1111665--3/9/2010--TELECOMMUNICATION_SYSTEMS_INC

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Network failures, disruptions or capacity constraints in our third party data center facilities or in our servers could affect the performance of the products and services of our wireless applications and E9-1-1 business and harm our reputation and our revenue. If we are unable to grow data center capacity as needed, our business will be harmed. Our operating results could be adversely affected by any interruption of our data delivery services, system failure or production interruptions. Our past and future acquisitions of companies or technologies could prove difficult to integrate, disrupt our business, dilute shareholder value or adversely affect operating results or the market price of our Class A common stock. We are substantially dependent on our wireless carrier partners to market and distribute the products and services generated by our wireless applications business to end users and our wireless applications business may be harmed if our wireless carrier partners elect not to broadly offer these services. Our success depends on significantly increasing the number of end users that purchase the products and services of our wireless applications business from our wireless carrier partners. If our current and future wireless carrier partners do not successfully market the products and services of our wireless applications business to their customers or if we are not successful in maintaining and expanding our relationships with our wireless carrier partners, we will not be able to maintain or increase the number of end users that use the products and services of our business, operating results and financial condition may be materially adversely affected. Our wireless carrier partners may change the pricing and other terms by which they offer our wireless applications business, which could result in increased end user churn, lower revenue and adverse effects on our business. New entrants and the introduction of other distribution models in the location- based services market may harm our competitive position. We rely on our wireless carrier partners for timely and accurate subscriber information. A failure or disruption in the provisioning of this data to us would adversely affect our ability to manage our wireless applications business effectively. We rely on third party data and content to provide the services of our wireless applications business, and if we were unable to obtain content at reasonable prices, or at all, our gross margins and our ability to provide the services of our wireless applications business would be harmed. If a substantial number of end users change mobile phones or if our wireless carrier partners switch to subscription plans that require active monthly renewal by end users, our revenue could suffer. The failure of mobile phone providers selected by our wireless carrier partners to keep pace with technological and market developments in mobile phone design may negatively affect the demand for the products and services of our wireless applications business. Some of our research and development operations are conducted in China, India, and Russia and our ability to introduce new services and support our existing services cost effectively depend on our ability to manage those remote development sites successfully. We may fail to support our anticipated growth in operations which could reduce demand for our services and materially adversely affect our revenue. Changes in the U.S. and global market conditions that are beyond our control may have a material adverse effect on us. We could incur substantial costs from product liability claims relating to our software. Our revenue may decline if we fail to retain our largest customers for all of the deliverables that we sell to them. Because we rely on key partners to expand our marketing and sales efforts, if we fail to maintain or expand our relationships with strategic partners and indirect distribution channels our license revenues could decline. Growing market acceptance of open source software could have a negative impact on us. Because our product offerings are sold internationally, we are subject to risks of conducting business in foreign countries. Because some of our competitors have significantly greater resources than we do, we could lose customers and market share. While we characterize our services revenue as being recurring there is no guarantee that we will actually achieve this revenue . We cannot guarantee that our estimated contract backlog will result in actual revenue. We derive a significant portion of our revenue from sales to various agencies of the U.S. Government which has special rights unlike other customers and exposes us to additional risks that could have a material adverse effect on us. Because we are no longer a small business under some government size standards, we could lose business to small-business set-aside competitors. If our subcontractors and vendors fail to perform their contractual obligations, our performance and reputation as a prime contractor and our ability to obtain future business could suffer. A significant portion of our contracts with the U.S. Government are on a fixed price basis which could negatively impact our profitability. We are subject to procurement and other related laws and regulation which carry significant penalties for non-compliance. We may incur losses if we are unable to resell products and services for which we have contractual minimum purchase obligations. We are exposed to counterparty credit risk and there can be no assurances that we will manage or mitigate this risk effectively. The loss of key personnel or inability to attract and retain personnel could harm our business. Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make estimates, judgments and assumptions about matters that are inherently uncertain. Because the wireless data industry is a rapidly evolving market, our product and service offerings could become obsolete unless we respond effectively and on a timely basis to rapid technological changes. Because the industries which we serve are currently in a cycle of consolidation, the number of customers may be reduced which could result in a loss of revenue for our business. Concerns about personal privacy and commercial solicitation may limit the growth of mobile location services and reduce demand for our products and services. Because wireless and next-generation E9-1-1 is undergoing rapid technological and regulatory change, our future performance is uncertain. Our E9-1-1 business is dependent on state and local governments and the regulatory environment for Voice over Internet Protocol (VoIP) services is developing. Because our software may contain defects or errors, and our hardware products may incorporate defective components, our sales could decrease if these defects or errors adversely affect our reputation or delays shipments of our products. If we are unable to protect our intellectual property rights or are sued by third parties for infringing upon intellectual property rights, we may incur substantial costs. Pursuing infringers of our patents and other intellectual property rights can be costly. Third parties may claim we are infringing their intellectual property rights and we could be prevented from selling our products, or suffer significant litigation expense, even if these claims have no merit, and our customers also could demand indemnification for such claims. The security measures we have implemented to secure information we collect and store may be breached, which could cause us to breach agreements with our partners and expose us to potential investigation and penalties by authorities and potential claims by persons whose information was disclosed. Because the market for most mobile content delivery and mobile location products is new, our future success is uncertain. If we are unable to integrate our products with wireless service providers systems we may lose sales to competitors. Failure to meet our contractual obligations could adversely affect our profitability and future prospects. Because our systems may be vulnerable to systems failures and security risks, we may incur significant costs to protect against the threat of these problems. If mobile equipment manufacturers do not overcome capacity, technology and equipment limitations, we may not be able to sell our products and services. If wireless handsets pose health and safety risks, we may be subject to new regulations and demand for our products and services may decrease. Risks Related to Our Class A Common Stock The price of our Class A common stock historically has been volatile. This volatility may affect the price at which you could sell your Class A common stock, and the sale of substantial amounts of our Class A common stock could adversely affect the price of our Class A common stock. A significant percentage of our common stock is beneficially owned by our President, Chief Executive Officer and Chairman of the Board, and he can exert significant influence over us. Because our business may not generate sufficient cash to fund our operations, we may not be able to continue to grow our business if we are unable to obtain additional capital when needed. Our short-term investments are subject to market fluctuations which may affect our liquidity. Variations in quarterly operating results due to factors such as changes in demand for our products and changes in our mix of revenues and costs may cause our Class A common stock price to decline. We may not have, and may not have the ability to raise, the funds necessary to repurchase our currently outstanding Convertible Senior Notes upon a fundamental change, as required by the indenture governing the Convertible Senior Notes. Future sales of our Class A common stock in the public market or issuances of securities convertible into our Class A common stock and hedging activities could lower the market price for our Class A common stock and adversely impact the trading price of the notes. Our convertible note hedge and warrant transactions may affect the value of the Convertible Senior Notes and the trading price of shares of our common stock. Conversion of the Convertible Senior Notes will dilute your ownership interest. The fundamental change purchase feature of the Convertible Senior Notes may delay or prevent an otherwise beneficial attempt to purchase us. Our governing corporate documents and Maryland law contain certain anti-takeover provisions that could prevent a change of control that may be favorable to shareholders. Because this report contains forward-looking statements, it may not prove to be accurate.

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