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SECURITIES AND
    EXCHANGE COMMISSION
 WASHINGTON, 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,
    2010ORo

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(State or Other Jurisdiction of
    Incorporation or Organization)

52-1526369(I.R.S. Employer Identification
    No.)275 West Street, Annapolis, MD(Address of principal executive
    offices)

21401(Zip Code)   (410) 263-7616
 Registrants telephone number,
    including area code)
      o þ
  o þ
  þ o
  Regulation S-T o 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
    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 9, 2011

Part III




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##### 





TABLE OF
    CONTENTS
   
 Page NumberPART IItem 1

Business


3Item 1A

Risk Factors


13Item 1B

Unresolved Staff Comments


35Item 2

Properties


35Item 3

Legal Proceedings


36PART IIItem 5

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


36Item 6

Selected Financial Data


39Item 7

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


40Item 7A

Qualitative and Quantitative Disclosure About
    Market Risk


56Item 8

Financial Statements and Supplementary Data


57Item 9

Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


57Item 9A

Controls and Procedures


57Item 9B

Other Information


58PART IIIItem 10

Directors, Executive Officers and Corporate
    Governance


60Item 11

Executive Compensation


60Item 12

Security Ownership of Certain Beneficial Owners
    and Management


60Item 13

Certain Relationships and Related Transactions
    and Director Independence


60Item 14

Principal Accountant Fees and Services


60PART IVItem 15

Exhibits, Financial Statement Schedules


61Signatures


62Exhibit Index


63Index to Consolidated Financial Statements


F-1   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
 2




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Item 1.
    Business  Overview
    Form 10-K. Form 10-K
  Form 10-K
  Commercial Segment: turn-by-turn
  Government Segment: ®
     3




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® ® ® ® ® Form 10-K
  I. Commercial
    Segment:
    A.
    Commercial
    Product and Service Offerings  1. Commercial Services.
  a. Customer subscriptions through wireless carriers
    to application-based services such as
    Turn-by-Turn
    Navigation, People-Finder, and Asset-Tracking. points-of-interest
  b. Hosted Location-Based Service (LBS)
    Infrastructure, including E9-1-1.
  c. Software and System Maintenance.
  d. Professional Services and Solutions for
    Telematics. points-of-interest
  2. Commercial Licensed Software-Based
    Systems:
 4




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a. Xypoint® Location Platform (XLP) for Mobile Location-based
    Services:
    b. Short Message Service Center and Wireless
    Intelligent Gateway.
  B.
    Commercial Market
    Opportunities and Strategy    Improving Wireless Device
    Functionality.
  Cellular Network Improvements to Next Generation
    Capabilities.
 5




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Growth in Wireless and VoIP Subscribers.
  The FCCs E9-1-1 Mandates.
  Growing Use of Commercial Location-Based Wireless
    Services. ® tm
  Growing Use of Short Messaging and Internet
    Applications. Machine-to-Machine e-mail
    
    Offer to carriers the complete LBS solution continuum, with
    the expertise to enable infrastructure, middleware and
    application functionality. Mobile operators have made
    large capital investments in infrastructure for wireless data
    and location determination technologies, and are motivated to
    grow subscriber use of services that enhance subscriber loyalty
    and average revenue per user. Also, higher data consumption by
    end users has led operators to upgrade to enable a widening
    array of value-added services. We are well positioned to provide
    carrier-branded enhanced services that efficiently use the
    carriers capacity to deliver a user experience that merits
    incremental service payments and continuous use.
    Expand Our Sales and Marketing Channel
    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. Our
    relationships include Huawei, Alcatel-Lucent, and Qualcomm. 6




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
    Grow Our Wireless Carrier and VoIP Customer Base. We
    serve or are under contract with about 60 wireless carrier
    networks and VoIP service providers in 15 countries. We intend
    to expand our domestic and international carrier base through
    channels and by expanding our own global sales and field support
    organizations. We will continue to develop network software for
    wireless carriers and cable operators that operate on all major
    types of networks.
    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. Our companys technology reflects more than
    $220 million invested in R&D over the last
    16 years to develop proprietary wireless location based
    services. 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.
    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.
    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
    Product and Service Offerings  1. Government Services. fee-for-service
  a. Integrated Logistics Support (ILS)
    Services.
  b. Cyber Security and Other Information Technology
    Training and Professional Services.
  c. Secure Satellite Teleport Data Landing and
    Transmission Services. end-to-end
 7




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2. Government Systems. point-to-point Point-to-Point
    B.
    Government Market
    Opportunities and Strategy    Expanding Need for Secure, Deployable, Wireless
    Communication Solutions. 2006-11 5-year
  Growing Need for Cyber Security.
  Government Outsourcing of Network and Telecom Technical
    Functions.
 8




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Growing Use of Secure Wireless Communications and Location
    Technology for Defense, Intelligence and Homeland
    Security.
  Secure Teleport, Space Segment and Integration
    Capabilities with Deployable Systems as a Bundled
    Solution.
  Application of Commercially Proven Technology to
    Government Solutions.
    Customers
  Commercial Segment. T-Mobile,
  Government Segment.
 9




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Backlog
    December 31,


2010 vs. 2009($ in millions)

2010


2009


$


%Commercial Segment

$
241.5


$
240.5


$
1.0



NMGovernment Segment


80.8



98.0



(17.2
)


(18
)%Total funded contract backlog

$
322.3


$
338.5


$
(16.2
)


(5
)%Commercial Segment

$
241.5


$
240.6



0.9



NMGovernment Segment


899.1



390.2



508.9



130
%Total backlog of orders and commitments, including customer
    options

$
1,140.6


$
630.8


$
509.8



81
%Expected to be realized within next 12 months

$
179.3


$
216.1


$
(36.8
)


(17
)%(NM = Not meaningful)   and/or
  Acquisitions
    turn-by-turn
 10




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Sales and
    Marketing
      Competition
   11




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
    Commercial Segment. Intrado Inc. division of West
    Corporation; Motorola Inc.; Ericsson LM Telephone Co.; Openwave
    Systems Inc.; Acision; Comverse Technology Inc; TeleNav, Inc.;
    Motricity, Inc.; and Nokia Corporation.
    Government Segment. General Dynamics Corp.; CACI
    International Inc.; Globecomm Systems, Inc.; Computer Sciences
    Corporation; Rockwell Collins, Inc.; and ViaSat Inc.    e-mail
  Research
    and Development
    Peer-to-Peer
    Intellectual
    Property Rights
   12




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Employees
    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
  If wireless
    carriers do not continue to provide our location-based wireless
    applications and text messaging to their subscribers, our
    business could be harmed.
   13




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turn-by-turn turn-by-turn turn-by-turn
  Network
    failures, disruptions or capacity constraints in our third party
    data center facilities or in our servers could affect the
    performance of the products and services of our wireless
    applications and E9-1-1 business and harm our reputation and our
    revenue.
        
    damage to or failure of our computer software or hardware or our
    connections and outsourced service arrangements with third
    parties;
    errors in the processing of data by our servers;
    computer viruses or software defects;
    physical or electronic break-ins, sabotage, intentional acts of
    vandalism and similar events; or
    errors by our employees or third party service providers. 14




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If we are
    unable to grow data center capacity as needed, our business will
    be harmed.
    Our
    operating results could be adversely affected by any
    interruption of our data delivery services, system failure or
    production interruptions.
      Our past
    and future acquisitions of companies or technologies could prove
    difficult to integrate, disrupt our business, dilute shareholder
    value or adversely affect operating results or the market price
    of our Class A common stock.
    
    properly evaluate the technology;
    accurately forecasting the financial impact of the transaction,
    including accounting charges and transaction expenses;
    integrating and retaining personnel;
    retaining and cross-selling to acquired customers;
    combining potentially different corporate cultures; 15




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
    the potential of significant goodwill and intangibles write-offs
    in the future in the event that an acquisition or investment
    does not meet expectations; and
    effectively integrating products and services, and research and
    development, sales and marketing and support operations.  day-to-day
    We are
    substantially dependent on our wireless carrier partners to
    market and distribute the products and services generated by our
    wireless applications business to end users and our wireless
    applications business may be harmed if our wireless carrier
    partners elect not to broadly offer these
    services.
    and/or
    Our success
    depends on significantly increasing the number of end users that
    purchase the products and services of our wireless
    applicationsbusiness from our wireless carrier
    partners.
   16




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If our
    current and future wireless carrier partners do not successfully
    market the products and services of our wireless applications
    business to their customers or if we are not successful in
    maintaining and expanding our relationships with our wireless
    carrier partners, we will not be able to maintain or increase
    the number of end users that use the products and services of
    our business, operating results and financial condition may be
    materially adversely affected.
    Our
    wireless carrier partners may change the pricing and other terms
    by which they offer our wireless applications business, which
    could result in increased end user churn, lower revenue and
    adverse effects on our business.
    New
    entrants and the introduction of other distribution models in
    the location- based services market may harm our competitive
    position.
   17




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We rely on
    our wireless carrier partners for timely and accurate subscriber
    information. A failure or disruption in the provisioning of this
    data to us would adversely affect our ability to manage our
    wireless applications business effectively.
    We rely on
    third party data and content to provide the services of our
    wireless applications business, and if we were unable to obtain
    content at reasonable prices, or at all, our gross margins and
    our ability to provide the services of our wireless applications
    business would be harmed.
        If a
    substantial number of end users change mobile phones or if our
    wireless carrier partners switch to subscription plans that
    require active monthly renewal by end users, our revenue could
    suffer.
   18




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The failure
    of mobile phone providers selected by our wireless carrier
    partners to keep pace with technological and market developments
    in mobile phone design may negatively affect the demand for the
    products and services of our wireless applications
    business.
    Some of our
    research and development operations are conducted in China,
    India, and Russia and our ability to introduce new services and
    support our existing services cost effectively depend on our
    ability to manage those remote development sites
    successfully.
    We may fail
    to support our anticipated growth in operations which could
    reduce demand for our services and materially adversely affect
    our revenue.
    Changes in
    the U.S. and global market conditions that are beyond our
    control may have a material adverse effect on
    us.
   19




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We could
    incur substantial costs from product liability claims relating
    to our software.
    Our
    revenue may decline if we fail to retain our largest customers
    for all of the deliverables that we sell to
    them.
      Because we
    rely on key partners to expand our marketing and sales efforts,
    if we fail to maintain or expand our relationships with
    strategic partners and indirect distribution channels our
    license revenues could decline.
    Growing
    market acceptance of open source software could have
    a negative impact on us.
     20




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Because our
    product offerings are sold internationally, we are subject to
    risks of conducting business in foreign
    countries.
    
    our inability to adapt our products and services to local
    business practices, customs and mobile user preferences;
    the costs of adapting our product and service offerings for
    foreign markets;
    our inability to locate qualified local employees, partners and
    suppliers;
    reduced protection of intellectual property rights;
    changes in regulatory requirements could restrict our ability to
    deliver services to our international customers, including the
    addition of a country to the list of sanctioned countries under
    the International Emergency Economic Powers Act or similar
    legislation;
    the potential burdens of complying with a variety of
    U.S. and foreign laws, trade standards, treaties and
    regulatory requirements, including export restrictions, tariffs,
    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
    some of our competitors have significantly greater resources
    than we do, we could lose customers and market
    share.
     21




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and/or
  While we
    characterize our services revenue as being recurring
    there is no guarantee that we will actually achieve this
    revenue.
  month-to-month
  We cannot
    guarantee that our estimated contract backlog will result in
    actual revenue.
    We derive a
    significant portion of our revenue from sales to various
    agencies of the U.S. Government which has special rights unlike
    other customers and exposes us to additional risks that could
    have a material adverse effect on us.
   22




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
    TCSs inclusion as an authorized vendor for the
    U.S. Armys Worldwide Satellite Systems
    (WWSS) contract vehicle has enabled TCS to secure
    funded contract awards for federal customers totaling about
    $340 million in 2006 through 2010. The WWSS contract
    vehicle is scheduled to expire in August 2011. If the contract
    vehicle is not extended, or TCS is not selected as a vendor
    under one or more successor contracts, future revenues could be
    adversely affected.
    A decrease in U.S. Government defense spending or changes
    in spending allocation could result in one or more of our
    contracts being reduced, delayed or terminated.
    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
    are no longer a small business under some government size
    standards, we could lose business to small-business set-aside
    competitors.
    If our
    subcontractors and vendors fail to perform their contractual
    obligations, our performance and reputation as a prime
    contractor and our ability to obtain future business could
    suffer.
  agreed-upon
 23




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A
    significant portion of our contracts with the U.S. Government
    are on a fixed price basis which could negatively impact our
    profitability.
    We are
    subject to procurement and other related laws and regulation
    which carry significant penalties for
    non-compliance.
      We may
    incur losses if we are unable to resell products and services
    for which we have contractual minimum purchase
    obligations.
    We are
    exposed to counterparty credit risk and there can be no
    assurances that we will manage or mitigate this risk
    effectively.
     24




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The loss of
    key personnel or inability to attract and retain personnel could
    harm our business.
    Our
    accounting policies and methods are fundamental to how we record
    and report our financial position and results of operations, and
    they require management to make estimates, judgments and
    assumptions about matters that are inherently
    uncertain.
    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.
   25




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Because the
    industries which we serve are currently in a cycle of
    consolidation, the number of customers may be reduced which
    could result in a loss of revenue for our
    business.
    Concerns
    about personal privacy and commercial solicitation may limit the
    growth of mobile location services and reduce demand for our
    products and services.
    Because
    wireless and next-generation E9-1-1 is undergoing rapid
    technological and regulatory change, our future performance is
    uncertain.
   26




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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.
      Our
    operations are subject to government regulations, and failure to
    comply with them will harm our business.
       27




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and/or
  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.
    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.
   28




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Third
    parties may claim we are infringing their intellectual property
    rights and we could be prevented from selling our products, or
    suffer significant litigation expense, even if these claims have
    no merit, and our customers also could demand indemnification
    for such claims.
        The
    security measures we have implemented to secure information we
    collect and store may be breached, which could cause us to
    breach agreements with our partners and expose us to potential
    investigation and penalties by authorities and potential claims
    by persons whose information was disclosed.
    Because the
    market for most mobile content delivery and mobile location
    products is undergoing rapid changes, our future success is
    uncertain.
   29




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If the
    satellite communications industry fails to continue to develop
    or new technology makes it obsolete, our business and financial
    condition will be harmed.
    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
   30




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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.
    If wireless
    handsets pose health and safety risks, we may be subject to new
    regulations and demand for our products and services may
    decrease.
    Risks Related to
    Our Class A Common Stock
  The price
    of our Class A common stock historically has been volatile.
    This volatility may affect the price at which you could sell
    your Class A common stock, and the sale of substantial
    amounts of our Class A common stock could adversely affect
    the price of our Class A common stock.
   31




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A
    significant percentage of our common stock is beneficially owned
    by our President, Chief Executive Officer and Chairman of the
    Board, and he can exert significant influence over
    us.
    Because our
    business may not generate sufficient cash to fund our
    operations, we may not be able to continue to grow our business
    if we are unable to obtain additional capital when
    needed.
  and/or
    Our
    short-term investments are subject to market fluctuations which
    may affect our liquidity.
  U.S. sub-prime
 32




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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.
  quarter-to-quarter. quarter-to-quarter quarter-to-quarter.
    
    changes in our relationships with wireless carriers, the
    U.S. Government or other customers;
    timing and success of introduction of new products and services
    and our wireless carrier partners marketing expenditures;
    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;
    loss of subscribers by our wireless carrier partners or a
    reduction in the number of subscribers to plans that include our
    services;
    the timing and quality of information we receive from our
    wireless carrier partners;
    the timing and success of new mobile phone introductions by our
    wireless carrier partners;
    our inability to attract new end users;
    the extent of any interruption in our services;
    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.  We may not
    have, and may not have the ability to raise, the funds necessary
    to repurchase our currently outstanding Convertible Senior Notes
    upon a fundamental change, as required by the indenture
    governing the Convertible Senior Notes.
   33




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Future
    sales of our Class A common stock in the public market or
    issuances of securities convertible into our Class A common
    stock and hedging activities could lower the market price for
    our Class A common stock and adversely impact the trading
    price of the notes.
  one-for-one
  Our
    convertible note hedge and warrant transactions may affect the
    value of the Convertible Senior Notes and the trading price of
    sharesof our common stock.
    over-the-counter
  Conversion
    of the Convertible Senior Notes will dilute your ownership
    interest.
   34




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The
    fundamental change purchase feature of the Convertible Senior
    Notes may delay or prevent an otherwise beneficial attempt to
    purchase us.
    Our
    governing corporate documents and Maryland law contain certain
    anti-takeover provisions that could prevent a change of control
    that may be favorable to shareholders.
    
    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
    shareholders;
    prohibition on shareholders 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 shareholders at shareholder meetings.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  7-acre
    Location:

Size:

Lease Expiration:Annapolis, Maryland


52,000 square feet


March 2011 and April 2013Seattle, Washington


57,000 square feet


September 2017Tampa, Florida


45,600 square feet


December 2014Hanover, Maryland


36,000 square feet


August 2017Aliso Viejo, California


29,000 square feet


June 2013Oakland, California


11,000 square feet


August 2012Manassas, Virginia


10,000 square feet


February 2013Suwanee, Georgia


9,500 square feet


April 2013  35




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Item 3.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
 Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High

Low2011First Quarter 2011 (through February 28, 2011)

$
5.12


$
4.012010First Quarter 2010

$
10.55


$
7.07Second Quarter 2010

$
8.14


$
4.14Third Quarter 2010

$
4.90


$
2.96Fourth Quarter 2010

$
6.04


$
3.602009First Quarter 2009

$
10.00


$
6.86Second Quarter 2009

$
10.25


$
6.38Third Quarter 2009

$
9.03


$
6.46Fourth Quarter 2009

$
9.93


$
7.75    36




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Dividend
    Policy
    Issuer Purchases
    of Equity Securities
   37




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Stock Performance
    Graph
          
 38




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Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K.
  Year Ended December 31,2010


2009


2008


2007


2006(in millions, except share and per share data)Statement of Operations Data:RevenueServices

$
262.3


$
151.9


$
101.4


$
88.1


$
88.4Systems


126.5



148.2



118.8



56.1



36.6Total revenue


388.8



300.1



220.2



144.2



124.9Direct cost of services revenue


152.2



84.1



61.6



52.2



52.5Direct cost of systems revenue


98.6



102.1



77.3



37.9



17.9Total direct cost of revenue


250.8



186.2



138.9



90.1



70.4Services gross profit


110.1



67.8



39.8



35.9



35.8Systems gross profit


27.9



46.1



41.5



18.2



18.7Total gross profit


138.0



113.9



81.3



54.1



54.5Research and development expense


30.1



22.3



16.2



13.1



12.6Sales and marketing expense


23.9



16.0



13.7



11.9



11.7General and administrative expense


37.2



35.4



28.2



19.3



17.0Depreciation and amortization of property and equipment


9.7



6.0



5.9



6.2



8.0Amortization of goodwill and other intangible assets


4.7



0.9



0.1



0.1



0.1Total operating costs and expenses


105.6



80.6



64.2



50.6



49.3Patent related gains, net of expenses






15.7



8.1







Income from operations


32.4



49.0



25.2



3.5



5.2Interest expense


(9.2
)


(1.8
)


(0.9
)


(1.8
)


(1.8
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(0.8
)


(0.4
)


(0.2
)


(3.2
)


(1.4
)Other income, net


1.6



0.3



0.2



0.5



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


24.0



47.1



24.3



(1.0
)


2.0(Provision)/benefit for income taxes


(8.1
)


(18.8
)


33.3







Income/(loss) from continuing operations


15.9



28.3



57.6



(1.0
)


2.0Loss from discontinued operations














(0.3
)


(23.7
)Net income/(loss)

$
15.9


$
28.3


$
57.6


$
(1.3
)

$
(21.7
)Income/(loss) from continuing operations per share

$
0.30


$
0.59


$
1.34


$
(0.02
)

$
0.05Loss from discontinued operations per share














(0.01
)


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

$
0.30


$
0.59


$
1.34


$
(0.03
)

$
(0.55
)Income/(loss) from continuing operations per share(1)

$
0.28


$
0.53


$
1.23


$
(0.02
)

$
0.05Loss from discontinued operations per share














(0.01
)


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

$
0.28


$
0.53


$
1.23


$
(0.03
)

$
(0.54
)Basic shares used in computation (in thousands)


53,008



47,623



43,063



41,453



39,430Diluted shares used in computation (in thousands)


56,032



53,946



46,644



41,453



40,166     (1)
    
    Shares issuable via the convertible notes are included if
    diluted, in which case tax-effected interest expense on the debt
    is excluded from the determination of Net income per
    share  diluted, see Note 3 presented in the
    Notes to Consolidated Financial Statements. 39




---



##### Table of Contents



As of December 31,2010

2009

2008

2007

2006(In millions)Balance Sheet Data:Cash and cash equivalents

$
45.2


$
61.4


$
39.0


$
16.0


$
10.4Working capital


89.6



77.7



79.1



35.0



25.4Total assets


462.8



472.2



182.0



82.1



83.6Capital leases and long-term debt (including current portion)


160.5



183.0



11.8



16.1



17.6Total liabilities


247.3



286.4



67.7



38.2



48.6Total stockholders equity


215.5



185.8



114.3



44.0



35.1   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Critical
    Accounting Policies and Estimates
    Revenue Recognition. and/or Rule 5-03 Regulation S-X Rule 5-03 Regulation S-X
   40




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##### Table of Contents



percentage-of-completion percentage-of-completion
  Acquired Intangible Assets.
  Impairment of Goodwill.
  Stock Compensation Expense.
  Marketable Securities. available-for-sale.
 41




---



##### Table of Contents



Software Development Costs.
    product-by-product
    Income Taxes.
   42




---



##### Table of Contents



Business Combinations.
    
    future expected cash flows from application subscriptions,
    software license sales, support agreements, consulting contracts
    and acquired developed technologies and patents;
    expected costs to develop the in-process research and
    development into commercially viable products and estimated cash
    flows from the projects when completed;
    the acquired companys trade name and trademarks as well as
    assumptions about the period of time the acquired trade name and
    trademarks will continue to be used in the combined
    companys product portfolio; and
    discount rates    Legal and Other Contingencies.
  Overview
    Recent
    Acquisitions
   43




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##### Table of Contents



Form 10-K.
                Indicators of Our
    Financial and Operating Performance
    
    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 and components for 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 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. Other important
    sources of our liquidity are our capacity to borrow, including
    our bank credit and term loan facility and through other
    markets; lease financings for the purchase of equipment; and
    access to the public equity market. 44




---



##### Table of Contents




    Balance sheet. We view cash, working capital, and
    accounts receivable balances and days revenue outstanding as
    important indicators of our financial health.  Results of
    Operations
  Impact of
    Acquisitions
    Revenue and Cost
    of Revenue
    Commercial
    Segment
  2010 vs. 2009





2009 vs. 2008($ in millions)

2010


2009


$


%


2008


$


%Services revenue

$
169.0


$
89.7


$
79.3



88
%

$
64.4


$
25.3



39
%Systems revenue


32.7



37.6



(4.9
)


(13
%)


37.4



0.2



1
%Total Commercial Segment revenue


201.7



127.3



74.4



58
%


101.8



25.5



25
%Direct cost of services


85.7



35.3



50.4



143
%


32.4



2.9



9
%Direct cost of systems


14.4



10.6



3.8



36
%


8.9



1.7



19
%Total Commercial Segment cost of revenue


100.1



45.9



54.2



118
%


41.3



4.6



11
%Services gross profit


83.3



54.4



28.9



53
%


32.0



22.4



70
%Systems gross profit


18.3



27.0



(8.7
)


(32
%)


28.5



(1.5
)


(5
%)Total Commercial Segment gross profit(1)

$
101.6


$
81.4


$
20.2



25
%

$
60.5


$
20.9



35
%Segment gross profit as a percent of revenue


50
%


64
%










59
%     (1)
    
    See discussion of segment reporting in Note 21 to the
    audited Consolidated Financial Statements presented elsewhere in
    this Annual Report on
    Form 10-K.  Commercial
    Services Revenue and Cost of Revenue:
  turn-by-turn
 45




---



##### Table of Contents



Commercial
    Systems Revenue and Cost of Revenue:
         46




---



##### Table of Contents



Government
    Segment
  2010 vs. 2009





2009 vs. 2008($ in millions)

2010


2009


$


%


2008


$


%Services revenue

$
93.3


$
62.2


$
31.1



50%


$
36.9


$
25.3



69%Systems revenue


93.8



110.6



(16.8
)


(15%
)


81.4



29.2



36%Total Government Segment revenue


187.1



172.8



14.3



8%



118.3



54.5



46%Direct cost of services


66.5



48.8



17.7



36%



29.2



19.6



67%Direct cost of systems


84.2



91.5



(7.3
)


8%



68.3



23.2



34%Total Government Segment cost of revenue


150.7



140.3



10.4



7%



97.5



42.8



44%Services gross profit


26.8



13.4



13.4



100%



7.7



5.7



74%Systems gross profit


9.6



19.1



(9.5
)


50%



13.1



6.0



46%Total Government Segment gross profit(1)

$
36.4


$
32.5


$
3.9



12%


$
20.8


$
11.7



56%Segment gross profit as a percent of revenue


19
%


19
%










18
%     (1)
    
    See discussion of segment reporting in Note 21 to the
    audited Consolidated Financial Statements presented elsewhere in
    this Annual Report on
    Form 10-K.  sub-contractor
  Government
    Services Revenue and Cost of Revenue:
       47




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##### Table of Contents



Government
    Systems Revenue and Cost of Revenue:
  line-of-sight 5-year
      Operating
    Expenses
  Research and
    Development Expense:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Research and development expense

$
30.1


$
22.3


$
7.8



35
%

$
16.2


$
6.1



38
%Percent of revenue


8
%


7
%










7
%        48




---



##### Table of Contents



Sales and
    Marketing Expense:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Sales and marketing expense

$
23.9


$
16.0


$
7.9



49
%

$
13.7


$
2.3



17
%Percent of revenue


6
%


5
%










6
%     General and
    Administrative Expense:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%General and administrative expense

$
37.2


$
35.4


$
1.8



5
%

$
28.2


$
7.2



26
%Percent of revenue


10
%


12
%










13
%     Depreciation and
    Amortization of Property and Equipment:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Depreciation and amortization of property and equipment

$
9.7


$
6.0


$
3.7



62
%

$
5.9


$
0.1



2
%Average gross cost of property and equipment

$
81.9


$
60.7


$
21.2



35
%

$
50.4


$
10.3



20
%    49




---



##### Table of Contents



Amortization of
    Acquired Intangible Assets:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Amortization of acquired intangible assets

$
4.7


$
0.9


$
3.8



422
%

$
0.1


$
0.8



800
%     Patent-Related
    Gains, Net of Expenses:
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Patent-related gains, net of expenses

$



$
15.7


$
(15.7
)


(100
%)

$
8.1


$
7.6



94
%   e-mail-related
  Interest
    Expense:
  2010 vs. 2009





2009 vs. 2008($ in millions)

2010


2009


$


%


2008


$


%Interest expense incurred on bank and acquisition notes payable

$
4.0


$
0.7


$
3.3



471
%

$
0.7


$




NMInterest expense incurred on 4.5% convertible notes financing


4.6



0.6



4.0



667
%






0.6



100
%Interest expense incurred on capital lease obligations


0.8



0.4



0.4



100
%


0.3



0.1



33
%Amortization of deferred financing fees


0.8



0.4



0.4



100
%


0.2



0.2



100
%Less: capitalized interest


(0.2
)


(0.1
)


(0.1
)


100
%


(0.1
)






NMTotal Interest and Financing Expense

$
10.0


$
2.0


$
8.0



400
%

$
1.1


$
0.9



82
%    50




---



##### Table of Contents



2008-10.
        Other Income,
    Net
  2010 vs. 2009





2009 vs. 2008($ in millions)

2010


2009


$


%


2008


$


%Foreign currency translation/ transaction (loss)/gain

$



$



$




NM


$
0.1


$
(0.1
)


(100
%)Miscellaneous other (expense)/ income


1.6



0.3



1.3



433
%


0.1



0.2



200
%Total other income, net

$
1.6


$
0.3



1.3



433
%

$
0.2



0.1



50
%     Income
    Taxes
   51




---



##### Table of Contents



Net
    Income
  2010 vs. 2009



2009 vs. 2008($ in millions)

2010

2009

$

%

2008

$

%Net income

$
15.9


$
28.3


$
(12.4
)


(44
%)

$
57.6


$
(29.3
)


(51
%)    52




---



##### Table of Contents



Liquidity and
    Capital Resources
    ($ in millions)

2010


2009


2008Net cash and cash equivalents provided by (used in):Net income

$
15.9


$
28.3


$
57.6Add back non-cash charges


34.9



15.8



12.8Deferred tax provision (benefit)


7.3



16.5



(34.0
)Net changes in working capital


15.3



(6.3
)


(10.4
)Net operating activities


73.4



54.3



26.0Investing activities:Purchases of marketable securities, net


(36.7
)






Acquisitions, net of cash acquired






(148.2
)


Purchases of property and equipment


(28.3
)


(10.1
)


(7.0
)Capital purchases funded through leases


9.0



7.6



3.3Purchases of property and equipment, excluding assets funded by
    leasing


(19.3
)


(2.5
)


(3.7
)Capitalized software development costs


(5.7
)


(1.0
)


(0.5
)Net investing activities


(61.7
)


(151.7
)


(4.2
)Financing activities:Proceeds from issuance of convertible notes financing






103.5



Proceeds from bank and other borrowings


10.0



50.0



Payments on long-term debt and capital lease obligations


(41.6
)


(30.0
)


(7.7
)Purchase of call options






(23.8
)


Sale of common stock warrants






12.9



Proceeds from exercise of warrants






1.7



2.5Proceeds from exercise of employee options


3.7



5.5



6.4Net financing activities


(27.9
)


119.8



1.2Net change in cash and cash equivalents

$
(16.2
)

$
22.4


$
23.0Days revenue outstanding in accounts receivable including
    unbilled receivables


74



88



95   Capital resources:
  Sources and uses of cash:
    available-for-sale,
 53




---



##### Table of Contents



sub-facilities: sub-facility sub-facility
 54




---



##### Table of Contents



sub-facility
          Off-Balance Sheet
    Arrangements
   55




---



##### Table of Contents



Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm loan from commercial bank

$
10.6


$
20.0


$
4.7


$



$
35.34.5% Convertible notes obligation


4.7



9.3



108.2







122.2Promissory notes payable


10.6















10.6Other long-term debt


3.4



2.8











6.2Capital lease obligations


6.0



8.7



1.1







15.8Operating leases


5.5



9.2



6.5



4.2



25.4Purchase obligations


7.8



1.4











9.2Total contractual commitments

$
48.6



51.4


$
120.5


$
4.2


$
224.7     Related Party
    Transactions
    Item 7A.
    Qualitative
    and Quantitative Disclosures about Market Risk  Interest Rate
    Risk
     56




---



##### Table of Contents



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). Form 10-K.
 57




---



##### Table of Contents



Changes in
    Internal Control over Financial Reporting
    Item 9B.
    Other Information     58




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  The Board of Directors and
    Shareholders of
 TeleCommunication Systems, Inc.
    and subsidiaries
              
  Baltimore, Maryland
 March 7, 2011
 59




---



##### Table of Contents



Part III  Item 10.
    Directors
    , Executive Officers, and Corporate Governance    http://www1.telecomsys.com/investor_info/corp_governance.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   60




---



##### Table of Contents



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
   61




---



##### Table of Contents



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


F-2Consolidated Balance Sheets as of
    December 31, 2010 and 2009


F-3Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2010


F-4Consolidated Statements of Stockholders
    Equity for each of the three years in the period ended
    December 31, 2010


F-5Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2010


F-6Notes to Consolidated Financial Statements


F-7  F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  The Board of Directors and
    Stockholders of
 TeleCommunication Systems, Inc.
    and subsidiaries
         
  Baltimore, Maryland
 March 7, 2011
 F-2




---



##### Table of Contents



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


December 31,2010


2009AssetsCurrent assets:Cash and cash equivalents

$
45,220


$
61,426Marketable securities


36,307



Accounts receivable, net of allowance of $447 in 2010 and $389
    in 2009


52,073



65,476Unbilled receivables


32,358



23,783Inventory


5,440



9,331Deferred income tax assets


8,179



9,507Receivable from settlement of patent matter






15,700Income tax refund receivable






5,438Other current assets


8,961



8,945Total current assets


188,538



199,606Property and equipment, net of accumulated depreciation andamortization of $56,696 in 2010 and $46,960 in 2009


39,337



20,734Software development costs, net of accumulated amortization of$19,241 in 2010 and $9,941 in 2009


39,427



45,384Acquired intangible assets, net of accumulated amortization of$6,190 in 2010 and $1,526 in 2009


28,264



33,975Goodwill


159,143



164,350Other assets


8,100



8,176Total assets

$
462,809


$
472,225Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued expenses

$
42,833


$
52,999Accrued payroll and related liabilities


13,570



19,265Deferred revenue


18,063



9,938Current portion of capital lease obligations and notes payable


24,519



39,731Total current liabilities


98,985



121,933Capital lease obligations and notes payable, less current portion


135,981



143,316Non-current deferred income tax liabilities


8,382



15,435Other long-term liabilities


3,916



5,755Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and outstandingshares of 47,749,762 in 2010 and 46,157,025 in 2009


478



462Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    sharesof 5,741,334 in 2010 and 6,276,334 in 2009


57



63Additional paid-in capital


297,585



283,733Accumulated other comprehensive income


30



12Accumulated deficit


(82,605
)


(98,484
)Total stockholders equity


215,545



185,786Total liabilities and stockholders equity

$
462,809


$
472,225   See accompanying Notes to
    Consolidated Financial Statements.
 F-3




---



##### Table of Contents



TeleCommunication
    Systems, Inc.Consolidated Statements of
    Income(amounts in thousands, except share and per
    share data)
    (Unaudited)
  Year Ended December 31,2010


2009


2008RevenueServices

$
262,279


$
151,944


$
101,359Systems


126,524



148,143



118,783Total revenue


388,803



300,087



220,142Direct costs of revenueDirect cost of services revenue


152,227



84,122



61,594Direct cost of systems revenue


98,613



102,111



77,291Total direct cost of revenue


250,840



186,233



138,885Services gross profit


110,052



67,822



39,765Systems gross profit


27,911



46,032



41,492Total gross profit


137,963



113,854



81,257Operating costs and expensesResearch and development expense


30,074



22,351



16,161Sales and marketing expense


23,880



15,967



13,715General and administrative expense


37,175



35,387



28,238Depreciation and amortization of property and equipment


9,758



6,035



5,865Amortization of acquired intangible assets


4,664



870



147Total operating costs and expenses


105,551



80,610



64,126Patent-related gains, net of expenses






15,700



8,060Income from operations


32,412



48,944



25,191Interest expense


(9,225
)


(1,794
)


(922
)Amortization of deferred financing fees


(750
)


(401
)


(180
)Other income, net


1,589



315



222Income before income taxes


24,026



47,064



24,311(Provision)/benefit for income taxes


(8,147
)


(18,795
)


33,257Net income

$
15,879


$
28,269


$
57,568Net income per share-basic

$
0.30


$
0.59


$
1.34Net income per share-diluted

$
0.28


$
0.53


$
1.23Weighted average shares outstanding-basic


53,008



47,623



43,063Weighted average shares outstanding- diluted


56,032



53,946



46,644   See accompanying Notes to
    Consolidated Financial Statements.
 F-4




---



##### Table of Contents



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


Class B


Additional


OtherCommon


Common


Paid-In


Comprehensive


AccumulatedStock


Stock


Capital


Income (Loss)


Deficit


TotalBalance at January 1, 2008

$
349


$
74


$
227,987


$
(125
)

$
(184,321
)

$
43,964Options 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
)

$
114,272Options exercised for the purchase of 1,361,674 shares of
    Class A Common Stock


14







4,952











4,966Issuance of 88,096 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1







578











579Exercise of warrants to purchase 700,002 shares of
    Class A Common Stock


7







1,673











1,680Issuance of 1,393,715 shares of Class A Common Stock
    in connection with the acquisition of the assets of
    LocationLogic LLC


14







10,313











10,327Issuance of 1,008,603 shares of Class A Common Stock
    in connection with the acquisition of Solvern Innovations,
    Inc.


10







9,098











9,108Issuance of 244,200 shares of Class A Common Stock in
    connection with the acquisition of the assets of Sidereal
    Solutions, Inc.


2







1,963











1,965Issuance of 2,236,258 shares of Class A Common Stock
    in connection with the acquisition of Networks In Motion, Inc


22







19,545











19,567Purchase of call spread options










(23,775
)










(23,775
)Sale of common stock warrants










12,959











12,959Conversion of 600,000 shares of Class B Common Stock
    to Class A Common Stock


6



(6
)














Issuance of Restricted Class A Common Stock


1







9











10Stock compensation expense for issuance of Class A Common
    Stock options for continuing operations










5,859











5,859Net income for 2009


















28,269



28,269Balance at December 31, 2009

$
462


$
63


$
283,733


$
12


$
(98,484
)

$
185,786Options exercised for the purchase of 722,368 shares of
    Class A Common Stock


7







2,379











2,386Issuance of 308,790 shares of Class A Common Stock
    under Employee Stock Purchase Plan


3







1,274











1,277Issuance of 26,579 Restricted Class A Common Stock










27











27Conversion of 535,000 shares of Class B Common Stock
    to Class A Common Stock


6



(6
)














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










10,172











10,172Net unrealized gain on securities and other














18







18Net income for 2010


















15,879



15,879Balance at December 31, 2010

$
478


$
57


$
297,585


$
30


$
(82,605
)

$
215,545   See accompanying Notes to
    Consolidated Financial Statements.
 F-5




---



##### Table of Contents



TeleCommunication
    Systems, Inc.Consolidated Statements of Cash
    Flows(amounts in thousands)
    (unaudited)
  Year Ended December 31Operating activities:

2010


2009


2008Net Income

$
15,879


$
28,269


$
57,568Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization of property and equipment


9,758



6,035



5,865Amortization of acquired intangible assets


4,664



870



147Amortization of software development costs


9,303



3,069



2,090Deferred tax provision (benefit)


7,291



16,496



(34,045
)Stock-based compensation expense


10,172



5,859



3,758Amortization of deferred financing fees


750



401



181Impairment of marketable securities, capitalized software and
    other assets


225



811



802Amortization of investment premiums and accretion of discounts,
    net


361







Other non-cash adjustments


(311
)


(23
)


(40
)Changes in operating assets and liabilities:Accounts receivable, net


13,472



9,623



(41,403
)Unbilled receivables


(8,790
)


2,681



(6,568
)Inventory


3,891



(6,616
)


2,658Other current assets


19,093



(18,222
)


958Other assets


(149
)


(6,986
)


187Accounts payable and accrued expenses


(12,665
)


7,914



21,886Accrued payroll and related liabilities


(6,351
)


(2,065
)


12,328Other liabilities


(1,345
)


1,003



Deferred revenue


8,125



5,144



(336
)Subtotal  Changes in operating assets and liabilities


15,281



(7,524
)


(10,290
)Net cash provided by operating activities


73,373



54,263



26,036Investing activities:Purchases of marketable securities


(38,850
)






Proceeds from sale and maturity of marketable securities


2,199







Acquisitions, net of cash acquired






(148,239
)


Purchases of property and equipment


(19,329
)


(2,494
)


(3,703
)Capitalized software development costs


(5,683
)


(981
)


(461
)Net cash used in investing activities


(61,663
)


(151,714
)


(4,164
)Financing activities:Proceeds from issuance of convertible debt offering






103,500



Proceeds from issuance of long-term debt


10,000



50,000



Payments on long-term debt and capital lease obligations


(41,579
)


(30,002
)


(7,695
)Purchase of call options






(23,775
)


Sale of common stock warrants






12,959



Proceeds from exercise of warrants






1,673



2,521Proceeds from exercise of employee stock options and sale of
    stock


3,663



5,545



6,324Net cash (used in)/provided by financing activities


(27,916
)


119,900



1,150Net (decrease)/increase in cash


(16,206
)


22,449



23,022Cash and cash equivalents at the beginning of the period


61,426



38,977



15,955Cash and cash equivalents at the end of the period

$
45,220


$
61,426


$
38,977   See accompanying Notes to
    Consolidated Financial Statements.
 F-6




---



##### Table of Contents



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. turn-by-turn
  Government Segment. ®
  Use of Estimates.
  Principles of Consolidation.
  Cash and Cash Equivalents.
  Marketable Securities. available-for-sale.
 F-7




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Allowances for Doubtful Accounts
    Receivable.
  Inventory.
  Property and Equipment.
  Goodwill.
  and/or
  Software Development Costs.
 F-8




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  product-by-product
      Acquired Intangible Assets.
  Impairment of Long-Lived Assets.
    Deferred Compensation Plan.
 F-9




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Other Comprehensive Income/(Loss). end-of-period available-for-sale.
  Revenue Recognition.
  Services Revenue.
    Systems Revenue. 90-day
  percentage-of-completion
 F-10




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      Deferral of Costs Incurred.
  Advertising Costs.
  Capitalized Interest.
  Stock-Based Compensation.
  Research and Development Expense.
  Income Taxes.
    Fair Value of Financial Instruments. available-for-sale.
  Recent Accounting Pronouncements. 2009-14
 F-11




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  2009-14
  2009-13 ASU 2009-13
  2010-6
  2010-28,
  2.
    Acquisitions     F-12




---



##### Table of Contents



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

$
137Accounts receivable


3,956Prepaid expenses and other current assets


205Property and equipment


1,024Capitalized software development costs


8,720Other intangibles  customer list and other


12,346Other assets


1,621Accounts payable


(1,335
)Other accrued liabilities


(1,859
)Deferred tax liability, net


(3,078
)Total net assets


21,737Goodwill


48,895Total purchase price

$
70,632        F-13




---



##### Table of Contents



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

$
1,691Accounts receivable


12,864Prepaid expenses and other current assets


7,621Property and equipment


3,293Capitalized software development costs


34,405Other intangibles  customer relationships


20,138Other assets


147Accounts payable


(3,647
)Other accrued liabilities


(5,973
)Deferred revenue


(445
)Deferred tax liability, net


(7,465
)Total net assets


62,629Goodwill


108,434Total purchase price

$
171,063      F-14




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    As ofDecember 15, 2009


Useful livesDefinite-lived intangible amortization (in thousands)Capitalized software development costs

$
34,405



5.0 yearsCustomer relationships


20,138



7.5 yearsTotal

$
54,543             Pro Forma Year


Pro Forma YearEnded December 31, 2009


Ended December 31, 2008Pro forma information (in thousands, except share and per share
    data)Revenue

$
369,413


$
261,680Net income

$
30,855


$
57,312Weighted average common share outstanding


49,762



45,299Diluted weighted average share outstanding


64,853



58,882Basic earnings per share

$
0.62


$
1.27Diluted earnings per share

$
0.52


$
1.02  F-15




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  3.
    Income Per
    Share          2010


2009


2008Numerator:Net income, basic

$
15,879


$
28,269


$
57,568Adjustment for assumed dilution:Interest on convertible notes, net of taxes






380



Net income, diluted

$
15,879


$
28,649


$
57,568Denominator:Total basic weighted-average common shares outstanding


53,008



47,623



43,063Net effect of dilutive stock options based on treasury stock
    method


3,024



4,797



3,195Net effect of dilutive warrants based on treasury stock method






292



386Net effect of dilutive 4.5% convertible notes






1,234



Adjusted weighted average diluted shares


56,032



53,946



46,644Net income per share  basic

$
0.30


$
0.59


$
1.34Net income per share-diluted

$
0.28


$
0.53


$
1.23   4.
    Supplemental
    Disclosure of Cash Flow Information       F-16




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  5.
    Marketable
    Securities  available-for-sale
  Gross


GrossAmortized Cost


Unrealized


Unrealized


EstimatedBasis


Gains


Losses


Fair ValueCorporate bonds

$
25,578


$
46


$
(25
)

$
25,599Mortgage-backed and asset-backed securities


4,962



5



(5
)


4,962Agency bonds


5,000



1



(5
)


4,996Commercial paper


750











750Total marketable securities

$
36,290


$
52


$
(35
)

$
36,307   available-for-sale
  OriginalCost


Fair ValueDue within 1 year or less

$
12,086


$
12,000Due within 1-2 years


17,562



17,368Due within 2-3 years


6,997



6,939$
36,645


$
36,307   6.
    Unbilled
    Receivables    7.
    Inventory    2010


2009Component parts

$
2,564


$
5,658Finished goods


2,876



3,673Total inventory

$
5,440


$
9,331  F-17




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  8.
    Property and
    Equipment    2010


2009Computer equipment

$
53,365


$
39,995Computer software


34,539



20,721Furniture and fixtures


3,217



2,695Leasehold improvements


3,805



3,176Land


1,000



1,000Vehicles


107



107Total property and equipment at cost at year end


96,033



67,694Less: accumulated depreciation and amortization


(56,696
)


(46,960
)Net property and equipment

$
39,337


$
20,734   9.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    December 31, 2010


December 31, 2009Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer lists and other

$
12,952


$
2,928


$
10,024


$
13,735


$
1,151


$
12,584Customer relationships


20,138



2,818



17,320



20,402



113



20,289Trademarks and patents


1,364



444



920



1,364



262



1,102Software development costs, including acquired technology


58,668



19,241



39,427



55,325



9,941



45,384Total acquired intangible assets and software dev. costs

$
93,122


$
25,431


$
67,691


$
90,826


$
11,467


$
79,359   Estimated future amortization expense:Year ending December 31, 2011

$
14,177Year ending December 31, 2012

$
13,956Year ending December 31, 2013

$
13,939Year ending December 31, 2014

$
11,945Year ending December 31, 2015

$
4,276Thereafter

$
9,398$
67,691      F-18




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      10.
    Accounts Payable
    and Accrued Expenses    2010


2009Accounts payable

$
17,912


$
26,620Accrued expenses


24,921



26,379Total accounts payable and accrued expenses

$
42,833


$
52,999     11.
    Line of
    Credit    sub-facilities: sub-facility sub-facility sub-facility
 F-19




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  12.
    Long-Term
    Debt    2010


20094.5% Convertible notes dated November 16, 2009

$
103,500


$
103,500Promissory note payable to NIM sellers dated December 16,
    2009


10,000



40,000Term loan from commercial bank dated December 31, 2009


23,333



30,000Term loan from commercial bank dated September 30, 2010


9,333



Total long-term debt


146,166



173,500Less: current portion


(19,333
)


(36,667
)Non-current portion of long-term debt

$
126,833


$
136,833     2011

$
25,8682012


14,8482013


14,4282014


112,886Total long-term debt

$
168,030         ASC 815-40 ,
    Contracts in Entitys own Equity ASC 815-40-25, Additional
 F-20




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  paid-in capital,
           F-21




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  13.
    Capital
    Leases    2010


2009Computer equipment

$
17,356


$
10,356Computer software


3,277



2,636Furniture and fixtures


98



95Leasehold improvements


33



33Total equipment under capital lease at cost


20,764



13,120Less: accumulated amortization


(6,928
)


(3,934
)Net property and equipment under capital leases

$
13,836


$
9,186       2011

$
5,9862012


5,1602013


3,5682014


1,075Total minimum lease payments


15,789Less: amounts representing interest


(1,455
)Present value of net minimum lease payments (including current
    portion of $5,186)

$
14,334   14.
    Common
    Stock    15.
    Fair Value of
    Financial Instruments  820-10
       F-22




---



##### Table of Contents



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


Fair Value Measurements atas of


12/31/201012/31/2010


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3Assets:Cash and cash equivalents

$
45,220


$
45,220


$



$
Corporate bonds


25,599



25,599Mortgage-backed and asset-backed securities


4,962



4,962Agency bonds


4,996



4,996Commercial paper


750



750







Marketable securities


36,307



36,307







Deferred compensation plan investments


1,280



1,280







Assets at Fair Value

$
82,807


$
82,807


$



$
Liabilities:Deferred compensation

$
1,095


$
1,095


$



$
Contractual acquisition earnouts


6,174











6,174Liabilities at Fair Value

$
7,269


$
1,095


$



$
6,174   Fair Value


Fair Value Measurements atas of


12/31/200912/31/2009


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3Assets:Cash and cash equivalents

$
61,426


$
61,426


$



$
Deferred compensation plan investments


2,434



2,434







Assets at Fair Value

$
63,860


$
63,860


$



$
LiabilitiesDeferred compensation

$
2,554


$
2,554


$



$
Contractual acquisition earnouts


7,753











7,753Liabilities at Fair Value

$
10,307


$
2,554


$



$
7,753   available-for-sale.
 F-23




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    Fair Value MeasurementsUsing SignificantUnobservable Inputs (level 3)Balance at January 1, 2010

$
7,753Fair value adjustment recognized in earnings


(1,579
)Purchases, issuances, and settlements


Transfers in and/or out of Level 3


Balance at December 31, 2010

$
6,174       16.
    Income
    Taxes      2010


2009


2008Current:Federal

$
317


$
1,242


$
636State


539



1,057



152Total current


856



2,299



788Deferred:Federal


6,795



15,004



(29,938
)State


496



1,492



(4,107
)Total deferred


7,291



16,496



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

$
8,147


$
18,795


$
(33,257
)    F-24




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2010


2009Deferred tax assets:Net operating loss carryforwards

$
4,797


$
10,488Research and development tax credit carryforwards, net


6,721



1,880Stock-based compensation expense


3,554



2,360Depreciation and amortization






219Reserves and accrued expenses


2,653



2,296Alternative minimum tax credit


1,903



1,687Deferred revenue


2,496



1,343Deferred compensation


1,704



Other


412



91Total deferred tax assets


24,240



20,364Deferred tax liabilities:Identifiable intangibles accounting


(15,776
)


(22,069
)Capitalized software development costs


(5,253
)


(2,845
)Cash to accrual adjustment






(676
)Depreciation and amortization


(2,613
)


Other


(103
)


(4
)Total deferred tax liabilities


(23,745
)


(25,594
)Net deferred tax asset


495



(5,230
)Valuation allowance for net deferred tax asset


(698
)


(698
)Net deferred tax liability in the consolidated balance sheets

$
(203
)

$
(5,928
)        F-25




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2010


2009


2008Income tax at statutory rate

$
8,409


$
16,472


$
8,266Change in valuation allowances










(45,053
)Write-down of tax attributes










874Non deductible items


403



673



1,612Non deductible stock compensation expense


2,025



681



473Research and development tax credit


(2,161
)


(395
)


(230
)Change in tax rates on deferred assets/liabilities






96



(53
)State income taxes


748



1,261



1,066Original issue discount amortization


(1,377
)


(208
)


Other


100



215



(212
)Income tax provision (benefit) as reported

$
8,147


$
18,795


$
(33,257
)   ASC 740-20
    TotalBalance at December 31, 2007Gross increases related to prior year tax positions

$
2,736Gross 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, 2009

$
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


534Settlements/lapse in statute of limitation


Balance at December 31, 2009

$
3,270Gross increases related to prior year tax positions


Gross decreases related to prior year tax positions


(460
)Gross increases related to current year tax positions


170Settlements/lapse in statute of limitation


Balance at December 31, 2010

$
2,980    F-26




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##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      17.
    Employee Benefit
    Plan    18.
    Stock-based
    Compensation Plans    Stock Incentive Plan.
   F-27




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##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    2010


2009


2008Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


14,612


$
5.32



11,676


$
3.77



11,144


$
3.69Granted


3,057



6.53



4,768



8.71



3,056



3.57Exercised


(722
)


3.34



(1,362
)


3.65



(1,927
)


3.04Expired


(249
)


6.39



(26
)


3.28



(70
)


4.64Forfeited


(1,252
)


7.89



(444
)


6.01



(527
)


3.41Outstanding, end of year


15,446


$
5.42



14,612


$
5.32



11,676


$
3.77Exercisable, at end of year


8,730


$
4.40



6,986


$
3.94



6,308


$
4.12Vested and expected to vest, at end of year


14,412


$
5.31



13,181


$
5.07



9,992


$
3.84Estimated weighted-average grant- date fair value of options
    granted during the year

$
3.58






$
4.86






$
2.07Weighted-average remaining contractual life of options
    outstanding at end of year


6.4 years







6.9 years







6.5 yearsTotal fair value of options vested during the year

$
12,484






$
4,465






$
3,964Intrinsic value of options exercised during the year

$
2,659






$
6,838






$
7,084     Weighted-AverageWeighted-Average








RemainingWeighted-Average


Remaining





Weighted-Average


Contractual LifeExercise Prices


Contractual Life


Options


Exercise Prices


of OptionsOptions


of Options


of Options


Vested and


of Options Vested


Vested andExercise Prices

Outstanding


Outstanding


Outstanding (years)


Exercisable


and Exercisable


Exercisable (years)$1.07   $1.84


70


$
1.68



2.01



70


$
1.68



2.01$1.92   $2.99


2,309


$
2.47



4.80



2,177


$
2.47



4.77$3.05   $4.68


5,926


$
3.44



5.94



3,735


$
3.35



4.56$4.83  $7.45


2,171


$
6.74



4.22



1,814


$
6.73



3.43$7.95  $9.86


4,970


$
8.64



8.75



934


$
8.76



8.46Total end of year


15,446











8,730    F-28




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##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    For The Years Ended December 31,2010

2009

2008Expected life (in years)

5.5

5.5

5.5Risk-free interest rate(%)

1.4%-2.8%

1.65%-2.61%

2.65%-3.33%Volatility(%)

59%-60%

60%-64%

60%-67%Dividend yield(%)

0%

0%

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


9,087Outstanding stock options


15,446Convertible notes (see Note 12)


10,002Note warrant hedge (see Note 12)


10,002For B to A conversion


5,741Employee stock purchase plan


896Total shares restricted for future use


51,174     2010


2009


2008Direct costs of revenue

$
6,397


$
3,773


$
2,494Research and development expense


2,655



1,366



822Sales and marketing expense


618



472



272General and administrative expense


502



248



170Total non-cash stock compensation expense

$
10,172


$
5,859


$
3,758  F-29




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  19.
    Operating
    Leases    2011

$
5,4762012


4,9562013


4,2342014


3,6292015


2,878Beyond


4,250$
25,423       20.
    Concentrations of
    Credit Risk and Major Customers    % of Total Revenues For The Year EndedDecember 31,Customer

Segment


2010


2009


2008U.S. Government agencies and departments


Government



36
%


44
%


42
%Verizon Wireless (various divisions, directly and through
    channel)


Commercial



27
%


22
%


22
%   F-30




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##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  As of December 31, 2010


As of December 31, 2009Accounts


Unbilled


Accounts


UnbilledCustomer

Receivable


Receivables


Receivable


ReceivablesU.S. Government agencies and departments


23
%


61
%


42
%


43
%Verizon Wireless (various divisions, directly and through
    channel)


16
%


17
%


13
%


14
%     21.
    Business and
    Geographic Segment Information    turn-by-turn
  ®
     F-31




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##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    Year Ended December 31,2010


2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
168,977


$
93,302


$
262,279


$
89,715


$
62,229


$
151,944


$
64,441


$
36,918


$
101,359Systems


32,688



93,836



126,524



37,554



110,589



148,143



37,429



81,354



118,783Total revenue


201,665



187,138



388,803



127,269



172,818



300,087



101,870



118,272



220,142Direct costs of revenueDirect cost of services


85,711



66,516



152,227



35,318



48,804



84,122



32,402



29,192



61,594Direct cost of systems


14,406



84,207



98,613



10,608



91,503



102,111



8,993



68,298



77,291Total Direct Costs


100,117



150,723



250,840



45,926



140,307



186,233



41,395



97,490



138,885Gross profitServices gross profit


83,266



26,786



110,052



54,397



13,425



67,822



32,039



7,726



39,765Systems gross profit


18,282



9,629



27,911



26,946



19,086



46,032



28,436



13,056



41,492Total Gross Profit

$
101,548


$
36,415


$
137,963


$
81,343


$
32,511


$
113,854


$
60,475


$
20,782


$
81,257   2010


2009


2008Total segment gross profit

$
137,963


$
113,854


$
81,257Research and development expense


(30,074
)


(22,351
)


(16,161
)Sales and marketing expense


(23,880
)


(15,967
)


(13,715
)General and administrative expense


(37,175
)


(35,387
)


(28,238
)Depreciation and amortization of property and equipment


(9,758
)


(6,035
)


(5,865
)Amortization of acquired intangible assets


(4,664
)


(870
)


(147
)Interest expense


(9,225
)


(1,794
)


(922
)Amortization of debt issuance expenses


(750
)


(401
)


(180
)Patent-related gains, net of expenses






15,700



8,060(Provision)/benefit for income taxes


(8,147
)


(18,795
)


33,257Other income, net


1,589



315



222Net income

$
15,879


$
28,269


$
57,568  F-32




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  22.
    Quarterly
    Financial Information (Unaudited)    2010Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
90,917


$
92,662


$
102,949


$
102,275Gross profit

$
33,549


$
33,188


$
36,739


$
34,487Net income

$
5,010


$
3,095


$
4,322


$
3,452Earnings per share  basic

$
0.10


$
0.06


$
0.08


$
0.06Earnings per share  diluted

$
0.08
(1)


0.06



0.08
(1)


0.06     (1)
    
    Shares issuable via the convertible notes are included if
    dilutive, in which case tax-effected interest expense on the
    debt is excluded from the determination of earnings per
    share  diluted, for March 31 and September 30 the
    shares issuable via the convertible notes were dilutive and the
    tax-effected interest expense of $0.7 and $0.8, respectively,
    was included in determining earnings per share.  2009Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
70,501


$
67,136


$
71,609


$
90,841Gross profit

$
25,244


$
30,050


$
28,211


$
30,349Income/(loss) from continuing operations

$
4,867


$
6,606


$
5,411


$
11,385Earnings per share  basic

$
0.11


$
0.14


$
0.11


$
0.23Earnings per share  diluted

$
0.10


$
0.13


$
0.10


$
0.20
(1)     (1)
    
    Shares issuable via the convertible notes are included if
    dilutive, in which case tax-effected interest expense on the
    debt is excluded from the determination of earnings per
    share  diluted, for December 31 the shares issuable
    via the convertible notes were dilutive and the tax-effected
    interest expense of $0.4 was included in determining earnings
    per share. F-33




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  23.
    Commitments and
    Contingencies    Within 12


1-3


3-5


More thanMonths


Years


Years


5 Years


TotalPurchase obligations

$
7,824


$
1,442










$
9,266Other long-term liabilities


3,353



2,821











6,174Total contractual commitments

$
11,177


$
4,263


$



$



$
15,440     No. 01-CV-9500. Rule 10b-5 Rule 10b-5
   F-34




---



##### Table of Contents



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  24.
    Related Party
    Transactions    25.
    Subsequent
    Event   F-35




---



##### Table of Contents



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 7, 2011/s/  Thomas
    M. Brandt, Jr.Thomas
    M. Brandt, Jr.

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

March 7, 2011/s/  James
    M. BethmannJames
    M. Bethmann

Director

March 7, 2011/s/  Clyde
    A. HeintzelmanClyde
    A. Heintzelman

Director

March 7, 2011/s/  Jan
    C. HulyJan
    C. Huly

Director

March 7, 2011/s/  A.
    Reza JafariA.
    Reza Jafari

Director

March 7, 2011/s/  Jon
    B. KutlerJon
    B. Kutler

Director

March 7, 2011/s/  Richard
    A. KozakRichard
    A. Kozak

Director

March 7, 2011/s/  Weldon
    H. LathamWeldon
    H. Latham

Director

March 7, 2011/s/  Richard
    A. YoungRichard
    A. Young

Executive Vice President, Chief Operating Officer and Director

March 7, 2011  62




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##### Table of Contents



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
.4

Indenture dated as of November 16, 2009, by and between the
    Company and The Bank of New York Mellon Trust Company, as
    Trustee (Incorporated by reference to the Companys Current
    Report on
    Form 8-K
    filed on November 16, 2009)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

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))10
.6

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
.7

Form of Incentive Stock Option Agreement. (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006)10
.8

Form of Non-Qualified Stock Option Agreement. (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006)10
.9

Form of Restricted Stock Grant Agreement. (Incorporated by
    reference to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006)10
.10

Fifth Amended and Restated 1997 Stock Incentive Plan.
    (Incorporated by reference to Appendix A to the
    Companys definitive proxy statement for its 2007 Annual
    Meeting of stockholders as filed with the SEC on April 30,
    2007
    (No. 000-30821))10
.11

Employment Agreement dated February 1, 2010, by and between
    the Company and Richard A. Young (Incorporated by reference to
    the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2009)10
.12

Employment Agreement dated February 1, 2010, by and between
    the Company and Thomas M. Brandt, Jr. (Incorporated by reference
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2009)10
.13

Employment Agreement dated February 1, 2010, by and between
    the Company and Drew A. Morin (Incorporated by reference to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2009)10
.14

Employment Agreement dated February 1, 2010, by and between
    the Company and Timothy J. Lorello (Incorporated by reference to
    the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2009)10
.15

Loan and Security Agreement by and between the Company and its
    principal subsidiaries, Longhorn Acquisition, LLC, Solvern
    Innovations, Inc., Quasar Acquisition, LLC, and Networks in
    Motion, Inc., and Silicon Valley Bank (Incorporated by reference
    to the Companys Current Report on
    Form 8-K
    filed January 7, 2010)10
.16

Agreement and Plan of Merger dated November 25, 2009 by and
    among the Company, Networks in Motion, Inc., Olympus Merger Sub
    Inc., and G. Bradford Jones, as Stockholders
    Representative (Incorporated by reference to the Companys
    Current Report on
    Form 8-K
    filed December 15, 2009) 63




---



##### Table of Contents



ExhibitNumbers

Description10
.17

Form of Twelve Month Note (Incorporated by reference to the
    Companys Current Report on
    Form 8-K
    filed on December 15, 2009)10
.18

Form of Indemnification Note (Incorporated by reference to the
    Companys Current Report on
    Form 8-K
    filed on December 15, 2009)10
.19

Purchase Agreement dated as of November 10, 2009, by and
    among the Company and Oppenheimer & Co. Inc. and
    Raymond James & Associates, Inc. (Incorporated by
    reference to the Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.20

Convertible Bond Hedging Transaction Confirmation dated
    November 10, 2010, by and between the Company and Deutsche
    Bank AG, London Branch (Incorporated by reference to the
    Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.21

Convertible Bond Hedging Transaction Confirmation dated
    November 10, 2009, by and between the Company and
    Société Générale (Incorporated by reference
    to the Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.22

Convertible Bond Hedging Transaction Confirmation dated
    November 10, 2009, by and between the Company and Royal
    Bank of Canada (Incorporated by reference to the Companys
    Current Report on
    Form 8-K
    filed on November 16, 2009)10
.23

Confirmation of Warrants dated November 10, 2009, by and
    between the Company and Deutsche Bank AG, London Branch
    (Incorporated by reference to the Companys Current Report
    on
    Form 8-K
    filed on November 16, 2009)10
.24

Confirmation of Warrants dated November 10, 2009, by and
    between the Company and Société Générale
    (Incorporated by reference to the Companys Current Report
    on
    Form 8-K
    filed on November 16, 2009)10
.25

Confirmation of Warrants dated November 10, 2009, by and
    between the Company and Royal Bank of Canada (Incorporated by
    reference to the Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.26

Convertible Bond Hedging Transaction Confirmation dated
    November 11, 2009, by and between the Company and Deutsche
    Bank AG, London Branch (Incorporated by reference to the
    Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.27

Convertible Bond Hedging Transaction Confirmation dated
    November 11, 2009, by and between the Company and
    Société Générale (Incorporated by reference
    to the Companys Current Report on
    Form 8-K
    filed on November 16, 2009)10
.28

Confirmation of Warrants dated November 11, 2009, by and
    between the Company and Deutsche Bank AG, London Branch
    (Incorporated by reference to the Companys Current Report
    on
    Form 8-K
    filed on November 16, 2009)10
.29

Confirmation of Warrants dated November 11, 2009, by and
    between the Company and Société Générale
    (Incorporated by reference to the Companys Current Report
    on
    Form 8-K
    filed on November 16, 2009)10
.30

Joinder, Assumption and First Amendment to Loan and Security
    Agreement dated March 4, 2011.12
.1

Supplemental Financial Statement Schedule II21
.1

Subsidiaries of the Registrant23
.1

Consent of Ernst & Young LLP31
.1

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

Certification of CFO 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 2002     
    
    Management contract, compensatory plans or arrangement required
    to be filed as an exhibit pursuant to Item 15(a)(3) of
    Form 10-K. 64