1003607--12/28/2009--ALTIGEN_COMMUNICATIONS

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{customer, product, revenue}

{stock, price, operating}

{product, market, service}

{condition, economic, financial}

{stock, price, share}

{product, candidate, development}

{acquisition, growth, future}

{competitive, industry, competition}

{operation, international, foreign}

{provision, law, control}

{operation, natural, condition}

{regulation, change, law}

{system, service, information}

{personnel, key, retain}

{property, intellectual, protect}

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CERTAIN FACTORS AFFECTING BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION Risks Related to Our Business Our business could be harmed by adverse global economic conditions in our target markets or reduced spending on information technology and telecommunication products. We have had a history of losses and may incur future losses, which may prevent us from attaining profitability. Our operating results vary, making future operating results difficult to predict. Our market is highly competitive and we may not have the resources to adequately compete. We sell the majority of our products through dealers and distributors, which limits our ability to control the timing of our sales, and which makes it more difficult to predict our revenue. We rely on resellers to promote, sell, install and support our products, and their failure to do so or our inability to recruit or retain resellers may substantially reduce our sales and thus seriously harm our business. Software or hardware errors may seriously harm our business and damage our reputation, causing loss of customers and revenue. Our market is subject to changing preferences; failure to keep up with these changes would result in our losing market share, thus seriously harming our business, financial condition and results of operations. We depend on attracting and retaining qualified personnel to maintain and expand our business; our failure to promptly attract and retain qualified personnel may seriously harm our business, financial condition and results of operations. Losing any of our key distributors would harm our business. We also need to establish and maintain relationships with additional distributors and original equipment manufacturers. We rely on sole-sourced components and third party technology and products; if these components are not available, our business may suffer. Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses. Our facility is vulnerable to damage from earthquakes and other natural disasters and other business interruptions; any such damage could seriously or completely impair our business. Our strategy to outsource assembly and test functions in the future could delay delivery of products, decrease quality or increase costs. Our expansion in international markets has been slow and steady. However, our plan is to accelerate this growth rate and will involve new risks that our previous domestic operations have not prepared us to address; our failure to address these risks could harm our business, financial condition and results of operations. Any failure by us to protect our intellectual property could harm our business and competitive position. If we are unable to raise additional capital when needed, we may be unable to develop or enhance our products and services. We may face infringement issues that could harm our business by requiring us to license technology on unfavorable terms or temporarily or permanently cease sales of key products. Our products may not meet the legal standards required for their sale in some countries; if we cannot sell our products in these countries, our results of operations may be seriously harmed. Risks Related to the Industry Integrated, multifunction telecommunications systems may not achieve widespread acceptance. Evolving standards may delay our product introductions, increase our product development costs or cause end users to defer or cancel plans to purchase our products, any of which could adversely affect our business. Future regulation or legislation could harm our business or increase our cost of doing business. Risks Related to Ownership of our Common Stock Our stock price may be volatile. If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline. We may choose to raise additional capital. Such capital may not be available, or may be available on unfavorable terms, which would adversely affect our ability to operate our business. Provisions in our charter documents, Delaware law, employment arrangements with certain of our executive officers and Preferred Stock Rights Agreement could discourage a takeover that stockholders may consider favorable. Our common stock could be delisted from the NASDAQ Capital Market.

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1003607--12/28/2009--ALTIGEN_COMMUNICATIONS_INC