1052054--3/15/2007--EVOLVING_SYSTEMS

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Risks related to our 2004 Acquisition of Evolving Systems U.K. We are subject to financial and operating risks associated with global sales and services. The indebtedness incurred in connection with the Evolving Systems U.K. acquisition may limit our ability to grow and could adversely affect our financial condition. Certain provisions of the notes payable issued in conjunction with the restructuring of our debt resulting from our acquisition of Evolving Systems U.K. call for the acceleration of payments if certain covenants are breached or cash balance thresholds are achieved. Our stockholders will be diluted by the conversion of outstanding Series B Convertible Preferred Stock. The holders of our Series B Preferred Stock have preferential rights that may be adverse to holders of our common stock. The terms and conditions of the Series B Preferred Stock may have an adverse impact on our results of operations and financial performance. Risks Related to Our Business Because our quarterly and annual operating results are difficult to predict and may fluctuate, the market price for our stock may be volatile. Our results of operations could be negatively impacted if we are unable to manage our liquidity. If we are unable to properly supervise our software development subsidiary in India, or if political or other uncertainties interfere, we may be unable to satisfactorily perform our customer contracts and our business could be materially harmed. We operate a global business that exposes us to additional currency, economic, regulatory and tax risks Changes or challenges to the regulations of the communication industry could hurt the market for our products and services. Consolidation in the communications industry may impact our financial performance We depend on a limited number of significant customers for a substantial portion of our revenues, and the loss of one or more of these customers could adversely affect our business. Our products are complex and have a lengthy implementation process; unanticipated difficulties or delays in the customer acceptance process could result in higher costs and delayed payments. Sales of our products typically require significant review and internal approval processes by our customers over an extended period of time. Interruptions in such process due to economic downturns, consolidations or otherwise could result in the loss of our sale or deferral of revenues into later periods and adversely affect our financial performance. Many of our products and services are sold on a fixed-price basis. If we incur budget overruns, our margins and results of operations may be materially harmed. Percentage-of-completion accounting used for most of our projects can result in overstated or understated profits or losses The industry in which we compete is subject to rapid technological change. If we fail to develop or introduce new, reliable and competitive products in a timely fashion, our business may suffer. The market for our number portability products is mature in the U.S. and we may not be able to successfully develop new products to remain competitive. The steps that we have taken to reduce costs may have a negative impact on our ability to grow and generate future revenue. The communications industry is highly competitive and if our products do not satisfy customer demand for performance or price, our customers could purchase products and services from our competitors. Our business depends largely on our ability to attract and retain talented employees. Our products are complex and may have errors that are not detected until deployment, and litigation related to warranty and product liability claims could be expensive and could negatively affect our reputation and profitability. Our measures to protect our proprietary technology and other intellectual property rights may not be adequate and if we fail to protect those rights, our business would be harmed. In the event that we are infringing upon the proprietary rights of others or violating licenses, we may become subject to infringement claims that may prevent us from selling certain products and we may incur significant expenses in resolving these claims. Disruptions from terrorist activities or military actions may have an adverse effect on our business. We face special risks associated with doing business in highly corrupt environments. The trading price of our stock has been subject to wide fluctuations and may continue to experience volatility in the future. Sales of large blocks of our stock may result in the reduction in the market price of our stock and make it more difficult to raise funds in the future. We are subject to certain rules and regulations of federal, state and financial market exchange entities, the compliance with which requires substantial amounts of management time and company resources. Any material weaknesses in our financial reporting or internal controls could adversely affect our business and the price of our common stock. We have never paid dividends and do not anticipate paying cash dividends on our common stock in the foreseeable future. Certain provisions of our charter documents, employment arrangements and Delaware law may discourage or prevent takeover attempts that could result in the payment of a premium price to our stockholders. We are very limited in our ability to issue additional shares of common stock. Failure to maintain our Nasdaq listing could adversely impact the liquidity of our common stock.

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1052054--3/15/2007--EVOLVING_SYSTEMS_INC