1102741--3/31/2006--SIMPLETECH

related topics

{product, market, service}

{stock, price, operating}

{customer, product, revenue}

{property, intellectual, protect}

{regulation, change, law}

{acquisition, growth, future}

{operation, international, foreign}

{cost, regulation, environmental}

{control, financial, internal}

{provision, law, control}

{tax, income, asset}

{operation, natural, condition}

{personnel, key, retain}

{condition, economic, financial}

{product, liability, claim}

We expect our quarterly operating results to fluctuate in future periods, causing our stock price to fluctuate or decline. Our dependence on a small number of suppliers for integrated circuit, or IC, devices and inability to obtain a sufficient supply of these components on a timely basis could harm our ability to fulfill orders. Ineffective management of inventory levels or product mix, order cancellations, product returns, inventory write-downs, price protection and rebates could adversely affect our results of operations. Declines in our average sales prices may result in declines in our revenues and gross profit. We are subject to the cyclical nature of the semiconductor industry and any future downturn could continue to adversely affect our business. Sales to a limited number of customers represent a significant portion of our revenues, and the loss of any key customer would materially reduce our revenues. We may be less competitive if we fail to develop new and enhanced products and introduce them in a timely manner. Our efforts to expand our business internationally may not be successful and may expose us to additional risks that may not exist in the United States, which in turn could cause our business and operating results to suffer. New accounting and financial reporting requirements, including new standards that affect how we account for equity compensation, may impact our financial results. Failure to maintain effective internal control over financial reporting could result in a negative market reaction. Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. We may make acquisitions that are dilutive to existing shareholders, result in unanticipated accounting charges or otherwise adversely affect our results of operations. Our limited experience in acquiring other businesses, product lines and technologies may make it difficult for us to overcome problems encountered in connection with any acquisitions we may undertake. Three of our beneficial shareholders have substantial influence over our operations and could control all matters requiring shareholder approval. We are involved from time to time in claims and litigation over intellectual property rights, which may adversely affect our ability to manufacture and sell our products. Our indemnification obligations for the infringement by our products of the intellectual property rights of others could require us to pay substantial damages. Our indemnification obligations to our customers and suppliers for product defects could require us to pay substantial damages. Our intellectual property may not be adequately protected, which could harm our competitive position. We may not be able to maintain or improve our competitive position because of the intense competition in the memory industry. The Flash-based storage market is constantly evolving, and we may not have rights to manufacture and sell certain types of products utilizing emerging new Flash formats, or we may be required to pay a royalty to sell products utilizing these formats. The execution of our growth strategy depends on our ability to retain key personnel, including our executive officers, and to attract qualified personnel. We face risks associated with doing business in foreign countries, including foreign currency fluctuations and trade barriers, that could lead to a decrease in demand for our products or an increase in the cost of the components used in our products. We have experienced quarterly and annual losses in the past and may continue to experience losses in the future. Disruption of our operations in our Santa Ana, California, manufacturing facilities would substantially harm our business. Our ability to use our tax credit carryforwards may be substantially limited, which could harm our financial condition. Compliance with environmental laws and regulations could harm our operating results. Failure to comply with governmental laws and regulations could harm our business. Our stock price is likely to be volatile and could drop unexpectedly. Anti-takeover provisions in our charter documents and stock option plan could prevent or delay a change in control and, as a result, negatively impact our shareholders.

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1102741--3/31/2006--SIMPLETECH_INC