SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
    FORM 10-Q
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the quarter ended September
    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

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
  12b-2
  Large accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller reporting
    company o   Rule 12b-2 o þ
    Shares outstandingas of September 30,Title of Each Class

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


42,273,555Class B Common Stock, par value$0.01 per share


6,391,334Total Common Stock Outstanding


48,664,889




---



##### 





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


Financial StatementsConsolidated Statements of Income for the three-
    and nine-months ended September 30, 2009 and 2008
    (Unaudited)


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


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


3Consolidated Statements of Cash Flows for the
    nine-months ended September 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 2.


Unregistered Sale of Equity Securities and Use of
    Proceeds


36Item 4.


Submission of Matters to a Vote of Security
    Holders


36Item 6.


Exhibits


37SIGNATURES


38




---



##### 



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


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008RevenueServices

$
39,300


$
24,902


$
104,518


$
72,002Systems


32,309



31,629



104,728



68,853Total revenue


71,609



56,531



209,246



140,855Direct costs of revenueDirect cost of services revenue


21,245



15,486



58,434



43,323Direct cost of systems revenue, including amortization of
    software development costs of $781, $560, $2,103 and $1,529,
    respectively


22,153



23,588



67,307



41,299Total direct cost of revenue


43,398



39,074



125,741



84,622Services gross profit


18,055



9,416



46,084



28,679Systems gross profit


10,156



8,041



37,421



27,554Total gross profit


28,211



17,457



83,505



56,233Operating costs and expensesResearch and development expense


5,823



3,815



15,612



11,838Sales and marketing expense


3,579



3,128



11,742



9,822General and administrative expense


7,665



6,071



22,955



17,386Depreciation and amortization of property and equipment


1,571



1,474



4,459



4,470Amortization of acquired intangible assets


222



37



381



111Total operating costs and expenses


18,860



14,525



55,149



43,627Gain on sale of patent














8,060Income from operations


9,351



2,932



28,356



20,666Interest and financing expenses


(371
)


(205
)


(784
)


(734
)Amortization of debt issuance expenses


(16
)


(27
)


(74
)


(173
)Other income/(expense), net


43



171



327



(105
)Income before income taxes


9,007



2,871



27,825



19,654Provision for income taxes


(3,596
)


(114
)


(10,941
)


(314
)Net income

$
5,411


$
2,757


$
16,884


$
19,340Net income per share-basic

$
0.11


$
0.06


$
0.36


$
0.45Net income per share-diluted

$
0.10


$
0.06


$
0.33


$
0.42Weighted average shares outstanding-basic


48,233



43,312



46,865



42,693Weighted average shares outstanding-diluted


52,862



49,218



51,804



46,223    1




---



##### 



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


December 31,2009


2008(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
79,296


$
38,977Accounts receivable, net of allowance of $350 in 2009 and $285
    in 2008


42,583



61,827Unbilled receivables


22,860



21,797Inventory


8,879



2,715Deferred income taxes


9,736



9,736Other current assets


4,221



3,869Total current assets


167,575



138,921Property and equipment, net of accumulated depreciation and
    amortization of $45,386 in 2009 and $41,268 in 2008


15,228



12,391Software development costs, net of accumulated amortization of
    $8,975 in 2009 and $6,873 in 2008


9,450



2,773Acquired intangible assets, net of accumulated amortization of
    $1,038 in 2009 and $656 in 2008


3,883



562Goodwill


13,377



1,813Deferred income taxes


14,322



24,309Other assets


3,929



1,190Total assets

$
227,764


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

$
26,130


$
34,345Accrued payroll and related liabilities


12,724



17,243Deferred revenue


9,683



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


6,739



3,837Total current liabilities


55,276



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


21,920



7,913Stockholders Equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 42,273,555 in 2009 and 38,527,234 in 2008


423



385Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 6,391,334 in 2009 and 6,876,334 in 2008


64



69Additional paid-in capital


259,835



240,559Accumulated other comprehensive income


115



12Accumulated deficit


(109,869
)


(126,753
)Total stockholders equity


150,568



114,272Total liabilities and stockholders equity

$
227,764


$
181,959    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, 2009

$
385


$
69


$
240,559


$
12


$
(126,753
)

$
114,272Options exercised for the
    purchase of 1,096,634 shares of Class A Common Stock


11







3,677











3,688Issuance of 61,242 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1







385











386Issuance 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 485,000 shares of Class B Common Stock
    to
    Class A Common Stock


5



(5
)














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










9











9Exercise of 700,002 warrants for Class A Common Stock


7







1,673











1,680Stock compensation expense










3,546











3,546Net unrealized gain on securities














102







102Foreign currency translation adjustment














1







1Net income


















16,884



16,884Balance at September 30, 2009

$
423


$
64


$
256,835


$
115


$
(109,869
)

$
150,568    3




---



##### 



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


2008Operating activities:Net income

$
16,884


$
19,340Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization of property and equipment


4,459



4,470Amortization of software development costs


2,103



1,529Non-cash stock compensation expense


3,546



2,798Deferred tax benefit


9,987



Amortization of deferred financing fees


74



173Impairment of marketable securities


15



699Write-off of capitalized software


763



Amortization of acquired intangible assets


381



111Other non-cash expense


37



54Changes in operating assets and liabilities, net of acquisition:Accounts receivable, net


19,390



(5,967
)Unbilled receivables


117



(14,469
)Inventory


(6,164
)


1,183Other current assets


54



140Other assets


(2,739
)


156Accounts payable and accrued expenses


(7,849
)


12,926Accrued payroll and related liabilities


(4,844
)


4,697Deferred revenue


5,334



24Total net cash provided by operating activities


41,548



27,864Investing activities:Acquisition, net of cash acquired


(15,000
)


Purchases of property and equipment


(937
)


(2,152
)Capitalized software development costs (excluding write-off of
    capitalized software)


(823
)


(381
)Total net cash used in investing activities


(16,760
)


(2,533
)Financing activities:Proceeds from issuance of long-term debt


20,000



Payments on long-term debt and capital lease obligations


(10,224
)


(6,704
)Proceeds from exercise warrants


1,680



Proceeds from exercise of stock options and sale of stock


4,075



4,094Total net cash provided by/(used in) financing activities


15,531



(2,610
)Total net increase in cash


40,319



22,721Cash and cash equivalents at the beginning of the period


38,977



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

$
79,296


$
38,676    4




---



##### 



TeleCommunication
    Systems, Inc.Notes to Consolidated Financial Statements
    September 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. 718-10.
  Earnings per share.
 5




---



##### 



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


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Basic weighted average common shares outstanding


48,233



43,312



46,865



42,693Dilutive options outstanding


4,629



4,787



4,939



2,654Dilutive warrants outstanding






1,119







876Diluted weighted average common shares outstanding used in the
    calculation of diluted income per share


52,862



49,218



51,804



46,223   Income Taxes. 740-10.
    740-10-65 740-10-65
  Recent Accounting
    Pronouncements.
  2009-14
 6




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  2009-14
  2009-13 2009-13
        available to be issued.
 7




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    805-10 805-10
  810-10-65
  820-10 820-10 820-10 820-10 820-10 820-10.
  2.
    Acquisition
    and Related Financing  805-10),
     8




---



##### 



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

$
1,324Other 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  718-10.
   9




---



##### 



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


Nine MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Stock Compensation:Stock options granted at fair value

$
1,290


$
846


$
3,364


$
2,661Restricted stock


52



25



117



80Employee stock purchase plan


21



29



65



57Total stock compensation expense

$
1,363


$
900


$
3,546


$
2,798     Three Months Ended September 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


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

$
381


$
171


$
552


$
278


$
119


$
397Direct cost of systems


64



262



326



41



159



200Total stock compensation included in direct costs of revenue

$
445


$
433


$
878


$
319


$
278


$
597   Nine Months Ended September 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


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

$
991


$
445


$
1,436


$
864


$
370


$
1,324Direct cost of systems


166



682



848



128



494



622Total stock compensation included in direct costs of revenue

$
1,157


$
1,127


$
2,284


$
992


$
864


$
1,856   Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008


2009


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

$
317


$
197


$
826


$
612Sales and marketing expense


110



65



286



203General and administrative expense


58



41



150



127Total stock compensation included in operating expenses

$
485


$
303


$
1,262


$
942  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


1,997


$
8.04Exercised


(1,097
)

$
3.37Forfeited


(329
)

$
5.78Outstanding, at September 30, 2009


12,247


$
4.45Exercisable, at September 30, 2009


7,146


$
3.96Vested and expected to vest at September 30, 2009


11,368


$
4.35Estimated weighted-average grant-date fair value of options
    granted during the period

$
4.56Weighted-average remaining contractual life of options
    outstanding at end of period


6.39 years     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 - $1.84


91


$
1.71



3.29



91


$
1.71$ 1.84 - $2.99


2,673


$
2.48



6.02



2,202


$
2.47$ 2.99 - $4.68


5,431


$
3.33



6.29



2,972


$
3.34$ 4.68 - $7.45


2,517


$
6.71



5.39



1,850


$
6.70$ 7.45 - $17.37


1,531


$
8.23



9.31



27


$
8.89$17.37 - $26.05


4


$
26.05



0.65



4


$
26.0512,247











7,146       Nine Months Ended September 30,2009

2008Expected life (in years)

5.5

5.5Risk-free interest rate(%)

1.65%-2.61%

2.65%-3.33%Volatility(%)

63%-64%

60%-67%Dividend yield(%)

0%

0%  11




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   4.
    Supplemental
    Disclosure of Cash Flow Information and Noncash Investing and
    Financing Activities          5.
    Fair Value
    Measurement  820-10
          Fair Value


Fair Value Measurements atas of


9/30/20099/30/2009


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
79,296


$
79,296


$



$
Marketable securities available for sale


60



60







Deferred compensation plan investments


1,619



1,619







Assets at Fair Value

$
80,975


$
80,975


$



$
LiabilitiesDeferred compensation

$
1,639


$
1,639


$



$
Liabilities at Fair Value

$
1,639


$
1,639


$



$
    12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      6.
    Segment
    Information    ®
  ®
      Three Months Ended September 30,2009


2008Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
23,619


$
15,681


$
39,300


$
15,720


$
9,182


$
24,902Systems


9,512



22,797



32,309



6,981



24,648



31,629Total revenue


33,131



38,478



71,609



22,701



33,830



56,531Operating costs and expensesDirect cost of services


8,770



12,475



21,245



8,166



7,320



15,486Direct cost of systems


2,543



19,610



22,153



2,449



21,139



23,588Total direct costs


11,313



32,085



43,398



10,615



28,459



39,074Gross profitServices gross profit


14,849



3,206



18,055



7,554



1,862



9,416Systems gross profit


6,969



3,187



10,156



4,532



3,509



8,041Total gross profit

$
21,818


$
6,393


$
28,211


$
12,086


$
5,371


$
17,457  13




---



##### 



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


2008Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
62,074


$
42,444


$
104,518


$
47,809


$
24,193


$
72,002Systems


29,706



75,022



104,728



26,761



42,092



68,853Total revenue


91,780



117,466



209,246



74,570



66,285



140,855Operating costs and expensesDirect cost of services


25,337



33,097



58,434



24,031



19,292



43,323Direct cost of systems


6,874



60,433



67,307



7,338



33,961



41,299Total direct costs


32,211



93,530



125,741



31,369



53,253



84,622Gross profitServices gross profit


36,737



9,347



48,084



23,778



4,901



28,679Systems gross profit


22,832



14,589



37,421



19,423



8,131



27,554Total gross profit

$
59,569


$
23,936


$
83,505


$
43,201


$
13,032


$
56,233   Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Total segment gross profit

$
28,211


$
17,457


$
83,505


$
56,233Research and development expense


(5,823
)


(3,815
)


(15,612
)


(11,838
)Sales and marketing expense


(3,579
)


(3,128
)


(11,742
)


(9,822
)General and administrative expense


(7,665
)


(6,071
)


(22,955
)


(17,386
)Depreciation and amortization of property and equipment


(1,571
)


(1,474
)


(4,459
)


(4,470
)Amortization of acquired intangible assets


(222
)


(37
)


(381
)


(111
)Interest expense


(371
)


(205
)


(784
)


(734
)Amortization debt issuance expenses


(16
)


(27
)


(74
)


(173
)Other income/(expense), net


43



171



327



(105
)Gain on sale of patent














8,060Income before taxes


9,007



2,871



27,825



19,654Provision for income taxes


(3,596
)


(114
)


(10,941
)


(314
)Net income

$
5,411


$
2,757


$
16,884


$
19,340  14




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   7.
    Inventory    Sept. 30,


Dec. 31,2009


2008Component parts

$
5,292


$
1,763Finished goods


3,587



952Total inventory at period end

$
8,879


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


December 31, 2008Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
3,557


$
822


$
2,735


$
606


$
521


$
85Trademarks & Patents


1,364



216



1,148



612



135



477Software development costs, including acquired technology


18,425



8,975



9,450



9,646



6,873



2,773Total

$
23,346


$
10,013


$
13,333


$
10,864


$
7,529


$
3,335Estimated future amortization expense:Three-months ending December 31, 2009

$
861Year ending December 31, 2010


3,285Year ending December 31, 2011


2,726Year ending December 31, 2012


2,579Year ending December 31, 2013


2,579Thereafter


1,303Total

$
13,333        15




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    9.
    Concentrations
    of Credit Risk and Major Customers      % of TotalRevenue For

% of Totalthe Three

Revenue ForMonths Ended

the Nine Months EndedSeptember 30,

September 30,Customer

Segment

2009

2008

2009

2008Federal Agencies

Government


42
%


49
%


42
%


36
%Customer A

Commercial


24
%


16
%


24
%


24
%   As of September 30, 2009Accounts

UnbilledCustomer

Segment

Receivable

ReceivablesFederal Agencies

Government


38
%


72
%Customer A

Commercial


28
%


Less than 10
%   10.
    Lines of
    Credit and Financing Arrangements      sub-facilities: sub-facility sub-facility sub-facility
 16




---



##### 



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




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   11.
    Income
    taxes      12.
    Commitments
    and Contingencies    No. 01-CV-9500. Rule 10b-5 Rule 10b-5
 18




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
         19




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  and/or over-the-air
        13.
    Subsequent
    Events    855-10
 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
       21




---



##### 



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




---



##### 



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 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
   23




---



##### 



Commercial
    Segment:
 Three Months





Nine MonthsEnded








EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Services revenue

$
23.6


$
15.7


$
7.9



50
%

$
62.1


$
47.8


$
14.3



30
%Systems revenue


9.5



7.0



2.5



36
%


29.7



26.8



2.9



11
%Commercial segment revenue


33.1



22.7



10.4



46
%


91.8



74.6



17.2



23
%Direct cost of services revenue


8.8



8.1



0.7



9
%


25.3



24.0



1.3



5
%Direct cost of systems revenue


2.5



2.5











6.9



7.4



(0.5
)


(7
)%Commercial segment cost of revenue


11.3



10.6



0.7



7
%


32.2



31.4



0.8



3
%Services gross profit


14.8



7.6



7.2



95
%


36.8



23.8



13.0



55
%% of revenue


63
%


48
%










59
%


50
%Systems gross profit


7.0



4.5



2.5



56
%


22.8



19.4



3.4



18
%% of revenue


74
%


64
%










77
%


72
%Commercial segment gross
    profit1

$
21.8


$
12.1


$
9.7



80
%

$
59.6


$
43.2


$
16.4



38
%% of revenue


66
%


53
%










65
%


58
%     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:
         24




---



##### 



Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
         25




---



##### 



Government
    Segment:
 Three Months





Nine MonthsEnded








EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Services revenue

$
15.7


$
9.2


$
6.5



71
%

$
42.4


$
24.2


$
18.2



75
%Systems revenue


22.8



24.6



(1.8
)


(7
)%


75.0



42.1



32.9



78
%Government segment revenue


38.5



33.8



4.7



14
%


117.4



66.3



51.1



77
%Direct cost of services revenue


12.5



7.3



5.2



71
%


33.1



19.3



13.8



72
%Direct cost of systems revenue


19.6



21.1



(1.5
)


(7
)%


60.4



34.0



26.4



78
%Government segment cost of revenue


32.1



28.4



3.7



13
%


93.5



53.3



40.2



75
%Services gross profit


3.2



1.9



1.3



68
%


9.3



4.9



4.4



90
%% of revenue


20
%


21
%










22
%


20
%Systems gross profit


3.2



3.5



(0.3
)


(9
)%


14.6



8.1



6.5



80
%% of revenue


14
%


14
%










19
%


19
%Government segment gross
    profit1

$
6.4


$
5.4


$
1.0



19
%

$
23.9


$
13.0


$
10.9



84
%% of revenue


17
%


16
%










20
%


20
%     1 See

    discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements  sub-contractor
  Government
    Services Revenue, Cost of Revenue, and Gross Profit:
     26




---



##### 



Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ®
  ® 5-year
      Revenue
    Backlog
    September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%Commercial Segment

$
90.6


$
68.5


$
22.1



32
%Government Segment


109.0



87.0



22.0



25
%Total funded contract backlog

$
199.6


$
155.5


$
44.1



28
%Commercial Segment

$
90.6


$
68.5


$
22.1



32
%Government Segment


348.3



381.2



(32.9
)


(9
)%Total backlog of orders and commitments, including customer
    options

$
438.9


$
449.7


$
(10.8
)


(2
)%Expected to be realized within the next 12 months

$
158.2


$
116.8


$
41.4



35
%   and/or
 27




---



##### 



Operating
    Expenses
  Research and
    development expense:
  Three Months





Nine MonthsEnded





EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Research and development expense

$
5.8


$
3.8


$
2.0



53
%

$
15.6


$
11.8


$
3.8



32
%% of total revenue


8
%


7
%










7
%


8
%       product-by-product
   28




---



##### 



Sales and
    marketing expense:
  Three Months





Nine MonthsEnded





EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Sales and marketing expense

$
3.6


$
3.1


$
0.5



16
%

$
11.7


$
9.8


$
1.9



19
%% of total revenue


5
%


5
%










6
%


7
%     General and
    administrative expense:
  Three Months





Nine MonthsEnded


2009 vs.


EndedSeptember 30,


2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%General and administrative expense

$
7.7


$
6.1


$
1.6



26
%

$
23.0


$
17.4


$
5.6



32
%% of total revenue


11
%


11
%










11
%


12
%     Depreciation and
    amortization of property and equipment:
  Three Months





Nine MonthsEnded








EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Depreciation and amortization of property and equipment

$
1.6


$
1.5


$
0.1



7
%

$
4.5


$
4.5


$




NMAverage gross cost of property and equipment during the period

$
60.1


$
51.4










$
57.3


$
49.7    29




---



##### 



Amortization of
    acquired intangible assets:
  Three Months





Nine MonthsEnded


2009 vs.


Ended


2009 vs.September 30,


2008


September 30,


2008($ in millions)

2009


2008


$


%


2009


2008


$


%Amortization of acquired intangible assets

$
0.2


$
0.1


$
0.1



50
%

$
0.4


$
0.1


$
0.3



300
%     Interest
    expense:
  Three Months





Nine MonthsEnded


2009 vs.


Ended


2009 vs.September 30,


2008


September 30,


2008($ in millions)

2009


2008


$


%


2009


2008


$


%Interest expense incurred on notes
    payable and line of credit

$
0.2


$
0.1


$
0.1



100
%

$
0.4


$
0.5


$
(0.1
)


(20
)%Interest expense incurred on capital 
    lease obligations


0.1



0.1







NM



0.3



0.2



0.1



100
%Amortization of deferred financing fees


0.1







0.1



100
%


0.1



0.2



(0.1
)


(100
)%Total interest expense

$
0.4


$
0.2


$
0.2



100
%

$
0.8


$
0.9


$
(0.1
)


(11
)%            30




---



##### 



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





Nine MonthsEnded








EndedSeptember 30,


2009 vs. 2008


September 30,


2009 vs. 2008($ in millions)

2009


2008


$


%


2009


2008


$


%Net income

$
5.4


$
2.8


$
2.6



93
%

$
16.9


$
19.3


$
(2.4
)


(12
)%    31




---



##### 



Liquidity and
    Capital Resources
  Nine MonthsEndedSeptember 30,


2009 vs. 2008($ in millions)

2009


2008


$


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

$
16.9


$
19.3


$
(2.4
)


(12
)%Non-cash charges


11.4



9.8



1.6



16
%Deferred income tax provision


10.0







10.0



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


3.3



(1.2
)


4.5



375
%Operating activities


41.6



27.9



13.7



49
%Acquisition of LocationLogic assets


(15.0
)






(15.0
)


(100
)%Purchases of property and equipment


(0.9
)


(2.2
)


1.3



59
%Capitalized software development costs


(0.8
)


(0.4
)


(0.4
)


(100
)%Proceeds from new borrowings


20.0







20.0



100
%Other financing activities


(4.6
)


(2.6
)


(2.0
)


(77
)%Net increase in cash

$
40.3


$
22.7


$
17.6



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


82



89   Capital resources:
  Sources and uses of cash:
  Operating activities:
  Investing activities:
  Financing activities:
   32




---



##### 



sub-facilities: sub-facility sub-facility sub-facility
           33




---



##### 



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


$
8.9


$
7.2


$



$
20.8Capital lease obligations


3.2



4.9



0.8







8.9Operating leases


3.7



3.2



1.1



0.2



8.2Purchase obligations


7.9



4.3



0.5







12.7Total contractual commitments

$
19.5



21.3


$
9.6


$
0.2


$
50.6   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   34




---



##### 



Rule 13a-15(b),
   35




---



##### 



PART II. 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  No. 01-CV-9500. Rule 10b-5 Rule 10b-5
   36




---



##### 



Item 1A.
    Risk
    Factors  Form 10-K Form 10-Q
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  and/or
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   37




---



##### 



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  rd
    By:
    /s/  Maurice
    B. Tosé       /s/ Maurice B. ToséMaurice B. ToséNovember 3, 2009

Chairman, President and Chief Executive Officer
    (Principal Executive Officer)/s/ Thomas M. Brandt, Jr.Thomas M. Brandt, Jr.November 3, 2009

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