SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
    FORM 10-Q
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarter ended June 30,
    2008ORTRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934   Commission File
    No. 0-30821
  TELECOMMUNICATION SYSTEMS,
    INC.
   MARYLAND(State or Other Jurisdiction ofIncorporation or Organization)275 West Street, Annapolis, MD(Address of principal executive offices)

52-1526369(I.R.S. Employer Identification No.)21401(Zip Code)   (410) 263-7616
   þ o
  12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

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

Smaller reporting
    company o   Rule 12b-2 o þ
    Shares outstandingas of June 30,Title of Each Class

2008Class A Common Stock, par value$0.01 per share


35,530,320Class B Common Stock, par value$0.01 per share


7,226,334Total Common Stock Outstanding


42,756,654




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##### 





INDEX
  TELECOMMUNICATION
    SYSTEMS, INC.
  PagePART I. FINANCIAL INFORMATIONItem 1.


Financial StatementsConsolidated Statements of Operations for the three- and
    six-months
    ended June 30, 2008 and 2007 (Unaudited)


1Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and
    December 31, 2007


2Consolidated Statement of Stockholders Equity for the
    six-months ended June 30, 2008 (Unaudited)


3Consolidated Statements of Cash Flows for the six-months ended
    June 30, 2008 and 2007 (Unaudited)


4Notes to Consolidated Financial Statements (Unaudited)


5Item 2.


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


18Item 3.


Quantitative and Qualitative Disclosures About Market Risk


32Item 4.


Controls and Procedures


32PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


33Item 1A.


Risk Factors


34Item 6.


Exhibits


35SIGNATURES


36




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##### 



TeleCommunication
    Systems, Inc.Consolidated Statements of Operations
    (amounts in thousands, except per share data)
    (unaudited)
  Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007RevenueServices

$
24,334


$
22,618


$
47,100


$
43,503Systems


19,577



12,718



37,224



25,952Total revenue


43,911



35,336



84,324



69,455Direct costs of revenueDirect cost of services revenue


14,179



13,650



27,837



26,598Direct cost of systems revenue, including amortization of
    software development costs of $560, $372, $969 and $716,
    respectively


10,520



11,005



17,711



17,881Total direct cost of revenue


24,699



24,655



45,548



44,479Services gross profit


10,155



8,968



19,263



16,905Systems gross profit


9,057



1,713



19,513



8,071Total gross profit


19,212



10,681



38,776



24,976Operating costs and expensesResearch and development expense


3,935



3,266



8,023



6,371Sales and marketing expense


3,595



3,157



6,694



6,320General and administrative expense


5,997



5,499



11,315



10,151Depreciation and amortization of property and equipment


1,506



1,556



2,996



3,224Amortization of acquired intangible assets


37



37



74



74Total operating costs and expenses


15,070



13,515



29,102



26,140Gain on sale of patent


8,060







8,060



Income/(loss) from operations


12,202



(2,834
)


17,734



(1,164
)Interest and financing expenses


(200
)


(514
)


(529
)


(1,067
)Amortization of debt discount and debt issuance expenses


(22
)


(280
)


(146
)


(690
)Write-off of unamortized debt discount and debt issuance expenses






(2,458
)






(2,458
)Other income/(expense), net


137



93



(276
)


153Income/(loss) from continuing operations before income
    taxes


12,117



(5,993
)


16,783



(5,226
)Provision for income taxes


(152
)






(200
)


Income/(loss) from continuing operations


11,965



(5,993
)


16,583



(5,226
)Loss from discontinued operations






(145
)






(269
)Net income/(loss)

$
11,965


$
(6,138
)

$
16,583


$
(5,495
)Income/(loss) per share-basicIncome/(loss) per share from continuing operations

$
0.28


$
(0.15
)

$
0.39


$
(0.13
)Loss per share from discontinued operations






(0.00
)






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

$
0.28


$
(0.15
)

$
0.39


$
(0.14
)Income/(loss) per share-dilutedIncome/(loss) per share from continuing operations

$
0.26


$
(0.15
)

$
0.37


$
(0.13
)Loss per share from discontinued operations






(0.00
)






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

$
0.26


$
(0.15
)

$
0.37


$
(0.14
)Weighted average shares outstanding-basic


42,486



41,166



42,380



40,990Weighted average shares outstanding-diluted


45,644



41,166



44,800



40,990    1




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##### 



TeleCommunication
    Systems, Inc.
  Consolidated
    Balance Sheets
 (amounts in
    thousands, except share data)
   June 30,


December 31,2008


2007(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
28,199


$
15,955Accounts receivable, net of allowance of $155 in 2008 and $266
    in 2007


31,982



20,424Unbilled receivables


11,400



15,229Inventory


4,401



5,373Other current assets


8,005



5,561Total current assets


83,987



62,542Property and equipment, net of accumulated depreciation and
    amortization of $38,965 in 2008 and $35,969 in 2007


11,818



11,209Software development costs, net of accumulated amortization of
    $5,752 in 2008 and $4,783 in 2007


3,740



4,406Acquired intangible assets, net of accumulated amortization of
    $583 in 2008 and $509 in 2007


635



709Goodwill


1,813



1,813Other assets


1,230



1,445Total assets

$
103,223


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

$
14,194


$
12,459Accrued payroll and related liabilities


6,829



4,915Deferred revenue


6,135



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


3,770



5,444Total current liabilities


30,928



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


8,554



10,657Stockholders Equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 35,530,320 in 2008 and 34,970,394 in 2007


355



349Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 7,226,334 in 2008 and 7,301,334 in 2007


72



74Additional paid-in capital


231,058



227,987Accumulated other comprehensive loss


(6
)


(125
)Accumulated deficit


(167,738
)


(184,321
)Total stockholders equity


63,741



43,964Total liabilities and stockholders equity

$
103,223


$
82,124    2




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##### 



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


Class B


Additional


OtherCommon


Common


Paid-In


Comprehensive


AccumulatedStock


Stock


Capital


Income/(Loss)


Deficit


TotalBalance at January 1, 2008

$
349


$
74


$
227,987


$
(125
)

$
(184,321
)

$
43,964Options exercised for the purchase of 421,151 shares of
    Class A Common Stock


4







1,014











1,018Issuance of 52,947 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1







158











159Conversion of 75,000 shares of Class B Common Stock to
    Class A Common Stock


1



(1
)














Stock compensation expense for continuing operations










1,898











1,898Unrealized gain/(loss) on securities and other














(363
)






(363
)Realization of unrealized loss on securities














482







482Net income for the six-months ended June 30, 2008


















16,583



16,583Balance at June 30, 2008

$
355


$
72


$
231,058


$
(6
)

$
(167,738
)

$
63,741    3




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##### 



TeleCommunication
    Systems, Inc.
  Consolidated Statements of Cash Flows
 (amounts in
    thousands)
 (unaudited)
  Six Months Ended June 30,2008


2007Operating activities:Net income/(loss)

$
16,583


$
(5,495
)Less: Loss from discontinued operations






(269
)Income/(loss) from continuing operations


16,583



(5,226
)Adjustments to reconcile net income/(loss) from continuing
    operations to net cash provided by operating activities:Depreciation and amortization of property and equipment


2,996



3,224Non-cash stock compensation expense


1,898



2,121Amortization of software development costs


969



716Amortization of debt discount






480Amortization of deferred financing fees


146



210Impairment of marketable securities


482



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






2,458Amortization of acquired intangible assets


74



74Other non-cash income(expense)


157



42Changes in operating assets and liabilities:Accounts receivable, net


(11,558
)


3,069Unbilled receivables


3,829



956Inventory


972



(635
)Other current assets


(2,947
)


(2,034
)Other assets


287



(744
)Accounts payable and accrued expenses


1,735



1,699Accrued payroll and related liabilities


1,914



(3,458
)Deferred revenue


1,450



3,188Net cash provided by operating activities of continuing
    operations


18,987



6,140Net cash used in operating activities of discontinued operations






(3,280
)Total net cash provided by operating activities


18,987



2,860Investing activities:Purchases of property and equipment


(1,740
)


(950
)Capitalized software development costs


(306
)


(888
)Net cash used in investing activities of continuing operations


(2,046
)


(1,838
)Net cash provided by investing activities of discontinued
    operations






4,000Total net cash (used in)/provided by investing activities


(2,046
)


2,162Financing activities:Payments on long-term debt and capital lease obligations


(5,642
)


(12,993
)Proceeds from issuance of long-term debt






10,000Proceeds from exercise of warrants






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


945



2,451Total net cash (used in)/provided by financing activities


(4,697
)


1,666Net increase in cash from continuing operations


12,244



5,968Net increase in cash from discontinued operations






720Total net increase in cash


12,244



6,688Cash and cash equivalents at the beginning of the period


15,955



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

$
28,199


$
17,046    4




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##### 



TeleCommunication
    Systems, Inc.Notes to Consolidated Financial Statements
    June 30, 2008
    (amounts in thousands, except share and per share amounts)
    (unaudited)
  1.
    Basis of
    Presentation and Summary of Significant Accounting
    Policies  Basis of Presentation. Form 10-Q Regulation S-X. Form 10-K.
  Use of Estimates.
  Investments in Marketable Securities and Note
    Receivable. Accounting for Certain
    Investments in Debt and Equity Securities
  Other Comprehensive
    Income/(Loss).
  Software Development Costs.
 5




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Stock-Based Compensation. Share Based
    Payment
  Earnings per share.
  Three Months


Six MonthsEnded


EndedJune 30,


June 30,2008


2007


2008


2007Basic weighted average common shares outstanding


42,486



41,166



42,380



40,900Dilutive options outstanding


2,361







1,759



Dilutive warrants outstanding


797







661



Diluted weighted average common shares outstanding used in the
    calculation of diluted income/(loss)


45,644



41,166



44,800



40,900   Income Taxes.
       6




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Recent Accounting
    Pronouncements.
           7




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2.
    Stock-Based
    Compensation        Three Months


Six MonthsEnded


EndedJune 30,


June 30,2008


2007


2008


2007Continuing operations:Stock options granted at fair value

$
884


$
1,013


$
1,815


$
1,913Restricted stock


22



92



55



157Employee stock purchase plan


17



28



28



51Total stock compensation expense included in continuing
    operations

$
923


$
1,133


$
1,898


$
2,121Discontinued operations:Stock options granted at fair value

$



$
53


$



$
132Total stock compensation expense included in discontinued
    operations

$



$
53


$



$
132  8




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months Ended June 30,2008


2007Comm.


Gvmt


Total


Comm.


Gvmt


TotalStock compensation included in direct cost of revenue:Direct cost of services

$
285


$
122


$
407


$
295


$
181


$
476Direct cost of systems


42



163



205



45



23



68Total stock compensation included in direct costs of revenue

$
327


$
285


$
612


$
340


$
204


$
544   Six Months Ended June 30,2008


2007Comm.


Gvmt


Total


Comm.


Gvmt


TotalStock compensation included in direct cost of revenue:Direct cost of services

$
586


$
251


$
837


$
551


$
339


$
890Direct cost of systems


87



335



422



85



43



128Total stock compensation included in direct costs of revenue

$
673


$
586


$
1,259


$
636


$
382


$
1,018   Three Months


Six MonthsEnded


EndedJune 30,


June 30,2008


2007


2008


2007Stock compensation included in operating expenses:Research and development expense

$
202


$
227


$
415


$
425Sales and marketing expense


67



164



138



307General and administrative expense


42



198



86



371Total stock compensation included in operating expenses

$
311


$
589


$
639


$
1,103  9




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    WeightedAverageNumber of


Exercise(Share amounts in thousands)

Options


PriceOutstanding, beginning of year


11,144


$
3.69Granted


2,623


$
3.15Exercised


(421
)

$
2.42Forfeited


(304
)

$
3.56Outstanding, at June 30, 2008


13,042


$
3.63Exercisable, at June 30, 2008


7,715


$
3.95Vested and expected to vest at June 30, 2008


11,384


$
3.70Estimated weighted-average grant- date fair value of options
    granted during the period

$
3.15Weighted-average remaining contractual life of options
    outstanding at end of period


6.78 years   WeightedAverageNumber of


FairOptions


ValueNon-vested, beginning of year


4,629


$
2.30Forfeited


(304
)

$
2.52Vested


1,669


$
2.20Exercisable, at June 30, 2008


7,715


$
3.48Non-vested, at June 30, 2008


5,327


$
2.12     Weighted-AverageWeighted-Average


Remaining Contractual





Weighted-AverageOptions


Exercise Prices of


Life of Options


Options


Exercise Prices ofExercise Prices

Outstanding


Options Outstanding


Outstanding (Years)


Exercisable


Options Exercisable$0.29 - $ 2.61


3,738


$
2.33



6.66



2,709


$
2.30$2.61 - $ 5.21


7,100


$
3.32



7.38



2,802


$
3.30$5.21 - $ 7.82


2,174


$
6.75



5.07



2,174


$
6.75$7.82 - $26.05


30


$
11.07



4.51



30


$
11.0713,042











7,715    10




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Six Months Ended June 30,2008

2007Expected life (in years)

5.5

5.5Risk-free interest rate(%)

2.65%-3.28%

4.54%-4.92%Volatility(%)

63%-67%

70%-74%Dividend yield(%)

0%

0%   3.
    Supplemental
    Disclosure of Cash Flow Information          4.
    Fair Value
    Measurement           11




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Fair Valueas of


Fair Value Measurements at 6/30/20086/30/2008


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
28,199


$
28,199


$



$
Marketable securities available for sale


370



370







$
28,569


$
28,569


$



$
     5.
    Segment
    Information    ®
  ®
   12




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months Ended June 30,2008


2007Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
16,553


$
7,781


$
24,334


$
14,665


$
7,953


$
22,618Systems


9,074



10,503



19,577



1,291



11,427



12,718Total revenue


25,627



18,284



43,911



15,956



19,380



35,336Operating costs and expensesDirect cost of services


7,906



6,273



14,179



7,517



6,133



13,650Direct cost of systems


2,843



7,677



10,520



1,207



9,798



11,005Total direct costs


10,749



13,950



24,699



8,724



15,931



24,655Gross profitServices gross profit


8,647



1,508



10,155



7,148



1,820



8,968Systems gross profit


6,231



2,826



9,057



84



1,629



1,713Total gross profit

$
14,878


$
4,334


$
19,212


$
7,232


$
3,449


$
10,681   Six Months Ended June 30,2008


2007Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
32,089


$
15,011


$
47,100


$
28,306


$
15,197


$
43,503Systems


19,780



17,444



37,224



8,101



17,851



25,952Total revenue


51,869



32,455



84,324



36,407



33,048



69,455Operating costs and expensesDirect cost of services


15,865



11,972



27,837



14,839



11,758



26,597Direct cost of systems


4,889



12,822



17,711



2,649



15,233



17,882Total direct costs


20,754



24,794



45,548



17,488



26,991



44,479Gross profitServices gross profit


16,224



3,039



19,263



13,467



3,439



16,906Systems gross profit


14,891



4,622



19,513



5,452



2,618



8,070Total gross profit

$
31,115


$
7,661


$
38,776


$
18,919


$
6,057


$
24,976   13




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Total segment gross profit

$
19,212


$
10,681


$
38,776


$
24,976Research and development expense


(3,935
)


(3,266
)


(8,023
)


(6,371
)Sales and marketing expense


(3,595
)


(3,157
)


(6,694
)


(6,320
)General and administrative expense


(5,997
)


(5,499
)


(11,315
)


(10,151
)Depreciation and amortization of property and equipment


(1,506
)


(1,556
)


(2,996
)


(3,224
)Amortization of acquired intangible assets


(37
)


(37
)


(74
)


(74
)Interest expense


(222
)


(3,252
)


(675
)


(4,215
)Other income/(expense), net


137



93



(276
)


153Gain/(loss) on sale of patent


8,060







8,060



Provision for income taxes


(152
)






(200
)


Income/(loss) from continuing operations


11,965



(5,993
)


16,583



(5,226
)Loss from discontinued operations






(145
)






(269
)Net loss

$
11,965


$
(6,138
)

$
16,583


$
(5,495
)   6.
    Inventory    June 30,


Dec. 31,2008


2007Component parts

$
2,927


$
2,670Finished goods


1,474



2,703Total inventory at period end

$
4,401


$
5,373  14




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    June 30, 2008


December 31, 2007Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
606


$
463


$
143


$
606


$
405


$
201Trademarks & Patents


612



120



492



612



104



508Software development costs, including acquired technology


9,492



5,752



3,740



9,189



4,783



4,406Total

$
10,710


$
6,335


$
4,375


$
10,407


$
5,292


$
5,115Estimated future amortization expense:Six-months ending December 31, 2008

$
1,196Year ending December 31, 2009

$
1,816Year ending December 31, 2010

$
755Year ending December 31, 2011

$
196Thereafter

$
412     8.
    Concentrations
    of Credit Risk and Major Customers      % of Total% of Total Revenue For


Revenue Forthe Three


the SixMonths Ended


Months EndedJune 30,


June 30,Customer

Segment

2008


2007


2008


2007Federal Agencies

Government


30
%


44
%


27
%


35
%Customer A

Commercial


23
%


12
%


29
%


19
%   As of June 30, 2008Accounts


UnbilledCustomer

Segment

Receivable


ReceivablesFederal Agencies

Government


34
%


50
%Customer A

Commercial


22
%


13
%Customer B

Commercial


Less than 10
%


17
%  15




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  9.
    Lines of
    Credit and Financing Arrangements          10.
    Contingencies   16




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     17




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q Form 10-Q). Form 10-Q Form 10-Q
      Critical
    Accounting Policies
    
    accounting for our percentage-of-completion and proportional
    performance contracts involving multiple elements and software,
    accounts receivable realizability,
    inventory value, 18




---



##### 




    evaluating goodwill for impairment,
    the realizability and remaining useful lives of long-lived
    assets, and
    contingent liabilities.      
    revenue recognition for our software and other contracts with
    multiple elements,
    revenue recognition for our contracts accounted for using the
    percentage-of-completion and proportional performance methods,
    capitalized software development costs,
    acquired intangible assets, and
    income taxes.  Form 10-K Form 10-K),
  Fair Value
    Measures
    Overview
    Form 10-K Form 10-Q.
 19




---



##### 



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, software licenses and
    related service fees for the design, development, and deployment
    of software and communication systems, and products and services
    derived from the delivery of information processing and
    communication systems to governmental agencies.
    Gross profit represents revenue minus direct cost of revenue,
    including certain non-cash expenses.The major
    items comprising our cost of revenue are compensation and
    benefits, third-party hardware and software, amortization of
    software development costs, non-cash stock-based compensation,
    and overhead expenses. The costs of hardware and third-party
    software are primarily associated with the delivery of systems,
    and fluctuate from period to period as a result of the relative
    volume, mix of projects, level of service support required and
    the complexity of customized products and services delivered.
    Amortization of software development costs, including acquired
    technology, is associated with the recognition of systems
    revenue from our Commercial Segment.
    Operating expenses.  Our operating expenses are
    primarily compensation and benefits, professional fees, facility
    costs, marketing and sales-related expenses, and travel costs as
    well as certain non-cash expenses such as non-cash stock
    compensation expense, depreciation and amortization of property
    and equipment, and amortization of acquired intangible assets.
    Liquidity and cash flows.  The primary driver
    of our cash flows is the results of our operations. Other
    important sources of our liquidity are our 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. 20




---



##### 



Results of
    Operations
  Revenue and Cost
    of Revenue
    Commercial
    Segment:
  Three Months





Six MonthsEnded





EndedJune 30,


2008 vs. 2007


June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%Services revenue

$
16.5


$
14.7


$
1.8



12
%

$
32.1


$
28.3


$
3.8



13
%Systems revenue


9.1



1.3



7.8



600
%


19.8



8.1



11.7



144
%Commercial segment revenue


25.6



16.0



9.6



60
%


51.9



36.4



15.5



43
%Direct cost of services revenue


7.9



7.6



0.3



4
%


15.9



14.8



1.1



7
%Direct cost of systems revenue


2.8



1.2



1.6



133
%


4.9



2.7



2.2



81
%Commercial segment cost of revenue


10.7



8.8



1.9



22
%


20.8



17.5



3.3



19
%Services gross profit


8.6



7.1



1.5



21
%


16.2



13.5



2.7



20
%% of revenue


52
%


48
%










50
%


48
%Systems gross profit


6.3



0.1



6.2



6200
%


14.9



5.4



9.5



176
%% of revenue


69
%


8
%










75
%


67
%Commercial segment gross
    profit1

$
14.9


$
7.2


$
7.7



107
%

$
31.1


$
18.9


$
12.2



65
%% of revenue


58
%


45
%










60
%


52
%     1 See
    discussion of segment reporting in Note 5 to the
    accompanying unaudited consolidated financial statements  Commercial
    Services Revenue, Cost of Revenue, and Gross Profit:
    E-911, ® six-months
   21




---



##### 



six-months
    Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
         22




---



##### 



Government
    Segment:
  Three Months





Six MonthsEnded





EndedJune 30,


2008 vs. 2007


June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%Services revenue

$
7.8


$
8.0


$
(0.2
)


(3
)%

$
15.0


$
15.2


$
(0.2
)


(1
)%Systems revenue


10.5



11.4



(0.9
)


(8
)%


17.4



17.9



(0.5
)


(3
)%Government segment revenue


18.3



19.4



(1.1
)


(6
)%


32.4



33.1



(0.7
)


(2
)%Direct cost of services revenue


6.3



6.1



0.2



3
%


11.9



11.8



0.1



1
%Direct cost of systems revenue


7.7



9.8



(2.1
)


(21
)%


12.8



15.2



(2.4
)


(16
)%Government segment cost of revenue


14.0



15.9



(1.9
)


(12
)%


24.7



27.0



(2.3
)


(9
)%Services gross profit


1.5



1.9



(0.4
)


(21
)%


3.1



3.4



(0.3
)


(9
)%% of revenue


19
%


24
%










21
%


22
%Systems gross profit


2.8



1.6



1.2



75
%


4.6



2.7



1.9



70
%% of revenue


27
%


14
%










26
%


15
%Government segment gross
    profit1

$
4.3


$
3.5


$
0.8



23
%

$
7.7


$
6.1


$
1.6



26
%% of revenue


23
%


18
%










24
%


18
%     1 See
    discussion of segment reporting in Note 5 to the
    accompanying unaudited consolidated financial statements    Government
    Services Revenue, Cost of Revenue, and Gross Profit:
   23




---



##### 



six-months
  three-
  six-months
  Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ®
  six-months 5-year
      Major
    Customers
   24




---



##### 



Revenue
    Backlog
    June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%Commercial Segment

$
78.4


$
96.8


$
(18.4
)


(19
)%Government Segment


37.0



25.9



11.1



43
%Total funded contract backlog

$
115.4


$
122.7


$
(7.3
)


(6
)%Commercial Segment

$
81.0



96.8


$
(15.8
)


(16
)%Government Segment


125.2



62.2



63.0



101
%Total backlog of orders and commitments, including customer
    options

$
206.2


$
159.0


$
47.2



30
%Expected to be realized within the next 12 months

$
75.9


$
71.3


$
4.6



6
%   and/or
  Operating
    Expenses
  Research and development expense:
  Three Months



Six MonthsEnded



EndedJune 30,

2008 vs. 2007

June 30,

2008 vs. 2007($ in millions)

2008

2007

$

%

2008

2007

$

%Research and development expense

$
3.9


$
3.3


$
0.6



18
%

$
8.0


$
6.4


$
1.6



25
%% of total revenue


9
%


9
%










9
%


9
%    25




---



##### 



product-by-product
    Sales and
    marketing expense:
  Three Months





Six MonthsEnded





EndedJune 30,


2008 vs. 2007


June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%Sales and marketing expense

$
3.6


$
3.2


$
0.4



13
%

$
6.7


$
6.3


$
0.4



6
%% of total revenue


8
%


9
%










8
%


9
%     General and
    administrative expense:
  Three Months





Six MonthsEnded





EndedJune 30,


2008 vs. 2007


June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%General and administrative expense

$
6.0


$
5.5


$
0.5



9
%

$
11.3


$
10.2


$
1.1



11
%% of total revenue


14
%


16
%










13
%


15
%    26




---



##### 



Depreciation and
    amortization of property and equipment:
  Three Months



Six MonthsEnded



EndedJune 30,

2008 vs. 2007

June 30,

2008 vs. 2007($ in millions)

2008

2007

$

%

2008

2007

$

%Depreciation and amortization of property and equipment

$
1.5


$
1.6


$
(0.1
)


(6
)%

$
3.0


$
3.2


$
(0.2
)


(6
)%Average gross cost of property and equipment during the period

$
49.8


$
54.5










$
49.0


$
54.1     Amortization of
    acquired intangible assets:
  Three Months



Six MonthsEnded June 30,

2008 vs. 2007

Ended June 30,

2008 vs. 2007($ in millions)

2008

2007

$

%

2008

2007

$

%Amortization of acquired intangible assets

$
0.1


$
0.1


$

NM

$
0.1


$
0.1


$

NM     Interest
    expense:
  Three Months





Six MonthsEnded June 30,


2008 vs. 2007


Ended June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%Interest expense incurred on notes payable and line of credit

$
0.2


$
0.4


$
(0.2
)


(50
)%

$
0.5


$
1.0


$
(0.5
)


(50
)%Interest expense incurred on capital lease obligations


0.1



0.1







NM



0.1



0.1







NMAmortization of deferred financing fees






0.1



(0.1
)


(100
)%


0.1



0.2



(0.1
)


(50
)%Amortization of debt discount






0.2



(0.2
)


(100
)%






0.5



(0.5
)


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






2.4



(2.4
)


(100
)%






2.4



(2.4
)


(100
)%Total interest expense

$
0.3


$
3.2


$
(2.9
)


(91
)%

$
0.7


$
4.2


$
(3.5
)


(83
)%      27




---



##### 



Other
    income/(expense), net:
    Income
    taxes:
   28




---



##### 



Discontinued
    Operations  Enterprise assets:
  Form 10-Q Accounting for the Impairment or Disposal of
    Long-Lived Assets
  18-month
    Three Months





Six MonthsEnded June 30,


2008 vs. 2007


Ended June 30,


2008 vs. 2007($ in millions)

2008


2007


$


%


2008


2007


$


%Enterprise revenue

$



$
1.7


$
(1.7
)


NM


$



$
5.6


$
(5.6
)


NMEnterprise gross profit

$



$
0.4


$
(0.4
)


NM


$



$
0.9


$
(0.9
)


NMLoss from discontinued operations

$



$
(0.1
)

$
0.1



NM


$



$
(0.3
)

$
0.3



NM     Net income(
    loss):
  Three Months



Six MonthsEnded



EndedJune 30,

2008 vs. 2007

June 30,

2008 vs. 2007($ in millions)

2008

2007

$

%

2008

2007

$

%Net income/(loss)

$
12.0


$
(6.1
)

$
5.9



97
%

$
16.6


$
(5.5
)

$
11.1



202
%    29




---



##### 



Liquidity and
    Capital Resources
  Six MonthsEndedJune 30,


2008 vs. 2007($ in millions)

2008


2007


$


%Net cash and cash equivalents provided by/(used in):Continuing operationsIncome(loss)

$
16.6


$
(5.2
)

$
21.8



419
%Non-cash charges


6.7



9.3



(2.6
)


(28
)%Net changes in working capital including changes in other assets


(4.4
)


2.0



(6.4
)


(320
)%Operating activities


18.9



6.1



12.8



210
%Purchases of property and equipment


(1.7
)


(1.0
)


(0.7
)


70
%Capitalized software development costs


(0.3
)


(0.9
)


0.6



67
%Proceeds from new borrowings






10.0



(10.0
)


(100
)%Other financing activities


(4.7
)


(8.2
)


3.5



43
%Cash provided by/(used in) continuing operations


12.2



6.0



6.2



103
%Discontinued operationsOperating activities






(3.3
)


3.3



100
%Investing activities






4.0



(4.0
)


(100
)%Cash provided by/(used in) discontinued operations






0.7



(0.7
)


(100
)%Net increase/(decrease) in cash

$
12.2


$
6.7


$
5.5



82
%Days revenue outstanding in accounts receivable, including
    unbilled receivables


89



64   Capital resources:
  Sources and uses of cash:
  Operations:
  Investing activities:
  Financing activities:
 30




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm notes payable

$
2.6


$
4.7



2.3


$



$
9.6Capital lease obligations


2.0



2.0



0.6







4.6Operating leases


3.1



5.8



0.9



0.2



10.0Total contractual commitments

$
7.7



12.5


$
3.8


$
0.2


$
24.2  31




---



##### 



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest Rate
    Risk
  Form 10-K.
  Foreign Currency
    Risk
    Form 10-K.
  Item 4.
    Controls
    and Procedures    Rule 13a-15(b),
   32




---



##### 



PART II. 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
     33




---



##### 



Item 1A.
    Risk
    Factors  Form 10-K.
  Item 4.
    Submission of
    Matters to a Vote of Security Holders      Terms Expiring in 2011

Affirmative Votes


Votes WithheldClyde A. Heintzelman


50,212,605



370,229Richard A. Kozak


49,653,167



929,667      34




---



##### 



Item 6.
    Exhibits  ExhibitNumbers

Description31
.1

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

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

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 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  35




---



##### 



SIGNATURES       By:
    /s/  Maurice
    B. Tosé       /s/ Maurice B. ToséMaurice B. ToséAugust 5, 2008

Chairman, President and Chief Executive Officer
    (Principal Executive Officer)/s/ Thomas M. Brandt, Jr.Thomas M. Brandt, Jr.August 5, 2008

Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)  36