secunet Security Networks AG

Quarterly Report • May 4, 2006

3-Month Report 2006

>> Q1 2006 results disappointing: sales and EBIT down on prior year

Investments to boost market position: Preparation for major IT projects Increase in national and international sales capacity Extended product range

Outlook for full year remains positive: Increase in orders on hand

Key figures

		Q1 2006	Q1 2005	Change in %
Sales	(kEuro)	6,729	7,549	-11
EBIT	(kEuro)	-109	838	-/-
EBT	(kEuro)	-70	885	-/-
Net income/loss for the period	(kEuro)	-31	412	-/-
Earnings per share for the period	(Euro)	0.00	0.06	-/-
Cash flow from operations	(kEuro)	-4,033	-1,238	-/-
Investments	(kEuro)	216	255	-15
Orders on hand	(million Euro)	17.1	14.7	+16
Employees (as of 31 Mar)		218	206	+6

		31 Mar 2006	31 Dec 2005	Change in %
Cash and cash equivalents	(kEuro)	8,622	12,846	-33
Equity	(kEuro)	16,805	16,816	-0.1
Equity ratio	(%)	69%	60%	+9-Points
Loans	(kEuro)	0.00	0.00	-/-

The secunet Share

Price changes January 2005 – March 2006 (Index, 3 Jan 2005 = 100)

Financial Calendar 2006

31 May Annual general meeting

3 August 6-months results 2006

9 November 9-months results 2006

Contact

secunet Security Networks AG Kronprinzenstraße 30 45128 Essen

Tel.: +49 (0) 201 5454-0 Fax: +49 (0) 201 5454-123

E-mail: investor.relations@secunet.com Internet: www.secunet.com

Dear shareholders, customers, employees and friends of secunet,

The first quarter of fiscal year 2006 was one of mixed developments.

On the one hand, business in the first quarter was disappointing. Both sales and EBIT were down year-onyear. The causes of this development are as follows: Firstly, projects expected to be completed in the first quarter were postponed. Secondly, demand from the public sector was subdued because this year's budget has yet to be passed and so major purchases have been put on the back-burner. As a result, secunet's sales were lower than last year. Since our cost structure is largely unchanged, the drop in sales had a direct impact on earnings.

On the other hand, we launched major initiatives in several areas during the course of the first quarter that will boost our market position in the future:

• We have focused sharply on qualifying for major IT infrastructure projects. These include in particular the introduction of the IT infrastructure for the electronic health card in Germany.

• We have signed a reseller agreement with Computacenter that will increase our potential sales capacity for SINA in Germany. Resellers enable us to provide better support for existing target groups and to access new ones. As such, they are ideally suited for expanding our international sales. Therefore we are striving to close further agreements.

• The expansion of our product range will also improve our future situation: a first step has been taken with secunet Tridentity, which we presented at the recent CeBIT.

We are thus optimistic about the future. There are plenty of grounds for this:

At CeBIT, the international computer trade fair and the annual sales event in our industry, we had many interesting customer discussions and made a number of new contacts. Highlights included visits by the Federal Foreign Minister and also several state secretaries to secunet's stand. We had intensive discussions with political decision makers about current and future IT security issues. Thus we can continue to fulfill our role as IT security partner to the Federal Republic of Germany.

Orders on hand are higher compared with the previous year's figure and year end 2005.

This gives us the confidence that we will achieve our targets for 2006 as a whole.

Dr. Rainer Baumgart CEO

Dr. Rainer Baumgart

Interim financial report for Q1, 2006

Sales development

In the first quarter of fiscal year 2006, the secunet Group generated sales of about Euro 6.7 million. Compared with the first quarter of the previous year, in which sales of some Euro 7.5 million were generated, this is a drop of 11%.

This development was due to normal sector-specific and seasonal fluctuations which can be broken down into two categories. Firstly, a number of projects were extended beyond the end of the first quarter. In most cases, this shift in timing was requested by the customer. Secondly, secunet's main customers, the public sector, have been relatively reticent in the placing of orders because they are still working on the basis of provisional budgets for 2006.

Development of earnings

On the cost side, secunet is continuing to adhere to clear budget targets. The main cost drivers personnel, depreciation and amortization and other operating expenses in the first quarter of 2006 have thus remained largely unchanged compared with the same quarter in the previous year. These items totaled about Euro 6.0 million in the first quarter of 2006 (Q1, 2005: Euro 5.8 million). There was a significant drop only in material costs (from Euro 2.0 million in the prior year to Euro 1.6 million in the current year), which can be traced back to the temporary drop in SINA project sales.

The decline in sales on the back of unchanged costs leads to a relatively and absolutely similar drop in earnings before interest and tax: in the first quarter of 2006 EBIT was Euro -0.1 million (Q1, 2005: Euro 0.8 million). Positive net interest income and also an imputed positive tax charge led to a net loss of Euro -0.03 million at the end of the first quarter. As a result, earnings per share were Euro 0.00 compared with Euro 0.06 in the first quarter of 2005.

Sales in million Euro

Net assets and financial position

The secunet Group balance sheet as of 31 March 2006 has two significant changes compared with year end 2005. Both the liquid assets and provisions are much lower. Liquid assets fell from Euro 12.8 million as of 31 December 2005 to Euro 8.6 million as of 31 March 2006 and provisions dropped from Euro 5.8 to Euro 2.4 million. This is mainly due to the payment of variable salary components for the very successful fiscal year 2005: liquid assets fell in line with the reversal of the corresponding deferred expenses.

The earnings performance has also impacted the cash flow. As a result of the negative Q1 profit and the payment of the bonuses, the cash flow was negative in the first quarter (Euro -4.0 million). The prior year's Q1 cash flow was also in negative, albeit not as large thanks to the positive earnings and the lower bonus payments (Euro -1.2 million).

Investments

The first quarter of 2006 saw capital expenditure of Euro 0.2 million, which was in line with the previous year's figure. The expenditure was on new and replacement hardware, software and other equipment.

Employees

At the end of the quarter, the secunet Group employed about 218 people, 12 more than at end of the first quarter of the previous year. During the course of the first quarter, the headcount rose by 2, with most of the hirings having already been effected in fiscal year 2005. The hirings were in the productive areas product management, sales, and also consulting and development.

The market for high-quality and complex IT security remains attractive. Public authorities, international organizations and corporations continue to have a strong need for IT high security. secunet is excellently positioned in this growth market.

The high demand is reflected in secunet's order books: as of 31 March 2006 the company had orders to the value of about Euro 17.1 million. This is an increase of a good 16% compared with the end of the first quarter of 2005 and about 20% above the level as of 31 December 2005.

The market and order situation leaves the secunet Security Networks AG board of management confident that the growth expectations for the fiscal year 2006 will be met.

Outlook

Directors' dealings as per Section 15a German Securities Trading Act (WpHG)

Under Section 15a WpHG, members of the supervisory board / board of management and comparable managers of secunet Security Networks AG have to report their dealings in secunet shares or in related derivative financial instruments once the total amount of their dealings exceeds Euro 5,000 by the end of the calendar year. This reporting obligation also applies to natural and legal persons closely related to the aforementioned persons. The corresponding reports can be found under Directors' Dealings in the Investor Relations section of our web site.

Directors' Dealings Q1 2006

Date of report	Reporting person	Type of transaction	Type of financial instrument	Number of securities traded	Value
27.02.2006	Ingo Baumgart	Sale	Shares	2,350	29,610.00
06.03.2006	Ingo Baumgart	Sale	Shares	5,000	62,500.00

Notes

The consolidation principles and the currency translation method for the period from 1 January to 31 March 2006 are the same as in the consolidated annual financial statements for fiscal year 2005. The accounting and valuation policies were also left unchanged. The initial application of IFRS 2 did not lead to any changes in the balance sheet presentation, because all options were issued before 7 November 2002.

The figures disclosed in the balance sheet, income statement, flow of funds statement and changes in shareholders' equity correspond to the normal course of business at secunet and do not include any exceptional items. There were no material events after the reporting date.

Consolidated Balance Sheet of secunet Security Networks (IFRS)

Assets in Euro	31 Mar 2006	31 Dec 2005
Current assets
Cash and cash equivalents	8,621,925.26	12,845,872.17
Trade accounts receivable	8,054,373.52	8,015,239.43
Accounts receivable from affiliated subsidiaries	128,397.97	66,394.46
Inventories	476,702.97	168,485.19
Other current assets	144,354.00	223,349.82
Total current assets	17,425,753.72	21,319,341.07
Non-current assets
Property, plant and equipment	1,191,855.01	1,199,728.01
Intangible assets	158,278.40	160,740.92
Goodwill	2,950,000.00	2,950,000.00
Investments	270,240.86	245,691.63
Deferred taxes	2,494,677.67	2,218,929.67
Total non-current assets	7,065,051.94	6,775,090.23
Total assets	24,490,805.66	28,094,431.30

Equity and liabilities in Euro	31 Mar 2006	31 Dec 2005
Current liabilities
Current portion of capital lease obligations	86,704.41	99,944.94
Short-term debt and current portion of long-term debt	0.00	0.00
Trade accounts payable	1,036,355.25	1,756,378.04
Accounts payable to affiliated companies	57,880.39	0.00
Advances received	275,000.00	0.00
Accrued expenses	2,439,572.85	5,822,417.11
Income tax liabilities	582,937.89	607,559.00
Other current liabilities	1,520,865.73	1,150,733.27
Deferred items	13,238.48	425,219.29
Total current liabilities	6,012,555.00	9,862,251.65
Non-current liabilities
Capital lease obligations, less current portion	96,175.53	97,696.99
Deferred taxes	366,033.46	129,097.30
Pension provisions	1,210,678.96	1,189,664.56
Total non-current liabilities	1,672,887.95	1,416,458.85
Equity
Subscribed capital	6,500,000.00	6,500,000.00
Capital reserves	21,922,005.80	21,922,005.80
Treasury stock	-168,771.13	-168,771.13
Accumulated deficit	-11,457,791.27	-11,426,459.38
Accumulated other comprehensive income/loss	9,919.31	-11,054.49
Total equity	16,805,362.71	16,815,720.80
Total equity and liabilities	24,490,805.66	28,094,431.30

Consolidated Income Statement of secunet Security Networks (IFRS)

in Euro	1 Jan – 31 Mar 2006	1 Jan – 31 Mar 2005
Revenues	6,729,310.85	7,549,147.90
Other operating income	756,296.02	1,085,144.99
Cost of purchased materials and services	-1,641,191.48	-1,999,884.98
Personnel expenses	-4,021,498.84	-4,039,053.48
Depreciation and amortization	-202,143.25	-215,803.95
Other operating expenses	-1,729,372.17	-1,542,031.18
Operating income/loss	-108,598.87	837,519.30
Interest income/expense	34,198.88	43,943.50
Foreign currency exchange gains/losses	4,256.26	3,761.86
Earnings before tax	-70,143.73	885,224.66
Taxes on income	38,811.84	-473,666.61
Net income/loss	-31,331.89	411,558.05
Earnings per share (basic)	0.00	0.06
Earnings per share (diluted)	0.00	0.06
Average number of shares outstanding (basic)	6,450,507	6,420,196
Average number of shares outstanding (diluted)	6,500,000	6,500,000

Consolidated Statement of Changes in Equity secunet Security Networks (IFRS)

					Accumulated other compre
	Subscribed	Capital	Treasury		hensive
in Euro	capital	reserves	stock	Net loss	income/loss	Total
Equity as at 31 Dec 2004	6,500,000.00	21,922,005.80	-265,700.38	-15,705,593.41	22,306.50	12,473,018.51
Changes in treasury stock			96,929.25			96,929.25
Foreign currency differences					-33,360.99	-33,360.99
Net profit 1 Jan – 31 Dec 2005				4,279,134.03		4,279,134.03
Equity as at 31 Dec 2005	6,500,000.00	21,922,005.80	-168,771.13	-11,426,459.38	-11,054.49	16,815,720.80
Changes in treasury stock			0.00			0.00
Foreign currency differences					20,973.80	20,973.80
Net loss 1 Jan – 31 Mar 2006				-31,331.89		-31,331.89
Equity as at 31 Mar 2006	6,500,000.00	21,922,005.80	-168,771.13	-11,457,791.27	9,919.31	16,805,362.71

Consolidated Cash Flow Statement of secunet Security Networks (IFRS)

in Euro	1 Jan – 31 Mar 2006	1 Jan – 31 Mar 2005
Cash flows from operating activities
Net profit/loss	-31,331.89	411,558.05
Adjustments for:
Depreciation and amortization	202,143.25	215,803.95
Increase/decrease in provisions and deferred taxes	-3,425,262.80	-1,228,906.15
Net interest income	34,198.88	43,943.50
Cash flows to taxes	0.00	0.00
Gains/losses on the disposal of fixed assets	0.00	0.00
Foreign currency exchange gains/losses	-4,256.26	-3,761.86
Other (non-cash transactions)	0.00	1,320.00
Change in net working capital	-808,311.19	-678,436.78
Net cash used in/provided by operating activities	-4,032,820.01	-1,238,479.29
Cash flows from investment activities
Acquisition of subsidiaries, less acquired cash and cash equivalents	0.00	0.00
Acquisition of property, plant and equipment	-216,356.96	-254,962.08
Income from the sale of equipment	0.00	0.00
Net cash used in investment activities	-216,356.96	-254,962.08
Cash flow from financing activities
Net cash provided by/used in financing activities	0.00	0.00
Net effect of currency translation in cash and cash equivalents	25,230.06	-16,676.46
Increase/reduction in cash and cash equivalents	-4,223,946.91	-1,510,117.83
Cash and cash equivalents at beginning of period	12,845,872.17	8,782,893.53
Cash and cash equivalents at end of period	8,621,925.26	7,272,775.70

Concept and design IR-One AG & Co. KG · Hamburg · www.ir-1.com