SECURITIES AND
    EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
    FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934For the year ended December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934   Commission File
    No. 0-30821
  TELECOMMUNICATION SYSTEMS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Maryland

52-1526369(State or Other Jurisdiction of
    Incorporation or Organization)

(I.R.S. Employer Identification No.)275 West Street, Annapolis, MD

21401(Address of principal executive offices)

(Zip Code)   (410) 263-7616
 Registrants telephone number,
    including area code)
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting company
    o   rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Document

Part of 10-K into which
    incorporatedPortions of the registrants Proxy Statement for the
    Annual Meeting of Stockholders to be held June 11, 2009

Part III




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TABLE OF
    CONTENTS
  Page NumberPart IItem 1


Business


2Item 1A


Risk Factors


12Item 1B


Unresolved Staff Comments


27Item 2


Properties


27Item 3


Legal Proceedings


28Item 4


Submission of Matters to a Vote of Security
    Holders


29Part IIItem 5


Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


29Item 6


Selected Financial Data


32Item 7


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


33Item 7A


Qualitative and Quantitative Disclosure About Market Risk


47Item 8


Financial Statements and Supplementary Data


48Item 9


Changes In and Disagreements With Accountants on Accounting and
    Financial Disclosure


48Item 9A


Controls and Procedures


48Part IIIItem 10


Directors, Executive Officers and Corporate
    Governance


51Item 11


Executive  Compensation


51Item 12


Security Ownership of Certain Beneficial Owners
    and Management


51Item 13


Certain Relationships and Related Transactions
    and Director Independence


51Item 14


Principal Accountant Fees and Services


51Part IVItem 15


Exhibits, Financial Statement Schedules


52Index to Consolidated Financial Statements


F-1Signatures


53Exhibit Index


54   i




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Cautionary Note
    Concerning Factors That May Affect Future Results
  Form 10-K
                                     1




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Form 10-K Form 10-K
  Item 1.
    Business  Overview
    Form 10-K.
 2




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Form 10-K
  Form 10-K
  Commercial Segment:
  Government Segment: ® ®
    ® ® ® Form 10-K
  I.
    Commercial
    Segment:    A.
    Commercial
    Product and Service Offerings  1. Commercial services.
 3




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®
  a. Hosted Location-Based Services, including
    E9-1-1.
  b. Customer subscriptions to application-based
    services such as Navigation, Traffic and
    Points-of-Interest. ®
  c. Software and system maintenance.
  d. Professional services involving electronic map
    technology.
  2. Commercial Licensed Software-based Systems:
  a. Xypoint®

    Location Platform (XLP) and Applications for Location-based
    Services: ®
 4




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b. Short Message Service Center and Wireless
    Intelligent Gateway.
  B.
    Commercial Market
    Opportunities and Strategy    Growth in Wireless and Voice over Internet Protocol (VoIP)
    Subscribers.
  The FCCs E9-1-1 Mandates.
  Cellular Network Improvements to Third Generation
    Capabilities.
  Improving Wireless Device
    Functionality.
  Growing Use of Commercial Location-Based Wireless Services
    (LBS).
 5




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® in-network tm
  Growing Use of Short Messaging and Internet
    Applications. e-mail
    
    Focus our Software and Integration Resources on Evolving
    Carrier Network Capabilities. Mobile operators and the
    federal government increasingly seek integrated solutions that
    can harness both messaging capabilities of networks and location
    information of end-users. We are well positioned to address the
    evolving integration needs of our commercial and government
    clients through our demonstrated expertise in both messaging and
    location determination. Mobile operators have made large capital
    expenditure investments in infrastructure for wireless data and
    location determination technologies. While originally envisioned
    as separate technologies, messaging and location determination
    technologies can be integrated to provide value-added services
    and applications for the operators end-users.
    Expand Our Sales and Marketing Relationships. We are
    developing relationships with communication infrastructure
    providers in order to expand our sales channels for our carrier
    software products and services. We have historically leveraged
    our strategic relationships with original equipment
    manufacturers to market our Commercial Segment products to
    wireless carriers worldwide. We have long standing relationships
    with Qualcomm Incorporated and its subsidiary SnapTrack Inc.,
    including the BREW Locate Signature Solution. We are adding
    partnerships for our location technologies, including a
    marketing alliance in China established in January 2009.
    Grow Our Wireless Carrier and Voice Over IP Customer
    Base. We now serve or are under contract with more than
    40 wireless carrier networks and VoIP service providers in 16
    countries. We intend to expand our domestic and international
    carrier base by capitalizing on our relationships with original
    equipment manufacturers and establish new distribution
    partnerships and by expanding our own sales and marketing
    initiatives. We will continue to develop network software for
    wireless carriers that operate on all major types of networks.
    Leverage Our Expertise in Accessing Information Stored Inside
    Wireless Networks. We will continue to leverage our
    knowledge of complex call control technology, including
    Signaling System 7 and Internet Protocol standards, to unlock
    valuable information such as user location, device on/off
    status, and billing and transaction records that reside inside
    wireless networks and are difficult to retrieve and utilize.
    Using this information, we intend to expand the range of
    capabilities that wireless data technology can accomplish for
    our customers.
    Develop and Enhance Our Technology. We will continue
    to invest in our underlying technology and to capitalize on our
    expertise to meet the growing demand for sophisticated wireless
    applications. As of January 1, 2009, our staff included
    approximately 300 personnel with technical expertise in
    wireless network, client software development, hosted wireless
    operations, satellite-based communication 6




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technology and integrated network solutions. We also have
    research and development relationships with wireless handset
    manufacturers, wireless carriers, and content and electronic
    commerce providers. Our
    Xypoint®

    platform architecture efficiently integrates our presence,
    location, call control and messaging technology, resulting in
    reduced costs, increased reliability, more efficient
    deployments, compatibility with our existing products and a
    migration path to third-generation services.  
    Pursue Select Acquisitions. We intend to continue to
    selectively consider acquisitions of companies and technologies
    in order to increase the scale and scope of our operations,
    market presence, products, services and customer base.  II.
    Government
    Segment:    A.
    Government
    Products and Services  1. Government Services.
  a. Network Operation and Telecom Expense Management
    Support.
  b. Secure Satellite Teleport Data Landing and
    Transmission Services.
  c. Maintenance Services. ®
  2. Government Systems. ® ® ® ® ®
 7




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B.
    Government Market
    Opportunities and Strategy    Expanded Need for Secure, Interoperable Deployable
    Communication Solutions. 5-year ®
  Growing Use of Secure Wireless Communications and Location
    Technology for Defense, Intelligence and Homeland
    Security. ® ®
  Government Outsourcing of Network and Telecom Technical
    Functions.
  Secure Teleport and Integration Capabilities along with
    Deployable Systems as a Bundled
    Offering.
  Application of Commercially Proven Technology to
    Government Solutions.
 8




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Customers
  Commercial Segment. T-Mobile
  Government Segment.
  Backlog
    December 31,


2008 vs. 2007($ in millions)

2008


2007


$


%Commercial Segment

$
80.1


$
93.9


$
(13.8
)


(15
%)Government Segment


79.7



36.7



43.0



117
%Total funded contract backlog

$
159.8


$
130.6


$
29.2



22
%Commercial Segment

$
91.0


$
103.4


$
(12.4
)


(12
%)Government Segment


354.0



128.8



225.2



175
%Total backlog of orders and commitments, including customer
    options

$
445.0


$
232.2


$
212.8



92
%Expected to be realized within next 12 months

$
116.0


$
84.6


$
31.4



37
%   and/or
  Sales and
    Marketing
     9




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Competition
      
    Commercial Segment. Intrado Inc. division of West
    Corporation; Motorola Inc.; Siemens AG; Ericsson LM Telephone
    Co.; Openwave Systems Inc.; Acision; Comverse Technology Inc.
    Government Segment. Computer Sciences Corporation;
    ViaSat Inc.; General Dynamics corp.; DataPath Inc.; CACI
    International Inc.; Globecomm Systems, Inc.; Comtech
    Telecommunications, Corp.    e-mail
  Research
    and Development
   10




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Intellectual
    Property Rights
          Employees
    Geographical
    Information
       11




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Item 1A.
    Risk
    Factors  You should consider carefully each of the following risks and
    all of the other information in this Annual Report on
    Form 10-K
    and the documents incorporated by reference herein. If any of
    the following risks and uncertainties develops into actual
    events, our business, financial condition or results of
    operations could be materially adversely affected.
  Risks Related
    to Our Business
  If wireless
    carriers do not continue to provide additional products and
    services to their subscribers, our business could be
    harmed.
    We may fail
    to support our anticipated growth in operations which could
    reduce demand for our services and materially adversely affect
    our revenue.
    A
    significant portion of our contracts with the U.S. government
    are on a fixed price basis which could negatively impact the
    Company profitability.
   12




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We are
    subject to procurement and other related laws and regulation
    which carry significant penalties for
    non-compliance.
      Current
    levels of market volatility are unprecedented and adverse
    capital and credit market conditions may negatively impact
    us.
    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
    operating results could be adversely affected by any
    interruption of our data delivery services, system failure or
    production interruptions.
   13




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Because we
    rely on a few key customers, our revenue may decline if we fail
    to retain those customers.
      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.
    
    The U.S. Government may terminate the contracts it has
    with us. All of the contracts we have with the
    U.S. Government are, by their terms, subject to termination
    by the U.S. Government either for its convenience or in the
    event of a default by us. In the event of termination of a
    contract by the U.S. Government, we may have little or no
    recourse.
    Our contracts with the U.S. Government may be terminated
    due to Congress failing to appropriate funds. Our
    U.S. Government contracts are conditioned upon the
    continuing availability of Congressional appropriations.
    Congress usually appropriates funds for a given program on a
    fiscal-year basis even though contract performance may take more
    than one year.
    The U.S. Government may audit and review our costs and
    performance on their contracts, as well as our accounting and
    general practices. The costs and prices under these
    contracts may be subject to adjustment based upon the results of
    any audits. Future audits that result in the increase in our
    costs may adversely affect our business, financial position,
    results of operations or cash flows    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.
   14




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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.
  and/or
    We are
    exposed to counterparty credit risk and there can be no
    assurances that we will manage or mitigate this risk
    effectively.
      Our
    short-term investments are subject to market fluctuations which
    may affect our liquidity.
   15




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Our stock
    price, like that of many technology companies, has been and may
    continue to be volatile.
    
    announcements of new wireless data communications technologies
    and new providers of wireless data communications;
    announcements of the issuance of new patents;
    acquisitions of, or strategic alliances among, providers of
    wireless data communications;
    changes in recommendations by securities analysts regarding the
    results or prospects of providers of wireless data
    communications;
    changes in investor perceptions of the acceptance or
    profitability of wireless data communications; and
    other global economic uncertainties.  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.
      
    changes in our relationships with wireless carriers, the
    U.S. Government or other customers;
    timing of introduction of new products and services;
    changes in pricing policies and product offerings by us or our
    competitors;
    changes in projected profitability of acquired assets that would
    require the write down of the value of the goodwill reflected on
    our balance sheet.
    costs associated with advertising, marketing and promotional
    efforts to acquire new customers;
    capital expenditures and other costs and expenses related to
    improving our business, expanding operations and adapting to new
    technologies and changes in consumer preferences; and
    our lengthy and unpredictable sales cycle.  Growing
    market acceptance of open source software could have
    a negative impact on us.
   16




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Because our
    product offerings are sold internationally, we are subject to
    risks of conducting business in foreign
    countries.
    
    inability to adapt our products and services to local business
    practices, customs and mobile user preferences;
    costs of adapting our product and service offerings for foreign
    markets;
    inability to locate qualified local employees, partners and
    suppliers;
    reduced protection of intellectual property rights;
    the potential burdens of complying with a variety of
    U.S. and foreign laws, trade standards and regulatory
    requirements, including tax laws, the regulation of wireless
    communications and the Internet and uncertainty regarding
    liability for information retrieved and replicated in foreign
    countries;
    general geopolitical risks, such as political and economic
    instability and changes in diplomatic and trade relations; and
    unpredictable fluctuations in currency exchange rates.    Because
    several of our competitors have significantly greater resources
    than we do, we could lose customers and market
    share.
     17




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and/or
  Because we
    are not a small business under government size standards, we
    could lose business to small-business set-aside
    competitors.
    While we
    characterize a significant portion of our 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.
    The loss of
    key personnel or any inability to attract and retain additional
    personnel could harm our business.
   18




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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.
  agreed-upon
  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.
    Industry
    Risks
  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.
   19




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Concerns
    about personal privacy and commercial solicitation may limit the
    growth of mobile location services and reduce demand for our
    products and services.
    Because
    many providers are not in compliance with current regulatory
    mandates and because our industry is undergoing rapid
    technological and regulatory change, our future performance is
    uncertain.
       20




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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 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.
    Technology
    Risks
  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.
   21




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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.
    life-and-death
   22




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If mobile
    equipment manufacturers do not overcome capacity, technology and
    equipment limitations, we may not be able to sell our products
    and services.
    Because the
    market for most mobile content delivery and mobile location
    products is new, our future success is
    uncertain.
    If wireless
    handsets pose health and safety risks, we may be subject to new
    regulations and demand for our products and services may
    decrease.
    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.
   23




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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.
    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.
   24




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Risks Related
    to Acquisitions
  Our past
    and future acquisitions of companies or technologies could prove
    difficult to integrate, disrupt our business, dilute stockholder
    value or adversely affect operating results or the market price
    of our Class A common stock.
    
    properly evaluate the technology;
    accurately forecast the financial impact of the transaction,
    including accounting charges and transaction expenses;
    integrate and retain personnel;
    retain and cross-sell to acquired customers;
    combine potentially different corporate cultures; and
    effectively integrate products and services, and research and
    development, sales and marketing and support operations.      Risks Related
    to Our Capital Structure and Common Stock
  A majority
    of our Class A common stock is beneficially owned by a
    small number of holders, and those holders could thereby
    transfer control of us to a third party without anyone
    elses approval or prevent a third party from acquiring
    us.
   25




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Our
    governing corporate documents contain certain anti-takeover
    provisions that could prevent a change of control that may be
    favorable to shareholders.
    
    authorization of the board of directors to issue blank
    check preferred stock;
    prohibition of cumulative voting in the election of directors;
    our classified board of directors;
    limitation of the persons who may call special meetings of
    stockholders;
    prohibition on stockholders acting without a meeting other than
    through unanimous written consent;
    supermajority voting requirement on various charter and by-law
    provisions; and
    establishment of advance notice requirements for nominations for
    election to the board of directors or for proposing matters that
    can be acted on by stockholders at stockholder meetings.    Because
    this report contains forward-looking statements, it may not
    prove to be accurate.
                     26




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   27




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7-acre
  Item 3.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
   28




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Item 4.
    Submission
    of Matters to a Vote of Security Holders   Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2009First Quarter 2009 (through February 20, 2009)

$
9.93


$
7.012008First Quarter 2008

$
3.98


$
2.71Second Quarter 2008

$
5.47


$
3.06Third Quarter 2008

$
8.75


$
4.19Fourth Quarter 2008

$
8.91


$
4.582007First Quarter 2007

$
3.92


$
2.99Second Quarter 2007

$
5.75


$
3.86Third Quarter 2007

$
5.21


$
3.45Fourth Quarter 2007

$
4.55


$
3.02     Dividend
    Policy
    Change in
    Securities and Use of Proceeds
   29




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Issuer Purchases
    of Equity Securities
   30




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##### 



Stock Performance
    Graph
          
 31




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##### 



Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K.
  Year Ended December 31,2008


2007


2006


2005


2004(in millions, except share and per share data)Statement of Operations Data:Revenue Services

$
101.4


$
88.1


$
88.4


$
75.0


$
60.2Systems


118.8



56.1



36.6



27.2



36.7Total revenue


220.2



144.2



124.9



102.2



96.9Direct cost of services revenue


61.6



52.2



52.5



39.2



30.9Direct cost of systems revenue


77.3



37.9



17.9



17.7



21.2Total direct cost of revenue


138.9



90.1



70.4



56.9



52.1Services gross profit


39.8



35.9



35.8



35.8



29.3Systems gross profit


41.5



18.2



18.7



9.5



15.5Total gross profit


81.3



54.1



54.5



45.2



44.8Research and development expense


16.2



13.1



12.6



13.9



18.1Sales and marketing expense


13.7



11.9



11.7



10.5



9.0General and administrative expense


28.2



19.3



17.0



15.0



15.0Depreciation and amortization of property and equipment


5.9



6.2



8.0



8.6



7.4Amortization of goodwill and other intangible assets


0.1



0.1



0.1



0.1



Total operating costs and expenses


64.2



50.6



49.3



48.2



49.6Gain on sale of patent


8.1















Income/(loss) from operations


25.2



3.5



5.2



(3.0
)


(4.8
)Interest expense


(0.9
)


(1.8
)


(1.8
)


(0.7
)


(3.2
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(0.2
)


(3.2
)


(1.4
)


(0.5
)


Debt conversion expense


















(7.9
)Other (expense)/income, net


0.2



0.5







(0.1
)


Income/(loss) from continuing operations before income taxes


24.3



(1.0
)


2.0



(4.3
)


(15.9
)Benefit from income taxes


33.3















Income/(loss) from continuing operations


57.6



(0.3
)


(23.7
)


(7.2
)


(2.6
)Loss from discontinued operations






(0.3
)


(23.7
)


(7.2
)


(2.6
)Net income/(loss)

$
57.6


$
(1.3
)

$
(21.7
)

$
(11.5
)

$
(18.5
)Income/(loss) from continuing operations per share

$
1.34


$
(0.02
)

$
0.05


$
(0.11
)

$
(0.48
)Loss from discontinued operations per share






(0.01
)


(0.60
)


(0.19
)


(0.08
)Net income/(loss) per share  basic

$
1.34


$
(0.03
)

$
(0.55
)

$
(0.30
)

$
(0.56
)Income/(loss) from continuing operations per share

$
1.23


$
(0.02
)

$
0.05


$
(0.11
)

$
(0.48
)Loss from discontinued operations per share






(0.01
)


(0.59
)


(0.19
)


(0.08
)Net income/(loss) per share  diluted

$
1.23


$
(0.03
)

$
(0.54
)

$
(0.30
)

$
(0.56
)Basic shares used in computation (in thousands)


43,063



41,453



39,430



38,823



33,381Diluted shares used in computation (in thousands)


46,644



41,453



40,166



38,823



33,381  32




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As of December 31,2008


2007


2006


2005


2004(in millions)Balance Sheet Data:Cash and cash equivalents

$
39.0


$
16.0


$
10.4


$
9.3


$
18.3Working capital


79.1



35.0



25.4



27.5



20.2Total assets


182.0



82.1



83.6



90.6



102.4Capital leases and long-term debt (including current portion)


11.8



16.1



17.6



16.5



18.4Total liabilities


67.7



38.2



48.6



41.5



42.9Total stockholders equity


114.3



44.0



35.1



49.1



59.5   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Critical
    Accounting Policies and Estimates
    Revenue Recognition. No. 97-2 SOP No. 98-9 00-21 and/or Rule 5-03 Regulation S-X Rule 5-03 Regulation S-X
  SOP 97-2,
 33




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##### 



81-1.
  Acquired Intangible Assets.
  Impairment of Goodwill. Goodwill and other Intangible
    Assets.
  Stock Compensation Expense.
  Income Taxes. Accounting for
    Income Taxes
 34




---



##### 



Overview and
    Recent Developments
  We operate two business segments:
      
    Revenue and gross profit. We derive revenue from the
    sales of systems and services including recurring monthly
    service and subscriber fees, maintenance fees, software licenses
    and related service fees for the design, development, and
    deployment of software and communication systems, and products
    and services derived from the delivery of information processing
    and communication systems to governmental agencies.
    Gross profit represents revenue minus direct cost of revenue,
    including certain non-cash costs. The major items
    comprising our cost of revenue are compensation and benefits,
    third-party hardware and software, amortization of software
    development costs, non-cash stock-based compensation, and
    overhead expenses. The costs of hardware and third-party
    software are primarily associated with the delivery of systems,
    and fluctuate from period to period as a result of the relative
    volume, mix of projects, level of service support required and
    the complexity of customized products and services delivered.
    Amortization of software development costs, including acquired
    technology, is associated with the recognition of systems
    revenue from our Commercial Segment.
    Operating expenses. Our operating expenses are
    primarily compensation and benefits, professional fees, facility
    costs, marketing and sales-related expenses, and travel costs as
    well as certain non-cash expenses such as non-cash stock
    compensation expense, depreciation and amortization of property
    and equipment, and amortization of acquired intangible assets.
    Liquidity and cash flows. The primary driver of our
    cash flows is the results of our operations. Important other
    sources of our liquidity are our leases secured for the purchase
    of equipment and potential borrowings under our credit lines.
    Balance sheet. We view cash, working capital, and
    accounts receivable balances and days revenues outstanding as
    important indicators of our financial health. 35




---



##### 



Results of
    Operations
  Revenue and Cost
    of Revenue
  Discontinued Operations  Enterprise assets
  Commercial
    Segment:
  2008 vs.





2007 vs.2007





2006($ in millions)

2008


2007


$


%


2006


$


%Services revenue

$
64.4


$
58.8


$
5.6



10
%

$
59.7


$
(0.9
)


(2
%)Systems revenue


37.4



16.5



20.9



127
%


17.2



(0.7
)


(4
%)Total Commercial Segment revenue


101.8



75.3



26.5



35
%


77.0



(1.7
)


(2
%)Direct cost of services


32.4



29.4



3.0



10
%


31.4



(2.0
)


(6
%)Direct cost of systems


8.9



5.0



3.9



78
%


5.2



(0.2
)


(4
%)Total Commercial Segment cost of revenue


41.3



34.4



6.9



20
%


36.6



(2.2
)


(6
%)Services gross profit


32.0



29.4



2.6



9
%


28.3



1.1



4
%Systems gross profit


28.5



11.5



17.0



148
%


12.0



(0.5
)


(4
%)Total Commercial Segment gross profit (1)

$
60.5


$
40.9


$
19.6



48
%

$
40.3


$
0.6



1
%Segment gross profit as a percent of revenue


59
%


54
%










52
%     (1)
    
    See discussion of segment reporting in Note 20 to the
    audited Consolidated Financial Statements presented elsewhere in
    this Annual Report on
    Form 10-K.  Commercial
    Services Revenue and Cost of Revenue:
  ®
     36




---



##### 



Commercial
    Systems Revenue and Cost of Revenue
         37




---



##### 



Government
    Segment:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Services revenue

$
36.9


$
29.3


$
7.6



26%


$
28.6


$
0.7



2%Systems revenue


81.4



39.6



41.8



106%



19.3



20.3



105%Total Government Segment revenue


118.3



68.9



49.4



72%



48.0



20.9



44%Direct cost of services


29.2



22.8



6.4



28%



21.1



1.7



8%Direct cost of systems


68.3



32.9



35.4



108%



12.7



20.2



159%Total Government Segment cost of revenue


97.5



55.7



41.8



75%



33.8



21.9



65%Services gross profit


7.7



6.5



1.2



18%



7.5



(1.0
)


(13%
)Systems gross profit


13.1



6.7



6.4



96%



6.7







NMTotal Government Segment gross profit (1)

$
20.8


$
13.2


$
7.6



58%


$
14.2


$
(1.0
)


7%Segment gross profit as a percent of revenue


18
%


19
%










30
%     (1)
    
    See discussion of segment reporting in Note 20 to the
    audited Consolidated Financial Statements presented elsewhere in
    this Annual Report on
    Form 10-K.
    (NM = Not meaningful)    Government
    Services Revenue and Cost of Revenue:
       38




---



##### 



Government
    Systems Revenue and Cost of Revenue:
  ® 5-year
      Operating
    Expenses:
  Research and
    Development Expense:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Research and development expense

$
16.2


$
13.1


$
3.1



24
%

$
12.6


$
0.5



4
%Percent of revenue


7
%


9
%










10
%     product-by-product
 39




---



##### 



Sales and
    Marketing Expense:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Sales and marketing expense

$
13.7


$
11.9


$
1.8



15
%

$
11.7


$
0.2



2
%Percent of revenue


6
%


8
%










9
%     General and
    Administrative Expense:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%General and administrative expense

$
28.2


$
19.3


$
8.9



46
%

$
17.0


$
2.3



14
%Percent of revenue


13
%


13
%










14
%    40




---



##### 



Depreciation and
    Amortization of Property and Equipment:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Depreciation and amortization of property and equipment

$
5.9


$
6.2


$
(0.3
)


(5
%)

$
8.0


$
(1.8
)


(23
%)Average gross cost of property and equipment

$
50.4


$
50.3


$
0.1



NM


$
52.0


$
(1.7
)


(3
%)     Amortization of
    Acquired Intangible Assets:
  2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Amortization of acquired intangible assets

$
0.1


$
0.1


$




NM


$
0.1


$




NM     Interest
    Expense:
  2008 vs.





2007 vs.2007





2006($ in millions)

2008


2007


$


%


2006


$


%Interest expense incurred on notes payable and under our bank
    revolving credit agreement

$
0.7


$
1.6


$
(0.9
)


(56
%)

$
1.5


$
0.1



7
%Interest expense incurred on capital lease obligations


0.3



0.2



0.1



50
%


0.3



(0.1
)


(33
%)Amortization of deferred financing fees


0.2



0.3



(0.1
)


(33
%)


0.4



(0.1
)


(25
%)Amortization of debt discount






0.5



(0.5
)


(100
%)


1.0



(0.5
)


(50
%)Write-off of unamortized debt discount and debt issuance expenses






2.4



(2.4
)


(100
%)






2.4



100
%Less: capitalized interest


(0.1
)


(0.1
)






NM



(0.1
)






NMTotal Interest and Financing Expense

$
1.1


$
4.9


$
(3.8
)


(78
%)

$
3.1


$
1.8



58
%      41




---



##### 



Other Income,
    Net:
  2008 vs.





2007 vs.2007





2006($ in millions)

2008


2007


$


%


2006


$


%Foreign currency translation/ transaction (loss)/gain

$
0.1


$
(0.1
)

$
0.2



200
%

$
(0.1
)

$




NMMiscellaneous other (expense)/ income


0.1



0.6



(0.5
)


(83
%)


0.1



0.5



500
%Total other income, net

$
0.2


$
0.5



(0.3
)


(60
%)

$




0.5



100
%  42




---



##### 



Income
    Taxes:
          Discontinued
    Operations:
  Form 10-K Accounting for the Impairment or Disposal of
    Long-Lived Assets
 43




---



##### 



18-month
    2008 vs. 2007





2007 vs. 2006($ in millions)

2008


2007


$


%


2006


$


%Total revenue

$



$
5.6


$
(5.6
)


100
%

$
26.0


$
(20.4
)


(78
%)Total gross profit






0.8


$
(0.8
)


100
%


4.5


$
(3.7
)


(82
%)Loss from discontinued operations, including 2006 impairment
    charges of $15.5 million

$



$
(0.3
)

$
0.3



100
%

$
(23.7
)

$
23.4



99
%   Net
    Income/(loss):
  2008 vs.





2007 vs.2007





2006($ in millions)

2008


2007


$


%


2006


$


%Net income/(loss) from continuing operations

$
57.6


$
(1.0
)

$
58.6



5,860
%

$
2.0


$
(3.0
)


(150
%)Loss from discontinued operations






(0.3
)


0.3



100
%


(23.7
)


23.4



99
%Net income/(loss)

$
57.6


$
(1.3
)

$
58.9



4,531
%

$
(21.7
)

$
20.4



94
%    44




---



##### 



Liquidity and
    Capital Resources
    ($ in millions)

2008


2007


2006Net cash and cash equivalents provided by (used in):Net income/(loss)

$
57.6


$
(1.3
)

$
(21.7
)Less: loss from discontinued operations






(0.3
)


(23.7
)Income/(loss) from continuing operations


57.6



(1.0
)


2.0Non-cash charges


12.8



15.5



13.9Benefit from income taxes


(34.0
)






Net changes in working capital


(10.4
)


(5.4
)


(2.9
)Operating activities of continuing operations


26.0



9.1



13.0Operating activities of discontinued operations






(3.6
)


(8.0
)Net operating activities


26.0



5.5



5.0Investing activities for continuing operations:Purchases of property and equipment


(3.7
)


(2.6
)


(2.8
)Capitalized software development costs


(0.5
)


(1.5
)


(1.8
)Investing activities for continuing operations


(4.2
)


(4.1
)


(4.6
)Investing activities for discontinued operations






4.0



(1.4
)Net investing activities


(4.2
)


(0.1
)


(6.0
)Financing activities:Payments on debt and leases


(7.7
)


(16.0
)


(13.6
)Proceeds from/(finance fees related to) issuance of stock and
    debentures, net










(1.5
)Proceeds from borrowings






10.0



16.0Proceeds from exercise of warrants


2.5



2.2



Proceeds from employee option exercises


6.4



4.0



0.7Net financing activities from continuing operations


1.2



0.2



1.6Effect of exchange rates from discontinued operations










0.3Change in cash and cash equivalents from continuing operations


23.0



5.2



10.1Change in cash and cash equivalents from discontinued operations






0.4



(9.1
)Net change in cash and cash equivalents

$
23.0


$
5.6


$
1.0Days revenue outstanding in accounts receivable including
    unbilled receivables


95



87



82   Capital resources:
  
    June 2007 bank term loan borrowing of $10 million to
    refinance March 2006 secured notes, at a lower coupon rate.
    March 2006 issuance of secured notes and warrants (described
    below) which generated net cash proceeds of approximately
    $9.3 million.
    Capital leases to fund fixed asset purchases.  Sources and uses of cash:
   45




---



##### 



46




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
    ($ in millions)

2009


2010-2011


2012-2013


Beyond


TotalNotes payable

$
2.5


$
4.6


$
1.2


$



$
8.3Capital lease obligations


2.1



2.4



0.6







5.1Operating leases, primarily for office space


3.4



4.3



1.3



0.6



9.6Total contractual commitments

$
8.0


$
11.3


$
3.1


$
0.6


$
23.0   Related Party
    Transactions
    Item 7A.
    Qualitative
    and Quantitative Disclosures about Market Risk  Interest Rate
    Risk
   47




---



##### 



Foreign Currency
    Risk
    Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K page F-1.
  Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of
    Disclosure Controls and Procedures
  Form 10-K,
  Rule 13a-15(e) 15d-15(e)
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f).
 48




---



##### 



Form 10-K.
  Changes in
    Internal Control over Financial Reporting
   49




---



##### 



Report of
    Independent Registered Public Accounting Firm
  The Board of Directors and
    Stockholders
 TeleCommunication Systems, Inc.
                Baltimore, Maryland
 March 2, 2009
 50




---



##### 



Part III  Item 10.
    Directors
    , Executive Officers, and Corporate Governance  http://www1.telecomsys.com/investor 
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   51




---



##### 



Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (a)(1) Financial
    Statements
  Form 10-K page F-1.
  (a)(2) Financial
    Statement Schedules
  Form 10-K.
  Exhibits
   52




---



##### 



Index to
    Consolidated Financial Statements
  Report of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2008


F-4Consolidated Statements of Stockholders
    Equity for each of the three years in the period ended
    December 31, 2008


F-5Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2008


F-7Notes to Consolidated Financial Statements


F-8  F-1




---



##### 



Report of
    Independent Registered Public Accounting Firm  The Board of Directors and
    Stockholders
 TeleCommunication Systems, Inc.
            Baltimore, Maryland
 March 2, 2009
 F-2




---



##### 



TeleCommunication
    Systems, Inc.



Consolidated
    Balance Sheets

(amounts in
    thousands, except share data)  December 31,


December 31,2008


2007AssetsCurrent assets:Cash and cash equivalents

$
38,977


$
15,955Accounts receivable, net of allowance of $285 in 2008 and $266
    in 2007


61,827



20,424Unbilled receivables


21,797



15,229Inventory


2,715



5,373Deferred income taxes


9,736



Other current assets


3,869



5,561Total current assets


138,921



62,542Property and equipment, net of accumulated depreciation and
    amortization of $41,268 in 2008 and $35,969 in 2007


12,391



11,209Software development costs, net of accumulated amortization of
    $6,873 in 2008 and $4,783 in 2007


2,773



4,406Acquired intangible assets, net of accumulated amortization of
    $656 in 2008 and $509 in 2007


562



709Goodwill


1,813



1,813Deferred income taxes


24,309



Other assets


1,190



1,445Total assets

$
181,959


$
82,124Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued expenses

$
34,345


$
12,459Accrued payroll and related liabilities


17,243



4,915Deferred revenue


4,349



4,685Current portion of capital lease obligations and notes payable


3,837



5,444Total current liabilities


59,774



27,503Capital lease obligations and notes payable, less current portion


7,913



10,657Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 38,527,234 in 2008 and 34,970,394 in 2007


385



349Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 6,876,334 in 2008 and 7,301,334 in 2007


69



74Additional paid-in capital


240,559



227,987Accumulated other comprehensive income/(loss)


12



(125
)Accumulated deficit


(126,753
)


(184,321
)Total stockholders equity


114,272



43,964Total liabilities and stockholders equity

$
181,959


$
82,124   See accompanying Notes to
    Consolidated Financial Statements.
 F-3




---



##### 



TeleCommunication
    Systems, Inc.



Consolidated
    Statements of Operations

(amounts in
    thousands, except per share data)  Year Ended December 31,2008


2007


2006RevenueServices

$
101,359


$
88,062


$
88,380Systems


118,783



56,106



36,556Total revenue


220,142



144,168



124,936Direct costs of revenueDirect cost of services


61,594



52,161



52,540Direct cost of systems, including amortization of software
    development costs of $2,090, $1,522 and $1,273, respectively


77,291



37,906



17,883Total direct cost of revenue


138,885



90,067



70,423Services gross profit


39,765



35,901



35,840Systems gross profit


41,492



18,200



18,673Total gross profit


81,257



54,101



54,513Operating costs and expensesResearch and development expense


16,161



13,072



12,586Sales and marketing expense


13,715



11,917



11,713General and administrative expense


28,238



19,334



16,959Depreciation and amortization of property and equipment


5,865



6,200



7,956Amortization of acquired intangible assets


147



148



147Total operating costs and expenses


64,126



50,671



49,360Gain on sale of patent


8,060







Operating income/(loss)


25,191



3,430



5,153Interest expense


(922
)


(1,776
)


(1,751
)Amortization of debt discount and debt issuance expenses,
    including write-off of $2,458 in 2007


(180
)


(3,176
)


(1,447
)Other income, net


222



508



22Income/(loss) from continuing operations before income
    taxes


24,311



(1,014
)


1,976Benefit from income taxes


33,257







Income/(loss) from continuing operations


57,568



(1,014
)


1,976Loss from discontinued operations






(275
)


(23,671
)Net income/(loss)

$
57,568


$
(1,289
)

$
(21,695
)Income/(loss) per share  basic:Income/(loss) per share from continuing operations

$
1.34


$
(0.02
)

$
0.05Loss per share from discontinued operations






(0.01
)


(0.60
)Net income/(loss) per share  basic

$
1.34


$
(0.03
)

$
(0.55
)Income/(loss) per share  diluted:Income/(loss) per share from continuing operations

$
1.23


$
(0.02
)

$
0.05Loss per share from discontinued operations






(0.01
)


(0.59
)Net income/(loss) per share-diluted

$
1.23


$
(0.03
)

$
(0.54
)Weighted average shares outstanding-basic


43,063



41,453



39,430Weighted average shares outstanding-diluted


46,644



41,453



40,166   See accompanying Notes to
    Consolidated Financial Statements.
 F-4




---



##### 



TeleCommunication
    Systems, Inc.



Consolidated
    Statements of Stockholders Equity

(amounts in
    thousands, except share data)  AccumulatedClass A


Class B





Additional


OtherCommon


Common


Deferred


Paid-In


Comprehensive


AccumulatedStock


Stock


Compensation


Capital


Income (Loss)


Deficit


TotalBalance at January 1, 2006

$
314


$
80


$
(231
)

$
210,275


$
(40
)

$
(161,336
)

$
49,062Elimination of deferred compensation upon adoption of
    SFAS No. 123(R)










231



(231
)










Options exercised for the purchase of 209,632 shares of
    Class A Common Stock


2











343











345Issuance of 212,194 shares of Class A Common Stock
    under Employee Stock Purchase Plan


2











388











390Issuance of warrants to purchase 1,750,000 shares of
    Class A Common Stock














3,455











3,455Surrender of 67,827 restricted shares of Class A Common
    Stock as payment for payroll tax withholdings


(1
)










(187
)










(188
)Conversion of 510,291 shares of Class B Common Stock
    to Class A Common Stock


5



(5
)


















Stock compensation expense for issuance of Class A Common
    Stock options for continuing operations














2,872











2,872Stock compensation expense for issuance of Class A Common
    Stock options for discontinued operations














504











504Vesting of employee stock options














244











244Valuation adjustment to stock options issued to non-employees
    for service














76











76Foreign currency translation adjustment


















40







40Net loss for 2006






















(21,695
)


(21,695
)Balance at December 31, 2006

$
322


$
76


$



$
217,739


$



$
(183,032
)

$
35,105Options exercised for the purchase of 1,347,301 shares of
    Class A Common Stock


14











3,461











3,475Issuance of 173,833 shares of Class A Common Stock
    under Employee Stock Purchase Plan


2











541











543Exercise of warrants to purchase 886,787 shares of
    Class A Common Stock


9











2,208











2,217Surrender of 19,358 restricted shares of Class A Common
    Stock as payment for payroll tax withholdings














(57
)










(57
)Conversion of 224,338 shares of Class B Common Stock
    to Class A Common Stock


2



(2
)


















Stock compensation expense for issuance of Class A Common
    Stock options for continuing operations














3,963











3,963Stock compensation expense for issuance of Class A Common
    Stock options for discontinued operations














132











132Unrealized loss on securities and other


















(125
)






(125
)Net loss for 2007






















(1,289
)


(1,289
)Balance at December 31, 2007

$
349


$
74


$



$
227,987


$
(125
)

$
(184,321
)

$
43,964 F-5




---



##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Statements of Stockholders
    Equity  (Continued)
 (amounts in
    thousands, except share data)
  AccumulatedClass A


Class B





Additional


OtherCommon


Common


Deferred


Paid-In


Comprehensive


AccumulatedStock


Stock


Compensation


Capital


Income (Loss)


Deficit


TotalOptions exercised for the purchase of 1,927,284 shares of
    Class A Common Stock


19











5,853











5,872Issuance of 134,000 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1











451











452Exercise of warrants to purchase 1,050,000 shares of
    Class A Common Stock


11











2,510











2,521Conversion of 425,000 shares of Class B Common Stock
    to Class A Common Stock


5



(5
)


















Stock compensation expense for issuance of Class A Common
    Stock options














3,758











3,758Unrealized loss on securities and other


















137







137Net income for 2008






















57,568



57,568Balance at December 31, 2008

$
385


$
69


$



$
240,559


$
12


$
(126,753
)

$
114,272   See accompanying Notes to
    Consolidated Financial Statements.
 F-6




---



##### 



TeleCommunication
    Systems, Inc.



Consolidated
    Statements of Cash Flows

(amounts in
    thousands)  Year Ended December 31,2008


2007


2006Operating activities:Net income/(loss)

$
57,568


$
(1,289
)

$
(21,695
)Less: Loss from discontinued operations






(275
)


(23,671
)Income/(loss) from continuing operations


57,568



(1,014
)


1,976Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization of property and equipment


5,865



6,200



7,956Amortization of acquired intangible assets


147



148



147Deferred tax benefit


(34,045
)






Non-cash stock compensation expense  employee


3,758



3,963



3,116Non-cash stock compensation expense  non-employee






370



Amortization of software development costs


2,090



1,522



1,273Amortization of debt discount






480



960Amortization of deferred financing fees


181



313



487Impairment of marketable securities


802







Write-off of unamortized debt discount and debt issuance fees






2,458



Other non-cash (income)/expenses


(40
)


19



(17
)Changes in operating assets and liabilities:Accounts receivable, net


(41,403
)


1,120



(658
)Unbilled receivables


(6,568
)


(7,593
)


(1,275
)Inventory


2,658



(80
)


(2,094
)Other current assets


958



(1,870
)


152Other noncurrent assets


187



541



111Accounts payable and accrued expenses


21,886



2,038



246Accrued payroll and related liabilities


12,328



(748
)


1,302Deferred revenue


(336
)


1,200



(638
)Net cash provided by operating activities of continuing
    operations


26,036



9,067



13,044Net used in operating activities of discontinued operations






(3,598
)


(8,037
)Total net cash provided by operating activities


26,036



5,469



5,007Investing activities:Purchases of property and equipment


(3,703
)


(2,577
)


(2,760
)Capitalized software development costs


(461
)


(1,525
)


(1,849
)Net cash used in investing activities of continuing operations


(4,164
)


(4,102
)


(4,609
)Net cash provided by/(used) in investing activities of
    discontinued operations






4,000



(1,442
)Net cash used in investing activities


(4,164
)


(102
)


(6,051
)Financing activities:Proceeds from issuance of long-term debt






10,000



16,000Payments on long-term debt and capital lease obligations


(7,695
)


(15,996
)


(5,589
)Proceeds from/(payments on) draws on revolving line of credit,
    net










(8,004
)Financing fees related to issuance of Class A Common Stock
    and Convertible subordinated debentures










(1,470
)Proceeds from exercise of warrants


2,521



2,208



Proceeds from exercise of employee stock options and sale of
    stock


6,324



4,018



731Net cash provided by financing activities of continuing
    operations


1,150



230



1,668Net cash provided by financing activities of discontinued
    operations










58Net cash provided by financing activities


1,150



230



1,726Effect of exchange rates on cash and cash equivalents of
    discontinued operations










357Net increase in cash from continuing operations


23,022



5,195



10,103Net increase/(decrease) in cash from discontinued
    operations






402



(9,064
)Net increase in cash


23,022



5,597



1,038Cash and cash equivalents at the beginning of the year


15,955



10,358



9,320Cash and cash equivalents at the end of the year

$
38,977


$
15,955


$
10,358   See accompanying Notes to
    Consolidated Financial Statements.
 F-7




---



##### 



TeleCommunication
    Systems, Inc.



Notes to
    Consolidated Financial Statements

(amounts in
    thousands, except share and per share data)  1.
    Significant
    Accounting Policies  Description of
    Business
    Commercial Segment. ®
  Government Segment. ®
  Use of Estimates.
  Principles of Consolidation.
  Cash and Cash Equivalents.
  Allowances for Doubtful Accounts
    Receivable.
 F-8




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Inventory.
  Investments in Marketable Securities and Note
    Receivable. Accounting for Certain Investments in
    Debt and Equity Securities
  Property and Equipment.
  Goodwill. Goodwill and Other Intangible Assets.
  Software Development Costs.
  product-by-product
 F-9




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
            Acquired Intangible Assets.
  Impairment of Long-Lived Assets.
    Other Comprehensive Income/Loss.
  Revenue Recognition.
  Services Revenue.
 F-10




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    Systems Revenue. 97-2, (SOP 97-2) 90-day
      SOP 97-2 00-21 (EITF 00-21)
  Deferral of Costs Incurred.
  Advertising Costs.
 F-11




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Capitalized Interest.
  Stock-Based Compensation.
    Research and Development Expense.
  Income Taxes.
    Fair Value of Financial Instruments.
  Recent Accounting
    Pronouncements.
   F-12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  SFAS 157-3, (SFAS 157-3), SFAS 157-3
           F-13




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  2.
    Enterprise
    Assets-Discontinued Operations  Accounting for the Impairment or Disposal of Long-Lived
    Assets
  18-month
  3.
    Income/(loss) Per
    Common Share   F-14




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2008


2007


2006Income/(loss) from continuing operations

$
57,568


$
(1,014
)

$
1,976Loss from discontinued operations






(275
)


(23,671
)Net loss

$
57,568


$
(1,289
)

$
(21,695
)Denominator for basic earnings per share 
    weighted-average common shares outstanding


43,063



41,453



39,430Net effect of dilutive stock options based on treasury stock
    method


3,195







632Net effect of dilutive warrants based on treasury stock method


386







104Denominator for diluted earnings per share 
    weighted-average common shares outstanding and assumed
    conversions


46,664



41,543



40,166Income/(loss) per share  basic:Income/(loss) per share from continuing operations

$
1.34


$
(0.02
)

$
0.05Loss per share from discontinued operations






(0.01
)


(0.60
)Net income/(loss) per share  basic

$
1.34


$
(0.03
)

$
(0.55
)Income/(loss) per share  diluted:Income/(loss) per share from continuing operations

$
1.23


$
(0.02
)

$
0.05Loss per share from discontinued operations






(0.01
)


(0.59
)Net income/(loss) per share-diluted

$
1.23


$
(0.03
)

$
(0.54
)   4.
    Supplemental
    Disclosure of Cash Flow Information          5.
    Unbilled
    Receivables   F-15




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  6.
    Inventory    2008


2007Component parts

$
1,763


$
2,670Finished goods


952



2,703Total inventory at year end

$
2,715


$
5,373   7.
    Property and
    Equipment    2008


2007Computer equipment

$
28,456


$
24,393Computer software


18,408



16,360Furniture and fixtures


2,520



2,558Leasehold improvements


3,168



2,760Land


1,000



1,000Vehicles


107



107Total property and equipment at cost at year end


53,659



47,178Less: accumulated depreciation and amortization


(41,268
)


(35,969
)Net property and equipment at year end

$
12,391


$
11,209   8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    December 31,


December 31,2008


2007Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
606


$
521


$
85


$
606


$
405


$
201Trademarks & Patents


612



135



477



612



104



508Software development costs, including acquired technology


9,646



6,873



2,773



9,189



4,783



4,406Total

$
10,864


$
7,529


$
3,335


$
10,407


$
5,292


$
5,115   Estimated future amortization expense:Year ending December 31, 2009

$
1,845Year ending December 31, 2010

$
786Year ending December 31, 2011

$
227Year ending December 31, 2012

$
80Year ending December 31, 2013

$
80Thereafter

$
317$
3,335  F-16




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    9.
    Accounts Payable
    and Accrued Expenses    2008


2007Accounts payable

$
21,223


$
5,848Accrued expenses


13,122



6,611Total accounts payable and accrued expenses at year end

$
34,345


$
12,459     10.
    Line of
    Credit      3-year
 F-17




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  11.
    Long-Term
    Debt    2008


2007Note payable dated June 2007 due July 1, 2012 and bearing
    interest at prime rate plus 0.25% per annum, See further
    description

$
7,167


$
9,167Note payable dated December 28, 2006, paid in full
    March 28, 2008 and modified to a line of credit (see
    Note 10 for further description)






3,501Other, paid in full January 2008






1Total long term debt


7,167



12,669Less: current portion


(2,000
)


(3,661
)Non current portion of long term debt

$
5,167


$
9,008     2009

$
2,0002010


2,0002011


2,0002012


1,167Total

$
7,167     12.
    Capital
    Leases    2008


2007Computer equipment

$
5,340


$
5,685Computer software


1,654



1,474Furniture and fixtures


18



237Leasehold improvements


25



6Total equipment under capital lease at cost


7,037



7,402Less: accumulated amortization


(2,090
)


(3,824
)Net property and equipment under capital leases

$
4,947


$
3,578    F-18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      2009

$
2,1012010


1,3632011


1,0692012


567Total minimum lease payments


5,100Less: amounts representing interest


(517
)Present value of net minimum lease payments (including current
    portion of $1,837)

$
4,583   13.
    Common
    Stock    14.
    Fair Value of
    Financial Instruments              Fair Value as of


Fair Value Measurements at 12/31/200812/31/2008


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
38,977


$
38,977


$



$
Marketable securities available for sale


78



78







$
39,055


$
39,055


$



$
  F-19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    15.
    Income
    Taxes      2008Current:Federal

$
636State


152Total current


788Deferred:Federal


(29,938
)State


(4,107
)Total deferred


(34,045
)Total benefit for income taxes from continuing operations

$
(33,257
)    F-20




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2008


2007Deferred tax assets:Net operating loss carryforwards

$
26,746


$
38,198Research and development tax credit


294



15Stock compensation expense


1,513



1,635Depreciation and amortization


4,079



4,578Reserves and accrued expenses


1,432



958Alternative minimum tax credit


636



Deferred revenue


108



813Other


373



62Total deferred tax assets


35,181



46,259Deferred tax liabilities:Capitalized software development costs


(1,132
)


(1,202
)Other


(4
)


(4
)Total deferred tax liabilities


(1,136
)


(1,206
)Net deferred tax asset


34,045



45,053Valuation allowance for net deferred tax asset






(45,053
)Net deferred tax asset recognized in the consolidated balance
    sheets

$
34,045


$
        F-21




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2008


2007


2006Income tax (benefit) at statutory rate

$
8,266


$
(364
)

$
653Change in valuation allowances


(45,053
)


(887
)


(2,241
)Write-down of tax attributes


874



1,894



Non deductible items


1,612



255



55Non deductible stock compensation expense


473



(705
)


689Research and development tax credit


(230
)


(130
)


(43
)Change in state apportionment tax rates on deferred
    assets/liabilities


(53
)


(41
)


807State tax (benefit)


1,066



(8
)


52Other


(212
)


(14
)


28Total

$
(33,257
)

$



$
       TotalBalance at December 31, 2006Gross increases related to prior year tax positions

$
Gross decreases related to prior year tax positions


Gross increases related to current year tax positions


2,736Settlements/lapse in statute of limitation


Balance at December 31, 2007

$
2,736Gross increases related to prior year tax positions


Gross decreases related to prior year tax positions


Gross increases related to current year tax positions


Settlements/lapse in statute of limitation


Balance at December 31, 2008

$
2,736      F-22




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  16.
    Employee Benefit
    Plan    17.
    Stock-based
    Compensation Plans    Stock Incentive Plan.
   F-23




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2008


2007


2006Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


11,144


$
3.69



11,622


$
3.62



9,793


$
3.86Granted


3,056



3.57



2,537



3.69



2,908



2.42Exercised


(1,927
)


3.04



(1,347
)


2.58



(199
)


1.75Forfeited


(597
)


3.58



(1,668
)


4.07



(880
)


3.26Outstanding, end of year


11,676


$
3.77



11,144


$
3.69



11,622


$
3.62Exercisable, at end of year


6,308


$
4.12



6,515


$
4.14



6,823


$
4.33Vested and expected to vest, at end of year


9,992


$
3.84



7,510


$
3.69



8,179


$
3.62Estimated weighted-average grant- date fair value of options
    granted during the year

$
2.07






$
3.69






$
2.42Weighted-average remaining contractual life of options
    outstanding at end of year


6.5 years







6.6 years







7.0 years   Weighted





Weighted





WeightedNumber of


Average


Number of


Average


Number of


AverageOptions


Fair Value


Options


Fair Value


Options


Fair ValueNon-vested, beginning of year


4,692


$
2.29



4,799


$
2.05



3,972


$
2.33Forfeited


(525
)

$
2.16



(1,088
)

$
2.37



(731
)

$
2.03Vested


1,792


$
2.21



1,579


$
2.13



1,350


$
2.41Exercisable, at year end


6,308


$
3.56



6,515


$
3.73



6,823


$
4.01Non-vested, at end of year


5,368


$
2.21



4,692


$
2.29



4,799


$
2.05     Weighted-AverageWeighted-Average


Remaining





Weighted-AverageExercise Prices


Contractual Life





Exercise PricesOptions


of Options


of Options


Options


of OptionsExercise Prices

Outstanding


Outstanding


Outstanding (years)


Exercisable


Exercisable$0.29 $2.61


2,917


$
2.40



6.56



1,963


$
2.40$2.61 $5.21


6,515


$
3.34



6.99



2,365


$
3.30$5.21 $7.82


2,214


$
6.74



5.19



1,950


$
6.74$7.82  $26.05


30


$
11.07



4.01



30


$
11.07Total end of year


11,676











6,308  F-24




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      For The Years EndedDecember 31,2008

2007

2006Expected life (in years)

5.5

5.5

5.5Risk-free interest rate(%)

2.65%-3.33%

4.24%-4.90%

4.56%Volatility(%)

60%-67%

68.1%-83%

78%Dividend yield(%)

0%

0%

0%     Employee Stock Purchase Plan.
    (in thousands)Stock incentive plan


4,524Warrants (see Note 11)


700Employee stock purchase plan


292Total shares restricted for future use


5,516     2008


2007


2006Direct costs of revenue

$
2,494


$
2,080


$
1,509Research and development expense


822



867



558Sales and marketing expense


272



628



326General and administrative expense


170



758



723Total non-cash stock compensation expense

$
3,758


$
4,333


$
3,116  F-25




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  18.
    Operating
    Leases    2009

$
3,4232010-2011


4,2952012-2013


1,260Beyond


575$
9,553       19.
    Concentrations of
    Credit Risk and Major Customers    % of Total RevenuesFor the Year EndedDecember 31,Customer

Segment


2008


2007


2006U.S. Government


Government



42
%


37
%


25
%Customer A


Commercial



22
%


20
%


20
%   As of December 31, 2008


As of December 31, 2007Accounts


Unbilled


Accounts


UnbilledCustomer

Receivable


Receivables


Receivable


ReceivablesU.S. Government


54
%


73
%


40
%


66
%Customer A


22
%


<10
%


<10
%


<10
%Customer B


<10
%


10
%


11
%


<10
%     20.
    Business and
    Geographic Segment Information   F-26




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  ®
  ®
        Year Ended December 31,2008


2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
64,441


$
36,918


$
101,359


$
58,793


$
29,269


$
88,062


$
59,741


$
28,639


$
88,380Systems


37,429



81,354



118,783



16,521



39,585



56,106



17,219



19,337



36,556Total revenue


101,870



118,272



220,142



75,314



68,854



144,168



76,960



47,976



124,936Direct costs of revenueDirect cost of services


32,402



29,192



61,594



29,346



22,815



52,161



31,409



21,131



52,540Direct cost of systems


8,993



68,298



77,291



5,024



32,882



37,906



5,211



12,672



17,883Total Direct Costs


41,395



97,490



138,885



34,370



55,697



90,067



36,620



33,803



70,423Gross profitServices gross profit


32,039



7,726



39,765



29,447



6,454



35,901



28,332



7,508



35,840Systems gross profit


28,436



13,056



41,492



11,497



6,703



18,200



12,008



6,665



18,673Total Gross Profit

$
60,475


$
20,782


$
81,257


$
40,944


$
13,157


$
54,101


$
40,340


$
14,173


$
54,513   F-27




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  2008


2007


2006Total segment gross profit

$
81,257


$
54,101


$
54,513Research and development expense


(16,161
)


(13,072
)


(12,586
)Sales and marketing expense


(13,715
)


(11,917
)


(11,713
)General and administrative expense


(28,238
)


(19,334
)


(16,959
)Depreciation and amortization of property and equipment


(5,865
)


(6,200
)


(7,956
)Amortization of acquired intangible assets


(147
)


(148
)


(147
)Interest expense


(922
)


(1,776
)


(1,751
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in June 2007


(180
)


(3,176
)


(1,447
)Gain on sale of patent


8,060







Benefit for income taxes


33,257







Other income, net


222



508



22Income/(loss) from continuing operations


57,568



(1,014
)


1,976Loss from discontinued operations






(275
)


(23,671
)Net income/(loss)

$
57,568


$
(1,289
)

$
(21,695
)   21.
    Quarterly
    Financial Information (Unaudited)    2008Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
40,413


$
43,911


$
56,531


$
79,287Gross profit

$
19,564


$
19,212


$
17,457


$
25,024Income from continuing operations

$
4,618


$
11,965


$
2,757


$
38,228Loss from discontinued operations














Net income

$
4,618


$
11,965


$
2,757


$
38,228Earnings per share  basic from continuing operations

$
0.11


$
0.28


$
0.06


$
0.87Loss per share  basic from discontinued operations

$



$



$



$
Net income per share  basic

$
0.11


$
0.28


$
0.06


$
0.87Earnings per share  diluted from continuing operations

$
0.11


$
0.26


$
0.06


$
0.78Loss per share  diluted from discontinued operations

$



$



$



$
Net income per share  diluted

$
0.11


$
0.26


$
0.06


$
0.78   F-28




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  2007Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
34,119


$
35,336


$
37,635


$
37,078Gross profit

$
14,295


$
10,681


$
14,138


$
14,987Income/(loss) from continuing operations

$
767


$
(5,993
)

$
1,716


$
2,498Income/(loss) from discontinued operations


(124
)


(145
)


54



(61
)Net income/(loss)

$
643


$
(6,138
)

$
1,770


$
2,437Earnings/(loss) per share  basic from continuing
    operations

$
0.02


$
(0.15
)

$
0.04


$
0.06Loss per share  basic from discontinued operations

$
(0.00
)

$
(0.00
)

$
0.00


$
(0.00
)Net income/(loss) per share  basic

$
0.02


$
(0.15
)

$
0.04


$
0.06Earnings/(loss) per share  diluted from continuing
    operations

$
0.02


$
(0.15
)

$
0.04


$
0.06Net income/(loss) per share  diluted from
    discontinued operations

$
(0.00
)

$
(0.00
)

$
0.00


$
(0.00
)Net income/(loss) per share  diluted

$
0.02


$
(0.15
)

$
0.04


$
0.06   22.
    Commitments and
    Contingencies    No. 01-CV-9500. Rule 10b-5 Rule 10b-5
 F-29




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
        23.
    Related Party
    Transactions   F-30




---



##### 



SIGNATURES     By:
    /s/  Maurice
    B. Tosé   Chief Executive Officer, President and
 Chairman of the Board
    Name

Title

Date/s/  Maurice
    B. ToséMaurice
    B. Tosé

Chief Executive Officer, President and Chairman of the Board
    (Principal Executive Officer)

March 3, 2009/s/  Thomas
    M. Brandt, Jr.Thomas
    M. Brandt, Jr.

Chief Financial Officer and Senior Vice President (Principal
    Financial Officer) and Director

March 3, 2009/s/  James
    M. BethmannJames
    M. Bethmann

Director

March 3, 2009/s/  Clyde
    A. HeintzelmanClyde
    A. Heintzelman

Director

March 3, 2009/s/  Jan
    C. HulyJan
    C. Huly

Director

March 3, 2009/s/  Richard
    A. KozakRichard
    A. Kozak

Director

March 3, 2009Weldon
    H. Latham

Director

March 3, 2009/s/  Byron
    F. MarchantByron
    F. Marchant

Director

March 3, 2009/s/  Richard
    A. YoungRichard
    A. Young

Executive Vice President, Chief Operating Officer and Director

March 3, 2009  53




---



##### 



EXHIBIT INDEX
  ExhibitNumbers

Description4
.1

Amended and Restated Articles of Incorporation. (Incorporated by
    reference to the companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004)4
.2

Second Amended and Restated Bylaws. (Incorporated by reference
    to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004)4
.3

Form of Class A Common Stock certificate. (Incorporated by
    reference to the Companys Registration Statement on
    Form S-1
    (No. 333-35522))4
.5

Warrants to Purchase Common Stock issued pursuant to the
    Securities Purchase Agreement for each of the investors party to
    the Securities Purchase Agreement dated January 13, 2004.
    (Incorporated by reference to the Companys Current Report
    on
    Form 8-K
    filed on January 23, 2004)4
.6

Note Purchase Agreement dated March 13, 2006 by and among
    the Company and the Purchasers named therein (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)4
.7

Warrants to Purchase Common Stock issued pursuant to the Note
    Purchase Agreement dated March 13, 2006 to each of the
    Purchasers named therein (Incorporated by reference to the
    Companys Annual Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)4
.8

Notes issued pursuant to the Note Purchase Agreement dated
    March 13, 2006 to each of the Purchasers named therein
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K,
    as amended, for the year ended December 31, 2005)4
.9

Registration Rights Agreement dated March 13, 2006 by and
    among the Company and the Investors named therein (Incorporated
    by reference to the Companys Annual Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)4
.10

Intellectual Property Security Agreement dated March 13,
    2006 by and among the Company, Bonanza Master Fund Ltd., as
    Agent, and the Secured Parties named therein (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)4
.11

Subordination Agreement dated March 13, 2006 by and among
    the Company, Silicon Valley Bank, and the Purchasers named
    therein (Incorporated by reference to the Companys Annual
    Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)10
.1

West Garrett Office Building Full service Lease Agreement dated
    October 1, 1997 by and between the Company and West Garrett
    Joint Venture. (Incorporated by reference to the Companys
    Registration Statement on
    Form S-1
    (No. 333-35522))10
.2

Form of Indemnification Agreement. (Incorporated by reference to
    the Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.3

Fourth Amended and Restated 1997 Stock Incentive Plan.
    (Incorporated by reference to Appendix A to the
    Companys definitive proxy statement for its 2004 Annual
    Meeting of stockholders as filed with the SEC on June 17,
    2004
    (No. 000-30821))10
.4

First Amended and Restated Employee Stock Purchase Plan.
    (Incorporated by reference to the Companys Registration
    Statement on Form S-8
    (No. 333-136072))10
.5

Optionee Agreement dated October 1, 1997 by and between the
    Company and Richard A. Young. (Incorporated by reference to the
    Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.6

Optionee Agreement dated July 29, 1998 by and between the
    Company and Richard A. Young. (Incorporated by reference to the
    Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.7

Optionee Agreement dated October 1, 1997 by and between the
    Company and Thomas M. Brandt, Jr. (Incorporated by reference to
    the Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.8

Optionee Agreement dated July 29, 1998 by and between the
    Company and Thomas M. Brandt, Jr. (Incorporated by reference to
    the Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.9

Optionee Agreement dated April 1, 1999 by and between the
    Company and Thomas M. Brandt, Jr. (Incorporated by reference to
    the Companys Registration Statement on
    Form S-1
    (No. 333-35522))10
.10

401(k) and Profit Sharing Plan of the Company dated
    January 1, 1999. (Incorporated by reference to the
    Companys Registration Statement on
    Form S-4
    (No. 333-51656)) 54




---



##### 



ExhibitNumbers

Description10
.11

Employment Agreement dated February 1, 2001 by and between
    the Company and Richard A. Young. (Incorporated by reference to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001)10
.12

Employment Agreement dated February 1, 2001 by and between
    the Company and Thomas M. Brandt. (Incorporated by reference to
    the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001)10
.13

Employment Agreement dated February 1, 2001 by and between
    the Company and Drew A. Morin. (Incorporated by reference to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001)10
.14

Employment Agreement dated February 1, 2001 by and between
    the Company and Timothy J. Lorello. (Incorporated by reference
    to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001)10
.15

Services Integration Agreement dated January 31, 2002 by
    and between the Company and Hutchison 3G. (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001)10
.16

Deed of Lease by and between Annapolis Partner, LLC and the
    Company. (Incorporated by reference to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2002)10
.17

Restricted stock award certificate to Mr. Thomas M. Brandt,
    Jr. (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.18

Restricted stock award certificate to Mr. Thomas M. Brandt,
    Jr. (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.19

Restricted stock award certificate to Mr. Clyde A.
    Heintzelman. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.20

Restricted stock award certificate to Mr. Richard A. Kozak.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.21

Restricted stock award certificate to Mr. Weldon H. Latham.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.22

Restricted stock award certificate to Mr. Timothy J.
    Lorello. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.23

Restricted stock award certificate to Mr. Timothy J.
    Lorello. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.24

Restricted stock award certificate to Mr. Bryon F.
    Marchant. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.25

Restricted stock award certificate to Mr. Drew A. Morin.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.26

Restricted stock award certificate to Mr. Drew A. Morin.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.27

Restricted stock award certificate to Mr. Maurice B.
    Tosé. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.28

Restricted stock award certificate to Mr. Maurice B.
    Tosé. (Incorporated by reference to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.29

Restricted stock award certificate to Mr. Kevin M. Webb.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.30

Restricted stock award certificate to Mr. Kevin M. Webb.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.31

Restricted stock award certificate to Mr. Richard A. Young.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003)10
.32

Restricted stock award certificate to Mr. Richard A. Young.
    (Incorporated by reference to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2003) 55




---



##### 



ExhibitNumbers

Description10
.33

Registration Rights Agreement dated as of December 18, 2003
    by and among the Company and the investors party to the 2003
    SPA. (Incorporated by reference to Exhibit 10 to the
    Companys Current Report on
    Form 8-K
    dated December 18, 2003)10
.34

Trademark License Agreement by and among Aether, TSYS and the
    Company dated as of January 13, 2004. (Incorporated by
    reference to the Companys Current Report on
    Form 8-K
    filed on January 23, 2004)10
.35

Registration Rights Agreement by and between the Company and
    Aether dated as of January 13, 2004. (Incorporated by
    reference to the Companys Current Report on
    Form 8-K
    filed on January 23, 2004)10
.36

Amended and Restated Loan and Security Agreement by and between
    the Company and Silicon Valley Bank. (Incorporated by reference
    to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2004)10
.37

Restricted stock award certificate to Mr. Clyde A.
    Heintzelman (Incorporated by reference to the Companys
    Annual Report on
    Form 10-K,
    as amended, for the year ended December 31, 2005)10
.38

Restricted stock award certificate to Mr. Richard A. Kozak
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K,
    as amended, for the year ended December 31, 2005)10
.39

Restricted stock award certificate to Mr. Weldon F. Latham
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K,
    as amended, for the year ended December 31, 2005)10
.40

Restricted stock award certificate to Mr. Byron F. Marchant
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K,
    as amended, for the year ended December 31, 2005)10
.46

Second Amended and Restated Loan and Security Agreement by and
    between the Company and Silicon Valley Bank (Incorporated by
    reference to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005)10
.47

Form of Incentive Stock Option Agreement10
.48

Form of Non-Qualified Stock Option Agreement10
.49

Form of Restricted Stock Grant Agreement12
.1

Supplemental Financial Statement Schedule II21
.1

Subsidiaries of the Registrant23
.1

Consent of Ernst & Young LLP23
.2

Consent of James Cowper31
.1

Certification of CEO required by the Securities and Exchange
    Commission Rule 13a-14(a) or 15d-14(a)31
.2

Certification of CEO required by the Securities and Exchange
    Commission Rule 13a-14(a) or 15d-14(a)32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 200232
.2

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 200299
.01

Report of Independent Auditors- James Cowper     
    
    Management contract, compensatory plans or arrangement required
    to be filed as an exhibit pursuant to Item 15(a)(3) of
    Form 10-K.
    
    Confidential treatment has been for certain portions of this
    Exhibit pursuant to
    Rule 24b-2
    of the Securities Exchange Act of 1934, as amended, which
    portions have been omitted and filed separately with the
    Securities and Exchange Commission. 56