22701--3/24/2009--COMMUNICATIONS_SYSTEMS_INC

related topics
{customer, product, revenue}
{product, market, service}
{stock, price, operating}
{provision, law, control}
{control, financial, internal}
{acquisition, growth, future}
{cost, operation, labor}
{operation, international, foreign}
{personnel, key, retain}
Risks Related to Our Business The primary markets we serve are highly competitive, and our ability to compete requires continual focus on delivering high quality, competitively priced products and the regular introduction of new products that meet evolving customer requirements. We face many challenges in maintaining acceptable margins, and our level of gross margin may not be sustainable. Consolidation among our customers has occurred and further consolidation may occur and result in the loss of some customers and may reduce revenue during the pendency of business combinations and related integration activities. Our profitability could be impacted negatively if one or more of our key customers substantially reduces orders for our products and/or transitions their purchases towards lower gross margin products. Our market is subject to rapid technological change and, to compete effectively, we must continually introduce new products that achieve market acceptance. We expect to actively pursue strategic acquisitions, but we may not successfully close the acquisitions and, if these acquisitions are completed, we may have difficulty integrating the acquired businesses with our existing operations. Our operating results fluctuate from quarter to quarter. We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in these relationships may cause damage to our customer relationships. We are dependent upon our senior management and other critical employees. Managing our inventory is complex and may include write-downs of excess or obsolete inventory. We face risks associated with our expanding our sales outside of the United States. Compliance with internal control requirements is expensive and poses certain risks. Product defects or the failure of our products to meet specifications could cause us to lose customers and revenue or to incur unexpected expenses. Risks Related to Our Common Stock Our stock price has been volatile historically and the price of our common stock may fluctuate significantly in the future. Anti-takeover provisions in our charter documents, our shareholder rights agreement and Minnesota law could prevent or delay a change in control of our company.

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