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
    March 31, 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(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
  Regulation S-K Form 10-K Form 10-K. o
  Rule 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 March 31,Title of Each Class

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


46,609,031Class B Common Stock, par value$0.01 per share


6,176,334Total Common Stock Outstanding


52,785,365




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##### 





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


Financial StatementsConsolidated Statements of Income for the
    three-months ended March 31, 2010 and 2009 (Unaudited)


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


2Consolidated Statement of Stockholders
    Equity for the three-months ended March 31, 2010
    (Unaudited)


3Consolidated Statements of Cash Flows for the
    three-months ended March 31, 2010 and 2009 (Unaudited)


4Notes to Consolidated Financial Statements
    (Unaudited)


5Item 2.


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


20Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


33Item 4.


Controls and Procedures


33PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


35Item 1A.


Risk Factors


36Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


36Item 3.


Defaults Upon Senior Securities


36Item 4.


Submission of Matters to a Vote of Security
    Holders


36Item 5.


Other Information


36Item 6.


Exhibits


37SIGNATURES


38




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##### 



TeleCommunication
    Systems, Inc.Consolidated Statements of Income(amounts in thousands, except per share
    data)
    (unaudited)
  Three Months EndedMarch 31,2010


2009RevenueServices

$
59,844


$
30,624Systems


31,073



39,877Total revenue


90,917



70,501Direct costs of revenueDirect cost of services


34,332



18,369Direct cost of systems, including amortization of software
    development costs of $2,306 and $560, respectively


23,036



26,888Total direct cost of revenue


57,368



45,257Services gross profit


25,512



12,255Systems gross profit


8,037



12,989Total gross profit


33,549



25,244Operating costs and expensesResearch and development expense


8,518



4,874Sales and marketing expense


5,979



3,991General and administrative expense


8,462



6,892Depreciation and amortization of property and equipment


1,976



1,454Amortization of acquired intangible assets


1,172



37Total operating costs and expenses


26,107



17,248Operating income


7,442



7,996Interest expense


(2,352
)


(188
)Amortization of debt discount and debt issuance expenses


(160
)


(5
)Other income, net


490



179Income before income taxes


5,420



7,982Provision for income taxes


(410
)


(3,115
)Net income

$
5,010


$
4,867Net income per share-basic

$
0.10


$
0.11Net income per share-diluted

$
0.08


$
0.10Weighted average shares outstanding-basic


52,654



45,567Weighted average shares outstanding-diluted


67,245



51,225    1




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##### 



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


December 31,2010


2009(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
76,415


$
61,426Accounts receivable, net of allowance of $381 in 2010 and $389
    in 2009


67,939



65,476Unbilled receivables


28,597



23,783Inventory


13,182



9,331Deferred income taxes


10,575



9,507Receivable from settlement of patent matter






15,700Income tax refund receivable






5,438Other current assets


6,513



8,945Total current assets


203,221



199,606Property and equipment, net of accumulated depreciation and
    amortization of $48,926 in 2010 and $46,960 in 2009


24,121



20,734Software development costs, net of accumulated amortization of
    $12,246 in 2010 and $9,941 in 2009


41,562



45,384Acquired intangible assets, net of accumulated amortization of
    $2,698 in 2010 and $1,526 in 2009


31,755



33,975Goodwill


164,748



164,350Other assets


6,817



8,176Total assets

$
472,224


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

$
45,424


$
52,999Accrued payroll and related liabilities


10,867



19,265Deferred revenue


21,280



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


40,278



39,731Total current liabilities


117,849



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


142,856



143,316Deferred income taxes


11,768



15,435Other long-term liabilities


4,370



5,755Stockholders equity:Class A Common Stock; $0.01 par value:Authorized shares: 225,000,000; issued and outstanding shares of
    46,609,031 in 2010 and 46,157,025 in 2009


466



462Class B Common Stock; $0.01 par value:Authorized shares: 75,000,000; issued and outstanding shares of
    6,176,334 in 2010 and 6,276,334 in 2009


62



63Additional paid-in capital


288,314



283,733Accumulated other comprehensive income


13



12Accumulated deficit


(93,474
)


(98,484
)Total stockholders equity


195,381



185,786Total liabilities and stockholders equity

$
472,224


$
472,225    2




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##### 



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


Class B


Additional


OtherCommon


Common


Paid-In


Comprehensive


AccumulatedStock


Stock


Capital


Income/(Loss)


Deficit


TotalBalance at January 1, 2010

$
462


$
63


$
283,733


$
12


$
(98,484
)

$
185,786Options exercised for the purchase of 323,561 shares of
    Class A Common Stock


3







1,244











1,247Issuance of 28,345 shares of Class A Common Stock
    under Employee Stock Purchase Plan










215











215Conversion of 100,000 shares of Class B Common Stock
    to Class A Common Stock


1



(1
)














Stock compensation expense










3,122











3,122Foreign currency translation adjustment














1







1Net income for the three-months ended March 31, 2010


















5,010



5,010Balance at March 31, 2010

$
466


$
62


$
288,314


$
13


$
(93,474
)

$
195,381    3




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##### 



TeleCommunication
    Systems, Inc.Consolidated Statements of Cash Flows(amounts in thousands)
    (unaudited)
  Three Months EndedMarch 31,2010


2009Operating activities:Net income

$
5,010


$
4,867Adjustments to reconcile net income to net cash provided
    by/(used in) operating activities:Depreciation and amortization of property and equipment


1,976



1,454Amortization of acquired intangible assets


1,172



37Deferred tax provision


410



2,965Stock compensation expense


3,122



966Amortization of software development costs


2,306



560Amortization of deferred financing fees


160



5Other non-cash adjustments


1,282



(6
)Changes in operating assets and liabilities:Accounts receivable, net


(2,503
)


3,299Unbilled receivables


(4,766
)


971Inventory


(3,851
)


(1,242
)Other current assets


21,655



(2,092
)Other assets


1,359



(137
)Accounts payable and accrued expenses


(7,048
)


(11,208
)Accrued payroll and related liabilities


(8,428
)


(9,951
)Deferred revenue


11,342



4,882Other liabilities


(3,572
)


Subtotal  Changes in operating assets and liabilities


4,187



(15,478
)Net cash provided by/(used in) operating activities


19,625



(4,630
)Investing activities:Purchases of property and equipment, net of cash acquired


(2,724
)


184Capitalized software development costs


(821
)


(143
)Net cash provided by/(used in) investing activities


(3,545
)


41Financing activities:Payments on long-term debt and capital lease obligations


(2,552
)


(1,081
)Proceeds from exercise of employee stock options and sale of
    stock


1,462



2,022Net cash provided by/(used in) financing activities


(1,090
)


941Net increase/(decrease) in cash


14,990



(3,648
)Cash and cash equivalents at the beginning of the period


61,425



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

$
76,415


$
35,329    4




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##### 



TeleCommunication
    Systems, Inc.



Notes to
    Consolidated Financial Statements

March 31, 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.
  Earnings per share.
 5




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##### 



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


2009Numerator:Net income, basic

$
5,010


$
4,867Adjustment for assumed dilution:Interest on convertible debt, net of taxes


671



Net income, diluted

$
5,681


$
4,867Denominator:Total basic weighted-average common shares outstanding


52,654



45,567Effect of dilutive stock options based on treasury stock method


4,589



5,160Effect of dilutive warrants based on treasury stock method






498Effect of dilutive 4.5% convertible debt, based on if
    converted method


10,002



Weighted average diluted shares


67,245



51,225Basic earnings per common share:Net income per share  basic

$
0.10


$
0.11Diluted earnings per common share:Net income per share-diluted

$
0.08


$
0.10   Income Taxes.
    Recent Accounting
    Pronouncements.
  2009-14 2009-14
 6




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##### 



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




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        3.
    Stock-Based
    Compensation        Three MonthsEnded March 31,2010


2009Stock compensation:Stock options

$
3,031


$
925Restricted stock


53



25Employee stock purchase plan


38



16Total stock compensation

$
3,122


$
966  8




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months Ended March 31,2010


2009Comm.


Gvmt


Total


Comm.


Gvmt


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

$
650


$
825


$
1,475


$
270


$
121


$
391Direct cost of systems


70



418



488



45



186



231Total stock compensation included in direct cost of revenue

$
720


$
1,243


$
1,963


$
315


$
307


$
622   Three MonthsEndedMarch 31,2010


2009Stock compensation included in operating expenses:Research and development expense

$
815


$
225Sales and marketing expense


190



78General and administrative expense


154



41Total stock compensation included in operating expenses

$
1,159


$
344     WeightedAverageNumber of


Exercise(Share amounts in thousands)

Options


PriceOutstanding, beginning of year


14,612


$
5.32Granted


1,448


$
8.52Exercised


(324
)

$
3.85Expired


(7
)

$
7.67Forfeited


(329
)

$
8.34Outstanding, at March 31, 2010


15,400


$
5.58Exercisable, at March 31, 2010


8,297


$
4.03Vested and expected to vest at March 31, 2010


14,171


$
5.37Weighted-average remaining contractual life of options
    outstanding at March 31, 2010


6.7 years   9




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months March 31,2010


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

$
4.70


$
4.58Total fair value of options vested during the period

$
4,490


$
3,527Intrinsic value of options exercised during the period

$
1,684


$
2,817     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


83


$
1.71



2.82



83


$
1.71



2.82$ 1.92 - $ 2.99


2,508


$
2.47



5.52



2,210


$
2.47



5.49$ 3.05 - $ 4.68


5,149


$
3.33



5.84



3,901


$
3.34



5.26$ 4.83 - $ 7.45


2,248


$
6.73



5.03



1,699


$
6.73



3.77$ 7.95 - $17.37


5,408


$
8.75



9.48



400


$
8.08



8.54$26.05 - $26.05


4


$
26.05



0.15



4


$
26.05



0.1515,400











8,297       Three Months Ended March 31,2010

2009Expected life (in years)

5.5

5.5Risk-free interest rate(%)

2.4%-2.8%

1.7%-1.9%Volatility(%)

60%

63%-64%Dividend yield(%)

0%

0%   4.
    Supplemental
    Disclosure of Cash Flow Information       10




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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


3/31/20103/31/2010


Using Fair Value HierarchyTotal


Level 1


Level 2


Level 3AssetsCash and cash equivalents

$
76,415


$
76,415


$



$
Deferred compensation plan investments


1,118



1,118







Assets at Fair Value

$
77,533


$
77,533


$



$
LiabilitiesDeferred compensation

$
931


$
931


$



$
Contractual acquisition earnouts


7,280











7,280Liabilities at Fair Value

$
8,211


$
931


$



$
7,280        11




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  6.
    Segment
    Information      ®
      Three Months Ended March 31,2010


2009Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
39,278


$
20,566


$
59,844


$
17,807


$
12,817


$
30,624Systems


8,645



22,428



31,073



7,763



32,114



39,877Total revenue


47,923



42,994



90,917



25,570



44,931



70,501Direct costs of revenueDirect cost of services


19,264



15,068



34,332



8,191



10,178



18,369Direct cost of systems


3,441



19,595



23,036



1,888



25,000



26,888Total direct costs of revenue


22,705



34,663



57,368



10,079



35,178



45,257Gross profitServices gross profit


20,014



5,498



25,512



9,616



2,639



12,255Systems gross profit


5,204



2,833



8,037



5,875



7,114



12,989Total gross profit

$
25,218


$
8,331


$
33,549


$
15,491


$
9,753


$
25,244   12




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months EndedMarch 31,2010


2009Total segment gross profit

$
33,549


$
25,244Research and development expense


(8,518
)


(4,874
)Sales and marketing expense


(5,979
)


(3,991
)General and administrative expense


(8,462
)


(6,892
)Depreciation and amortization of property and equipment


(1,976
)


(1,454
)Amortization of acquired intangible assets


(1,172
)


(37
)Interest expense


(2,352
)


(188
)Amortization of debt discount and debt issuance expenses


(160
)


(5
)Other income/(expense), net


490



179Income before income taxes


5,420



7,982Provision for income taxes


(410
)


(3,115
)Net income

$
5,010


$
4,867   7.
    Inventory    Mar. 31,


Dec. 31,2010


2009Component parts

$
4,193


$
5,658Finished goods


8,989



3,673Total inventory at period end

$
13,182


$
9,331  13




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    March 31, 2010


December 31, 2009Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer lists and other

$
12,951


$
1,596


$
11,355


$
13,735


$
1,151


$
12,584Customer relationships


20,138



793



19,345



20,402



113



20,289Trademarks and patents


1,364



309



1,055



1,364



262



1,102Software development costs, including acquired technology


53,808



12,246



41,562



55,325



9,941



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

$
88,261


$
14,944


$
73,317


$
90,826


$
11,467


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

$
10,557Year ending December 31, 2011

$
13,570Year ending December 31, 2012

$
13,406Year ending December 31, 2013

$
13,355Year ending December 31, 2014

$
11,589Thereafter

$
10,840$
73,317         9.
    Concentrations
    of Credit Risk and Major Customers   14




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      % of TotalRevenue Forthe ThreeMonths EndedMarch 31,Customer

Segment

2010

2009U.S. Government

Government


36
%


48
%Customer A

Commercial


29
%


20
%   As of March 31, 2010Accounts

UnbilledCustomer

Segment

Receivable

ReceivablesU.S. Government

Government


25
%


55
%Customer A

Commercial


40
%


31
%   10.
    Lines of
    Credit and Financing Arrangements    sub-facilities: sub-facility sub-facility sub-facility
   15




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##### 



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,
         16




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    11.
    Income
    taxes      12.
    Commitments
    and Contingencies    No. 01-CV-9500.
 17




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##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Rule 10b-5 Rule 10b-5
    and/or over-the-air
 18




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##### 



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




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##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q Form 10-Q). Form 10-Q Form 10-Q
      Critical
    Accounting Policies and Estimates
   20




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##### 



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.
    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. 21




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##### 



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
   22




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##### 



Revenue and Cost
    of Revenue
    Commercial
    Segment:
  Three MonthsEnded March 31,


2010 vs. 2009($ in millions)

2010


2009


$


%Services revenue

$
39.3


$
17.8


$
21.5



121
%Systems revenue


8.6



7.8



0.8



10
%Commercial Segment revenue


47.9



25.6



22.3



87
%Direct cost of services revenue


19.3



8.2



11.1



135
%Direct cost of systems revenue


3.4



1.9



1.5



79
%Commercial Segment cost of revenue


22.7



10.1



12.6



125
%Services gross profit


20.0



9.6



10.4



108
%Systems gross profit


5.2



5.9



(0.7
)


(12
)%Commercial Segment gross
    profit1

$
25.2


$
15.5


$
9.7



63
%Segment gross profit as a percent of revenue


53
%


61
%     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:
         23




---



##### 



E-9-1-1
    Commercial Systems Revenue, Cost of Revenue, and Gross
    Profit:
          Government
    Segment:
  Three MonthsEnded March 31,


2010 vs. 2009($ in millions)

2010


2009


$


%Services revenue

$
20.6


$
12.8


$
7.8



61
%Systems revenue


22.4



32.1



(9.7
)


(30
)%Government Segment revenue


43.0



44.9



(1.9
)


(4
)%Direct cost of services revenue


15.1



10.2



4.9



48
%Direct cost of systems revenue


19.6



25.0



(5.4
)


(22
)%Government Segment cost of revenue


34.7



35.2



(0.5
)


(1
)%Services gross profit


5.5



2.6



2.9



112
%Systems gross profit


2.8



7.1



(4.3
)


(61
)%Government Segment gross
    profit1

$
8.3


$
9.7


$
(1.4
)


(14
)%Segment gross profit as a percent of revenue


19
%


22
%     1

    
    See discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements 24




---



##### 



Government
    Services Revenue, Cost of Revenue, and Gross Profit:
      Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ®
  ®
     25




---



##### 



Revenue
    Backlog
    Three MonthsEnded March 31,


2010 vs. 2009($ in millions)

2010


2009


$


%Commercial Segment

$
227.7


$
87.8


$
139.9



159
%Government Segment


73.4



68.9



4.5



7
%Total funded contract backlog

$
301.1


$
156.7


$
144.4



92
%Commercial Segment

$
227.7


$
91.1


$
136.6



150
%Government Segment


358.4



323.4



35.0



11
%Total backlog of orders and commitments, including customer
    options

$
586.1


$
414.5


$
171.6



41
%Expected to be realized within next 12 months

$
197.8


$
115.5


$
82.3



71
%   and/or
  Operating
    Expenses
  Research and
    development expense:
  Three MonthsEndedMarch 31,

2010 vs. 2009($ in millions)

2010

2009

$

%Research and development expense

$
8.5


$
4.9


$
3.6



74
%Percent of total revenue


9
%


7
%      26




---



##### 



product-by-product
    Sales and
    marketing expense:
  Three MonthsEndedMarch 31,

2010 vs. 2009($ in millions)

2010

2009

$

%Sales and marketing expense

$
6.0


$
4.0


$
2.0



50
%Percent of total revenue


7
%


6
%     General and
    administrative expense:
  Three MonthsEndedMarch 31,

2010 vs. 2009($ in millions)

2010

2009

$

%General and administrative expense

$
8.5


$
6.9


$
1.6



23
%Percent of total revenue


9
%


10
%    27




---



##### 



Depreciation and
    amortization of property and equipment:
  Three MonthsEndedMarch 31,

2010 vs. 2009($ in millions)

2010

2009

$

%Depreciation and amortization of property and equipment

$
2.0


$
1.5


$
0.5



33
%Average gross cost of property and equipment during the period

$
70.4


$
54.6     Amortization of
    acquired intangible assets:
  Three MonthsEndedMarch 31

2010 vs. 2009($ in millions)

2010

2009

$

%Amortization of acquired intangibleassets

$
1.1


$
0.1


$
1.0



1000
%     Interest
    expense:
  Three MonthsEndedMarch 31


2010 vs. 2009($ in millions)

2010


2009


$


%Interest expense incurred on bank and other notes payable

$
1.1


$
0.1


$
1.0



1000
%Interest expense incurred on 4.5% convertible debt financing


1.1







1.1



1000
%Interest expense incurred on capital lease obligations


0.1



0.1







Amortization of deferred financing fees


0.2







0.2



100
%Total interest and financing expense

$
2.5


$
0.2


$
2.3



115
%      28




---



##### 



Other
    income/(expense), net:
    Income
    taxes:
    Net
    income:
  Three MonthsEndedMarch 31,

2010 vs. 2009($ in millions)

2010

2009

$

%Net income

$
5.0


$
4.9


$
0.1



2
%  29




---



##### 



Liquidity and
    Capital Resources
  Three MonthsEndedMarch 31,


2010 vs. 2009($ in millions)

2010


2009


$


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

$
5.0


$
4.9


$
0.1



2
%Non-cash charges


10.0



3.0



7.0



233
%Deferred income tax provision


0.4



3.0



(2.6
)


(87
)%Net changes in working capital including changes in other assets


4.2



(15.5
)


19.7



127
%Operating activities


19.6



(4.6
)


24.2



526
%Purchases of property and equipment, excluding assets funded by
    leasing


(2.7
)


0.1



(2.8
)


2800
%Capitalized software development costs


(0.8
)


(0.1
)


(0.7
)


700
%Payments on long-term debt and capital leases


(2.6
)


(1.1
)


(1.5
)


136
%Other financing activities


1.5



2.0



0.5



25
%Net increase/(decrease) in cash

$
15.0


$
(3.7
)

$
18.7



505
%Days revenue in receivables, including unbilled receivables


96



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




---



##### 



sub-facilities: sub-facility sub-facility sub-facility
           31




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
   32




---



##### 



Within 12


1-3


3-5


More than($ in millions)

Months


Years


Years


5 Years


TotalTerm loan

$
7.8


$
14.7


$
8.6


$



$
31.14.5% Convertible debt interest obligation


4.7



9.4



9.4







23.5Promissory notes payable


31.8



10.6











42.4Other long-term debt


3.8



3.4











7.2Capital lease obligations


4.3



7.0



1.3







12.6Operating leases


5.0



9.4



3.2



2.1



19.7Purchase obligations


6.6



4.6











11.2Total contractual commitments

$
64.0


$
59.1


$
22.5


$
2.1


$
147.7   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   33




---



##### 



Rule 13a-15(b),
   34




---



##### 



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




---



##### 



and/or over-the-air
        Item 1A.
    Risk
    Factors  Form 10-K.
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information     36




---



##### 



Item 6.
    Exhibits  ExhibitNumbers

Description10
.30

Amendment to Employment Agreement dated February 1, 2010,
    by and between the Company and Richard A. Young10
.31

Amendment to Employment Agreement dated February 1, 2010,
    by and between the Company and Thomas M. Brandt, Jr.10
.32

Amendment to Employment Agreement dated February 1, 2010,
    by and between the Company and Drew A. Morin10
.33

Amendment to Employment Agreement dated February 1, 2010,
    by and between the Company and Timothy J. Lorello31
.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. ToséMay 5, 2010

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

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