##### 





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, 2007ORo

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
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

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

Part III




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##### 





TABLE OF
    CONTENTS
  Page NumberPart IItem 1


Business


2Item 1A


Risk Factors


11Item 1B


Unresolved Staff Comments


24Item 2


Properties


24Item 3


Legal Proceedings


25Item 4


Submission of Matters to a Vote of Security Holders


26Part IIItem 5


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


26Item 6


Selected Financial Data


29Item 7


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


30Item 7A


Qualitative and Quantitative Disclosure About Market Risk


43Item 8


Financial Statements and Supplementary Data


44Item 9


Changes In and Disagreements With Accountants on Accounting and
    Financial Disclosure


44Item 9A


Controls and Procedures


44Part IIIItem 10


Directors, Executive Officers and Corporate Governance


46Item 11


Executive Compensation


46Item 12


Security Ownership of Certain Beneficial Owners and Management


46Item 13


Certain Relationships and Related Transactions and Director
    Independence


46Item 14


Principal Accountant Fees and Services


46Part IVItem 15


Exhibits, Financial Statement Schedules


47Index to Consolidated Financial Statements


F-1Signatures


48Exhibit Index


49  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. Form 10-K
  Form 10-K
  Commercial Segment:
 2




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##### 



®
  Government Segment: ® ®
    ® ® ® tm Form 10-K
  I.
    Commercial
    Segment:    A.
    Commercial
    Product and Service Offerings  1. Commercial services. ®
  a. Hosted Location-Based Services, including
    E9-1-1.
  b. Customer subscriptions to application-based
    services such as Navigation, Traffic and
    Points-of-Interest.
 3




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##### 



®
  c. Software and system maintenance.
  d. Location-based technical service
    projects.
  2. Commercial Licensed Software-based
    Systems:
  a. Xypoint®
    Location Platform (XLP) and Applications for Location-based
    Services: ®
  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.
 4




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##### 



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). ® in-network tm
  Growing Use of Short Messaging,
    E-mail and
    Internet
    Applications. E-mail e-mail
 5




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##### 




    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 are adding partnerships for our
    location technologies.
    Grow Our Wireless Carrier and Voice Over IP Customer
    Base. We now serve or are under contract with 61
    wireless carrier networks in 16 countries, and with 13 VoIP
    service providers. 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, 2008, our staff included
    approximately 260 personnel with technical expertise in
    wireless network, client software development, hosted wireless
    operations, satellite-based communication 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 pursue 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:
   6




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##### 



A.
    Government
    Products and Services  1. Government Services.
  a. Network Operation and Telecom Expense Management
    Support.
  b. Custom Software.
  c. Secure Satellite Teleport Data Landing and
    Transmission Services.
  d. Maintenance Services. ®
  2. Government Systems. ® ® ®
  B.
    Government Market
    Opportunities and Strategy  Growing Use of Secure Wireless Communications and Location
    Technology for Defense, Intelligence and Homeland
    Security. ® ®
  Government Outsourcing of Network and Telecom Technical
    Functions.
 7




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##### 



Expanded Need for Secure, Interoperable Deployable
    Communication Solutions. ®
  Secure Teleport and Integration Capabilities along with
    Deployable Systems as a Bundled
    Offering.
  Application of Commercially Proven Technology to
    Government Solutions.
  Customers
  Commercial Segment.
  Government Segment.
  Backlog
    December 31,


2007 vs. 2006($ in millions)

2007


2006


$


%Commercial Segment

$
93.9


$
42.8


$
51.1



119
%Government Segment


36.7



18.5



18.2



98
%Total funded contract backlog

$
130.6


$
61.3


$
69.3



113
%Commercial Segment

$
103.4


$
42.8


$
60.6



142
%Government Segment


128.8



40.9



87.9



215
%Total backlog of orders and commitments, including customer
    options

$
232.2


$
83.7


$
148.5



177
%Expected to be realized within next 12 months

$
84.6


$
51.3


$
33.3



65
%  8




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##### 



and/or
  Sales and
    Marketing
      Competition
      
    Commercial Segment. West Corporations Intrado
    subsidiary; Ericsson; Openwave; Acision, Huawei Technologies,
    Comverse Technology Inc.
    Government Segment. Computer Sciences Corporation;
    Electronic Data Systems Corporation; Northrop Grumman; DataPath;
    Tactical Communications, a division of Sierra Nevada
    Corporation; Globecomm Systems, Inc.     9




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##### 



e-mail
  Research
    and Development
  E9-1-1
    Intellectual
    Property Rights
          Employees
   10




---



##### 



Geographical
    Information
       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
  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.  If wireless
    carriers do not continue to provide additional products and
    services to their subscribers, our business could be
    harmed.
   11




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##### 



We may fail
    to support our anticipated growth in operations which could
    reduce demand for our services and materially adversely affect
    our
    revenue.
    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 or system
    failure.
    Because we
    rely on a few key customers, our revenue may decline if we fail
    to retain those
    customers.
     12




---



##### 



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.
    Because our
    business may not generate sufficient cash to fund operations, we
    may not be able to continue to grow our business if we are
    unable to obtain additional capital when
    needed.
  and/or
    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.
   13




---



##### 




    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
    cause a decline in our revenues and operating
    margins.
      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; 14




---



##### 




    the potential burdens of complying with a variety of
    U.S. and foreign laws, trade standards and regulatory
    requirements, including 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.    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 our business, financial
    condition and operating
    results.
    
    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. Any failure by Congress to appropriate funds to
    any program that we participate in could materially delay or
    terminate the program and have a material adverse effect on our
    business.
    We are subject to procurement and other related laws and
    regulations which carry significant penalties for
    non-compliance. We are subject to extensive and complex
    U.S. government procurement laws and regulations. Failure
    to comply with these laws and regulations and with laws
    governing the export of controlled products and commodities, and
    any significant violations of any other federal law, could
    subject us to potential contract termination, civil and criminal
    penalties, and under certain circumstances, suspension and
    debarment from future U.S. government contracts.    Because
    several of our competitors have significantly greater resources
    than we do, we could lose customers and market
    share.
     15




---



##### 



and/or
  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.
   16




---



##### 



If our
    subcontractors 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
  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.     17




---



##### 



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.
        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.
   18




---



##### 



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, our sales could decrease
    if these defects or errors adversely affect our reputation or
    delays shipments of our
    software.
   19




---



##### 



If we are
    unable to integrate our products with wireless service
    providers systems we may lose sales to
    competitors.
  E9-1-1
  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
    If mobile
    equipment manufacturers do not overcome capacity, technology and
    equipment limitations, we may not be able to sell our products
    and
    services.
   20




---



##### 



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.
      Pursuing
    infringers of our Patents and other intellectual property rights
    can be
    costly.
   21




---



##### 



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.
    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.
   22




---



##### 



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; and
    prohibition on stockholders acting without a meeting other than
    through unanimous written consent;
    supermajority voting requirement on various charter and by-law
    provisions;
    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.
               23




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##### 



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   24




---



##### 



7-acre
  Item 3.
    Legal
    Proceedings  Highstein v. Telecommunication Systems, Inc., et
    al. No. 01-CV-9500. Rule 10b-5 Rule 10b-5 En Banc
     25




---



##### 



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


Low2008First Quarter 2008 (through February 25, 2008)

$
3.94


$
3.092007First Quarter 2007

$
3.92


$
2.99Second Quarter 2007

$
5.75


$
3.86Third Quarter 2007

$
5.21


$
3.45Fourth Quarter 2007

$
4.55


$
3.022006First Quarter 2006

$
2.56


$
2.00Second Quarter 2006

$
3.26


$
2.23Third Quarter 2006

$
2.83


$
2.03Fourth Quarter 2006

$
3.58


$
2.66     Dividend
    Policy
    Change in
    Securities and Use of Proceeds
   26




---



##### 



Issuer Purchases
    of Equity Securities
   27




---



##### 



Stock Performance
    Graph
          
 28




---



##### 



Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K. Form 10-K.
  Year Ended December 31,2007


2006


2005


2004


2003(in millions, except share and per share data)Statement of Operations Data:RevenueServices

$
88.1


$
88.4


$
75.0


$
60.2


$
51.6Systems


56.1



36.6



27.2



36.7



40.5Total revenue


144.2



124.9



102.2



96.9



92.1Direct cost of services revenue


52.2



52.5



39.2



30.9



28.0Direct cost of systems revenue


37.9



17.9



17.7



21.2



32.3Total direct cost of revenue


90.1



70.4



56.9



52.1



60.2Services gross profit


35.9



35.8



35.8



29.3



23.6Systems gross profit


18.2



18.7



9.5



15.5



8.2Total gross profit


54.1



54.5



45.2



44.8



31.8Research and development expense


13.1



12.6



13.9



18.1



17.2Sales and marketing expense


11.9



11.7



10.5



9.0



9.1General and administrative expense


19.3



17.0



15.0



15.0



12.3Depreciation and amortization of property and equipment


6.2



8.0



8.6



7.4



6.6Amortization of goodwill and other intangible assets


0.1



0.1



0.1







0.5Total operating costs and expenses


50.6



49.3



48.2



49.6



45.7Income (loss) from operations


3.5



5.2



(3.0
)


(4.8
)


(13.9
)Interest expense


(1.8
)


(1.8
)


(0.7
)


(3.2
)


(1.1
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(3.2
)


(1.4
)


(0.5
)






Debt conversion expense














(7.9
)


Other (expense)/income, net


0.5







(0.1
)






1.5Income (loss) from continuing operations


(1.0
)


2.0



(4.3
)


(15.9
)


(13.5
)Loss from discontinued operations


(0.3
)


(23.7
)


(7.2
)


(2.6
)


Net loss

$
(1.3
)

$
(21.7
)

$
(11.5
)

$
(18.5
)

$
(13.5
)Income (loss) from continuing operations per share

$
(0.02
)

$
0.05


$
(0.11
)

$
(0.48
)

$
(0.45
)Loss from discontinued operations per share


(0.01
)


(0.60
)


(0.19
)


(0.08
)


Net loss per share  basic

$
(0.03
)

$
(0.55
)

$
(0.30
)

$
(0.56
)

$
(0.45
)Income (loss) from continuing operations per share

$
(0.02
)

$
0.05


$
(0.11
)

$
(0.48
)

$
(0.45
)Loss from discontinued operations per share


(0.01
)


(0.59
)


(0.19
)


(0.08
)


Net loss per share  diluted

$
(0.03
)

$
(0.54
)

$
(0.30
)

$
(0.56
)

$
(0.45
)Basic shares used in computation (in thousands)


41,453



39,430



38,823



33,381



29,796Diluted shares used in computation (in thousands)


41,453



40,166



38,823



33,381



29,796   29




---



##### 



As of December 31,2007


2006


2005


2004


2003(in millions)Balance Sheet Data:Cash and cash equivalents

$
16.0


$
10.4


$
9.3


$
18.3


$
18.9Working capital


35.0



25.4



27.5



20.2



28.5Total assets


82.1



83.6



90.6



102.4



65.3Capital leases and long-term debt (including current portion)


16.1



17.6



16.5



18.4



14.6Total liabilities


38.2



48.6



41.5



42.9



28.4Total stockholders equity


44.0



35.1



49.1



59.5



36.9   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Critical
    Accounting Policies and Estimates
      Overview and
    Recent Developments
    ® Form 10-K. Form 10-K.
 30




---



##### 




    Revenue and gross profit. We derive revenue from the
    sales of systems and services including recurring monthly
    service and subscriber 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 expenses. 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 have been cash raised from our 2007
    debt refinancing as described below under Liquidity and
    Capital Resources, borrowings under our bank credit
    agreement, and lease financings secured for the purchase of
    equipment.
    Balance sheet. We view cash, working capital, and
    accounts receivable balances and days revenues outstanding as
    important indicators of our financial health. 31




---



##### 



Results of
    Operations
  Revenue and Cost
    of Revenue
  Discontinued Operations  Enterprise
    assets
  Commercial Segment:
  2007 vs.





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


%Services revenue

$
58.8


$
59.7


$
(0.9
)


(2
)%

$
54.2


$
5.5



10
%Systems revenue


16.5



17.2



(0.7
)


(4
)%


11.7



5.5



47
%Total Commercial Segment revenue


75.3



77.0



(1.7
)


(2
)%


65.9



11.1



17
%Direct cost of services


29.4



31.4



(2.0
)


(6
)%


25.9



5.5



21
%Direct cost of systems


5.0



5.2



(0.2
)


(4
)%


5.7



(0.5
)


(9
)%Total Commercial Segment cost of revenue


34.4



36.6



(2.2
)


(6
)%


31.6



5.0



16
%Services gross profit


29.4



28.3



1.1



4
%


28.3







NMSystems gross profit


11.5



12.0



(0.5
)


(4
)%


6.0



6.0



100
%Total Commercial Segment gross profit*

$
40.9


$
40.3


$
0.6



1
%

$
34.3


$
6.0



18
%Segment gross profit as a percent of revenue


54
%


52
%










52
%     *
    
    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)  Commercial
    Services Revenue and Cost of Revenue:
  E9-1-1, ®
   32




---



##### 



Commercial
    Systems Revenue and Cost of Revenue
       33




---



##### 



Government Segment:
  2007 vs.





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


%Services revenue

$
29.3


$
28.6


$
0.7



2
%

$
20.8


$
7.8



38
%Systems revenue


39.6



19.3



20.3



105
%


15.5



3.8



25
%Total Government Segment revenue


68.9



48.0



20.9



44
%


36.3



11.7



32
%Direct cost of services


22.8



21.1



1.7



8
%


13.4



7.7



58
%Direct cost of systems


32.9



12.7



20.2



159
%


12.0



0.7



6
%Total Government Segment cost of revenue


55.7



33.8



21.9



65
%


25.4



8.4



33
%Services gross profit


6.5



7.5



(1.0
)


(13
)%


7.4



0.1



1
%Systems gross profit


6.7



6.7







NM



3.5



3.2



91
%Total Government Segment gross profit*

$
13.2


$
14.2


$
(1.0
)


7
%

$
10.9


$
3.3



30
%Segment gross profit as a percent of revenue


19
%


30
%










30
%     *
    
    See discussion of segment reporting in Note 20 to the
    audited Consolidated Financial Statements presented elsewhere in
    this Annual Report on
    Form 10-K.     34




---



##### 



Government
    Services Revenue and Cost of Revenue:
          Government
    Systems Revenue and Cost of Revenue:
  ® ®
  ®
     35




---



##### 



Operating Expenses:
  Research and
    Development Expense:
  2007 vs.





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


%Research and development expense

$
13.1


$
12.6


$
0.5



4
%

$
13.9


$
(1.3
)


(9
)%Percent of revenue


9
%


10
%










14
%     product-by-product
      Sales and
    Marketing Expense:
  2007 vs.





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


%Sales and marketing expense

$
11.9


$
11.7


$
0.2



2
%

$
10.5


$
1.2



11
%Percent of revenue


8
%


9
%










10
%  36




---



##### 



General and
    Administrative Expense:
  2007 vs. 2006





2006 vs. 2005($ in millions)

2007


2006


$


%


2005


$


%General and administrative expense

$
19.3


$
17.0


$
2.3



14
%

$
15.0


$
2.0



13
%Percent of revenue


13
%


14
%










15
%     Depreciation and
    Amortization of Property and Equipment:
  2007 vs. 2006





2006 vs. 2005($ in millions)

2007


2006


$


%


2005


$


%Depreciation and amortization of property and equipment

$
6.2


$
8.0


$
(1.8
)


(23
)%

$
8.6


$
(0.6
)


7
%Average gross cost of property and equipment

$
50.3


$
52.0


$
(1.7
)


(3
)%

$
47.4


$
4.6



10
%     Amortization of
    Acquired Intangible Assets:
  2007 vs.





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


%Amortization of acquired intangible assets

$
0.1


$
0.1


$




NM


$
0.2


$
(0.1
)


(50
%)    37




---



##### 



Interest
    Expense:
  2007 vs





2006 vs.2006





2005($ in millions)

2007


2006


$


%


2005


$


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

$
1.6


$
1.5


$
0.1



7
%

$
0.5


$
1.0



200
%Interest expense incurred on capital lease obligations


0.2



0.3



(0.1
)


(33
)%


0.3







NMAmortization of deferred financing fees


0.3



0.4



(0.1
)


(25
)%


0.5



(0.1
)


(20
)%Amortization of debt discount


0.5



1.0



(0.5
)


(50
)%






1.0



100
%Write-off of unamortized debt discount and debt issuance expenses


2.4







2.4



100
%










NMLess: capitalized interest


(0.1
)


(0.1
)






NM



(0.1
)






NMTotal Interest and Financing Expense

$
4.9


$
3.1


$
1.8



58
%

$
1.2


$
1.9



158
%                  38




---



##### 



Other
    (Expense)/Income, Net:
  2007 vs. 2006





2006 vs. 2005($ in millions)

2007


2006


$


%


2005


$


%Foreign currency translation/ transaction (loss)/gain

$
(0.1
)

$
(0.1
)

$




NM


$
(0.2
)

$
(0.1
)


50
%Miscellaneous other (expense)/ income


0.6



0.1



0.5



500
%


0.1







NMTotal other (expense)/income, net

$
0.5


$




0.5



100
%

$
(0.1
)


0.1



100
%     Income
    Taxes:
  Form 10-K.
  Discontinued
    Operations:
  Form 10-K Accounting for the Impairment or Disposal of
    Long-Lived Assets
  ® 18-month
 39




---



##### 



2007 vs.2006





2006 vs. 2005($ in millions)

2007


2006


$


%


2005


$


%Total revenue

$
5.6


$
26.0


$
(20.4
)


(78
)%

$
28.1



(2.1
)


(7
)%Total gross profit


0.8



4.5


$
(3.7
)


(82
)%


6.0



(1.5
)


25
%Loss from discontinued operations, including 2006 impairment
    charges of $15.5 million

$
(0.3
)

$
(23.7
)

$
23.4



99
%

$
(7.2
)


(16.5
)


229
%   2006 vs. 2005($ in millions)

2006


2005


$


%Services revenue

$
15.3


$
22.5


$
(7.2
)


(32
)%Systems revenue


10.7



5.6



5.1



91
%Total Enterprise revenue


26.0



28.1



(2.1
)


(7
)%Direct cost of services


12.0



15.7



(3.7
)


(24
)%Direct cost of systems


9.5



6.3



3.2



51
%Total Enterprise cost of revenue


21.5



22.1



(0.6
)


(3
)%Services gross profit


3.3



6.9



(3.6
)


52
%Systems gross profit


1.2



(0.8
)


2.0



250
%Total Enterprise gross profit


4.5



6.0



(1.5
)


25
%Research and development, sales, marketing, and general and
    administrative expenses


12.6



9.9



3.0



30
%Depreciation and amortization


(0.0
)


3.3



(3.3
)


(100
)%Write-down of goodwill and other long-lived assets


(15.5
)










NMLoss from discontinued operations

$
(23.7
)

$
(7.2
)


(16.5
)


229
%     Net
    Loss:
  2007 vs. 2006





2006 vs. 2005($ in millions)

2007


2006


$


%


2005


$


%Net income (loss) from continuing operations

$
(1.0
)

$
2.0


$
(3.0
)


(150
)%

$
(4.3
)

$
6.3



(146
)%Loss from discontinued operations


(0.3
)


(23.7
)


23.4



99
%


(7.2
)


(16.5
)


229
%Net loss

$
(1.3
)

$
(21.7
)

$
20.4



94
%

$
(11.5
)

$
(10.2
)


88
%    40




---



##### 



Liquidity and
    Capital Resources
    ($ in millions)

2007


2006


2005Net cash and cash equivalents provided by (used in):Net loss

$
(1.3
)

$
(21.7
)

$
(11.5
)Less: loss from discontinued operations


(0.3
)


(23.7
)


(7.1
)Income (loss) from continuing operations


(1.0
)


2.0



(4.4
)Non-cash charges


15.5



13.9



11.3Net changes in working capital


(5.4
)


(2.9
)


1.1Operating activities of continuing operations


9.1



13.0



8.0Operating activities of discontinued operations


(3.6
)


(8.0
)


(3.2
)Net operating activities


5.5



5.0



4.8Investing activities for continuing operations:Purchases of property and equipment


(2.6
)


(2.8
)


(4.6
)Capitalized software development costs


(1.5
)


(1.8
)


(2.0
)Investing activities for continuing operations


(4.1
)


(4.6
)


(6.6
)Investing activities for discontinued operations


4.0



(1.4
)


(2.1
)Net investing activities


(0.1
)


(6.0
)


(8.7
)Financing activities:Payments on debt and leases


(16.0
)


(13.6
)


(7.4
)Proceeds from/(finance fees related to) issuance of stock and
    debentures, net






(1.5
)


(0.1
)Proceeds from borrowings


10.0



16.0



2.0Proceeds from exercise of warrants


2.2







Proceeds from employee option exercises


4.0



0.7



0.7Net financing activities from continuing operations


0.2



1.6



(4.9
)Effect of exchange rates from discontinued operations






0.3



(0.1
)Change in cash and cash equivalents from continuing operations


5.2



10.1



(3.5
)Change in cash and cash equivalents from discontinued operations


0.4



(9.1
)


(5.4
)Net change in cash and cash equivalents

$
5.6


$
1.0


$
(8.9
)Days revenues outstanding in accounts receivable including
    unbilled receivables


87



82



91   Capital resources:
  
    June 2007 bank term loan borrowing of $10 million to
    refinance March 2006 secured notes, at lower coupon rate.
    March 2006 issuance of secured notes and warrants (described
    below) which generated net cash proceeds of approximately
    $9.3 million.
    December 2006 issuance of a $5 million note for a term of
    three years secured by accounts receivable of a customer.
    Capital leases to fund fixed asset purchases.  Sources and uses of cash:
   41




---



##### 



42




---



##### 



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

2008


2009-2010


2011-2012


Beyond


TotalNotes payable

$
4.7


$
6.8


$
3.4


$



$
14.9Capital lease obligations


2.0



1.6



0.2







3.8Operating leases, primarily for office space


3.4



4.3



1.6



0.9



10.2Total contractual commitments

$
10.1


$
12.7


$
5.2


$
0.9


$
28.9   Related Party
    Transactions
    Item 7A.
    Qualitative
    and Quantitative Disclosures about Market Risk  Interest Rate
    Risk
      Foreign Currency
    Risk
   43




---



##### 



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). Form 10-K.
  Changes in
    Internal Control over Financial Reporting
   44




---



##### 



Report of
    Independent Registered Public Accounting Firm
  The Board of
    Directors and Stockholders
               
    45




---



##### 



Part III  Item 10.
    Directors
    , Executive Officers, and Corporate Governance  http://www1.telecomsys.com/investorinfo/corpgovernance.cfm.
  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   46




---



##### 



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
   47




---



##### 



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


F-2Consolidated Balance Sheets as of December 31, 2007 and 2006


F-3Consolidated Statements of Operations for each of the three
    years in the period ended December 31, 2007


F-4Consolidated Statements of Stockholders Equity for each of
    the three years in the period ended December 31, 2007


F-5Consolidated Statements of Cash Flows for each of the three
    years in the period ended December 31, 2007


F-7Notes to Consolidated Financial Statements


F-8  F-1




---



##### 



Report of
    Independent Registered Public Accounting Firm   The Board of
    Directors and Stockholders
             
    F-2




---



##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Balance Sheets
 (amounts in thousands, except share data)
  December 31,


December 31,2007


2006AssetsCurrent assets:Cash and cash equivalents

$
15,955


$
10,358Accounts receivable, net of allowance of $266 in 2007 and $290
    in 2006


20,424



21,544Unbilled receivables


15,229



7,636Inventory


5,373



5,293Other current assets


5,561



2,818Current assets of discontinued operations






13,596Total current assets


62,542



61,245Property and equipment, net of accumulated depreciation and
    amortization of $35,969 in 2007 and $40,594 in 2006


11,209



12,853Software development costs, net of accumulated amortization of
    $4,783 in 2007 and $3,262 in 2006


4,406



4,402Acquired intangible assets, net of accumulated amortization of
    $509 in 2007 and $362 in 2006


709



856Goodwill


1,813



1,813Other assets


1,445



2,526Total assets

$
82,124


$
83,695Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued expenses

$
12,459


$
10,421Accrued payroll and related liabilities


4,915



5,663Deferred revenue


4,685



3,485Current portion of capital lease obligations and notes payable


5,444



4,900Current liabilities of discontinued operations






11,400Total current liabilities


27,503



35,869Capital lease obligations and notes payable, less current portion


10,657



12,721Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 34,970,394 in 2007 and 32,267,893 in 2006


349



322Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 7,301,334 in 2007 and 7,525,672 in 2006


74



76Additional paid-in capital


227,987



217,739Accumulated other comprehensive loss


(125
)


Accumulated deficit


(184,321
)


(183,032
)Total stockholders equity


43,964



35,105Total liabilities and stockholders equity

$
82,124


$
83,695   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 31,2007


2006


2005RevenueServices

$
88,062


$
88,380


$
74,972Systems


56,106



36,556



27,181Total revenue


144,168



124,936



102,153Direct costs of revenueDirect cost of services


52,161



52,540



39,230Direct cost of systems, including amortization of software
    development costs of $1,522, $1,273 and $786, respectively


37,906



17,883



17,719Total direct cost of revenue


90,067



70,423



56,949Services gross profit


35,901



35,840



35,742Systems gross profit


18,200



18,673



9,462Total gross profit


54,101



54,513



45,204Operating costs and expensesResearch and development expense


13,072



12,586



13,863Sales and marketing expense


11,917



11,713



10,535General and administrative expense


19,334



16,959



15,044Depreciation and amortization of property and equipment


6,200



7,956



8,625Amortization of acquired intangible assets


148



147



177Total operating costs and expenses


50,671



49,360



48,244Operating Income (Loss)


3,430



5,153



(3,040
)Interest expense


(1,776
)


(1,751
)


(702
)Amortization of debt discount and debt issuance expenses,
    including write-off of $2,458 in 2007


(3,176
)


(1,447
)


(470
)Other (expense)/income, net


508



22



(104
)Income (Loss) from continuing operations


(1,014
)


1,976



(4,316
)Loss from discontinued operations


(275
)


(23,671
)


(7,151
)Net loss

$
(1,289
)

$
(21,695
)

$
(11,467
)Income (Loss) per share  basic:Income (Loss) per share from continuing operations

$
(0.02
)

$
0.05


$
(0.11
)Loss per share from discontinued operations


(0.01
)


(0.60
)


(0.19
)Net loss per share  basic

$
(0.03
)

$
(0.55
)

$
(0.30
)Income (Loss) per share  diluted:Income (Loss) per share from continuing operations

$
(0.02
)

$
0.05


$
(0.11
)Loss per share from discontinued operations


(0.01
)


(0.59
)


(0.19
)Net loss per share-diluted

$
(0.03
)

$
(0.54
)

$
(0.30
)Weighted average shares outstanding-basic


41,453



39,430



38,823Weighted average shares outstanding-diluted


41,453



40,166



38,823   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, 2005

$
306


$
84


$
(787
)

$
209,778


$
(6
)

$
(149,869
)

$
59,506Options exercised for the purchase of 290,980 shares of
    Class A Common Stock


3











310











313Issuance of 176,851 shares of Class A Common Stock
    under Employee Stock Purchase Plan


2











380











382Issuance of 14,816 restricted shares of Class A Common
    Stock to directors and key executives










(41
)


41











Issuance costs related to 2,500,000 shares of Class A
    Common Stock in connection with a private financing














(81
)










(81
)Surrender of 100,564 restricted shares of Class A Common
    Stock as payment for payroll tax withholdings


(1
)










(249
)










(250
)Conversion of 373,038 shares of Class B Common Stock
    to Class A Common Stock


4



(4
)


















Stock compensation expense for issuance of Class A Common
    Stock options at below fair market value














123











123Amortization of deferred compensation expense










597















597Valuation adjustment to stock options issued to non-employees
    for service














(27
)










(27
)Foreign currency translation adjustment


















(34
)






(34
)Net loss for 2005






















(11,467
)


(11,467
)Balance at December 31, 2005

$
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
)

$
35,105 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 1,347,301 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   See accompanying Notes to
    Consolidated Financial Statements.
 F-6




---



##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Statements of Cash Flows
 (amounts in thousands)
  Year ended December 31,2007


2006


2005Operating activities:Net loss

$
(1,289
)

$
(21,695
)

$
(11,467
)Less: Loss from discontinued operations


(275
)


(23,671
)


(7,151
)Income (Loss) from continuing operations


(1,014
)


1,976



(4,316
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization of property and equipment


6,200



7,956



8,625Amortization of acquired intangible assets


148



147



177Non-cash stock compensation expense  employee


3,963



3,116



720Non-cash stock compensation expense  non-employee


370







Amortization of software development costs


1,522



1,273



786Amortization of debt discount


480



960



Amortization of deferred financing fees included in interest
    expense


313



487



470Write-off of unamortized debt discount and deferred finance fees


2,458







Other non-cash (income)/expenses


19



(17
)


485Changes in operating assets and liabilities:Accounts receivable, net


1,120



(658
)


(2,639
)Unbilled receivables


(7,593
)


(1,275
)


3,524Inventory


(80
)


(2,094
)


(635
)Other current assets


(1,870
)


152



(1,140
)Other noncurrent assets


541



111



(439
)Accounts payable and accrued expenses


2,038



246



1,423Accrued payroll and related liabilities


(748
)


1,302



195Deferred revenue


1,200



(638
)


758Net cash provided by operating activities of continuing
    operations


9,067



13,044



7,994Net used in operating activities of discontinued operations


(3,598
)


(8,037
)


(3,240
)Total net cash provided by operating activities


5,469



5,007



4,754Investing activities:Purchases of property and equipment


(2,577
)


(2,760
)


(4,636
)Capitalized software development costs


(1,525
)


(1,849
)


(1,960
)Net cash used in investing activities of continuing operations


(4,102
)


(4,609
)


(6,596
)Net cash provided by/(used) in investing activities of
    discontinued operations


4,000



(1,442
)


(2,117
)Net cash used in investing activities


(102
)


(6,051
)


(8,713
)Financing activities:Proceeds from issuance of long-term debt


10,000



16,000



2,000Payments on long-term debt and capital lease obligations


(15,996
)


(5,589
)


(10,451
)Proceeds from/(payments on) draws on revolving line of credit,
    net






(8,004
)


3,004Financing fees related to issuance of Class A Common Stock
    and Convertible subordinated debentures






(1,470
)


(81
)Proceeds from exercise of warrants


2,208







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


4,018



731



696Net cash (used in)/provided by financing activities of
    continuing operations


230



1,668



(4,832
)Net cash provided by financing activities of discontinued
    operations






58



Net cash (used in)/provided by financing activities


230



1,726



(4,832
)Effect of exchange rates on cash and cash equivalents of
    discontinued operations






357



(140
)Net increase/(decrease) in cash from continuing operations


5,195



10,103



(3,434
)Net increase /(decrease) in cash from discontinued
    operations


402



(9,064
)


(5,497
)Net increase/(decrease) in cash


5,597



1,038



(8,931
)Cash and cash equivalents at the beginning of the year


10,358



9,320



18,251Cash and cash equivalents at the end of the year

$
15,955


$
10,358


$
9,320   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.
  Inventory.
 F-8




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  Investments in Marketable Securities and Note
    Receivable. Accounting for Certain Investments in
    Debt and Equity Securities 18-month
  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. 90-day
      00-21 (EITF 00-21)
  Deferral of Costs Incurred.
  Advertising Costs.
  Capitalized Interest.
  Stock-Based Compensation.
 F-11




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
      (Accounting for Stock Issued to Employees)
      2005Net loss attributable to common stockholders, as reported

$
(11,467
)Add: Stock-based employee compensation expense included in
    reported net loss


720Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards


(4,898
)Pro forma net loss attributable to common stockholders

$
(15,646
)Loss per share  basic and diluted:As reported

$
(0.30
)Pro forma

$
(0.40
)   Research and Development Expense.
 F-12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    Income Taxes.
  Recent Accounting
    Pronouncements.
          2.
    Enterprise
    Assets-Discontinued Operations  Accounting for the
    Impairment or Disposal of Long-Lived Assets
 F-13




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    18-months,
    December 31,2006Assets:Current assets

$
8,739Long-lived assets and goodwill


4,816Other long term assets


41Assets of discontinued operations


13,596Liabilities:Accounts payable and accrued liabilities


9,036Deferred revenue and other liabilities


2,364Liabilities of discontinued operations


11,400Net assets of discontinued operations

$
2,196     2007


2006


2005Revenue

$
5,569


$
26,020


$
28,127Gross profit

$
833


$
4,469


$
6,025Loss from discontinued operations

$
(275
)

$
(23,671
)

$
(7,151
)      F-14




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  3.
    Loss Per Common
    Share      2007


2006


2005Income (Loss) from continuing operations

$
(1,014
)

$
1,976


$
(4,316
)Loss from discontinued operations


(275
)


(23,671
)


(7,151
)Net loss

$
(1,289
)

$
(21,695
)

$
(11,467
)Denominator for basic earnings per share 
    weighted-average common shares outstanding


41,453



39,430



38,823Net effect of dilutive stock options based on treasury stock
    method






632



Net effect of dilutive warrants based on treasury stock method






104



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


41,543



40,166



38,823Income (Loss) per share  basic:Income (Loss) per share from continuing operations

$
(0.02
)

$
0.05


$
(0.11
)Loss per share from discontinued operations


(0.01
)


(0.60
)


(0.19
)Net loss per share  basic

$
(0.03
)

$
(0.55
)

$
(0.30
)Income (Loss) per share  diluted:Income (Loss) per share from continuing operations

$
(0.02
)

$
0.05


$
(0.11
)Loss per share from discontinued operations


(0.01
)


(0.59
)


(0.19
)Net loss per share-diluted

$
(0.03
)

$
(0.54
)

$
(0.30
)   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    2007


2006Component parts

$
2,670


$
2,942Finished goods


2,703



2,351Total inventory at year end

$
5,373


$
5,293   7.
    Property and
    Equipment    2007


2006Computer equipment

$
24,393


$
31,320Computer software


16,360



16,370Furniture and fixtures


2,558



2,159Leasehold improvements


2,760



2,491Land


1,000



1,000Vehicles


107



107Total property and equipment at cost at year end


47,178



53,447Less: accumulated depreciation and amortization


(35,969
)


(40,594
)Net property and equipment at year end

$
11,209


$
12,853   8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    December 31, 2007


December 31, 2006Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
606


$
405


$
201


$
606


$
290


$
316Trademarks & Patents


612



104



508



612



72



540Software development costs, including acquired technology


9,189



4,783



4,406



7,664



3,262



4,402Total

$
10,407


$
5,292


$
5,115


$
8,882


$
3,624


$
5,258   Estimated future amortization expense:Year ending December 31, 2008

$
2,103Year ending December 31, 2009

$
1,509Year ending December 31, 2010

$
452Year ending December 31, 2011

$
452Year ending December 31, 2012

$
251Thereafter

$
348  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    December 31, 2007


December 31, 2006Accounts payable

$
5,848


$
4,388Accrued expenses


6,611



6,033Total accounts payable and accrued expenses at year end

$
12,459


$
10,421     10.
    Line of
    Credit         F-17




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  11.
    Long-Term
    Debt    2007


2006Note payable dated June 2007 due July 1, 2012 and bearing
    interest at prime rate plus 0.25% per annum, See further
    description

$
9,167



Note payable dated March 10, 2006 refinanced June 2007





$
7,504Note payable dated December 28, 2006, due December 28,
    2009, and bearing interest at 10.35% per annum, The note
    requires monthly installments of principal and interest of $162
    through December 28, 2009. This note is secured by accounts
    receivable of $590 at December 31, 2007


3,501



5,000Note payable dated April 17, 2006, paid in full
    April 17, 2007,






657Other


1



5Total long term debt


12,669



13,166Less: current portion


(3,661
)


(2,160
)Non current portion of long term debt

$
9,008


$
11,006     2008

$
3,6612009


3,8412010


2,0002011


2,0002012


1,167Total

$
12,669    F-18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  12.
    Capital
    Leases    2007


2006Computer equipment

$
5,685


$
9,925Computer software


1,474



2,072Furniture and fixtures


237



237Leasehold improvements


6



46Total equipment under capital lease at cost


7,402



12,280Less: accumulated amortization


(3,824
)


(7,268
)Net property and equipment under capital leases

$
3,578


$
5,012       2008

$
1,9722009


1,1512010


4122011


1172012


108Total minimum lease payments


3,760Less: amounts representing interest


(328
)Present value of net minimum lease payments (including current
    portion of $1,783)

$
3,432   13.
    Common
    Stock    14.
    Fair Value of
    Financial Instruments    15.
    Income
    Taxes   F-19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    2007


2006Deferred tax assets:Net operating loss carryforward

$
39,564


$
40,174Net deferred tax assets from discontinued operations


3,656



6,289Research and development tax credit


2,330



2,753Stock compensation expense


1,526



231Depreciation and amortization


1,035



1,123Reserves and accrued expenses


958



1,047Deferred revenue


813



396Charitable contributions


62



92Total deferred tax assets


49,944



52,105Deferred tax liabilities:Capitalized software development costs


(1,202
)


(775
)Other


(4
)


(6
)Total deferred tax liabilities


(1,206
)


(781
)Net deferred tax asset


48,738



51,324Valuation allowance for net deferred tax asset


(48,738
)


(51,324
)Net deferred tax asset recognized in the consolidated balance
    sheets

$



$
        F-20




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    2007


2006


2005Income tax (benefit) at statutory rate

$
(364
)

$
653


$
(1,467
)Expired Xypoint tax attributes as described above


1,894







Non deductible items


255



55



48Change in valuation allowances


(887
)


(2,241
)


2,161Non deductible stock compensation expense


(705
)


689



Research and development tax credit


(130
)


(43
)


(70
)Change in state apportionment tax rates on deferred
    assets/liabilities


(41
)


807



(537
)State tax (benefit)


(8
)


52



(135
)Other


(14
)


28



Total

$



$



$
   16.
    Employee Benefit
    Plan    17.
    Stock-based
    Compensation Plans   F-21




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  Stock Incentive Plan.
  2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


11,622


$
3.62



9,793


$
3.86



8,650


$
4.25Granted


2,537



3.69



2,908



2.42



2,786



2.55Exercised


(1,347
)


2.58



(199
)


1.75



(291
)


1.08Forfeited


(1,668
)


4.07



(880
)


3.26



(1,352
)


4.30Outstanding, end of year


11,144


$
3.69



11,622


$
3.62



9,793


$
3.86Exercisable, at end of year


6,515


$
4.14



6,823


$
4.33



5,997


$
4.55Vested and expected to vest, at end of year


7,510


$
3.69



8,179


$
3.62



7,002


$
3.86Estimated weighted-average grant- date fair value of options
    granted during the year

$
3.69






$
2.42






$
2.06Weighted-average remaining contractuallife of options outstanding at end of year


6.6 years







7.0 years







7.3 years     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$0.01  $2.61


4,071


$
2.31



7.07



1,983


$
2.21$2.61  $5.21


4,848


$
3.42



6.67



2,307


$
3.23$5.21  $7.82


2,195


$
6.75



5.58



2,195


$
6.75$7.82  $26.05


30


$
11.07



5.01



30


$
11.07Total end of year


11,144











6,515  F-22




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    For the Years EndedDecember 31,2007

2006

2005Expected life (in years)

5.5

5.5

5.5Risk-free interest rate(%)

4.24% - 4.90%

4.56%

4.25%Volatility(%)

68.1% - 83%

78%

105%Dividend yield(%)

0%

0%

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


7,002Warrants (see Note 11)


1,750Employee stock purchase plan


426Total shares restricted for future use


9,178   F-23




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  Composition of non-cash stock compensation expense was as
    follows:Direct costs of revenue

$
2,080


$
1,509


$
16Research and development expense


867



558



11Sales and marketing expense


628



326



18General and administrative expense


758



723



675Total non-cash stock compensation expense

$
4,333


$
3,116


$
720   18.
    Operating
    Leases    2008

$
3,4282009 - 2010


4,3692011 - 2012


1,593Beyond


891$
10,278       19.
    Concentrations of
    Credit Risk and Major Customers    % of Total Revenues For the Year Ended December 31,Customer

Segment

2007


2006


2005U.S. Government

Government


37
%


25
%


17
%Customer A

Commercial


20
%


20
%


17
%   F-24




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  As of December 31, 2007


As of December 31, 2006Accounts


Unbilled


Accounts


UnbilledCustomer

Receivable


Receivables


Receivable


ReceivablesU.S. Government


40
%


66
%


24
%


36
%Customer A


<10
%


<10
%


<10
%


<10
%Customer B


11
%


<10
%


11
%


<10
%     20.
    Business and
    Geographic Segment Information    ®
  ®
     F-25




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
    Year ended December 31,2007


2006


2005Comm.


Gvmt


Total


Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
58,793


$
29,269


$
88,062


$
59,741


$
28,639


$
88,380


$
54,198


$
20,774


$
74,972Systems


16,521



39,585



56,106



17,219



19,337



36,556



11,668



15,513



27,181Total revenue


75,314



68,854



144,168



76,960



47,976



124,936



65,866



36,287



102,153Direct costs of revenueDirect cost of services


29,346



22,815



52,161



31,409



21,131



52,540



25,885



13,345



39,230Direct cost of systems


5,024



32,882



37,906



5,211



12,672



17,883



5,710



12,009



17,719Total Direct Costs


34,370



55,697



90,067



36,620



33,803



70,423



31,595



25,354



56,949Gross profitServices gross profit


29,447



6,454



35,901



28,332



7,508



35,840



28,313



7,429



35,742Systems gross profit


11,497



6,703



18,200



12,008



6,665



18,673



5,958



3,504



9,462Total Gross Profit

$
40,944


$
13,157


$
54,101


$
40,340


$
14,173


$
54,513


$
34,271


$
10,933


$
45,204   2007


2006


2005Total segment gross profit

$
54,101


$
54,513


$
45,204Research and development expense


(13,072
)


(12,586
)


(13,863
)Sales and marketing expense


(11,917
)


(11,713
)


(10,535
)General and administrative expense


(19,334
)


(16,959
)


(15,044
)Depreciation and amortization of property and equipment


(6,200
)


(7,956
)


(8,625
)Amortization of acquired intangible assets


(148
)


(147
)


(177
)Interest expense


(1,776
)


(1,751
)


(702
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(3,176
)


(1,447
)


(470
)Other income/(expense), net


508



22



(104
)Income (Loss) from continuing operations


(1,014
)


1,976



(4,316
)Loss from discontinued operations


(275
)


(23,671
)


(7,151
)Net loss

$
(1,289
)

$
(21,695
)

$
(11,467
)  F-26




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  21.
    Quarterly
    Financial Information (Unaudited)    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 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 loss per share  basic

$
0.02


$
(0.15
)

$
0.04


$
0.06Earnings per share  diluted from continuing operations

$
0.02


$
(0.15
)

$
0.04


$
0.06Income (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   2006Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
31,686


$
31,943


$
31,810


$
30,496Gross profit

$
13,562


$
14,240


$
13,574


$
13,136Income from continuing operations

$
342


$
759


$
761


$
111Loss from discontinued operations


(2,054
)


(2,314
)


(14,510
)


(4,793
)Net loss

$
(1,712
)

$
(1,555
)

$
(13,749
)

$
(4,682
)Earnings per share  basic from continuing operations

$
0.01


$
0.02


$
0.02


$
0.00Loss per share  basic from discontinued operations

$
(0.05
)

$
(0.06
)

$
(0.37
)

$
(0.12
)Net loss per share  basic

$
(0.04
)

$
(0.04
)

$
(0.35
)

$
(0.12
)Earnings per share  diluted from continuing operations

$
0.01


$
0.02


$
0.02


$
0.00Loss per share  diluted from discontinued operations

$
(0.05
)

$
(0.06
)

$
(0.37
)

$
(0.11
)Net loss per share  diluted

$
(0.04
)

$
(0.04
)

$
(0.35
)

$
(0.11
)  F-27




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
  22.
    Commitments and
    Contingencies  successor-in-interest
    Highstein v. Telecommunication Systems, Inc., et
    al. No. 01-CV-9500. Rule 10b-5 Rule 10b-5 En Banc
 F-28




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in thousands, except share and per share data)
      23.
    Related Party
    Transactions   F-29




---



##### 



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 5, 2008/s/  Thomas
    M. Brandt, Jr.Thomas
    M. Brandt, Jr.

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

March 5, 2008/s/  James
    M. BethmannJames
    M. Bethmann

Director

March 5, 2008/s/  Clyde
    A. HeintzelmanClyde
    A. Heintzelman

Director

March 5, 2008/s/  Richard
    A. KozakRichard
    A. Kozak

Director

March 5, 2008/s/  Weldon
    H. LathamWeldon
    H. Latham

Director

March 5, 2008/s/  Byron
    F. MarchantByron
    F. Marchant

Director

March 5, 2008  48




---



##### 



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)) 49




---



##### 



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) 50




---



##### 



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 pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231
.2

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
.2

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 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. 51