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,
    2009ORo

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
  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 10, 2010

Part III




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TABLE OF
    CONTENTS
   
 Page NumberPart IItem 1

Business


3Item 1A

Risk Factors


14Item 1B

Unresolved Staff Comments


36Item 2

Properties


36Item 3

Legal Proceedings


36Part IIItem 5

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


38Item 6

Selected Financial Data


41Item 7

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


42Item 7A

Qualitative and Quantitative Disclosure About
    Market Risk


60Item 8

Financial Statements and Supplementary Data


60Item 9

Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


60Item 9A

Controls and Procedures


60Part IIIItem 10

Directors, Executive Officers and Corporate
    Governance


63Item 11

Executive Compensation


63Item 12

Security Ownership of Certain Beneficial Owners
    and Management


63Item 13

Certain Relationships and Related Transactions
    and Director Independence


63Item 14

Principal Accountant Fees and Services


63Part IVItem 15

Exhibits, Financial Statement Schedules


64Index to Consolidated Financial Statements


F-1Signatures


65Exhibit Index


66   i




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Cautionary Note
    Concerning Factors That May Affect Future Results
  Form 10-K
                machine-to-machine
                     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:
  Government Segment: ®
   3




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Commercial
    Segment 2009 acquisitions:
  points-of-interest
      Government
    Segment 2009 acquisitions:
        Form 10-K.
  ® ® ® ® ® Form 10-K
  I. Commercial
    Segment:
   4




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A.
    Commercial
    Product and Service Offerings  1. Commercial services. ® ®
  a. Customer subscriptions through wireless carriers
    to application-based services such as Navigation, People-Finder,
    Asset-Tracking, and
    Points-of-Interest. points-of-interest
  b. Hosted Location-Based Service (LBS)
    infrastructure, including E9-1-1.
  c. Software and system maintenance.
  d. Professional services and solutions involving
    geographic information technology. points-of-interest
  2. Commercial Licensed Software-based Systems:
  a. Xypoint® Location Platform (XLP) and Applications for Mobile
    Location-based Services:
 5




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b. Short Message Service Center and Wireless
    Intelligent Gateway.
  B.
    Commercial Market
    Opportunities and Strategy    Improving Wireless Device
    Functionality.
  Growth in Wireless and Voice over Internet Protocol (VoIP)
    Subscribers.
  Cellular Network Improvements to Next Generation
    Capabilities.
 6




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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
    
    Focus our Software and Integration Resources on Evolving
    Carrier Network Capabilities. Mobile operators and the
    federal government increasingly seek integrated solutions that
    can harness both messaging capabilities of networks and location
    information of end-users. We are well positioned to address the
    evolving integration needs of our commercial and government
    clients through our demonstrated expertise in both messaging and
    location determination. Mobile operators have made large capital
    expenditure investments in infrastructure for wireless data and
    location determination technologies. Higher data consumption by
    end users has put stress on carrier networks, leading operators
    to upgrade and migrate them to fourth generation specifications.
    While initially envisioned as separate technologies, messaging
    and location determination technologies can be integrated to
    provide value-added services and applications for the
    operators end-users.
    Expand Our Sales and Marketing Relationships. We are
    developing relationships with communication infrastructure
    providers in order to expand our sales channels for our carrier
    software products and services. We have historically leveraged
    our strategic relationships with original equipment
    manufacturers to market our Commercial Segment products to
    wireless carriers worldwide. We have long-standing relationships
    with Qualcomm Incorporated , and we are adding partnerships for
    our location technologies, including a marketing alliance in
    China established in January 2009.
    Grow Our Wireless Carrier and Voice Over IP Customer
    Base. We now serve or are under contract with more than
    60 wireless carrier networks and VoIP service providers in 16
    countries. We intend to 7




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expand our domestic and international carrier base by
    capitalizing on our relationships with original equipment
    manufacturers and establish new distribution partnerships and by
    expanding our own sales and marketing initiatives. We will
    continue to develop network software for wireless carriers and
    cable operators that operate on all major types of networks.  
    Leverage Our Expertise in Accessing Information Stored Inside
    Wireless Networks. We will continue to leverage our
    knowledge of complex call control technology, including
    Signaling System 7 and Internet Protocol standards, to unlock
    valuable information such as user location, device on/off
    status, and billing and transaction records that reside inside
    wireless networks and are difficult to retrieve and utilize.
    Using this information, we intend to expand the range of
    capabilities that wireless data technology can accomplish for
    our customers.
    Develop and Enhance Our Technology. We will continue
    to invest in our underlying technology and to capitalize on our
    expertise to meet the growing demand for sophisticated wireless
    applications. Including pre-acquisition investments by NIM and
    LocationLogic, our companys technology reflects more than
    $190 million invested in R&D over the last
    15 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.
    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. Secure Satellite Teleport Data Landing and
    Transmission Services. end-to-end
  b. Integrated Logistics Support (ILS)
    Services.
  c. Information Technology and Cyber Security
    Professional Services.
 8




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2. Government Systems. Point-to-Point
  B.
    Government Market
    Opportunities and Strategy    Expanded Need for Secure, Interoperable Deployable
    Communication Solutions. 5-year
  Growing Need for Cyber Security.
 9




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Government Outsourcing of Network and Telecom Technical
    Functions.
  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.
 10




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Backlog
    December 31,


2009 vs. 2008($ in millions)

2009


2008


$


%Commercial Segment

$
240.5


$
80.1


$
160.4



200
%Government Segment


98.0



79.7



18.3



23
%Total funded contract backlog

$
338.5


$
159.8


$
178.7



112
%Commercial Segment

$
240.6


$
91.0



149.6



164
%Government Segment


390.2



354.0



36.2



10
%Total backlog of orders and commitments, including customer
    options

$
630.8


$
445.0


$
185.8



42
%Expected to be realized within next 12 months

$
216.1


$
116.0


$
100.1



86
%   and/or
  Acquisitions
    in 2009
       11




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turn-by-turn
  Sales and
    Marketing
      Competition
   12




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
    Commercial Segment. Intrado Inc. division of West
    Corporation; Motorola Inc.; Siemens AG; Ericsson LM Telephone
    Co.; Openwave Systems Inc.; Acision; Comverse Technology Inc;
    and Nokia Corporation.
    Government Segment. General Dynamics Corp.; CACI
    International Inc.; Globecomm Systems, Inc.; Computer Sciences
    Corporation; Datapath Inc.; and ViaSat Inc.    e-mail
  Research
    and Development
    Peer-to-Peer
    Intellectual
    Property Rights
     13




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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 text messaging and
    location-based wireless applications to their subscribers, our
    business could be harmed.
   14




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Network
    failures, disruptions or capacity constraints in our third party
    data center facilities or in our servers could affect the
    performance of the products and services of our wireless
    applications and E9-1-1 business and harm our reputation and our
    revenue.
        
    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.      If we are
    unable to grow data center capacity as needed, our business will
    be harmed.
   15




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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 forecast the financial impact of the transaction,
    including accounting charges and transaction expenses;
    integrate and retain personnel;
    retain and cross-sell to acquired customers;
    combine potentially different corporate cultures; and
    effectively integrate products and services, and research and
    development, sales and marketing and support operations.  day-to-day
   16




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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.
    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.
   17




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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.
     18




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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.
    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.
   19




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Some of our
    research and development operations are conducted in China,
    India, and Russia and our ability to introduce new services and
    support our existing services cost effectively depend on our
    ability to manage those remote development sites
    successfully.
    We may fail
    to support our anticipated growth in operations which could
    reduce demand for our services and materially adversely affect
    our revenue.
    Changes in
    the U.S. and global market conditions that are beyond our
    control may have a material adverse effect on
    us.
    We could
    incur substantial costs from product liability claims relating
    to our software.
    Our revenue
    may decline if we fail to retain our largest customers for all
    of the deliverables that we sell to them.
   20




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Because we
    rely on key partners to expand our marketing and sales efforts,
    if we fail to maintain or expand our relationships with
    strategic partners and indirect distribution channels our
    license revenues could decline.
    Growing
    market acceptance of open source software could have
    a negative impact on us.
      Because our
    product offerings are sold internationally, we are subject to
    risks of conducting business in foreign
    countries.
    
    inability to adapt our products and services to local business
    practices, customs and mobile user preferences;
    costs of adapting our product and service offerings for foreign
    markets;
    inability to locate qualified local employees, partners and
    suppliers;
    reduced protection of intellectual property rights;
    the potential burdens of complying with a variety of
    U.S. and foreign laws, trade standards and regulatory
    requirements, including tax laws, the regulation of wireless
    communications and the Internet and uncertainty regarding
    liability for information retrieved and replicated in foreign
    countries; 21




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
    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.
      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.
   22




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We derive a
    significant portion of our revenue from sales to various
    agencies of the U.S. Government which has special rights unlike
    other customers and exposes us to additional risks that could
    have a material adverse effect on us.
    
    The U.S. Government may terminate the contracts it has with
    us. All of the contracts we have with the U.S. Government
    are, by their terms, subject to termination by the
    U.S. Government either for its convenience or in the event
    of a default by us. In the event of termination of a contract by
    the U.S. Government, we may have little or no recourse.
    Our contracts with the U.S. Government may be terminated
    due to Congress failing to appropriate funds. Our
    U.S. Government contracts are conditioned upon the
    continuing availability of Congressional appropriations.
    Congress usually appropriates funds for a given program on a
    fiscal-year basis even though contract performance may take more
    than one year.
    The U.S. Government may audit and review our costs and
    performance on their contracts, as well as our accounting and
    general practices. The costs and prices under these contracts
    may be subject to adjustment based upon the results of any
    audits. Future audits that result in the increase in our costs
    may adversely affect our business, financial position, results
    of operations or cash flows.    Because we
    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.
   23




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agreed-upon
  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.
   24




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We are
    exposed to counterparty credit risk and there can be no
    assurances that we will manage or mitigate this risk
    effectively.
      The loss of
    key personnel or inability to attract and retain personnel could
    harm our business.
    Our
    accounting policies and methods are fundamental to how we record
    and report our financial position and results of operations, and
    they require management to make estimates, judgments and
    assumptions about matters that are inherently
    uncertain.
    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.
      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.
   27




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Pursuing
    infringers of our patents and other intellectual property rights
    can be costly.
    Third
    parties may claim we are infringing their intellectual property
    rights and we could be prevented from selling our products, or
    suffer significant litigation expense, even if these claims have
    no merit, and our customers also could demand indemnification
    for such claims.
       28




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The
    security measures we have implemented to secure information we
    collect and store may be breached, which could cause us to
    breach agreements with our partners and expose us to potential
    investigation and penalties by authorities and potential claims
    by persons whose information was disclosed.
    Because the
    market for most mobile content delivery and mobile location
    products is new, our future success is
    uncertain.
    If we are
    unable to integrate our products with wireless service
    providers systems we may lose sales to
    competitors.
    Failure to
    meet our contractual obligations could adversely affect our
    profitability and future prospects.
    Because our
    systems may be vulnerable to systems failures and security
    risks, we may incur significant costs to protect against the
    threat of these problems.
   29




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life-and-death
    If mobile
    equipment manufacturers do not overcome capacity, technology and
    equipment limitations, we may not be able to sell our products
    and services.
    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.
   30




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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.
   31




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U.S. sub-prime
  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.
   32




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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.
   33




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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.    Because
    this report contains forward-looking statements, it may not
    prove to be accurate.
               34




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machine-to-machine
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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  7-acre
    Location:

Size:


Lease Expiration:Annapolis, Maryland


31,250 square feet


March 2011Seattle, Washington


57,000 square feet


September 2017Tampa, Florida


45,600 square feet


December 2014Aliso Viejo, California


24,000 square feet


June 2013Annapolis, Maryland


17,000 square feet


April 2013Oakland, California


11,000 square feet


August 2012Manassas, Virginia


10,000 square feet


February 2013Suwanee, Georgia


6,250 square feet


April 2013Catonsville, Maryland


5,800 square feet


March 2011Calgary, Alberta, Canada


4,400 square feet


March 2014   Item 3.
    Legal
    Proceedings  No. 01-CV-9500.
 36




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Rule 10b-5 Rule 10b-5
     37




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and/or over-the-air
       Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2010First Quarter 2010 (through March 4, 2010)

$
10.25


$
7.502009First Quarter 2009

$
10.00


$
6.86Second Quarter 2009

$
10.25


$
6.38Third Quarter 2009

$
9.03


$
6.46Fourth Quarter 2009

$
9.93


$
7.752008First Quarter 2008

$
3.98


$
2.71Second Quarter 2008

$
5.47


$
3.06Third Quarter 2008

$
8.75


$
4.19Fourth Quarter 2008

$
8.91


$
4.58    38




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Dividend
    Policy
    Issuer Purchases
    of Equity Securities
   39




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Stock Performance
    Graph
          
 40




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Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K. 718-10
  Year Ended December 31,2009


2008


2007


2006


2005(in millions, except share and per share data)Statement of Operations Data:RevenueServices

$
151.9


$
101.4


$
88.1


$
88.4


$
75.0Systems


148.2



118.8



56.1



36.6



27.2Total revenue


300.1



220.2



144.2



124.9



102.2Direct cost of services revenue


84.1



61.6



52.2



52.5



39.2Direct cost of systems revenue


102.1



77.3



37.9



17.9



17.7Total direct cost of revenue


186.2



138.9



90.1



70.4



56.9Services gross profit


67.8



39.8



35.9



35.8



35.8Systems gross profit


46.1



41.5



18.2



18.7



9.5Total gross profit


113.9



81.3



54.1



54.5



45.2Research and development expense


22.3



16.2



13.1



12.6



13.9Sales and marketing expense


16.0



13.7



11.9



11.7



10.5General and administrative expense


35.4



28.2



19.3



17.0



15.0Depreciation and amortization of property and equipment


6.0



5.9



6.2



8.0



8.6Amortization of goodwill and other intangible assets


0.9



0.1



0.1



0.1



0.1Total operating costs and expenses


80.6



64.2



50.6



49.3



48.2Patent related gains, net of expenses


15.7



8.1











Income/(loss) from operations


49.0



25.2



3.5



5.2



(3.0
)Interest expense


(1.8
)


(0.9
)


(1.8
)


(1.8
)


(0.7
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(0.4
)


(0.2
)


(3.2
)


(1.4
)


(0.5
)Other (expense)/income, net


0.3



0.2



0.5







(0.1
)Income/(loss) from continuing operations before income taxes


47.1



24.3



(1.0
)


2.0



(4.3
)(Provision)/benefit for income taxes


(18.8
)


33.3











Income/(loss) from continuing operations


28.3



57.6



(1.0
)


2.0



(4.3
)Loss from discontinued operations










(0.3
)


(23.7
)


(7.2
)Net income/(loss)

$
28.3


$
57.6


$
(1.3
)

$
(21.7
)

$
(11.5
)Income/(loss) from continuing operations per share

$
0.59


$
1.34


$
(0.02
)

$
0.05


$
(0.11
)Loss from discontinued operations per share










(0.01
)


(0.60
)


(0.19
)Net income/(loss) per share  basic

$
0.59


$
1.34


$
(0.03
)

$
(0.55
)

$
(0.30
)Income/(loss) from continuing operations per share (1)

$
0.53


$
1.23


$
(0.02
)

$
0.05


$
(0.11
)Loss from discontinued operations per share










(0.01
)


(0.59
)


(0.19
)Net income/(loss) per share  diluted

$
0.53


$
1.23


$
(0.03
)

$
(0.54
)

$
(0.30
)Basic shares used in computation (in thousands)


47,623



43,063



41,453



39,430



38,823Diluted shares used in computation (in thousands)


53,946



46,644



41,453



40,166



38,823  41




---



##### 



(1)
    
    In calculating 2009 diluted earnings per share requires adding
    to net income the interest expense, net of taxes, of
    $0.4 million associated with the 4.5% convertible senior
    notes, see Note 4 presented in the Notes to Consolidated
    Financial Statements.  As of December 31,2009


2008


2007


2006


2005(in millions)Balance Sheet Data:Cash and cash equivalents

$
61.4


$
39.0


$
16.0


$
10.4


$
9.3Working capital


77.7



79.1



35.0



25.4



27.5Total assets


472.2



182.0



82.1



83.6



90.6Capital leases and long-term debt (including current portion)


183.0



11.8



16.1



17.6



16.5Total liabilities


286.4



67.7



38.2



48.6



41.5Total stockholders equity


185.8



114.3



44.0



35.1



49.1   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
   42




---



##### 



percentage-of-completion percentage-of-completion
  Acquired Intangible Assets.
  Impairment of Goodwill.
  Stock Compensation Expense.
 43




---



##### 



Income Taxes.
    Business Combinations.
    
    future expected cash flows from software license sales,
    subscriptions, 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.
 44




---



##### 



Overview
    Recent
    Acquisitions
    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 45




---



##### 



services derived from the delivery of information processing and
    communication systems to governmental agencies.  
    Gross profit represents revenue minus direct cost of revenue,
    including certain non-cash expenses. The major items
    comprising our cost of revenue are compensation and benefits,
    third-party hardware and software, amortization of software
    development costs, non-cash stock-based compensation, and
    overhead expenses. The costs of hardware and third-party
    software are primarily associated with the delivery of systems,
    and fluctuate from period to period as a result of the relative
    volume, mix of projects, level of service support required and
    the complexity of customized products and services delivered.
    Amortization of software development costs, including acquired
    technology, is associated with the recognition of systems
    revenue from our Commercial Segment.
    Operating expenses. Our operating expenses are
    primarily compensation and benefits, professional fees, facility
    costs, marketing and sales-related expenses, and travel costs as
    well as certain non-cash expenses such as non-cash stock
    compensation expense, depreciation and amortization of property
    and equipment, and amortization of acquired intangible assets.
    Liquidity and cash flows. The primary driver of our
    cash flows is the results of our operations. Other important
    sources of our liquidity are our convertible debt agreement,
    financial institution loan agreement, lease financings secured
    for the purchase of equipment and potential borrowings under our
    credit lines.
    Balance sheet. We view cash, working capital, and
    accounts receivable balances and days revenues outstanding as
    important indicators of our financial health.  Results of
    Operations
  Impact of
    Acquisitions
    Revenue and Cost
    of Revenue
     46




---



##### 



Commercial
    Segment:
  2009 vs. 2008





2008 vs. 2007($ in millions)

2009


2008


$


%


2007


$


%Services revenue

$
89.7


$
64.4


$
25.3



39
%

$
58.8


$
5.6



10
%Systems revenue


37.6



37.4



0.2



1
%


16.5



20.9



127
%Total Commercial Segment revenue


127.3



101.8



25.5



25
%


75.3



26.5



35
%Direct cost of services


35.3



32.4



2.9



9
%


29.4



3.0



10
%Direct cost of systems


10.6



8.9



1.7



19
%


5.0



3.9



78
%Total Commercial Segment cost of revenue


45.9



41.3



4.6



11
%


34.4



6.9



20
%Services gross profit


54.4



32.0



22.4



70
%


29.4



2.6



9
%Systems gross profit


27.0



28.5



(1.5
)


(5
%)


11.5



17.0



148
%Total Commercial Segment gross profit (1)

$
81.4


$
60.5


$
20.9



35
%

$
40.9


$
19.6



48
%Segment gross profit as a percent of revenue


64
%


59
%










54
%     (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:
       47




---



##### 



Commercial
    Systems Revenue and Cost of Revenue
          Government
    Segment:
  2009 vs. 2008





2008 vs. 2007($ in millions)

2009


2008


$


%


2007


$


%Services revenue

$
62.2


$
36.9


$
25.3



69%


$
29.3


$
7.6



26%Systems revenue


110.6



81.4



29.2



36%



39.6



41.8



106%Total Government Segment revenue


172.8



118.3



54.5



46%



68.9



49.4



72%Direct cost of services


48.8



29.2



19.6



67%



22.8



6.4



28%Direct cost of systems


91.5



68.3



23.2



34%



32.9



35.4



108%Total Government Segment cost of revenue


140.3



97.5



42.8



44%



55.7



41.8



75%Services gross profit


13.4



7.7



5.7



74%



6.5



1.2



18%Systems gross profit


19.1



13.1



6.0



46%



6.7



6.4



96%Total Government Segment gross profit (1)

$
32.5


$
20.8


$
11.7



56%


$
13.2


$
7.6



58%Segment gross profit as a percent of revenue


19
%


18
%










19
%     (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. 48




---



##### 



sub-contractor
  Government
    Services Revenue and Cost of Revenue:
        Government
    Systems Revenue and Cost of Revenue:
  5-year
     49




---



##### 



Operating
    Expenses:
  Research and
    Development Expense:
  2009 vs. 2008



2008 vs. 2007($ in millions)

2009

2008

$

%

2007

$

%Research and development expense

$
22.3


$
16.2


$
6.1



38
%

$
13.1


$
3.1



24
%Percent of revenue


7
%


7
%










9
%     product-by-product
      Sales and
    Marketing Expense:
  2009 vs. 2008



2008 vs. 2007($ in millions)

2009

2008

$

%

2007

$

%Sales and marketing expense

$
16.0


$
13.7


$
2.3



17
%

$
11.9


$
1.8



15
%Percent of revenue


5
%


6
%










8
%  50




---



##### 



General and
    Administrative Expense:
  2009 vs. 2008





2008 vs. 2007($ in millions)

2009


2008


$


%


2007


$


%General and administrative expense

$
35.4


$
28.2


$
7.2



26
%

$
19.3


$
8.9



46
%Percent of revenue


12
%


13
%










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



2008 vs.2008



2007($ in millions)

2009

2008

$

%

2007

$

%Depreciation and amortization of property and equipment

$
6.0


$
5.9


$
0.1



2
%

$
6.2


$
(0.3
)


(5
%)Average gross cost of property and equipment

$
60.7


$
50.4


$
10.3



20
%

$
50.3


$
0.1



NM(NM = Not meaningful)     Amortization of
    Acquired Intangible Assets:
  2009 vs.





2008 vs.2008





2007($ in millions)

2009


2008


$


%


2007


$


%Amortization of acquired intangible assets

$
0.9


$
0.1


$
0.8



800
%

$
0.1


$




NM  51




---



##### 



Patent-Related
    Gains, Net of Expenses:
  2009 vs. 2008





2008 vs. 2007($ in millions)

2009


2008


$


%


2007


$


%Patent-related gains, net of expenses

$
15.7


$
8.1


$
7.6



94
%

$



$




NM   e-mail-related
  Interest
    Expense:
  2009 vs.





2008 vs.2008





2007($ in millions)

2009


2008


$


%


2007


$


%Interest expense incurred on bank and other notes payable

$
0.7


$
0.7


$




NM


$
1.6


$
(0.9
)


(56
%)Interest expense incurred on 4.5% convertible debt financing


0.6







0.6



100
%










Interest expense incurred on capital lease obligations


0.4



0.3



0.1



33
%


0.2



0.1



50
%Amortization of deferred financing fees


0.4



0.2



0.2



100
%


0.3



(0.1
)


(33
%)Amortization of debt discount


















0.5



(0.5
)


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


















2.4



(2.4
)


(100
%)Less: capitalized interest


(0.1
)


(0.1
)






NM



(0.1
)






NMTotal Interest and Financing Expense

$
2.2


$
1.1


$
1.1



100
%

$
4.9


$
(3.8
)


(78
%)        52




---



##### 



2007-9.
        Other Income,
    Net:
  2009 vs.





2008 vs.2008





2007($ in millions)

2009


2008


$


%


2007


$


%Foreign currency translation/ transaction (loss)/gain

$



$
0.1


$
(0.1
)


(100
%)

$
(0.1
)

$
0.2



200
%Miscellaneous other (expense)/ income


0.3



0.1



0.2



200
%


0.6



(0.5
)


(83
%)Total other income, net

$
0.3


$
0.2



0.1



50
%

$
0.5



(0.3
)


(60
%)      53




---



##### 



Income
    Taxes:
        Discontinued
    Operations:
  Form 10-K Accounting for the Impairment or Disposal of
    Long-Lived Assets 18-month
 54




---



##### 



($ in millions)

2007Total revenue

$
5.6Total gross profit


0.8Loss from discontinued operations

$
(0.3
)   Net
    Income/(loss):
  2009vs.





2008 vs.2008





2007($ in millions)

2009


2008


$


%


2007


$


%Net income/(loss) from continuing operations

$
28.3


$
57.6


$
(29.3
)


(51
%)

$
(1.0
)

$
58.6



5,860
%Loss from discontinued operations


















(0.3
)


0.3



100
%Net income/(loss)

$
28.3


$
57.6


$
(29.3
)


(51
%)

$
(1.3
)

$
58.9



4,531
%    55




---



##### 



Liquidity and
    Capital Resources
    ($ in millions)

2009


2008


2007Net cash and cash equivalents provided by (used in):Net income/(loss)

$
28.3


$
57.6


$
(1.3
)Less: loss from discontinued operations










(0.3
)Income/(loss) from continuing operations


28.3



57.6



(1.0
)Non-cash charges


15.8



12.8



15.5(Benefit)/provision for income taxes


17.5



(34.0
)


Net changes in working capital


(7.3
)


(10.4
)


(5.4
)Operating activities of continuing operations


54.3



26.0



9.1Operating activities of discontinued operations










(3.6
)Net operating activities


54.3



26.0



5.5Investing activities:Acquisitions, net of cash acquired


(148.2
)






Purchases of property and equipment


(2.5
)


(3.7
)


(2.6
)Capitalized software development costs


(1.0
)


(0.5
)


(1.5
)Investing activities for continuing operations


(151.7
)


(4.2
)


(4.1
)Investing activities for discontinued operations










4.0Net investing activities


(151.7
)


(4.2
)


(0.1
)Financing activities:Proceeds from issuance of convertible debt financing


103.5







Proceeds from bank and other borrowings


50.0







10.0Payments on long-term debt and capital lease obligations


(30.0
)


(7.7
)


(16.0
)Call spread component of convertible debt financing: Purchase of
    call options


(23.8
)






Call spread component of convertible debt financing: Sale of
    common stock warrants


12.9







Proceeds from exercise of warrants


1.7



2.5



2.2Proceeds from employee option exercises


5.5



6.4



4.0Net financing activities


119.8



1.2



0.2Change in cash and cash equivalents from continuing operations


22.4



23.0



5.2Change in cash and cash equivalents from discontinued operations










0.4Net change in cash and cash equivalents

$
22.4


$
23.0


$
5.6Days revenue outstanding in accounts receivable including
    unbilled receivables


88



95



87   Capital resources:
  
    November 2009 issuance of 4.5% convertible debt financing of
    $103.5 million.
    December 2009 issuance of $40 million of promissory notes.
    2009 bank term loan borrowings of $30 million, including
    refinancing of debt under previous facility.
    Capital leases to fund fixed asset purchases.  Sources and uses of cash:
 56




---



##### 



57




---



##### 



sub-facilities: (i) a sub-facility sub-facility sub-facility
       58




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm loan

$
7.9


$
14.9


$
10.3


$



$
33.14.5% Convertible debt interest obligation


4.7



9.4



9.4







23.5Promissory note payable


31.8



10.6











42.4Other long-term debt


4.6



3.2











7.8Capital lease obligations


3.6



5.8



1.0







10.4Operating leases


5.0



10.0



2.0



3.9



20.9Purchase obligations


8.2



5.5











13.7Total contractual commitments

$
65.8



59.4


$
22.7


$
3.9


$
151.8   Related Party
    Transactions
   59




---



##### 



Item 7A.
    Qualitative and Quantitative Disclosures about Market
    Risk  Interest Rate
    Risk
      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)
 60




---



##### 



Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f). Form 10-K.
  Changes in
    Internal Control over Financial Reporting
   61




---



##### 



Report of
    Independent Registered Public Accounting Firm
  The Board of Directors and
    Stockholders
    TeleCommunication Systems, Inc.
              
  Baltimore, Maryland
 March 8, 2010
 62




---



##### 



Part III  Item 10.
    Directors
    , Executive Officers, and Corporate Governance  http://www1.telecomsys.com/investor 
  Item 11.
    Executive Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   63




---



##### 



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
   64




---



##### 



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


F-2Consolidated Balance Sheets as of
    December 31, 2009 and 2008


F-3Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2009


F-4Consolidated Statements of Stockholders
    Equity for each of the three years in the period ended
    December 31, 2009


F-5Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2009


F-6Notes to Consolidated Financial Statements


F-7  F-1




---



##### 



Report of
    Independent Registered Public Accounting Firm  The Board of Directors and
    Stockholders
    TeleCommunication Systems, Inc.
         
  Baltimore, Maryland
 March 8, 2010
 F-2




---



##### 



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


December 31,2009


2008AssetsCurrent assets:Cash and cash equivalents

$
61,426


$
38,977Accounts receivable, net of allowance of $389 in 2009 and $285
    in 2008


65,476



61,827Unbilled receivables


23,783



21,797Inventory


9,331



2,715Deferred income taxes


9,507



9,736Receivable from settlement of patent matter


15,700



Income tax refund receivable


5,438



Other current assets


8,945



3,869Total current assets


199,606



138,921Property and equipment, net of accumulated depreciation and
    amortization of $46,960 in 2009 and $41,268 in 2008


20,734



12,391Software development costs, net of accumulated amortization of
    $9,941 in 2009 and $6,873 in 2008


45,384



2,773Acquired intangible assets, net of accumulated amortization of
    $1,526 in 2009 and $656 in 2008


33,975



562Goodwill


164,350



1,813Deferred income taxes






24,309Other assets


8,176



1,190Total assets

$
472,225


$
181,959Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued expenses

$
52,999


$
34,345Accrued payroll and related liabilities


19,265



17,243Deferred revenue


9,938



4,349Current portion of capital lease obligations and notes payable


39,731



3,837Total current liabilities


121,933



59,774Capital lease obligations and notes payable, less current portion


143,316



7,913Deferred income taxes


15,435



Other long-term liabilities


5,755



Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 46,157,025 in 2009 and 38,527,234 in 2008


462



385Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 6,276,334 in 2009 and 6,876,334 in 2008


63



69Additional paid-in capital


283,733



240,559Accumulated other comprehensive income


12



12Accumulated deficit


(98,484
)


(126,753
)Total stockholders equity


185,786



114,272Total liabilities and stockholders equity

$
472,225


$
181,959   See accompanying Notes to
    Consolidated Financial Statements.
 F-3




---



##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Statements of Operations
 (amounts
    in thousands, except per share data)
  Year Ended December 31,2009


2008


2007RevenueServices

$
151,944


$
101,359


$
88,062Systems


148,143



118,783



56,106Total revenue


300,087



220,142



144,168Direct costs of revenueDirect cost of services


84,122



61,594



52,161Direct cost of systems, including amortization of software
    development costs of $3,069, $2,090 and $1,522, respectively


102,111



77,291



37,906Total direct cost of revenue


186,233



138,885



90,067Services gross profit


67,822



39,765



35,901Systems gross profit


46,032



41,492



18,200Total gross profit


113,854



81,257



54,101Operating costs and expensesResearch and development expense


22,351



16,161



13,072Sales and marketing expense


15,967



13,715



11,917General and administrative expense


35,387



28,238



19,334Depreciation and amortization of property and equipment


6,035



5,865



6,200Amortization of acquired intangible assets


870



147



148Total operating costs and expenses


80,610



64,126



50,671Patent-related gains, net of expenses


15,700



8,060



Operating income


48,944



25,191



3,430Interest expense


(1,794
)


(922
)


(1,776
)Amortization of debt discount and debt issuance expenses,
    including write-off of $2,458 in 2007


(401
)


(180
)


(3,176
)Other income, net


315



222



508Income/(loss) from continuing operations before income
    taxes


47,064



24,311



(1,014
)(Provision)/benefit for income taxes


(18,795
)


33,257



Income/(loss) from continuing operations


28,269



57,568



(1,014
)Loss from discontinued operations










(275
)Net income/(loss)

$
28,269


$
57,568


$
(1,289
)Income/(loss) per share  basic:Income/(loss) per share from continuing operations

$
0.59


$
1.34


$
(0.02
)Loss per share from discontinued operations










(0.01
)Net income/(loss) per share  basic

$
0.59


$
1.34


$
(0.03
)Income/(loss) per share  diluted:Income/(loss) per share from continuing operations

$
0.53


$
1.23


$
(0.02
)Loss per share from discontinued operations










(0.01
)Net income/(loss) per share-diluted

$
0.53


$
1.23


$
(0.03
)Weighted average shares outstanding-basic


47,623



43,063



41,453Weighted average shares outstanding-diluted


53,946



46,644



41,453   See accompanying Notes to
    Consolidated Financial Statements.
 F-4




---



##### 



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


Class B


Additional


OtherCommon


Common


Paid-In


Comprehensive


AccumulatedStock


Stock


Capital


Income (Loss)


Deficit


TotalBalance at January 1, 2007

$
322


$
76


$
217,739


$



$
(183,032
)

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


14







3,461











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


2







541











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


9







2,208











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










(57
)










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


2



(2
)














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










3,963











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










132











132Unrealized loss on securities and other














(125
)






(125
)Net loss for 2007


















(1,289
)


(1,289
)Balance at December 31, 2007

$
349


$
74


$
227,987


$
(125
)

$
(184,321
)

$
43,964Options 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
)

$
185,786   See accompanying Notes to
    Consolidated Financial Statements.
 F-5




---



##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Statements of Cash Flows
 (amounts in
    thousands)
  Year Ended December 31,2009


2008


2007Operating activities:Net income/(loss)

$
28,269


$
57,568


$
(1,289
)Less: Loss from discontinued operations










(275
)Income/(loss) from continuing operations


28,269



57,568



(1,014
)Adjustments to reconcile net income/(loss) to net cash provided
    by operating activities:Depreciation and amortization of property and equipment


6,035



5,865



6,200Amortization of acquired intangible assets


870



147



148Deferred tax provision/(benefit)


17,499



(34,045
)


Non-cash stock compensation expense  employee


5,859



3,758



4,333Amortization of software development costs


3,069



2,090



1,522Write-off of capitalized software development costs


763







Amortization of debt discount










480Amortization of deferred financing fees


401



181



313Impairment of marketable securities


48



802



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










2,458Other non-cash (income)/expenses


(23
)


(40
)


19Changes in operating assets and liabilities:Accounts receivable, net


9,623



(41,403
)


1,120Unbilled receivables


2,681



(6,568
)


(7,593
)Inventory


(6,616
)


2,658



(80
)Other current assets


(18,222
)


958



(1,870
)Other noncurrent assets


(6,986
)


187



541Accounts payable and accrued expenses


7,914



21,886



2,038Accrued payroll and related liabilities


(2,065
)


12,328



(748
)Deferred revenue


5,144



(336
)


1,200Net cash provided by operating activities of continuing
    operations


54,263



26,036



9,067Net used in operating activities of discontinued operations










(3,598
)Total net cash provided by operating activities


54,263



26,036



5,469Investing activities:Acquisitions, net of cash acquired


(148,239
)






Purchases of property and equipment


(2,494
)


(3,703
)


(2,577
)Capitalized software development costs


(981
)


(461
)


(1,525
)Net cash used in investing activities of continuing operations


(151,714
)


(4,164
)


(4,102
)Net cash provided by investing activities of discontinued
    operations










4,000Net cash used in investing activities


(151,714
)


(4,164
)


(102
)Financing activities:Proceeds from issuance of convertible debt offering


103,500







Proceeds from issuance of long-term debt


50,000







10,000Payments on long-term debt and capital lease obligations


(30,002
)


(7,695
)


(15,996
)Purchase of call options


(23,775
)






Sale of common stock warrants


12,959







Proceeds from exercise of warrants


1,673



2,521



2,208Proceeds from exercise of employee stock options and sale of
    stock


5,545



6,324



4,018Net cash provided by financing activities of continuing
    operations


119,900



1,150



230Net cash provided by financing activities of discontinued
    operations










Net cash provided by financing activities


119,990



1,150



230Net increase in cash from continuing operations


22,449



23,022



5,195Net increase/(decrease) in cash from discontinued
    operations










402Net increase in cash


22,449



23,022



5,597Cash and cash equivalents at the beginning of the year


38,977



15,955



10,358Cash and cash equivalents at the end of the year

$
61,426


$
38,977


$
15,955   See accompanying Notes to
    Consolidated Financial Statements.
 F-6




---



##### 



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. Voice-over-Internet-Protocol
  Government Segment.
  Use of Estimates.
  Principles of Consolidation.
  Cash and Cash Equivalents.
  Allowances for Doubtful Accounts
    Receivable.
  Deferred Compensation Plan.
 F-7




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    Inventory.
  Investments in Marketable Securities and Note
    Receivable.
  available-for-sale.
    Property and Equipment.
  Goodwill.
  Software Development Costs.
  product-by-product
 F-8




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
        Acquired Intangible Assets.
  Impairment of Long-Lived Assets.
    Other Comprehensive Income/(Loss). end-of-period available-for-sale.
  Revenue Recognition.
  Services Revenue.
   F-9




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Systems Revenue. 90-day
  percentage-of-completion
      Deferral of Costs Incurred.
  Advertising Costs.
  Capitalized Interest.
  Stock-Based Compensation.
 F-10




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    Research and Development Expense.
  Income Taxes.
    Fair Value of Financial Instruments.
  Recent Accounting Pronouncements.
  2010-6,
  2009-14 2009-14
 F-11




---



##### 



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




---



##### 



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

$
(129
)Accounts receivable


3,980Prepaid expenses and other current assets


284Property and equipment


870Capitalized software development costs


8,720Other intangibles  customer list and other


12,200Other assets


1,078Accounts payable


(747
)Other accrued liabilities


(1,738
)Deferred tax liability, net


(3,813
)Total net assets


20,705Goodwill


49,049Total estimated purchase price

$
69,754         As ofDecember 15, 2009Cash and cash equivalents

$
110,000Promissory notes


40,000Class A common stock (2,236,258 shares)


20,000Total fair value of consideration

$
170,000Total acquisition price

$
170,000  F-13




---



##### 



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

$
1,736Accounts receivable


12,880Prepaid expenses and other current assets


10,337Property and equipment


3,293Capitalized software development costs


34,405Other intangibles  customer relationships


20,138Other assets


425Accounts payable


(3,619
)Other accrued liabilities


(6,092
)Deferred revenue


(445
)Deferred tax liability, net


(16,939
)Total net assets


56,119Goodwill


113,881Total estimated purchase price

$
170,000       As ofDecember 15, 2009Goodwill and intangibles acquired (In thousands)Capitalized software development costs

$
34,405Customer relationships


20,138Preliminary estimate of goodwill


113,881Total goodwill and intangible assets acquired

$
168,424    F-14




---



##### 



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           F-15




---



##### 



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


Pro Forma Year EndedDecember 31, 2009


December 31, 2008Pro forma information (In thousands, except for 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   3.
    Enterprise
    Assets-Discontinued Operations    4.
    Income/(loss) Per
    Common Share   F-16




---



##### 



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


2008


2007Numerator:Continuing operations:Net income/(loss), basic

$
28,269


$
57,568


$
(1,014
)Adjustment for assumed dilution:Interest on convertible debt, net of taxes


380







Net income/(loss), diluted

$
28,649


$
57,568


$
(1,014
)Discontinued operations:Net loss, basic and diluted

$



$



$
(275
)Denominator:Total basic weighted-average common shares outstanding


47,623



43,063



41,453Net effect of dilutive stock options based on treasury stock
    method


4,797



3,195



Net effect of dilutive warrants based on treasury stock method


292



386



Net effect of dilutive 4.5% convertible bonds


1,234







Adjusted weighted average diluted shares


53,946



46,644



41,543Basic earnings per common share:Income/(loss) per share from continuing operations

$
0.59


$
1.34


$
(0.02
)Loss per share from discontinued operations










(0.01
)Net income/(loss) per share  basic

$
0.59


$
1.34


$
(0.03
)Diluted earnings per common share:Income/(loss) per share from continuing operations

$
0.53


$
1.23


$
(0.02
)Loss per share from discontinued operations










(0.01
)Net income/(loss) per share-diluted

$
0.53


$
1.23


$
(0.03
)   5.
    Supplemental
    Disclosure of Cash Flow Information         F-17




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  6.
    Unbilled
    Receivables    7.
    Inventory    2009


2008Component parts

$
5,658


$
1,763Finished goods


3,673



952Total inventory at year end

$
9,331


$
2,715   8.
    Property and
    Equipment    2009


2008Computer equipment

$
39,995


$
28,456Computer software


20,721



18,408Furniture and fixtures


2,695



2,520Leasehold improvements


3,176



3,168Land


1,000



1,000Vehicles


107



107Total property and equipment at cost at year end


67,694



53,659Less: accumulated depreciation and amortization


(46,960
)


(41,268
)Net property and equipment at year end

$
20,734


$
12,391   9.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    December 31,


December 31,2009


2008Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer lists and other

$
13,735


$
1,151


$
12,584


$
606


$
521


$
85Customer relationships


20,402



113



20,289Trademarks and patents


1,364



262



1,102



612



135



477Software development costs, including acquired technology


55,325



9,941



45,384



9,646



6,873



2,773Total acquired intangible assets and software dev. costs

$
90,826


$
11,467


$
79,359


$
10,864


$
7,529


$
3,335   F-18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  Estimated future amortization expense:Year ending December 31, 2010

$
16,295Year ending December 31, 2011

$
15,039Year ending December 31, 2012

$
13,675Year ending December 31, 2013

$
13,022Year ending December 31, 2014

$
11,095Thereafter

$
10,233$
79,359       10.
    Accounts Payable
    and Accrued Expenses    2009


2008Accounts payable

$
26,620


$
21,223Accrued expenses


26,379



13,122Total accounts payable and accrued expenses at year end

$
52,999


$
34,345     11.
    Line of
    Credit    sub-facilities: sub-facility sub-facility sub-facility
 F-19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    12.
    Long-Term
    Debt    2009


20084.5% Convertible notes dated November 16, 2009

$
103,500


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


40,000



Note payable to commercial banks dated December 31, 2009


30,000



Note payable dated June 2007, paid in full






7,167Total long-term debt


173,500



7,167Less: current portion


(36,667
)


(2,000
)Non-current portion of long-term debt

$
136,833


$
5,167     2010

$
36,6672011


11,6672012


11,6672013


6,6672014


106,832Total long-term debt

$
173,500        F-20




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    815-40 ,
    Contracts in Entitys own Equity 815-40-25, Additional paid-in capital,
       F-21




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
      13.
    Capital
    Leases    2009


2008Computer equipment

$
10,356


$
5,340Computer software


2,636



1,654Furniture and fixtures


95



18Leasehold improvements


33



25Total equipment under capital lease at cost


13,120



7,037Less: accumulated amortization


(3,934
)


(2,090
)Net property and equipment under capital leases

$
9,186


$
4,947       2010

$
3,6172011


3,3222012


2,4962013


962Total minimum lease payments


10,397Less: amounts representing interest


(1,081
)Present value of net minimum lease payments (including current
    portion of $3,064)

$
9,316  F-22




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
   14.
    Common
    Stock    15.
    Fair Value of
    Financial Instruments  820-10
          Fair Valueas of


Fair Value Measurements at 12/31/200912/31/2009


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash 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


$



$
Liabilities at Fair Value

$
2,554


$
2,554


$



$
   Fair Valueas of


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


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
38,977


$
38,977


$



$
Marketable securities available for sale


78



78







Assets at Fair Value

$
39,055


$
39,055


$



$
    F-23




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    16.
    Income
    Taxes      2009


2008Current:Federal

$
1,242


$
636State


1,057



152Total current


2,299



788Deferred:Federal


15,004



(29,938
)State


1,492



(4,107
)Total deferred


16,496



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

$
18,795


$
(33,257
)    F-24




---



##### 



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


2008Deferred tax assets:Net operating loss carryforwards

$
10,488


$
26,746Research and development tax credit carryforwards


1,880



294Stock-based compensation expense


2,360



1,513Depreciation and amortization


219



4,079Reserves and accrued expenses


2,296



1,432Alternative minimum tax credit


1,687



636Deferred revenue


1,343



108Other


91



373Total deferred tax assets


20,364



35,181Deferred tax liabilities:Identifiable intangibles accounting


(22,069
)


Capitalized software development costs


(2,845
)


(1,132
)Cash to accrual adjustment


(676
)


Other


(4
)


(4
)Total deferred tax liabilities


(25,594
)


(1,136
)Net deferred tax asset


(5,230
)


34,045Valuation allowance for net deferred tax asset


(698
)


Net deferred tax (liability)/asset in the consolidated balance
    sheets

$
(5,928
)

$
34,045        F-25




---



##### 



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


2008


2007Income tax (benefit) at statutory rate

$
16,472


$
8,266


$
(364
)Change in valuation allowances






(45,053
)


(887
)Write-down of tax attributes






874



1,894Non deductible items


673



1,612



255Non deductible stock compensation expense


681



473



(705
)Research and development tax credit


(395
)


(230
)


(130
)Change in tax rates on deferred assets/liabilities


96



(53
)


(41
)State tax (benefit)


1,261



1,066



(8
)Other


7



(212
)


(14
)Income tax provision (benefit) as reported

$
18,795


$
(33,257
)

$
   740-20
    TotalBalance at December 31, 2006Gross increases related to prior year tax positions

$
Gross decreases related to prior year tax positions


Gross increases related to current year tax positions


2,736Settlements/lapse in statute of limitation


Balance at December 31, 2007

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


Gross decreases related to prior year tax positions


Gross increases related to current year tax positions


Settlements/lapse in statute of limitation


Balance at December 31, 2008

$
2,736Gross 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

$
3,270    F-26




---



##### 



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




---



##### 



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


2008


2007Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


11,676


$
3.77



11,144


$
3.69



11,622


$
3.62Granted


4,768



8.71



3,056



3.57



2,537



3.69Exercised


(1,362
)


3.65



(1,927
)


3.04



(1,347
)


2.58Forfeited


(470
)


5.95



(597
)


3.58



(1,668
)


4.07Outstanding, end of year


14,612


$
5.32



11,676


$
3.77



11,144


$
3.69Exercisable, at end of year


6,986


$
3.94



6,308


$
4.12



6,515


$
4.14Vested and expected to vest, at end of year


13,181


$
5.07



9,992


$
3.84



7,510


$
3.69Estimated weighted-average grant- date fair value of options
    granted during the year

$
4.86






$
2.07






$
3.69Weighted-average remaining contractual life of options
    outstanding at end of year


6.9 years







6.5 years







6.6 yearsTotal fair value of options vested during the year

$
4,465






$
3,964






$
3,362Intrinsic value of options exercised during the year

$
6,838






$
7,084






$
2,736     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


85


$
1.71



3.07



85


$
1.71



3.07$1.92  $2.99


2,599


$
2.47



5.76



2,166


$
2.47



5.70$3.05  $4.68


5,354


$
3.33



6.02



2,946


$
3.35



4.57$4.83  $7.45


2,332


$
6.72



5.25



1,759


$
6.72



3.97$7.95  $17.37


4,238


$
8.86



9.61



26


$
8.89



3.40$26.05  $26.05


4


$
26.05



0.40



4


$
26.05



0.40Total end of year


14,612











6,986    F-28




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    For The Years EndedDecember 31,2009

2008

2007Expected life (in years)

5.5

5.5

5.5Risk-free interest rate (%)

1.65%-2.61%

2.65%-3.33%

4.24%-4.90%Volatility (%)

60%-64%

60%-67%

68.1%-83%Dividend yield (%)

0%

0%

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


216Outstanding stock options


14,612Convertible notes (see Note 12)


10,002Note warrant hedge (see Note 12)


10,002For B to A conversion


6,276Employee stock purchase plan


205Total shares restricted for future use


41,313     2009


2008


2007Direct costs of revenue

$
3,773


$
2,494


$
2,080Research and development expense


1,366



822



867Sales and marketing expense


472



272



628General and administrative expense


248



170



758Total non-cash stock compensation expense

$
5,859


$
3,758


$
4,333  F-29




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
   19.
    Operating
    Leases    2010

$
4,9642011-2012


10,0272013-2014


2,007Beyond


3,857$
20,855       20.
    Concentrations of
    Credit Risk and Major Customers    % of Total RevenuesFor The Year EndedDecember 31,Customer

Segment


2009


2008


2007U.S. Government


Government



44
%


42
%


37
%Customer A


Commercial



22
%


22
%


20
%   As of December 31, 2009


As of December 31, 2008Accounts


Unbilled


Accounts


UnbilledCustomer

Receivable


Receivables


Receivable


ReceivablesU.S. Government


42
%


43
%


54
%


73
%Customer A


13
%


14
%


22
%


<10
%Customer B


<10
%


<10
%


<10
%


10
%    F-30




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
    21.
    Business and
    Geographic Segment Information              Year Ended December 31,2009


2008


2007Comm.


Gvmt


Total


Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
89,715


$
62,229


$
151,944


$
64,441


$
36,918


$
101,359


$
58,793


$
29,269


$
88,062Systems


37,554



110,589



148,143



37,429



81,354



118,783



16,521



39,585



56,106Total revenue


127,269



172,818



300,087



101,870



118,272



220,142



75,314



68,854



144,168Direct costs of revenueDirect cost of services


35,318



48,804



84,122



32,402



29,192



61,594



29,346



22,815



52,161Direct cost of systems


10,608



91,503



102,111



8,993



68,298



77,291



5,024



32,882



37,906Total Direct Costs


45,926



140,307



186,233



41,395



97,490



138,885



34,370



55,697



90,067Gross profitServices gross profit


54,397



13,425



67,822



32,039



7,726



39,765



29,447



6,454



35,901Systems gross profit


26,946



19,086



46,032



28,436



13,056



41,492



11,497



6,703



18,200Total Gross Profit

$
81,343


$
32,511


$
113,854


$
60,475


$
20,782


$
81,257


$
40,944


$
13,157


$
54,101   F-31




---



##### 



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


2008


2007Total segment gross profit

$
113,854


$
81,257


$
54,101Research and development expense


(22,351
)


(16,161
)


(13,072
)Sales and marketing expense


(15,967
)


(13,715
)


(11,917
)General and administrative expense


(35,387
)


(28,238
)


(19,334
)Depreciation and amortization of property and equipment


(6,035
)


(5,865
)


(6,200
)Amortization of acquired intangible assets


(870
)


(147
)


(148
)Interest expense


(1,794
)


(922
)


(1,776
)Amortization of debt discount and debt issuance expenses,
    including $2,458 write-off in 2007


(401
)


(180
)


(3,176
)Patent-related gains, net of expenses


15,700



8,060



(Provision)/benefit for income taxes


(18,795
)


33,257



Other income, net


315



222



508Income/(loss) from continuing operations


28,269



57,568



(1,014
)Loss from discontinued operations










(275
)Net income/(loss)

$
28,269


$
57,568


$
(1,289
)   22.
    Quarterly
    Financial Information (Unaudited)    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


$
30,349Net income

$
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)
    
    Note that in calculating 2009 diluted earnings per share
    requires adding to net income the interest expense, net of
    taxes, of $0.4 million associated with the 4.5% convertible
    senior notes.  F-32




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
  2008Three Months Ended(unaudited)March 31


June 30


September 30


December 31Revenue

$
40,413


$
43,911


$
56,531


$
79,287Gross profit

$
19,564


$
19,212


$
17,457


$
25,024Income/(loss) from continuing operations

$
4,618


$
11,965


$
2,757


$
38,228Earnings per share  basic

$
0.11


$
0.28


$
0.06


$
0.87Earnings per share  diluted

$
0.11


$
0.26


$
0.06


$
0.78   23.
    Commitments and
    Contingencies    No. 01-CV-9500. Rule 10b-5 Rule 10b-5
 F-33




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (amounts in
    thousands, except share and per share data)
          and/or over-the-air
 F-34




---



##### 



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




---



##### 



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 8, 2010/s/  Thomas
    M. Brandt, Jr.Thomas
    M. Brandt, Jr.

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

March 8, 2010/s/  James
    M. BethmannJames
    M. Bethmann

Director

March 8, 2010/s/  Clyde
    A. HeintzelmanClyde
    A. Heintzelman

Director

March 8, 2010/s/  Jan
    C. HulyJan
    C. Huly

Director

March 8, 2010/s/  Richard
    A. KozakRichard
    A. Kozak

Director

March 8, 2010/s/  Weldon
    H. LathamWeldon
    H. Latham

Director

March 8, 2010/s/  Richard
    A. YoungRichard
    A. Young

Executive Vice President, Chief Operating Officer and Director

March 8, 2010  65




---



##### 



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. Young10
.12

Employment Agreement dated February 1, 2010, by and between
    the Company and Thomas M. Brandt, Jr.10
.13

Employment Agreement dated February 1, 2010, by and between
    the Company and Drew A. Morin10
.14

Employment Agreement dated February 1, 2010, by and between
    the Company and Timothy J. Lorello10
.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)10
.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) 66




---



##### 



ExhibitNumbers

Description10
.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)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. 67