directors may have designated or,
in the absence of such a person, the Chairman of the Board, or in his or her absence, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting.&#160; In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of
the meeting appoints.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Conduct of Business</i>.</b>&#160; The
chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The chairman of the
meeting shall have the power to adjourn the meeting to another place, if any, date and time.&#160; The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at
the meeting.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Proxies and Voting.</i></b><i>&#160; </i>At any meeting
of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting.&#160; Any copy,
facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph&nbsp;may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the
original writing or transmission </font></p> <p align="center"> <font size="2" face="Times New Roman">4</font></p>

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  <p> <font size="2" face="Times New Roman">could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or
transmission.</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof.&#160; The Corporation may designate one or more persons as alternate inspectors to replace any
inspector who fails to act.&#160; If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the
meeting.&#160; Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.&#160; Every vote taken by
ballots shall be counted by a duly appointed inspector or inspectors.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All elections shall be determined by a plurality of the votes cast, and except as
otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Stock List.</i></b><i>&#160; </i>A complete list of stockholders entitled to vote at any meeting
of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder for a period of
at least 10&nbsp;days prior to the meeting in the manner provided by law.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The stock list shall also be open to the examination of any stockholder during the whole
time of the meeting as provided by law.&#160; This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.</font></p> <p align="center"><font size="2"
face="Times New Roman"><b>ARTICLE II<br> BOARD OF DIRECTORS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Number, Election and Term of Directors</i>.</b> Subject to the rights of the holders of any series
of preferred stock to elect directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board; provided, however,
that no reduction in the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.&#160; Except as provided in the Corporation&#146;s Certificate of Incorporation or as otherwise set
forth herein, directors shall be elected at the annual meeting of stockholders by a plurality vote of the shares represented in person or by proxy, and each director, including a director elected to fill a vacancy, shall hold office until the
expiration of the term for which the director was elected and until a successor has been elected and qualified. </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Newly Created Directorships and Vacancies</i>.</b>&#160; Subject to the rights of the holders of
any series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause</font></p> <p align="center"> <font size="2" face="Times New Roman">5</font></p>

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  <p> <font size="2" face="Times New Roman">shall, unless otherwise required by law or by resolution of the Board of Directors, be filled only by a majority vote of the directors then in office, though less than a
quorum (and not by stockholders), and directors so chosen shall serve for a term expiring at the annual meeting of stockholders at which the term of office to which they have been elected expires or until such director&#146;s successor shall have
been duly elected and qualified.&#160; No decrease in the number of authorized directors shall shorten the term of any incumbent director.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Regular Meetings</i>.</b>&#160; Regular meetings of the Board of Directors shall be held at such
place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors.&#160; A notice of each regular meeting shall not be required.</font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Special Meetings</i>.</b>&#160; Special meetings of the Board of Directors may be called
by the Chairman of the Board, the President or by two or more directors then in office and shall be held at such place, on such date, and at such time as they or he or she shall fix.&#160; Notice of the place, date, and time of each such special
meeting shall be given each director by whom it is not waived by mailing written notice not less than five days before the meeting or by telephone or by telegraphing or telexing or by facsimile transmission of the same not less than 24 hours before
the meeting.&#160; Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Quorum</i>.</b>&#160; At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes.&#160; If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.</font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Participation in Meetings By Conference Telephone</i>.</b>&#160; Members of the Board of
Directors, or of any committee thereof, may participate in a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear
each other and such participation shall constitute presence in person at such meeting.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Conduct of Business</i>.</b>&#160; At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law.&#160;
Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of
proceedings of the Board of Directors.&#160; Such filing shall be made in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Compensation of Directors</i>.</b>&#160; Unless otherwise restricted by the certificate of
incorporation, the Board of Directors shall have the authority to fix the compensation of the directors.&#160; The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or paid a stated salary or paid other compensation as director. No such payment shall</font></p> <p align="center"> <font size="2" face="Times New Roman">6</font></p>

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  <p> <font size="2" face="Times New Roman">preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.&#160; Members of special or standing committees may be allowed
like compensation for attending committee meetings.</font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ARTICLE III<br> </b><b>COMMITTEES</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Committees of the Board of Directors</i>.</b>&#160; The Board of Directors may from time to time
designate committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee.&#160; In the absence or disqualification of
any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote
appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Conduct of Business</i>.</b>&#160; Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law.&#160; Adequate provision shall be made for notice to members of all meetings; a majority of the members shall constitute a
quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by the affirmative vote of a majority of the members present.&#160; Action may be
taken by any committee without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such
committee.&#160; Such filing shall be made in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.</font></p> <p align="center"> <font size="2"
face="Times New Roman"><b>ARTICLE IV<br> </b><b>OFFICERS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Generally</i>.</b>&#160; The officers of the Corporation shall consist of a Chairman of the Board,
a President, one or more Vice Presidents, a Secretary, a Chief Financial Officer and such other officers as may from time to time be appointed by the Board of Directors.&#160; Officers shall be elected by the Board of Directors, which shall consider
that subject at its first meeting after every annual meeting of stockholders.&#160; Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.&#160; Any number of offices
may be held by the same person.&#160; The salaries of officers elected by the Board of Directors shall be fixed from time to time by the Board of Directors or by such officers as may be designated by resolution of the Board of Directors.</font></p>
<p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Chairman of the Board</i>.</b>&#160; Unless otherwise provided by the Board of
Directors, the Chairman of the Board shall be the Chief Executive Officer of the Corporation.&#160; Subject to</font></p> <p align="center"><font size="2" face="Times New Roman">7</font></p>

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  <p> <font size="2" face="Times New Roman">the provisions of these Bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business
and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors.&#160; He or she shall have power to sign all
stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>President</i>.</b>&#160; The President, if provided by the Board of Directors, shall be the Chief
Executive Officer of the Corporation as provided in Section 2 of Article IV of these Bylaws, and shall be the Chief Operating Officer of the Corporation.&#160; Subject to the provisions of these Bylaws and to the direction of the Board of Directors,
he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are
delegated to him or her by the Board of Directors.&#160; Subject to the direction of the Board of Directors and the Chairman of the Board, the President shall have power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and direction of all of the other officers (other than the Chairman of the Board or any Vice Chairman, employees and agents of the Corporation.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Vice President</i>.</b>&#160; Each Vice President shall have such powers and duties as may be
delegated to him or her by the Board of Directors.&#160; One (1) Vice President shall be designated by the Board of Directors to perform the duties and exercise the powers of the President in the event of the President&#146;s absence or
disability.</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Chief Financial Officer</i>.</b>&#160; The Chief
Financial Officer, if provided by the Board of Directors, shall be the Treasurer of the Corporation and shall have the responsibility for maintaining the financial records of the Corporation.&#160; He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation.&#160; The Chief Financial Officer shall also perform such other duties as the Board
of Directors may from time to time prescribe.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Secretary</i>.</b>&#160; The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors.&#160; He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe.</font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Delegation of Authority</i>.</b>&#160; The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Removal</i>. </b>&#160;Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Action with Respect to Securities
of Other Corporations</i>.</b>&#160; Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by</font></p> <p align="center"> <font size="2" face="Times New Roman">8</font></p>

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  <p><font size="2" face="Times New Roman">the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other Corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other
Corporation.</font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ARTICLE V<br> </b><b>STOCK</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Certificates of Stock</i>.</b>&#160; Each stockholder shall be entitled to a certificate signed
by, or in the name of the Corporation by, the Chairman or Vice Chairman (if any) or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned
by him or her.&#160; Any or all of the signatures on the certificate may be by facsimile.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Transfers of Stock</i>.</b>&#160; Transfers of stock shall be made only upon the transfer books of
the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation.&#160; Except where a certificate is issued in accordance with Section&nbsp;4 of Article&nbsp;V of these Bylaws,
an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Record Date</i>.</b>&#160; In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be
more than 60 nor less than 10&nbsp;days before the date of any meeting of stockholders, nor more than 60&nbsp;days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.</font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A determination of stockholders of record entitled to notice of or to vote at a meeting
of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Lost, Stolen or Destroyed Certificates</i>.</b>&#160; In the event of the loss, theft or
destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.</font></p> <p align="center"> <font size="2" face="Times New Roman">9</font></p>

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  <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Regulations</i>.</b>&#160; The issue, transfer,
conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.</font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ARTICLE VI<br>
</b><b>NOTICES</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Notices</i>.</b>&#160; If mailed, notice to
stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder&#146;s address as it appears on the records of the Corporation.&#160; Without limiting the manner by which notice
otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Waivers</i>.</b>&#160; A written waiver of any notice, signed by a stockholder or director, or
waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person.&#160; Neither the business nor the
purpose of any meeting need be specified in such a waiver.&#160; Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice.</font></p> <p align="center"><font size="2"
face="Times New Roman"><b>ARTICLE VII<br> MISCELLANEOUS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Facsimile Signatures</i>.</b>&#160; In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Corporate Seal</i>.</b>&#160; The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary.&#160; If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.</font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Reliance upon Books, Reports and
Records</i>.</b>&#160; Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books
of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person
as to matters which such director or committee member reasonably believes are within such other person&#146;s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.</font></p> <p> <font
size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Fiscal Year</i>.</b>&#160; The fiscal year of the Corporation shall be as fixed by the
Board of Directors.</font></p> <p align="center"> <font size="2" face="Times New Roman">10</font></p>

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  <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Time Periods</i>.</b>&#160; In applying any
provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of
the doing of the act shall be excluded, and the day of the event shall be included.</font></p> <p align="center"> <font size="2" face="Times New Roman"><b>ARTICLE VIII<br> INDEMNIFICATION OF DIRECTORS AND OFFICERS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Right to Indemnification</i>.</b>&#160; Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a <b>&#147;<i>proceeding</i>&#148;</b>), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an <b>&#147;<i>indemnitee</i>&#148;</b>), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss
(including attorneys&#146; fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in
Section&nbsp;3 of this Article VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.&#160; </font></p> <p><font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Right to Advancement of Expenses</i>.</b>&#160; The right to indemnification conferred in
Section&nbsp;1 of this Article VIII shall include the right to be paid by the Corporation the expenses (including attorney&#146;s fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an
<b>&#147;<i>advancement of expenses</i>&#148;</b>); provided, however, that, if the Delaware General Corporation Law or any other applicable law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an
<b>&#147;<i>undertaking</i>&#148;</b>), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a
<b>&#147;<i>final adjudication</i>&#148;</b>) that such indemnitee is not entitled to be indemnified for such expenses under this Section&nbsp;2 or otherwise.&#160; </font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Right of Indemnitee to Bring Suit</i>.</b>&#160; If a claim under Section 1 or 2 of this Article
VIII is not paid in full by the Corporation within 60 days after a written claim has been received</font></p> <p align="center"> <font size="2" face="Times New Roman">11</font></p>

<p Style='page-break-before:always'>
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  <p> <font size="2" face="Times New Roman">by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of the claim.&#160; If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit.&#160; In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled
to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.&#160; Neither the failure of the Corporation (including its directors
who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a
committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense to such suit.&#160; In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the
Corporation.</font></p> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Non-Exclusivity of Rights</i>.</b>&#160; The rights to
indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation&#146;s Certificate of Incorporation,
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Insurance</i>.</b>&#160; The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the Delaware General Corporation Law.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Indemnification of Employees and Agents of the Corporation</i>.</b>&#160; The Corporation may, to
the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any officer, employee or agent of the Corporation to the fullest extent of the provisions of this
Article&nbsp;with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.</font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><i>Nature of Rights</i>.</b>&#160; The rights conferred upon indemnitees in this Article VIII shall
be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee&#146;s heirs, executors and</font></p> <p align="center"> <font size="2"
face="Times New Roman">12</font></p>

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<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
  <p><font size="2" face="Times New Roman">administrators.&#160; Any amendment, alteration or repeal of this Article VIII that adversely affects any right of an indemnitee or its successors shall be prospective only and
shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.</font></p> <p align="center"> <font
size="2" face="Times New Roman"><b>ARTICLE IX<br> </b><b>AMENDMENTS</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In furtherance and not in limitation of the powers conferred by law, the Board of
Directors is expressly authorized to adopt, amend and repeal these Bylaws subject to the power of the holders of capital stock of the Corporation to adopt, amend or repeal the Bylaws; provided, however, that, with respect to the power of holders of
capital stock to adopt, amend and repeal Bylaws of the Corporation, notwithstanding any other provision of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the Corporation required by law, these Bylaws or any preferred stock, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of these Bylaws.</font></p> <p align="center"> <font size="2"
face="Times New Roman">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</font></p> <p align="center"> <font size="2" face="Times New Roman">13</font></p>

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  <p align="center"> <font size="2" face="Times New Roman"><b>CERTIFICATE OF SECRETARY</b></font></p> <p> <font size="2"
face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is to certify that the foregoing is a true and correct copy of the Bylaws of the
corporation named in the title of these Bylaws and that such Bylaws were duly adopted by the Board of Directors of such corporation as of August 15, 2002.</font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="65%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="29%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="4%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="65%" valign="bottom"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td>
<td width="34%" colspan="2" valign="bottom"> <p><font size="2" face="Times New Roman">Secretary</font></p> </td> </tr> </table> <p align="center"><font size="2" face="Times New Roman">14</font></p>
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<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>4
<FILENAME>dex991.htm
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML><HEAD>
<TITLE>Certification of Chief Executive Officer</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
  <p align=right><font size="2" face="Times New Roman"><b>EXHIBIT 99.1</b></font></p> <p align="center"> <font size="2" face="Times New Roman"><b>CERTIFICATION OF CHIEF EXECUTIVE OFFICER<br> PURSUANT TO<br> 18 U.S.C.
SECTION 1350,<br> AS ADOPTED PURSUANT TO<br> SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</b></font></p> <p> <font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Steve Humphreys, certify, pursuant to
18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ActivCard Corp. on Form&nbsp;10-Q for the fiscal quarter ended March 31, 2003 fully complies with the requirements
of Section&nbsp;13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form&nbsp;10-Q fairly presents in all material respects the financial condition and results of operations of ActivCard
Corp. </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="15%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Date: May&nbsp;14, 2003</font></p> </td>
<td width="44%" valign="bottom"> <p align="center"> <font size="2" face="Times New Roman">/s/ S<small>TEVE</small> H<small>UMPHREYS</small></font></p> </td>
<td width="21%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="15%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="44%" valign="bottom"> <hr size="1" width="100%" noshade color=black> </td>
<td width="21%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="15%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="bottom"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="44%" valign="bottom"> <p align="center"> <font size="1" face="Times New Roman"><b>Steve Humphreys<br> Chairman of the Board of Directors and<br> Chief Executive Officer</b></font></p> </td>
<td width="21%" valign="bottom"> <p><font size="1">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A signed original of this written statement required by
section 906 has been provided to ActivCard Corp. and will be retained by ActivCard Corp. and furnished to the Securities and Exchange Commission upon request.</font></p>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>dex992.htm
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML><HEAD>
<TITLE>Certification of Chief Financial Officer</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
  <p align=right> <font size="2" face="Times New Roman"><b>EXHIBIT 99.2</b></font></p> <p align="center"> <font size="2" face="Times New Roman"><b>CERTIFICATION OF CHIEF FINANCIAL OFFICER<br> PURSUANT TO<br> 18 U.S.C.
SECTION 1350,<br> AS ADOPTED PURSUANT TO<br> SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</b></font></p> <p> <font size="2" face="Times New Roman">I, Blair W. Geddes, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ActivCard Corp. on Form&nbsp;10-Q for the fiscal quarter ended March 31, 2003 fully complies with the requirements of Section&nbsp;13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Quarterly Report on Form&nbsp;10-Q fairly presents in all material respects the financial condition and results of operations of ActivCard Corp. </font></p>
<table align="center" border="0" style="border-collapse:collapse" cellspacing="0" cellpadding="0" width="100%">
<tr>
<td width="16%" valign="top"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="top"> <p style="margin-left:1em; text-indent:-1em"> <font size="2" face="Times New Roman">Date: May&nbsp;14, 2003</font></p> </td>
<td width="41%" valign="top"> <p align="center"> <font size="2" face="Times New Roman">/s/&nbsp;B<small>LAIR</small> W. G<small>EDDES</small></font></p> </td>
<td width="23%" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr>
<tr>
<td width="16%" valign="top"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="top"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="41%" valign="top"> <hr size="1" width="100%" noshade color=black> </td>
<td width="23%" valign="top"> <p><font size="1" face="Times new roman">&nbsp;</font></p> </td> </tr>
<tr>
<td width="16%" valign="top"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="18%" valign="top"> <p style="margin-left:1em; text-indent:-1em"><font size="1">&nbsp;</font></p> </td>
<td width="41%" valign="top"> <p align="center"> <font size="1" face="Times New Roman"><b>Blair W. Geddes<br> Chief Financial Officer</b></font></p> </td>
<td width="23%" valign="top"> <p><font size="1">&nbsp;</font></p> </td> </tr> </table> <p><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A signed original of this written statement required by
section 906 has been provided to ActivCard Corp. and will be retained by ActivCard Corp. and furnished to the Securities and Exchange Commission upon request.</font></p>
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