1274032--3/31/2006--INFOSONICS

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{stock, price, operating}

{stock, price, share}

{financial, litigation, operation}

{product, market, service}

{debt, indebtedness, cash}

{condition, economic, financial}

{competitive, industry, competition}

{operation, international, foreign}

{property, intellectual, protect}

{personnel, key, retain}

{system, service, information}

{provision, law, control}

Risks Relating to Our Business Our operating results may vary significantly, which may cause our stock price to fluctuate. We buy a significant amount of our products from a limited number of suppliers, who may not provide us with competitive products at reasonable prices when we need them in the future. Our continuing liabilities on leases from our former mall-based retail kiosk locations could have a negative impact on earnings and cash flow. The loss or reduction in orders from principal customers or a reduction in prices we are able to charge these customers will have a negative impact upon our revenues and could cause our stock price to decline. Our future profitability depends on our ability to maintain existing margins and our ability to increase our sales, which we may not be able to do. Our business depends on the continued tendency of wireless equipment manufacturers and carriers to outsource aspects of their business to us. Our sales and inventory risk may be materially affected by fluctuations in regional demand patterns and economic factors for which we cannot plan. We may not be able to adequately respond to rapid technological changes in the wireless telecommunications industry, which could cause us to lose customers. Substantial defaults by our customers on accounts receivables could have a significant negative impact on our cash flow and financial condition. We rely on our suppliers to provide favorable terms, including payment terms, in order for us to make appropriate product purchases, and without such terms, our ability to procure products could be reduced. Approximately 70% of our revenues during the fiscal year ended December 31, 2005 were generated outside of the United States in countries that may have volatile currencies or other risks. We rely on our information technology system to function efficiently, without interruptions, and if it does not, customer relationships could be harmed. We have outstanding indebtedness, which is secured by substantially all our assets and which could prevent us from borrowing additional funds, if needed. We depend on third parties to manufacture products that we distribute and, accordingly, rely on their quality control procedures. The wireless telecommunications industry is intensely competitive and we may not be able to continue to compete against well established competitors with greater financial and other resources. Our continued growth depends on retaining our current key employees and attracting additional qualified personnel, and we may not be able to continue to do so. We rely on trade secret laws and agreements with our key employees and other third parties to protect our proprietary rights, and there is no assurance that these laws or agreements adequately protect our rights. We may become subject to suits alleging medical risks associated with our wireless handsets, and the cost of these suits could be substantial, and divert funds from our business. Risks Related To Our Common Stock Stockholders may be diluted as a result of future offerings or other financings. Our common stock, and our stock price could be volatile and could decline, resulting in a substantial loss on your investment. Shares of common stock that are issuable pursuant to our stock option plans and our outstanding warrants, when issued, could result in dilution to existing stockholders and could cause the market price of our common stock to fall. The ability of our stockholders to control our policies or effect a change in control of our company is limited, which may not be in our stockholders best interests. Our largest stockholder may have strategic interests that differ from those of our other stockholders, and he may be able to significantly influence important corporate matters.

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1274032--3/31/2006--INFOSONICS_CORP