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,
    2009ORTRANSACTION 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
  Regulation S-T o o
  12b-2
  Large accelerated filer o

Accelerated filer þ

Non-accelerated filero
    (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

2009Class A Common Stock, par value$0.01 per share


41,244,640Class B Common Stock, par value$0.01 per share


6,491,334Total Common Stock Outstanding


47,735,974




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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, 2009 and 2008
    (Unaudited)


1Consolidated Balance Sheets as of June 30,
    2009 (Unaudited) and December 31, 2008


2Consolidated Statement of Stockholders
    Equity for the six-months ended June 30, 2009
    (Unaudited)


3Consolidated Statements of Cash Flows for the
    six-months ended June 30, 2009 and 2008 (Unaudited)


4Notes to Consolidated Financial Statements
    (Unaudited)


5Item 2.


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


21Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


33Item 4.


Controls and Procedures


34PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


35Item 1A.


Risk Factors


36Item 6.


Exhibits


37SIGNATURES


38Ex-10.50EX-10.51Ex-31.2Ex-32.1Ex-32.2




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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 30,2009


2008


2009


2008RevenueServices

$
34,594


$
24,334


$
65,218


$
47,100Systems


32,542



19,577



72,419



37,224Total revenue


67,136



43,911



137,637



84,324Direct costs of revenueDirect cost of services revenue


18,820



14,179



37,189



27,837Direct cost of systems revenue, including amortization of
    software development costs of $762, $560, $1,322 and $969,
    respectively


18,266



10,520



45,154



17,711Total direct cost of revenue


37,086



24,699



82,343



45,548Services gross profit


15,774



10,155



28,028



19,263Systems gross profit


14,276



9,057



27,265



19,513Total gross profit


30,050



19,212



55,294



38,776Operating costs and expensesResearch and development expense


4,915



3,935



9,789



8,023Sales and marketing expense


4,172



3,595



8,163



6,694General and administrative expense


8,398



5,997



15,290



11,315Depreciation and amortization of property and equipment


1,434



1,506



2,888



2,996Amortization of acquired intangible assets


122



37



159



74Total operating costs and expenses


19,041



15,070



36,289



29,102Gain on sale of patent






8,060







8,060Income from operations


11,009



12,202



19,005



17,734Interest and financing expenses


(225
)


(200
)


(413
)


(529
)Amortization debt issuance expenses


(53
)


(22
)


(58
)


(146
)Other income/(expense), net


105



137



284



(276
)Income before income taxes


10,836



12,117



18,818



16,783Provision for income taxes


(4,230
)


(152
)


(7,345
)


(200
)Net income

$
6,606


$
11,965


$
11,473


$
16,583Net income per share-basic

$
0.14


$
0.28


$
0.25


$
0.39Net income per share-diluted

$
0.13


$
0.26


$
0.22


$
0.37Weighted average shares outstanding-basic


46,765



42,486



46,170



42,380Weighted average shares outstanding-diluted


51,968



45,644



51,557



44,800    1




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##### 



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


December 31,2009


2008(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
59,014


$
38,977Accounts receivable, net of allowance of $395 in 2009 and $285
    in 2008


48,137



61,827Unbilled receivables


20,360



21,797Inventory


12,483



2,715Deferred income taxes


9,736



9,736Other current assets


5,004



3,869Total current assets


154,734



138,921Property and equipment, net of accumulated depreciation and
    amortization of $43,953 in 2009 and $41,268 in 2008


15,559



12,391Software development costs, net of accumulated amortization of
    $8,194 in 2009 and $6,873 in 2008


10,805



2,773Acquired intangible assets, net of accumulated amortization of
    $815 in 2009 and $656 in 2008


4,105



562Goodwill


13,377



1,813Deferred income taxes


17,614



24,309Other assets


2,407



1,190Total assets

$
218,601


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

$
26,365


$
34,345Accrued payroll and related liabilities


10,817



17,243Deferred revenue


11,528



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


6,697



3,837Total current liabilities


55,407



59,774Capital lease obligations and notes payable, less current
    portion, and other long term liabilities


21,969



7,913Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 41,244,640 in 2009 and 38,527,234 in 2008


412



385Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 6,491,334 in 2009 and 6,876,334 in 2008


65



69Additional paid-in capital


256,015



240,559Accumulated other comprehensive income


13



12Accumulated deficit


(115,280
)


(126,753
)Total stockholders equity


141,225



114,272Total liabilities and stockholders equity

$
218,601


$
181,959    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


Deficit


TotalBalance at January 1, 2009

$
385


$
69


$
240,559


$
12


$
(126,753
)

$
114,272Options exercised for the purchase of 887,492 shares of
    Class A Common Stock


9







3,030











3,039Issuance of 41,473 shares of Class A Common Stock
    under Employee Stock Purchase Plan










249











249Issuance of 1,393,715 shares of Class A Common Stock
    in connection with the acquisition of the assets of
    LocationLogic LLC


14







9,986











10,000Conversion of 385,000 shares of Class B Common Stock
    to Class A Common Stock


4



(4
)














Issuance of 9,728 shares of Restricted Class A Common
    Stock










8











8Stock compensation expense










2,183











2,183Foreign currency translation adjustment














1







1Net income


















11,473



11,473Balance at June 30, 2009

$
412


$
65


$
256,015


$
13


$
(115,280
)

$
141,225    3




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##### 



TeleCommunication
    Systems, Inc.Consolidated Statements of Cash Flows
    (amounts in thousands)
    (unaudited)
  Six Months EndedJune 30,2009


2008Operating activities:Net income

$
11,473


$
16,583Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization of property and equipment


2,888



2,996Non-cash stock compensation expense


2,183



1,898Deferred tax benefit


6,695



Amortization of software development costs


1,322



969Amortization of deferred financing fees


58



146Impairment of marketable securities


15



482Amortization of acquired intangible assets


159



74Other non-cash (income)/expense


(8
)


157Changes in operating assets and liabilities, net of acquisition:Accounts receivable, net


13,836



(11,558
)Unbilled receivables


2,617



3,829Inventory


(9,768
)


972Other current assets


(732
)


(2,947
)Other assets


(1,217
)


287Accounts payable and accrued expenses


(9,253
)


1,735Accrued payroll and related liabilities


(5,950
)


1,914Deferred revenue


7,179



1,450Total net cash provided by operating activities


21,498



18,987Investing activities:Acquisition, net of cash acquired


(15,000
)


Purchases of property and equipment


(611
)


(1,740
)Capitalized software development costs


(634
)


(306
)Total net cash used in investing activities


(16,245
)


(2,046
)Financing activities:Proceeds from issuance of long-term debt


20,000



Payments on long-term debt and capital lease obligations


(8,466
)


(5,642
)Proceeds from exercise of stock options and sale of stock


3,250



945Total net cash (used in)/provided by financing activities


14,784



(4,697
)Total net increase in cash


20,037



12,244Cash and cash equivalents at the beginning of the period


38,977



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

$
59,014


$
28,199    4




---



##### 



TeleCommunication
    Systems, Inc.Notes to Consolidated Financial Statements
    June 30, 2009
    (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.
  Deferred Compensation Plan.
  Other Comprehensive Income. end-of-period available-for-sale.
  Stock-Based Compensation. Share Based
    Payment
  Earnings per share.
 5




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##### 



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


EndedJune 30,


June 30,2009


2008


2009


2008Basic weighted average common shares outstanding


46,765



42,486



46,170



42,380Dilutive options outstanding


4,714



2,361



4,894



1,759Dilutive warrants outstanding


489



797



493



661Diluted weighted average common shares outstanding used in the
    calculation of diluted income per share


51,968



45,644



51,557



44,800   Income Taxes.
      Recent Accounting
    Pronouncements.
   6




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        available to be issued.
    Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51
 7




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      2.
    Acquisition
    and Related Financing       8




---



##### 



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

$
145Unbilled accounts receivable


1,179Other current assets


421Property and equipment


865Acquired technology and software development costs


3,703Acquired intangible assets


8,720Goodwill


11,565Total assets

$
26,598Liabilities:Accounts payable and accrued expenses

$
1,273Accrued payroll and related liabilities


325Total liabilities

$
1,598Net assets acquired

$
25,000     3.
    Stock-Based
    Compensation     9




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##### 



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


Six MonthsEnded


EndedJune 30,


June 30,2009


2008


2009


2008Stock Compensation:Stock options granted at fair value

$
1,149


$
884


$
2,074


$
1,815Restricted stock


40



22



65



55Employee stock purchase plan


28



17



44



28Total stock compensation expense

$
1,217


$
923


$
2,183


$
1,898     Three Months Ended June 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


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

$
340


$
153


$
493


$
285


$
122


$
407Direct cost of systems


57



234



291



42



163



205Total stock compensation included in direct costs of revenue

$
397


$
387


$
784


$
327


$
285


$
612   Six Months Ended June 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


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

$
610


$
274


$
884


$
586


$
251


$
837Direct cost of systems


102



420



522



87



335



422Total stock compensation included in direct costs of revenue

$
712


$
694


$
1,406


$
673


$
586


$
1,259   Three Months


Six MonthsEnded


EndedJune 30,


June 30,2009


2008


2009


2008Stock compensation included in operating expenses:Research and development expense

$
284


$
202


$
509


$
415Sales and marketing expense


98



67



176



138General and administrative expense


51



42



92



86Total stock compensation included in operating expenses

$
433


$
311


$
777


$
639  10




---



##### 



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


Exercise(Share amounts in thousands)

Options


PriceOutstanding, beginning of year


11,676


$
3.77Granted


1,569


$
8.24Exercised


(888
)

$
3.43Forfeited


(190
)

$
5.00Outstanding, at June 30, 2009


12,167


$
4.35Exercisable, at June 30, 2009


7,303


$
3.93Vested and expected to vest at June 30, 2009


10,674


$
4.27Estimated weighted-average grant- date fair value of options
    granted during the period

$
4.65Weighted-average remaining contractual life of options
    outstanding at end of period


6.49 years   WeightedAverageNumber of


FairOptions


ValueNon-vested, beginning of year


5,368


$
2.21Forfeited


(181
)

$
3.06Vested


1,893


$
2.11Exercisable, at June 30, 2009


7,303


$
3.28Non-vested, at June 30, 2009


4,863


$
3.00     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$ 1.07 - $ 2.61


2,592


$
2.42



6.13



2,214


$
2.42$ 2.61 - $ 5.21


5,975


$
3.35



6.47



3,252


$
3.33$ 5.21 - $ 7.82


2,041


$
6.76



4.69



1,807


$
6.75$ 7.82 - $10.42


1,554


$
8.23



9.57



25


$
8.30$10.42 - $26.05


5


$
23.37



0.91



5


$
23.3712,167











7,303    11




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Six Months Ended June 30,2009

2008Expected life (in years)

5.5

5.5Risk-free interest rate(%)

1.65%-1.9%

2.65%-3.28%Volatility(%)

63%-64%

63%-67%Dividend yield(%)

0%

0%   4.
    Supplemental
    Disclosure of Cash Flow Information and Noncash Investing and
    Financing Activities          5.
    Fair Value
    Measurement         12




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##### 



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


Fair Value Measurements at 6/30/20096/30/2009


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
59,014


$
59,014


$



$
Marketable securities available for sale


60



60







Deferred compensation plan investments


802



802







Assets at Fair Value

$
59,876


$
59,876


$



$
LiabilitiesDeferred compensation

$
802


$
802


$



$
Liabilities at Fair Value

$
802


$
802


$



$
       6.
    Segment
    Information    ®
  ®
   13




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months Ended June 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
20,648


$
13,946


$
34,594


$
16,553


$
7,781


$
24,334Systems


12,431



20,111



32,542



9,074



10,503



19,577Total revenue


33,079



34,057



67,136



25,627



18,284



43,911Operating costs and expensesDirect cost of services


8,376



10,444



18,820



7,906



6,273



14,179Direct cost of systems


2,443



15,823



18,266



2,843



7,677



10,520Total direct costs


10,819



26,267



37,086



10,749



13,950



24,699Gross profitServices gross profit


12,272



3,502



15,774



8,647



1,508



10,155Systems gross profit


9,988



4,288



14,276



6,231



2,826



9,057Total gross profit

$
22,260


$
7,790


$
30,050


$
14,878


$
4,334


$
19,212   Six Months Ended June 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
38,455


$
26,763


$
65,218


$
32,089


$
15,011


$
47,100Systems


20,194



52,225



74,419



19,780



17,444



37,224Total revenue


58,649



78,988



137,637



51,869



32,455



84,324Operating costs and expensesDirect cost of services


16,567



20,622



37,189



15,865



11,972



27,837Direct cost of systems


4,331



40,823



45,154



4,889



12,822



17,711Total direct costs


20,898



61,445



82,343



20,754



24,794



45,548Gross profitServices gross profit


21,888



6,141



28,029



16,224



3,039



19,263Systems gross profit


15,863



11,402



27,265



14,891



4,622



19,513Total gross profit

$
37,751


$
17,543


$
55,294


$
31,115


$
7,661


$
38,776   14




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##### 



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


Six Months EndedJune 30,


June 30,2009


2008


2009


2008Total segment gross profit

$
30,050


$
19,212


$
55,294


$
38,776Research and development expense


(4,915
)


(3,935
)


(9,789
)


(8,023
)Sales and marketing expense


(4,172
)


(3,595
)


(8,163
)


(6,694
)General and administrative expense


(8,398
)


(5,997
)


(15,290
)


(11,315
)Depreciation and amortization of property and equipment


(1,434
)


(1,506
)


(2,888
)


(2,996
)Amortization of acquired intangible assets


(122
)


(37
)


(159
)


(74
)Interest expense


(225
)


(200
)


(413
)


(529
)Amortization debt issuance expenses


(53
)


(22
)


(58
)


(146
)Other income/(expense), net


105



137



284



(276
)Gain on sale of patent






8,060







8,060Income before taxes


10,836



12,117



18,818



16,783Provision for income taxes


(4,230
)


(152
)


(7,345
)


(200
)Net income

$
6,606


$
11,965


$
11,473


$
16,583   7.
    Inventory    June 30,


Dec. 31,2009


2008Component parts

$
3,665


$
1,763Finished goods


8,818



952Total inventory at period end

$
12,483


$
2,715   8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    June 30, 2009


December 31, 2008Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
3,557


$
647


$
2,910


$
606


$
521


$
85Trademarks & Patents


1,364



169



1,195



612



135



477Software development costs, including acquired technology


19,000



8,195



10,805



9,646



6,873



2,773Total

$
23,921


$
9,011


$
14,910


$
10,864


$
7,529


$
3,335 15




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Estimated future amortization expense:Six-months ending December 31, 2009

$
1,937Year ending December 31, 2010


3,400Year ending December 31, 2011


2,841Year ending December 31, 2012


2,694Year ending December 31, 2013


2,694Thereafter


1,344Total

$
14,910           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

2009


2008


2009


2008Federal Agencies

Government


35
%


30
%


42
%


27
%Customer A

Commercial


28
%


23
%


24
%


29
%   As of June 30, 2009Accounts


UnbilledCustomer

Segment

Receivable


ReceivablesFederal Agencies

Government


40
%


30
%Customer A

Commercial


28
%


17
%  16




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   10.
    Lines of
    Credit and Financing Arrangements      sub-facilities: sub-facility sub-facility sub-facility
     17




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    3-year
    11.
    Income
    taxes      12.
    Commitments
    and Contingencies    No. 01-CV-9500.
 18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Rule 10b-5 Rule 10b-5
   19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      13.
    Subsequent
    Events   20




---



##### 



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
      Form 10-K Form 10-Q.
 21




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##### 



Critical
    Accounting Policies
          Form 10-K Form 10-K). Form 10-Q
  Overview
    Recent
    Acquisition
    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 22




---



##### 



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 Loan Agreement, lease
    financings secured for the purchase of equipment and potential
    borrowings under our credit lines.
    Balance sheet.  We view cash, working capital,
    accounts receivable balances and days revenue in accounts
    receivable as important indicators of our financial health.  Results of
    Operations
  Revenue and Cost
    of Revenue
    Commercial
    Segment:
  Three Months








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Services revenue

$
20.7


$
16.5


$
4.2



25
%

$
38.5


$
32.1


$
6.4



20
%Systems revenue


12.4



9.1



3.3



36
%


20.2



19.8



0.4



2
%Commercial segment revenue


33.1



25.6



7.5



29
%


58.7



51.9



6.8



13
%Direct cost of services revenue


8.4



7.9



0.5



6
%


16.6



15.9



0.7



4
%Direct cost of systems revenue


2.4



2.8



(0.4
)


(14
)%


4.3



4.9



(0.6
)


(12
)%Commercial segment cost of revenue


10.8



10.7



0.1



1
%


20.9



20.8



0.1



Services gross profit


12.3



8.6



3.7



43
%


21.9



16.2



5.7



35
%% of revenue


59
%


52
%










57
%


50
%Systems gross profit


10.0



6.3



3.7



59
%


15.9



14.9



1.0



7
%% of revenue


81
%


69
%










79
%


75
%Commercial segment gross
    profit1

$
22.3


$
14.9


$
7.4



50
%

$
37.8


$
31.1


$
6.7



22
%% of revenue


67
%


58
%










64
%


60
%     1 See

    discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements 23




---



##### 



Commercial
    Services Revenue, Cost of Revenue, and Gross Profit:
    ®
        Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
     24




---



##### 



Government
    Segment:
  Three Months








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Services revenue

$
13.9


$
7.8


$
6.1



78
%

$
26.7


$
15.0


$
11.7



78
%Systems revenue


20.1



10.5



9.6



91
%


52.2



17.4



34.8



200
%Government segment revenue


34.0



18.3



15.7



86
%


78.9



32.4



46.5



144
%Direct cost of services revenue


10.4



6.3



4.1



65
%


20.6



11.9



8.7



73
%Direct cost of systems revenue


15.8



7.7



8.1



105
%


40.8



12.8



28.0



219
%Government segment cost of revenue


26.2



14.0



12.2



87
%


61.4



24.7



36.7



149
%Services gross profit


3.5



1.5



2.0



133
%


6.1



3.1



3.0



97
%% of revenue


25
%


19
%










23
%


21
%Systems gross profit


4.3



2.8



1.5



54
%


11.4



4.6



6.8



148
%% of revenue


21
%


27
%










22
%


26
%Government segment gross
    profit1

$
7.8


$
4.3


$
3.5



81
%

$
17.5


$
7.7


$
9.8



127
%% of revenue


23
%


23
%










22
%


24
%     1 See

    discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements  sub-contractor
 25




---



##### 



Government
    Services Revenue, Cost of Revenue, and Gross Profit:
      Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ®
  ® 5-year
     26




---



##### 



Revenue
    Backlog
    June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%Commercial Segment

$
102.4


$
78.4


$
24.0



31
%Government Segment


62.8



37.0



25.8



70
%Total funded contract backlog

$
165.2


$
115.4


$
49.8



43
%Commercial Segment

$
102.4


$
81.0


$
21.4



26
%Government Segment


303.8



125.2



178.6



143
%Total backlog of orders and commitments, including customer
    options

$
406.2


$
206.2


$
200.0



97
%Expected to be realized within the next 12 months

$
124.2


$
75.9


$
48.3



64
%   and/or
  Operating
    Expenses
  Research and
    development expense:
  Three Months





Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Research and development expense

$
4.9


$
3.9


$
1.0



26
%

$
9.8


$
8.0


$
1.8



23
%% of total revenue


7
%


9
%










7
%


9
%      27




---



##### 



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








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Sales and marketing expense

$
4.2


$
3.6


$
0.6



17
%

$
8.2


$
6.7


$
1.5



23
%% of total revenue


6
%


8
%










6
%


8
%     General and
    administrative expense:
  Six MonthsThree Months








EndedEnded June 30,


2009 vs. 2008


June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%General and administrative expense

$
8.4


$
6.0


$
2.4



40
%

$
15.3


$
11.3


$
4.0



35
%% of total revenue


13
%


14
%










11
%


13
%    28




---



##### 



Depreciation and
    amortization of property and equipment:
  Three Months








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Depreciation and amortization of property and equipment

$
1.4


$
1.5


$
(0.1
)


(7
)%

$
2.9


$
3.0


$
(0.1
)


(3
)%Average gross cost of property and equipment during the period

$
57.5


$
49.8










$
56.2


$
49.0     Amortization of
    acquired intangible assets:
  Three Months








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Amortization of acquired intangible assets

$
0.1


$
0.1


$




NM


$
0.2


$
0.1


$
0.1



100
%     Interest
    expense:
  Three Months








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Interest expense incurred on notes payable and line of credit

$
0.1


$
0.2


$
(0.1
)


(50
)%

$
0.2


$
0.5


$
(0.3
)


(60
)%Interest expense incurred on capital lease obligations


0.1



0.1











0.2



0.1



0.1



100
%Amortization of deferred financing fees


0.1







0.1



100
%


0.1



0.1







Total interest expense

$
0.3


$
0.3


$







$
0.5


$
0.7


$
(0.2
)


(29
)%        29




---



##### 



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








Six MonthsEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Net income

$
6.6


$
12.0


$
(5.4
)


(45
)%

$
11.5


$
16.6


$
(5.1
)


(31
)%    30




---



##### 



Liquidity and
    Capital Resources
  Six MonthsEndedJune 30,


2009 vs. 2008($ in millions)

2009


2008


$


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

$
11.5


$
16.6


$
(5.1
)


(31
)%Non-cash charges


6.6



6.7



(0.1
)


(1
)%Deferred income tax provision


6.7







6.7



100
%Net changes in working capital including changes in other assets


(3.3
)


(4.4
)


1.1



25
%Operating activities


21.5



18.9



2.6



14
%Acquisition of LocationLogic assets


(15.0
)






(15.0
)


(100
)%Purchases of property and equipment


(0.6
)


(1.7
)


1.1



65
%Capitalized software development costs


(0.6
)


(0.3
)


(0.3
)


(100
)%Proceeds from new borrowings


20.0







20.0



100
%Other financing activities


(5.3
)


(4.7
)


(0.6
)


(13
)%Net increase in cash

$
20.0


$
12.2


$
7.8



64
%Days revenue in accounts receivable, including unbilled
    receivables at quarter-end


92



89   Capital resources:
  Sources and uses of cash:
  Operating activities:
  Investing activities:
  Financing activities:
   31




---



##### 



sub-facilities: sub-facility sub-facility sub-facility
           32




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm loan

$
4.7


$
9.0


$
8.3


$



$
22.0Capital lease obligations


3.2



4.7



0.9







8.8Operating leases


3.7



3.9



1.6







9.2Purchase obligations


8.4



7.9











16.3Total contractual commitments

$
20.0



25.5


$
10.8


$



$
56.3   Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest Rate
    Risk
  Form 10-K.
  Foreign Currency
    Risk
    Form 10-K.
 33




---



##### 



Item 4.
    Controls
    and Procedures    Rule 13a-15(b),
   34




---



##### 



PART II. 
    OTHER INFORMATION Item 1.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
   35




---



##### 



Item 1A.
    Risk
    Factors  Form 10-K
  We may incur losses if we are unable to resell products
    and services for which we have contractual minimum purchase
    obligations.
    Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  and/or
  Item 4.
    Submission of
    Matters to a Vote of Security Holders   36




---



##### 



Terms Expiring in 2012

Affirmative Votes


Votes withheldJan C. Huly


39,469,067



2,981,275Weldon H. Latham


38,136,012



4,314,330Terms expiring in 2011Thomas M. Brandt, Jr.


36,073,057



6,377,285Terms expiring in 2010Richard A. Young


38,997,418



3,452,924       Item 6.
    Exhibits  ExhibitNumbers

Description10
.50

Third Amended and Restated Loan and Security Agreement among
    TeleCommunication Systems, Inc., Longhorn Acquisition, LLC and
    Silicon Valley Bank dated June 26, 200910
.51

TeleCommunication Systems, Inc. Deferred Compensation Plan31
.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  37




---



##### 



SIGNATURES      By:
    /s/  Maurice
    B. Tosé       /s/ Maurice B. ToséMaurice B. ToséJuly 31, 2009

Chairman, President and Chief Executive Officer
    (Principal Executive Officer)/s/ Thomas M. Brandt, Jr.Thomas M. Brandt, Jr.July 31, 2009

Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)  38