943034--3/29/2007--IMAGE_SENSING_SYSTEMS

related topics

{stock, price, operating}

{customer, product, revenue}

{product, market, service}

{personnel, key, retain}

{control, financial, internal}

{system, service, information}

{operation, international, foreign}

{regulation, change, law}

{cost, regulation, environmental}

{property, intellectual, protect}

We are dependent on a single family of products for most of our revenue, and if we do not maintain the market for these products, we will be unable to be profitable and our business will be harmed. If governmental entities elect not to use our product due to budgetary constraints, project delays or other reasons, our revenues may fluctuate severely or be substantially diminished. If our primary distributor s sales volume decreases or if it fails to pay royalties to us in a timely manner or at all, our financial results will suffer. Our dependence on third parties for manufacturing and marketing our product may prevent us from meeting customers needs in a timely manner. Our dependence on single-source suppliers may prevent us from meeting customers needs in a timely manner. We may face increased competition if we fail to adequately protect our intellectual property rights, and efforts to protect our intellectual property rights may result in costly litigation. Expiration of the University of Minnesota patent for certain aspects of our Autoscope system may result in additional competition. Increased competition may make it difficult for us to acquire and retain customers, and if we are unsuccessful in developing new applications and product enhancements, our products may become noncompetitive or obsolete. We may not be able to quickly respond to emerging low-cost local competitors, and our inability to do so could affect revenue and profitability. Lack of market acceptance of new products or new features in one or more of our market segments could adversely affect revenues and profitability. Our inability to manage growth effectively could seriously harm our business. Our officers and directors beneficially own approximately 9% of our common stock, and they have influence over shareholder voting matters, which may deprive other shareholders of the ability to influence corporate actions. Our business operations will be severely disrupted if we lose key personnel or if we fail to attract and retain qualified personnel. Our business tends to be seasonal, with results in revenue and operating results varying from quarter to quarter. Our operating costs tend to be fixed, while our revenue tends to be seasonal, thereby resulting in operating results that fluctuate from quarter to quarter. Our stock price is volatile. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price. We sell our products internationally and are subject to various risks relating to such international activities, which could harm our international sales and profitability. Our inability to comply with European regulatory restrictions over hazardous substances and electronic waste could restrict product sales in those markets and reduce profitability in the future. New Asian requirements for electronic products could increase our cost of production and delay delivery of our product to our customers, thereby adversely impacting revenue and profitability. Our ability to comply with the conditions beyond our control could seriously harm our business. Changes in accounting principles, including changes in employee stock option accounting rules, may adversely affect our reported operating results and our efforts and success in recruiting and retaining employees.

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943034--3/29/2007--IMAGE_SENSING_SYSTEMS_INC