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, 2010ORTRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934   Commission File
    No. 0-30821
  TELECOMMUNICATION SYSTEMS,
    INC.
   MARYLAND

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

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

21401(Zip Code)   (410) 263-7616
    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(Do not check if a smaller reporting company)   Rule 12b-2 o þ
    Shares outstandingas of July 31,Title of Each Class

2010Class A Common Stock, par value$0.01 per share


46,956,905Class B Common Stock, par value$0.01 per share


6,116,334Total Common Stock Outstanding


53,073,239




---



##### 





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


Financial StatementsConsolidated Statements of Income for the three-
    and six-months ended June 30, 2010 and 2009 (Unaudited)


1Consolidated Balance Sheets as of June 30,
    2010 (Unaudited) and December 31, 2009


2Consolidated Statement of Stockholders
    Equity for the six-months ended June 30, 2010
    (Unaudited)


3Consolidated Statements of Cash Flows for the
    six-months ended June 30, 2010 and 2009 (Unaudited)


4Notes to Consolidated Financial Statements
    (Unaudited)


5Item 2.


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


22Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


36Item 4.


Controls and Procedures


36PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


37Item 1A.


Risk Factors


37Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


38Item 3.


Defaults Upon Senior Securities


38Item 4.


Removed and Reserved


38Item 5.


Other Information


38Item 6.


Exhibits


38SIGNATURES


39




---



##### 



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


Six Months EndedJune 30,


June 30,2010


2009


2010


2009RevenueServices

$
63,429


$
34,594


$
123,273


$
65,218Systems


29,233



32,542



60,306



72,419Total revenue


92,662



67,136



183,579



137,637Direct costs of revenueDirect cost of services revenue


35,886



18,820



70,218



37,189Direct cost of systems revenue, including amortization of
    software development costs of $2,301, $762, $4,607 and $1,322,
    respectively


23,588



18,266



46,624



45,154Total direct cost of revenue


59,474



37,086



116,842



82,343Services gross profit


27,543



15,774



53,055



28,029Systems gross profit


5,645



14,276



13,682



27,265Total gross profit


33,188



30,050



66,737



55,294Operating costs and expensesResearch and development expense


6,571



4,915



15,089



9,789Sales and marketing expense


5,967



4,172



11,946



8,163General and administrative expense


9,802



8,398



18,264



15,290Depreciation and amortization of property and equipment


2,257



1,434



4,233



2,888Amortization of acquired intangible assets


1,171



122



2,343



159Total operating costs and expenses


25,768



19,041



51,875



36,289Income from operations


7,420



11,009



14,862



19,005Interest expense


(2,237
)


(225
)


(4,589
)


(413
)Amortization of debt discount and debt issuance expenses


(216
)


(53
)


(376
)


(58
)Other income, net


495



105



985



284Income before income taxes


5,462



10,836



10,882



18,818Provision for income taxes


(2,367
)


(4,230
)


(2,777
)


(7,345
)Net income

$
3,095


$
6,606


$
8,105


$
11,473Net income per share-basic

$
0.06


$
0.14


$
0.15


$
0.25Net income per share-diluted

$
0.06


$
0.13


$
0.14


$
0.22Weighted average shares outstanding-basic


52,920



46,765



52,788



46,170Weighted average shares outstanding- diluted


56,124



51,968



66,897



51,557    1




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##### 



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


December 31,2010


2009(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
97,035


$
61,426Accounts receivable, net of allowance of $427 in 2010 and $389
    in 2009


51,156



65,476Unbilled receivables


25,923



23,783Inventory


3,724



9,331Deferred income taxes


10,228



9,507Receivable from settlement of patent matter






15,700Income tax refund receivable






5,438Other current assets


7,005



8,945Total current assets


195,071



199,606Property and equipment, net of accumulated depreciation and
    amortization of $51,179 in 2010 and $46,960 in 2009


33,283



20,734Software development costs, net of accumulated amortization of
    $14,548 in 2010 and $9,941 in 2009


40,613



45,384Acquired intangible assets, net of accumulated amortization of
    $3,868 in 2010 and $1,526 in 2009


30,585



33,975Goodwill


166,948



164,350Other assets


7,711



8,176Total assets

$
474,211


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

$
39,768


$
52,999Accrued payroll and related liabilities


12,433



19,265Deferred revenue


18,860



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


45,945



39,731Total current liabilities


117,006



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


137,591



143,316Deferred income taxes


13,635



15,435Other long-term liability


4,297



5,755Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 46,924,565 in 2010 and 46,157,025 in 2009


470



462Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 6,116,334 in 2010 and 6,276,334 in 2009


61



63Additional paid-in capital


291,517



283,733Accumulated other comprehensive income


13



12Accumulated deficit


(90,379
)


(98,484
)Total stockholders equity


201,682



185,786Total liabilities and stockholders equity

$
474,211


$
472,225    2




---



##### 



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


Deficit


TotalBalance at January 1, 2010

$
462


$
63


$
283,733


$
12


$
(98,484
)

$
185,786Options exercised for the purchase of 512,799 shares of
    Class A Common Stock


5







1,784











1,789Issuance of 95,823 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1







612











613Conversion of 160,000 shares of Class B Common Stock
    to Class A Common Stock


2



(2
)














Issuance of shares of 15,107 Restricted Class A Common Stock










17











17Stock-based compensation expense










5,371











5,371Foreign currency translation adjustment














1







1Net income for the six-months ended June 30, 2010


















8,105



8,105Balance at June 30, 2010

$
470


$
61


$
291,517


$
13


$
(90,379
)

$
201,862    3




---



##### 



TeleCommunication
    Systems, Inc.Consolidated Statements of Cash
    Flows(amounts in thousands)
    (unaudited)
  Six Months EndedJune 30,2010


2009Operating activities:Net Income

$
8,105


$
11,473Adjustments to reconcile net income to net cash provided
    by/(used in) operating activities:Depreciation and amortization of property and equipment


4,233



2,888Amortization of acquired intangible assets


2,343



159Deferred tax provision


2,777



6,695Stock compensation expense


5,371



2,183Amortization of software development costs


4,607



1,322Amortization of deferred financing fees


376



58Impairment of marketable securities/ investment


225



15Other non-cash adjustments


884



(8
)Changes in operating assets and liabilities:Accounts receivable, net


14,280



13,836Unbilled receivables


(2,084
)


2,617Inventory


5,607



(9,768
)Other current assets


20,947



(732
)Other assets


465



(1,217
)Accounts payable and accrued expenses


(13,377
)


(9,253
)Accrued payroll and related liabilities


(6,862
)


(5,950
)Other liabilities


(5,146
)


Deferred revenue


8,922



7,179Subtotal  Changes in operating assets and liabilities


22,752



(3,288
)Net cash provided by operating activities


51,673



21,498Investing activities:Acquisitions, net of cash acquired






(15,000
)Purchases of property and equipment, net of cash acquired


(11,075
)


(611
)Capitalized software development costs


(2,172
)


(634
)Total net cash used in investing activities


(13,247
)


(16,245
)Financing activities:Proceeds from issuance of long-term debt






20,000Payments on long-term debt and capital lease obligations


(5,218
)


(8,466
)Proceeds from exercise of employee stock options and sale of
    stock


2,402



3,250Total net cash (used in)/provided by financing activities


(2,816
)


14,784Net increase in cash


35,610



20,037Cash and cash equivalents at the beginning of the period


61,425



38,977Cash and cash equivalents at the end of the period

$
97,035


$
59,014    4




---



##### 



TeleCommunication
    Systems, Inc.
  Notes
    to Consolidated Financial Statements
 June 30, 2010
 (amounts in thousands, except 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. Form 10-Q
  Use of Estimates.
  Other Comprehensive
    Income/(Loss). end-of-period
  Deferred Compensation Plan.
  Stock-Based Compensation. 718-10.
 5




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##### 



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


Six MonthsEnded


EndedJune 30,


June 30,2010


2009


2010


2009Numerator:Net income, basic

$
3,095


$
6,606


$
8,105


$
11,473Adjustment for assumed dilution:Interest on convertible debt, net of taxes










1,457



Net income, diluted

$
3,095


$
6,606


$
9,562


$
11,473Denominator:Total basic weighted-average common shares outstanding


52,920



46,765



52,788



46,170Effect of dilutive stock options based on treasury stock method


3,204



4,714



4,107



4,894Effect of dilutive warrants based on treasury stock method






489







493Effect of dilutive 4.5% convertible debt, based on if
    converted method










10,002



Weighted average diluted shares


56,124



51,968



66,897



51,557Basic earnings per common share:Net income per share  basic

$
0.06


$
0.14


$
0.15


$
0.25Diluted earnings per common share:Net income per share-diluted

$
0.06


$
0.13


$
0.14


$
0.22   Income Taxes.
   6




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Recent Accounting
    Pronouncements.
  2009-14 2009-14
  2009-13 2009-13
  2.
    Acquisitions     7




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Assets:Accounts receivable, net

$
145Unbilled accounts receivable


1,081Other current assets


205Property and equipment


865Acquired technology and software development costs


3,703Acquired intangible assets


8,720Goodwill


12,206Total assets

$
26,925Liabilities:Accounts payable and accrued expenses

$
1,273Accrued payroll and related liabilities


325Total liabilities

$
1,598Fair value of net assets acquired

$
25,327            8




---



##### 



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


Six MonthsEnded


EndedPro Forma Information

June 30, 2009


June 30, 2009Revenue

$
86,622


$
173,366Net income

$
8,592


$
13,612Basic earnings per share

$
0.18


$
0.28Diluted earnings per share

$
0.15


$
0.25   3.
    Stock-Based
    Compensation   9




---



##### 



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


Six MonthsEnded June 30,


Ended June 30,2010


2009


2010


2009Stock-based compensation:Stock options granted at fair value

$
2,110


$
1,149


$
5,141


$
2,074Restricted stock


69



40



122



65Employee stock purchase plan


70



28



108



44Total stock compensation expense

$
2,249


$
1,217


$
5,371


$
2,183     Three Months


Six MonthsEnded June 30,


Ended June 30,2010


2009


2010


2009Stock-based compensation:Direct cost of revenue

$
1,415


$
784


$
3,377


$
1,406Research and development expense


587



284



1,402



509Sales and marketing expense


136



98



326



176General and administrative expense


111



51



266



92Total stock compensation included in operating expenses

$
2,249


$
1,217


$
5,371


$
2,183     WeightedAverageNumber of


Exercise(Share amounts in thousands)

Options


PriceOutstanding, beginning of year


14,612


$
5.32Granted


1,818


$
8.31Exercised


(512
)

$
3.53Expired


(131
)

$
6.51Forfeited


(658
)

$
8.21Outstanding, at June 30, 2010


15,129


$
5.60Exercisable, at June 30, 2010


8,286


$
4.02Vested and expected to vest at June 30, 2010


14,037


$
5.41Weighted-average remaining contractual life of options
    outstanding at June 30, 2010


6.5 years  10




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Six MonthsJune 30,2010


2009Estimated weighted-average grant-date fair value of options
    granted during the period

$
4.58


$
4.65Total fair value of options vested during the period

$
5,297


$
3,999Intrinsic value of options exercised during the period

$
2,258


$
4,786     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


81


$
1.70



2.56



81


$
1.70



2.56$1.92 - $2.99


2,415


$
2.47



5.29



2,244


$
2.47



5.25$3.05 - $4.68


4,972


$
3.33



5.54



3,858


$
3.35



5.01$4.83 - $7.45


2,229


$
6.74



4.77



1,692


$
6.73



3.52$7.95 - $9.86


5,432


$
8.66



9.27



411


$
8.17



8.3515,129











8,286       Six Months Ended June 30,2010

2009Expected life (in years)

5.5

5.5Risk-free interest rate(%)

2.4%-2.8%

1.65%-1.9%Volatility(%)

59%-60%

63%-64%Dividend yield(%)

0%

0%   4.
    Supplemental
    Disclosure of Cash Flow Information     11




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    5.
    Fair Value
    Measurements  820-10
  Level 1:
  Level 2:
  Level 3:
    Fair Value


Fair Value Measurements atas of


6/30/20106/30/2010


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
97,035


$
97,035


$



$
Deferred compensation plan investments


1,005



1,005







Assets at Fair Value

$
98,040


$
98,040


$



$
LiabilitiesDeferred compensation

$
858


$
858


$



$
Contractual acquisition earnouts


6,441











6,441Liabilities at Fair Value

$
7,299


$
858


$



$
6,441    12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Fair ValueMeasurementsUsing SignificantUnobservableInputs (level 3)Balance at March 31, 2010

$
7,280Fair value adjustment recognized in earnings


(839
)Balance at June 30, 2010

$
6,441       6.
    Segment
    Information      ®
   13




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months Ended June 30,2010


2009Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
41,323


$
22,106


$
63,429


$
20,648


$
13,946


$
34,594Systems


6,670



22,563



29,233



12,431



20,111



32,542Total revenue


47,993



44,669



92,662



33,079



34,057



67,136Direct costs of revenueDirect cost of services


20,470



15,416



35,886



8,376



10,444



18,820Direct cost of systems


3,448



20,140



23,588



2,443



15,823



18,266Total direct costs


23,918



35,556



59,474



10,819



26,267



37,086Gross profitServices gross profit


20,853



6,690



27,543



12,272



3,502



15,774Systems gross profit


3,222



2,423



5,645



9,988



4,288



14,276Total gross profit

$
24,075


$
9,113


$
33,188


$
22,260


$
7,790


$
30,050   Six Months Ended June 30,2010


2009Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
80,601


$
42,672


$
123,273


$
38,455


$
26,763


$
65,218Systems


15,315



44,991



60,306



20,194



52,225



74,419Total revenue


95,916



87,663



183,579



58,649



78,988



137,637Direct costs of revenueDirect cost of services


39,734



30,484



70,218



16,567



20,622



37,189Direct cost of systems


6,889



39,735



46,624



4,331



40,823



45,154Total direct costs


46,623



70,219



116,842



20,898



61,445



82,343Gross profitServices gross profit


40,867



12,188



53,055



21,888



6,141



28,029Systems gross profit


8,426



5,256



13,682



15,863



11,402



27,265Total gross profit

$
49,293


$
17,444


$
66,737


$
37,751


$
17,543


$
55,294   14




---



##### 



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


Six Months EndedJune 30,


June 30,2010


2009


2010


2009Total segment gross profit

$
33,188


$
30,050


$
66,737


$
55,294Research and development expense


(6,571
)


(4,915
)


(15,089
)


(9,789
)Sales and marketing expense


(5,967
)


(4,172
)


(11,946
)


(8,163
)General and administrative expense


(9,802
)


(8,398
)


(18,264
)


(15,290
)Depreciation and amortization of property and equipment


(2,257
)


(1,434
)


(4,233
)


(2,888
)Amortization of acquired intangible assets


(1,171
)


(122
)


(2,343
)


(159
)Interest expense


(2,237
)


(225
)


(4,589
)


(413
)Amortization debt discount and debt issuance expenses


(216
)


(53
)


(376
)


(58
)Other income, net


495



105



985



284Income before income taxes


5,462



10,836



10,882



18,818Provision for income taxes


(2,367
)


(4,230
)


(2,777
)


(7,345
)Net income

$
3,095


$
6,606


$
8,105


$
11,473   7.
    Inventory    June 30,


Dec. 31,2010


2009Component parts

$
2,074


$
5,658Finished goods


1,650



3,673Total inventory at period end

$
3,724


$
9,331  15




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    June 30, 2010


December 31, 2009Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer lists and other

$
12,951


$
2,040


$
10,911


$
13,735


$
1,151


$
12,584Customer relationships


20,138



1,473



18,665



20,402



113



20,289Trademarks and patents


1,364



355



1,009



1,364



262



1,102Software development costs, including acquired technology


55,161



14,548



40,613



55,325



9,941



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

$
89,614


$
18,416


$
71,198


$
90,826


$
11,467


$
79,359Estimated future amortization expense:Six Months ending December 31, 2010

$
7,013Year ending December 31, 2011

$
13,772Year ending December 31, 2012

$
13,608Year ending December 31, 2013

$
13,557Year ending December 31, 2014

$
11,855Thereafter

$
11,393$
71,198        16




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  9.
    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

2010

2009

2010

2009Federal Agencies

Government


36
%


35
%


36
%


42
%Customer A

Commercial


28
%


28
%


29
%


24
%   As of June 30, 2010Accounts

UnbilledCustomer

Segment

Receivable

ReceivablesU.S. Government

Government


27
%


49
%Customer A

Commercial


30
%


34
%   10.
    Lines of
    Credit    sub-facilities: sub-facility sub-facility sub-facility
 17




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  11.
    Long-term
    Debt    June 30,


Dec. 31,2010


20094.5% Convertible notes dated November 16, 2009

$
103,500


$
103,5006.0% Promissory note payable to NIM sellers dated
    December 16, 2009


40,000



40,0004.5% Note payable to commercial banks dated
    December 31, 2009


26,667



30,000Total long-term debt


170,167



173,500Less: current portion


(41,667
)


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

$
128,500


$
136,833     2010

$
33,3332011


16,6672012


6,6672013


6,6672014


106,833Total long-term debt

$
170,167          18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  ASC 815-40 ,
    Contracts in Entitys own Equity ASC 815-40-25, Additional
    paid-in capital,
         19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    12.
    Capital
    leases      2010

$
5,0992011


4,7842012


3,4412013


1,668Total minimum lease payments


14,992Less: amounts representing interest


(1,623
)Present value of net minimum lease payments (including current
    portion of $4,278)

$
13,369   13.
    Income
    taxes      14.
    Commitments
    and Contingencies   20




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
   21




---



##### 



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
     22




---



##### 



Critical
    Accounting Policies and Estimates
            Form 10-K Form 10-K). Form 10-Q
  Overview
    2009
    Acquisitions
  Form 10-K.
    
    On May 19, 2009, we acquired substantially all of the
    assets of LocationLogic LLC (LocationLogic), a
    provider of infrastructure, applications and services for
    carriers and enterprises to deploy location-based services.
    On December 15, 2009, we acquired Networks In Motion, Inc.,
    (NIM) a provider of wireless navigation solutions
    for GPS-enabled mobile phones.    
    On November 3, 2009, we acquired Solvern Innovations, Inc.,
    (Solvern) a provider of comprehensive communications
    products and solutions, training, and technology services for
    cyber security-based platforms. 23




---



##### 




    On November 16, 2009, we acquired substantially all of the
    assets of Sidereal Solutions, Inc., (Sidereal), a
    satellite communications technology engineering, operations and
    maintenance support services company.    Form 10-K Form 10-Q.
  Indicators of Our
    Financial and Operating Performance
    
    Revenue and gross profit.  We derive revenue
    from the sales of systems and services including recurring
    monthly service and subscriber fees, maintenance fees, software
    licenses and related service fees for the design, development,
    and deployment of software and communication systems, and
    products and services derived from the delivery of information
    processing and communication systems 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
   24




---



##### 



Revenue and Cost
    of Revenue
    Commercial
    Segment:
  Three Months





Six MonthsEnded June 30,


2010 vs. 2009


Ended June 30,


2010 vs. 2009($ in millions)

2010


2009


$


%


2010


2009


$


%Services revenue

$
41.3


$
20.7


$
20.6



100
%

$
80.6


$
38.5


$
42.1



109
%Systems revenue


6.7



12.4



(5.7
)


(46
)%


15.3



20.2



(4.9
)


(24
)%Commercial segment revenue


48.0



33.1



14.9



45
%


95.9



58.7



37.2



63
%Direct cost of services revenue


20.4



8.4



12.0



143
%


39.7



16.6



23.1



139
%Direct cost of systems revenue


3.5



2.4



1.1



46
%


6.9



4.3



2.6



60
%Commercial segment cost of revenue


23.9



10.8



13.1



121
%


46.6



20.9



25.7



123
%Services gross profit


20.9



12.3



8.6



70
%


40.9



21.9



19.0



87
%% of revenue


51
%


59
%










51
%


57
%Systems gross profit


3.2



10.0



(6.8
)


(68
)%


8.4



15.9



(7.5
)


(47
)%% of revenue


48
%


81
%










55
%


79
%Commercial segment gross
    profit(1)

$
24.1


$
22.3


$
1.8



8
%

$
49.3


$
37.8


$
11.5



30
%% of revenue


50
%


67
%










51
%


64
%     1

    
    See discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements  Commercial
    Services Revenue, Cost of Revenue, and Gross Profit:
    turn-by-turn
   25




---



##### 



Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
         26




---



##### 



Government
    Segment:
  Three Months





Six MonthsEnded June 30,


2010 vs. 2009


Ended June 30,


2010 vs. 2009($ in millions)

2010


2009


$


%


2010


2009


$


%Services revenue

$
22.1


$
13.9


$
8.2



59
%

$
42.7


$
26.7


$
16.0



60
%Systems revenue


22.6



20.1



2.5



12
%


45.0



52.2



(7.2
)


(14
)%Government segment revenue


44.7



34.0



10.7



31
%


87.7



78.9



8.8



11
%Direct cost of services revenue


15.4



10.4



5.0



48
%


30.5



20.6



9.9



48
%Direct cost of systems revenue


20.2



15.8



4.4



28
%


39.7



40.8



(1.1
)


(3
)%Government segment cost of revenue


35.6



26.2



9.4



36
%


70.2



61.4



8.8



14
%Services gross profit


6.7



3.5



3.2



91
%


12.2



6.1



6.1



100
%% of revenue


30
%


25
%










29
%


23
%Systems gross profit


2.4



4.3



(1.9
)


(44
)%


5.3



11.4



(6.1
)


(54
)%% of revenue


11
%


21
%










12
%


22
%Government segment gross profit


9.1



7.8



1.3



17
%


17.5



17.5







% of revenue


20
%


23
%










20
%


22
%     1

    
    See discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements  Government
    Services Revenue, Cost of Revenue, and Gross Profit:
      Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  line-of-sight
 27




---



##### 



®
  ®
    ®
  Revenue
    Backlog
    ($ in millions)

2010


2009


$


%Commercial Segment

$
261.0


$
102.4


$
158.6



155
%Government Segment


82.4



62.8



19.6



31
%Total funded contract backlog

$
343.4


$
165.2


$
178.2



108
%Commercial Segment

$
261.0


$
102.4


$
158.6



155
%Government Segment


350.5



303.8



46.7



15
%Total backlog of orders and commitments, including customer
    options

$
611.5


$
406.2


$
205.3



51
%Expected to be realized within next 12 months

$
201.7


$
124.2


$
77.5



62
%   and/or
 28




---



##### 



Operating
    Expenses
  Research and
    development expense:
  Three Months





Six MonthsEnded





EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%Research and development expense

$
6.6


$
4.9


$
1.7



35
%

$
15.1


$
9.8


$
5.3



54
%% of total revenue


7
%


7
%










8
%


7
%       product-by-product
    Sales and
    marketing expense:
  Three Months





Six MonthsEnded





EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%Sales and marketing expense

$
6.0


$
4.2


$
1.8



43
%

$
11.9


$
8.2


$
3.7



45
%% of total revenue


6
%


6
%










6
%


6
%    29




---



##### 



General and
    administrative expense:
  Three Months





Six MonthsEnded





EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%General and administrative expense

$
9.8


$
8.4


$
1.4



17
%

$
18.3


$
15.3


$
3.0



20
%% of total revenue


11
%


13
%










10
%


11
%       Depreciation and
    amortization of property and equipment:
  Three Months



Six MonthsEnded



EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%Depreciation and amortization of property and equipment

$
2.3


$
1.4


$
0.9



64
%

$
4.2


$
2.9


$
1.3



45
%Average gross cost of property and equipment during the period

$
78.8


$
57.5










$
75.1


$
56.2       Amortization of
    acquired intangible assets:
  Three Months





Six MonthsEnded





EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%Amortization of acquired intangible assets

$
1.2


$
0.1


$
1.1



1100
%

$
2.3


$
0.2


$
2.1



1050
%  30




---



##### 



Interest
    expense:
  Three Months








Six MonthsEnded








EndedJune 30,


2010 vs. 2009


June 30,


2010 vs. 2009($ in millions)

2010


2009


$


%


2010


2009


$


%Interest expense incurred on bank and other notes payable

$
0.9


$
0.1


$
0.8



800
%

$
1.9


$
0.2


$
1.7



850
%Interest expense incurred on 4.5% convertible debt financing


1.2







1.2



100
%


2.3







2.3



100
%Interest expense incurred on capital lease obligations


0.2



0.1



0.1



100
%


0.4



0.2



0.2



100
%Amortization of deferred financing fees


0.2



0.1



0.1



100
%


0.4



0.1



0.3



300
%Total interest and financing expense

$
2.5


$
0.3


$
2.2



733
%

$
5.0


$
0.5


$
4.5



900
%          31




---



##### 



Other
    income/(expense), net:
    Income
    taxes:
    Net
    income:
  Three Months



Six MonthsEnded



EndedJune 30,

2010 vs. 2009

June 30,

2010 vs. 2009($ in millions)

2010

2009

$

%

2010

2009

$

%Net income

$
3.1


$
6.6


$
(3.5
)


(53
)%

$
8.1


$
11.5


$
(3.4
)


(30
)%    32




---



##### 



Liquidity and
    Capital Resources
  Six MonthsEndedJune 30,


2010 vs. 2009($ in millions)

2010


2009


$


%Net cash and cash equivalents provided by/(used in):Income

$
8.1


$
11.5


$
(3.4
)


(30
)%Non-cash charges


18.0



6.6



11.4



173
%Deferred income tax provision


2.8



6.7



(3.9
)


(58
)%Net changes in working capital including changes in other assets


22.8



(3.3
)


26.1



791
%Operating activities


51.7



21.5



30.2



140
%Acquisition of LocationLogic assets






(15.0
)


15.0



100
%Purchases of property and equipment


(16.8
)


(5.2
)


(11.6
)


(223
)%Capital purchases funded through leases


5.7



4.6



1.1



24
%Purchases of property and equipment, excluding assets funded by
    leasing


(11.1
)


(0.6
)


(10.5
)


(1750
)%Capitalized software development costs


(2.2
)


(0.6
)


(1.6
)


(267
)%Proceeds from new borrowings






20.0



(20.0
)


(100
)%Other financing activities


(2.8
)


(5.3
)


2.5



47
%Net increase in cash

$
35.6


$
20.0


$
15.6



78
%Days revenue in accounts receivable, including unbilled
    receivables at quarter-end


75



92   Capital resources:
  Sources and uses of cash:
  Operations:
  Investing activities:
  Financing activities:
  Capital Resources:
 33




---



##### 



sub-facilities: sub-facility sub-facility sub-facility
           34




---



##### 



Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm loan

$
7.7


$
14.5


$
6.8


$



$
29.04.5% Convertible debt interest obligation


4.7



9.4



6.9







21.0Promissory notes payable


37.7



5.3











43.0Other long-term debt


3.0



3.4











6.4Capital lease obligations


5.1



8.2



1.7







15.0Operating leases


4.9



9.1



3.1



1.7



18.8Purchase obligations


4.7



3.1











7.8Total contractual commitments

$
67.8


$
53.0


$
18.5


$
1.7


$
141.0  35




---



##### 



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),
   36




---



##### 



PART II. 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
    Item 1A.
    Risk
    Factors  Form 10-K.
 37




---



##### 



Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Removed
    and Reserved  Item 5.
    Other
    Information      Item 6.
    Exhibits  ExhibitNumbers

Description31
.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  38




---



##### 



SIGNATURES       By:
    /s/  Maurice
    B. Tosé       /s/ Maurice B. ToséMaurice B. ToséAugust 5, 2010

Chairman, President and Chief Executive Officer
    (Principal Executive Officer)/s/ Thomas M. Brandt, Jr.Thomas M. Brandt, Jr.August 5, 2010

Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)  39