**Exhibit 99.1**

 

**Forward-LookingStatement Risk and Uncertainty Factors**

 

December 2003

 

From time totime, Key Technology, Inc. (“Key” or the “Company”), through its management,may make forward-looking public statements with respect to the Companyregarding, among other things, expected future revenues or earnings,projections, plans, future performance, product development andcommercialization, and other estimates relating to the Company’s futureoperations.  Forward-looking statementsmay be included in reports filed under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), in press releases or in oral statements made withthe approval of an authorized executive officer of Key.  The words or phrases “will likely result,”“are expected to,” “intends,” “is anticipated,” “estimates,” “believes,”“projects” or similar expressions are intended to identify “forward-lookingstatements” within the meaning of Section 21E of the Exchange Act andSection 27A of the Securities Act of 1933, as amended, as enacted by thePrivate Securities Litigation Reform Act of 1995.

 

Forward-lookingstatements are subject to a number of risks and uncertainties.  The Company cautions investors not to placeundue reliance on its forward-looking statements, which speak only as to thedate on which they are made.  Key’sactual results may differ materially from those described in theforward-looking statements as a result of various factors, including thoselisted below.  The Company disclaims anyobligation subsequently to revise or update forward-looking statements toreflect events or circumstances after the date of such statements or to reflectthe occurrence of anticipated or unanticipated events.

 

Pursuant tothe “safe harbor” provisions of the Private Securities Litigation Reform Act of1995, Key hereby files the following cautionary statements identifying certainfactors that could cause its actual results to differ materially from thosedescribed in its forward-looking statements.

 

**Adverseeconomic conditions in the food processing industry may adversely affect theCompany’s business.**

 

The marketsthe Company serves, particularly the food processing industry, are experiencingvariable economic conditions.  Theseconditions include single-digit or negative growth rates for certain segments;a consolidation of food processing companies; lower prices for the Company’scustomers’ products in certain market segments; changing trends in consumerdemographics and dietary choices; and higher energy costs for certain of the Company’scustomers.  There is no guarantee thatcontinued changes in these conditions would not result in a reduction of salesand net earnings for the Company.

 

**Reductions incapital expenditures in industries served by the Company and the financialcapacity of customers in these industries to purchase capital equipment, maylimit sales.**

 

A substantial portion of the Company’s historicalsales has been in the potato and vegetable processing markets.  Reductions in capital equipment expendituresby processors in such markets due to commodity surpluses, product pricefluctuations, changing consumer preferences, fluctuations in foreign currencyexchange rates, higher interest rates or other factors could have an adverseeffect on the Company’s results of operations.

 

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**Competitionand advances in technology may adversely affect sales and prices.**

 

The marketsfor the Company’s products are highly competitive.  Some of the Company’s competitors may have substantially greaterfinancial, technical, marketing and other resources than the Company.  Important competitive factors in theCompany’s markets include price, performance, reliability, customer support andservice.  Although the Company believesthat it currently competes effectively with respect to these factors, there canbe no assurance that the Company will be able to continue to competeeffectively in the future. Additionally, advances in technology may remove some barriers to marketentry, enabling additional competitors to enter the Company’s markets.  Such additional competition could force theCompany to reduce prices to remain competitive, and decrease the Company’sprofits, having a material adverse affect on the Company’s business andfinancial condition.

 

**Failure to achieveproduct performance specifications may increase warranty expenses.**

 

The Company provides a ninety-day to two-year warrantyon its products.  In addition, forcertain standard or custom-designed systems, the Company contracts to meetcertain performance specifications for a specific application or set ofapplications.  The Company is subject towarranty claims in the ordinary course of business.  In the past, the Company has incurred higher warranty expensesrelated to new products than it typically incurs with established products.  The Company maintains reserves for suchclaims.  A large number of warrantyclaims, a small number of large warranty claims, or claims against the Companywith respect to its failure to meet obligations or performance specifications,or provide product upgrades to meet such specifications, which claims exceedcurrent warranty expense levels, could have a material adverse effect on theCompany’s results of operations, financial position and customerrelations.  There can be no assurancethat the Company will not incur significant warranty expense in the future.

 

**The Company’s newproducts may not compete successfully in either existing or new markets.**

 

The future success and growth of the Company isdependent upon continuing sales in certain food processing markets and othermarkets, particularly the french fry and vegetable processing markets, as wellas successful penetration of new products into other existing and potentialmarkets.  The Company also intends to expandthe marketing of its current and new products into new markets, includinginternational markets.  There can be noassurance the Company can successfully penetrate these potential markets orexpand into international markets with its current or new products.

 

**The Company maynot be able to maintain or expand international operations and sale, which mayadversely affect the Company’s sales.**

 

During thefiscal years 2003, 2002, and 2001, export and international sales accounted for50%, 42%, and 49%, respectively, of the Company’s net sales in each suchyear.  The Company expects to continueto expand its selling, marketing and other operational activities ininternational markets.  The Company’scurrent and future international operations are, and will be, subject to risksinvolved in international operations and sales, such as currency fluctuations,export controls and other government regulations.  In addition, the laws of certain other countries may not protectthe Company’s intellectual property rights to the same extent as do the laws ofthe United States.

 

**Adversefluctuations in foreign currency exchange rates may adversely affect results ofoperations.**

 

The terms of sales to European customers are typicallydenominated in either Euros, U.S. Dollars, or to a far lesser extent, therespective legacy currencies of its European customers.  The terms of sales to customers in Australiaare typically denominated in their local currency. The Company expects that itsstandard terms of sale to international customers, other than those in Europeand Australia, will continue

 

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to be denominated in U.S.dollars.  For sales transactions betweeninternational customers, including European customers, and the Company’sdomestic operations which are denominated in currencies other than U.S. dollars,the Company assesses its currency exchange risk and may enter into a currencyhedging transaction to minimize such risk. However, there is no assurance that foreign currency fluctuations willnot have an adverse effect on the Company’s results of operations.

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**The Company’sfuture success is dependent upon the Company’s ability to develop, improve andmarket its products and services.**

 

The Company’sfuture operating results will depend upon its ability to improve and marketexisting products and to develop and successfully market new products andservices.  There is no assurance thatthe Company will be able to enhance its existing products or to develop newproducts or services in response to customer requirements or productintroductions by competitors, which could have an adverse effect on theCompany’s results of operations.

 

**The limitedavailability and possible cost fluctuations of materials used in the Company’sproducts could adversely affect the Company’s business.**

 

Certain of the components, subassemblies and materialsfor the Company’s products are obtained from single sources or a limited groupof suppliers.  Although the Companyseeks to reduce dependence on sole or limited source suppliers, the partial orcomplete loss of certain of these sources could have an adverse effect on theCompany’s results of operations and customer relationships.  In addition, certain basic materials, suchas stainless steel, are used extensively in the Company’s product fabricationprocesses.  Such basic materials mayalso be subject to worldwide shortages or price fluctuations related to thesupply of or demand for raw materials, such as nickel, which are used in theirproduction by the Company’s suppliers.  A significant increase in the price or decrease in the availability ofone or more of these components, subassemblies or basic materials could alsoadversely affect the Company’s results of operations.

 

**The Company’sinability to protect its intellectual property may adversely affect theCompany’s competitive advantage.**

 

The Company’scompetitive position may be affected by its ability to protect its proprietarytechnology.  The Company has obtainedcertain patents and has filed a number of patent applications.  The Company also anticipates filingapplications for protection of its future products and technology.  There can be no assurance that any suchpatents will provide meaningful protection for the Company’s productinnovations.  There also can be noassurance that the Company will obtain any patent for which it applies, thatexisting patents to which the Company has rights will not be challenged, orthat the issuance of a patent will give the Company any material advantage overits competition in connection with any of its products.  The Company may experience additionalintellectual property risks in international markets where it may lack patentprotection.  The patent laws of othercountries may differ from those of the U.S. as to the patentability of theCompany’s products and processes. Moreover, the degree of protection afforded by foreign patents may bedifferent from that of U.S. patents.

 

**Intellectualproperty-related litigation expenses and other costs resulting frominfringement claims asserted against the Company or its customers by thirdparties may adversely affect the Company’s results of operations and itscustomer relations.**

 

Thetechnologies used by the Company may infringe the patents or proprietarytechnology of others.  In the past, theCompany has been required to initiate litigation to protect its patents.  The cost of enforcing the Company’s patentrights in lawsuits that it may bring against infringers or of defending itselfagainst infringement charges by other patent holders or other third parties,including customers,

 

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may be high and could have anadverse effect on the Company’s results of operations and its customerrelations.

 

Certain usersof the Company’s products have received notice of patent infringement from theLemelson Medical, Education and Research Foundation, Limited Partnership (the“Partnership”) alleging that their use of the Company’s products may infringecertain patents transferred to the Partnership by the late Jerome H.Lemelson.  Certain of these users havenotified the Company that, in the event it is subsequently determined thattheir use of the Company’s products infringes any of the Partnership’s patents,they may seek indemnification from the Company for damages or expensesresulting from this matter.  The Companydoes not believe its products infringe any valid and enforceable claims of thePartnership’s patents.  Furthermore, thePartnership has stated that it is not the Company’s products that infringe thePartnership’s patents, but rather the use of those products by the Company’scustomers.  The Company cannot predictthe outcome of this matter nor any related litigation or other costs related tomitigation activities that may arise in the future, the effect of suchlitigation or mitigation activities on the financial results of the Company, orthe effect upon its customer relations.

 

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