1042783--3/17/2008--DOT_HILL_SYSTEMS

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{customer, product, revenue}

{product, market, service}

{stock, price, operating}

{cost, operation, labor}

{stock, price, share}

{control, financial, internal}

{cost, regulation, environmental}

{system, service, information}

{operation, natural, condition}

{capital, credit, financial}

{tax, income, asset}

{property, intellectual, protect}

{product, liability, claim}

{operation, international, foreign}

{personnel, key, retain}

{provision, law, control}

{acquisition, growth, future}

{condition, economic, financial}

{regulation, change, law}

Our OEM customers may have very aggressive product launch and ramp schedules and our efforts to accommodate these schedules may divert our management s attention, cause component shortages and force us to allocate products across many customers, all of which could harm our customer relations. Our contracts with our OEM customers do not include minimum purchase requirements and are not exclusive, and we cannot assure you that our relationship with these major customers will not be terminated or will generate significant sales. The requirement of a few of our larger OEM customers to locate finished goods inventory in vendor managed hubs could result in a reduction in working capital and cash. Our revenues may be affected by changes in IT spending levels. We may continue to experience losses in the future, and may require additional capital. A significant percentage of our expenses are fixed, and if we fail to generate targeted revenues or margins in associated periods, our operating results will be harmed. The transition of manufacturing of our products and potentially other products to MiTAC and SYNNEX could impact our operating results. Our inability to lower product costs or changes in the mix of products we sell may significantly impact our gross margins and operating results. Our financial condition will be materially harmed if we do not maintain competitiveness and gain acceptance of our products. Liquidity problems or bankruptcy of some our small OEM customers could increase exposure to losses from bad debts, increase accounts receivable and could have a material adverse effect on our business, financial condition and results of operations. Product recalls, epidemic failures, post-manufacture repairs of our products liability claims, absence or cost of insurance, and associated costs could harm our reputation, divert resources, reduce sales and increase costs and could have a material adverse effect on our financial condition. Our operating results are subject to substantial quarterly and annual fluctuations, and our period-to- period comparisons are not necessarily meaningful and we may not meet the expectations of public market analysts and investors. We may have difficulty predicting future operating results due to both internal and external factors affecting our business and operations, which could cause our stock price to decline. Our sales cycle varies substantially and future net revenue in any period may be lower than our historical revenues or forecasts. Manufacturing and supplier disruptions could harm our business. The loss of one or more suppliers could slow or interrupt the production and sales of our products. Any shortage of disk drives, memory or other components could increase our costs or harm our ability to manufacture and deliver our storage products to our customers in a timely manner. The market for storage systems is intensely competitive and our results of operations, pricing and business could be harmed if we fail to maintain or expand our market position. The open systems storage market is rapidly changing and we may be unable to keep pace with or properly prepare for the effects of those changes. Our success depends significantly upon our ability to protect our intellectual property and to avoid infringing the intellectual property of third parties, which has already resulted in costly, time-consuming litigation and could result in the inability to offer certain products. Environmental compliance costs could adversely affect our net income. Our success depends on our ability to attract and retain key personnel. Our executive officers and directors and their affiliates own a significant percentage of our outstanding shares, which could prevent us from being acquired and adversely affect our stock price. Protective provisions in our charter and bylaws and the existence of our stockholder rights plan could prevent a takeover which could harm our stockholders. Unanticipated changes in our tax provisions or adverse outcomes resulting from examination of our income tax returns could adversely affect our net income. The exercise of outstanding warrants may result in dilution to our stockholders. Our stock price may be highly volatile and could decline substantially and unexpectedly, which has resulted in litigation. Future sales of our common stock may hurt our market price. Geopolitical conditions, including military action, terrorist attacks and other acts of war, political risks, civil unrest widespread pandemics, and elongated interruptions of transoceanic telecommunications lines, may materially and adversely affect the markets on which our common stock trades, the markets in which we operate, our operations and our profitability. Compliance with Sarbanes-Oxley Act of 2002. Computer viruses and other forms of tampering with our computer systems or servers may disrupt our operations and adversely affect net income. Our facilities and the facilities of our suppliers and customers are located in regions that are subject to natural disasters.

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1042783--3/17/2008--DOT_HILL_SYSTEMS_CORP