1118037--3/14/2008--MATHSTAR

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{product, market, service}

{property, intellectual, protect}

{stock, price, share}

{customer, product, revenue}

{system, service, information}

{provision, law, control}

{acquisition, growth, future}

{stock, price, operating}

{personnel, key, retain}

{competitive, industry, competition}

{control, financial, internal}

{cost, operation, labor}

Risks Relating to Our Business Our operations and business are subject to the risks of an early-stage company with limited revenue and a history of operating losses. We may need additional financing in the future, which may not be available to us on favorable terms or at all. If we need additional financing but do not obtain it when we need it or on terms that are favorable to us, our business would be adversely and materially affected. Because our current and planned FPOA chips are highly complex, they may contain defects or errors that are detected only after deployment in commercial applications, which would harm our reputation and result in increased liability and expense. In the fourth quarter of 2006, we began shipping a production version of our FPOA chip, but we have not yet achieved broad commercial acceptance of the chip. Our success depends on effectively introducing our FPOA chips to the market and having them gain market acceptance. The failure of our FPOA chips to achieve commercial acceptance would have a material adverse effect on our business, revenue, financial condition and results of operations. Our future success will depend on our ability to develop new FPOA chips, introduce them to the market and have them gain market acceptance. There is no assurance that we can do so successfully or on a timely basis. Our failure to do so would have a material adverse effect on our business, revenue, financial condition and results of operations. Our success depends on our ability to develop effective FPOA design tools, either alone or in alliances with independent electronic design automation companies, and to have the design tools gain market acceptance. Our failure to do so would delay or prevent the commercialization of our FPOA chips, which would materially harm our business, revenue, financial condition and results of operations. We presently rely on Mentor Graphics Corporation for the design tools that are used to map our customers' algorithms to our FPOAs. If Mentor Graphics could not or would not provide these design tools and related support services for any reason, further design tool development would be delayed, which would delay the introduction of our FPOAs to the marketplace. A key to market acceptance of our technology is the availability of application IP to meet customer requirements and product specifications. We use a third-party contractor to fabricate the silicon wafers used in our FPOA chips. If our supply of silicon wafers from the contractor was interrupted, delayed or terminated for any reason, our business, revenue, financial condition and results of operations would be adversely affected. The production of silicon wafers is a complex process, and production yields can be adversely affected by many factors over which we have no control. A shortage or delay in producing the silicon wafers used in our FPOA chips could have an adverse effect on our business, revenue, financial condition and results of operations. We rely on a single-source independent contractor for our packaging. The disruption or termination of our relationship with this contractor could result in a material adverse effect on our business, revenue, financial condition and results of operations. The semiconductor industry is intensely competitive. Most of our competitors have substantially greater resources than we do, and there can be no assurance that we will be able to successfully compete in the industry. Rapid technological change could cause our FPOA chips and technology to become obsolete or require us to redesign our FPOA chips, which could have a material adverse effect on our business, revenue, financial condition and results of operations. Our ability to compete depends on our ability to protect our intellectual property, which may not be adequately protected. Our technology has no patent protection outside of the United States because we have no non-United States patents or patent applications, and we do not currently plan on applying for non-United States patents. This could result in the appropriation of our technology outside of the United States, which could have an adverse effect on our business, revenue, financial condition and results of operations. We are at risk of intellectual property infringement claims. We plan on purchasing intellectual property for the next versions of our FPOA, and we may not be able to obtain the intellectual property we need under terms and conditions that are acceptable to us. The market for semiconductor chips has been characterized by periods of significant fluctuations in demand. Our revenue and financial performance will depend on demand for semiconductor chips overall and particularly those with the performance characteristics of our FPOA chip. Our success depends on the services of our existing management and upon our ability to attract qualified engineers and other technical, management, sales, marketing and financial personnel. Douglas M. Pihl owned 3.5% of our outstanding shares of common stock as of December 31, 2007, which allows him to exert substantial influence over our business and management. We may encounter difficulties in managing our growth and expanding our operations successfully. Our board of directors may issue and fix the terms of shares of our preferred stock without stockholder approval, which could adversely affect the voting power of holders of our common stock or any change in control of MathStar. We will not pay cash dividends on our common stock in the foreseeable future. Our common stock is at risk for delisting from The NASDAQ Global Market. If it is delisted, our stock price and the liquidity of our common stock may be impacted. Our stock price will be volatile, which means that purchasers of our common stock could incur substantial losses. If there are substantial sales of our common stock, our stock price could decline. The anti-takeover provisions of the Delaware General Corporation Law, or the DGCL, may delay or prevent transactions that are favorable to our stockholders.

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1118037--3/14/2008--MATHSTAR_INC