##### 



SECURITIES AND EXCHANGE
    COMMISSIONWashington, 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, 2007ORTRANSACTION 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

21401(Address of principal executive
    offices)

(Zip Code)    (410) 263-7616 (Registrants
    telephone number, including area code)
  þ o
  Rule 12b-2
 o þ o
   Rule 12b-2 o þ
    Shares
    outstandingas of
    March 31,Title of Each
    Class

2007Class A Common Stock, par
    value
    $0.01 per share


33,388,942Class B Common Stock, par
    value
    $0.01 per share


7,525,672Total Common Stock Outstanding


40,914,614




---



##### 



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

Financial Statements (Unaudited)Consolidated
    Statements of Operations for the three-months ended
    March 31, 2007 and 2006


1Consolidated
    Balance Sheets as of March 31, 2007 and December 31,
    2006


2Consolidated
    Statement of Stockholders Equity for the three-months
    ended March 31, 2007


3Consolidated
    Statements of Cash Flows for the three-months ended
    March 31, 2007 and 2006


4Notes to
    Consolidated Financial Statements


5Item 2.

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


14Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


29Item 4.

Controls and
    Procedures


29PART II. OTHER
    INFORMATIONItem 1.

Legal
    Proceedings


30Item 1A.

Risk
    Factors


30Item 2.

Unregistered Sales
    of Equity Securities and Use of Proceeds


30Item 3.

Defaults Upon
    Senior Securities


30Item 4.

Submission of
    Matters to a Vote of Security Holders


30Item 5.

Other
    Information


30Item 6.

Exhibits


30SIGNATURES


31




---



##### 



TeleCommunication
    Systems, Inc.
 Consolidated
    Statements of Operations(amounts in thousands, except per share data)
    (unaudited) Three Months
    EndedMarch 31,2007


2006RevenueServices

$
20,885


$
21,944Systems


13,234



9,742Total revenue


34,119



31,686Direct costs of
    revenueDirect cost of services revenue


12,948



13,174Direct cost of systems revenue,
    including amortization of software development costs of $344,
    and $281, respectively


6,876



4,950Total direct cost of revenue


19,824



18,124Services gross profit


7,937



8,770Systems gross profit


6,358



4,792Total gross profit


14,295



13,562Operating costs and
    expensesResearch and development expense


3,105



2,932Sales and marketing expense


3,163



3,048General and administrative expense


4,652



4,227Depreciation and amortization of
    property and equipment


1,668



2,445Amortization of acquired
    intangible assets


37



37Total operating costs and expenses


12,625



12,689Income from
    operations


1,670



873Interest and financing expense


(963
)


(559
)Other income/(expense), net


60



28Income from continuing
    operations


767



342Loss from discontinued operations


(124
)


(2,054
)Net income/(loss)

$
643


$
(1,712
)Income/(loss) per share-basic and
    diluted:Income per share from continuing
    operations

$
0.02


$
0.01Loss per share from discontinued
    operations


(0.00
)


(0.05
)Net income/(loss) per
    share-basic and diluted

$
0.02


$
(0.04
)Weighted average shares
    outstanding-basic


40,630



39,085Weighted average shares
    outstanding-diluted


42,471



39,456    1




---



##### 



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


December 31,2007


2006(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
10,758


$
10,358Accounts receivable, net of
    allowance of $314 in 2007 and $290 in 2006


29,597



21,544Unbilled receivables


6,374



7,636Inventory


4,936



5,293Investment in marketable securities


2,100



Other current assets


6,614



2,818Current assets of discontinued
    operations


10,159



13,596Total current assets


70,538



61,245Property and equipment, net of
    accumulated depreciation and amortization of $41,931in 2007 and
    $40,594 in 2006


11,893



12,853Software development costs, net of
    accumulated amortization of $3,606 in 2007 and $3,262 in 2006


4,503



4,402Acquired intangible assets, net of
    accumulated amortization of $399 in 2007 and $362 in 2006


819



856Goodwill


1,813



1,813Other assets


2,785



2,526Total assets

$
92,351


$
83,695Liabilities and
    stockholders equityCurrent liabilities:Accounts payable and accrued
    expenses

$
13,364


$
10,421Accrued payroll and related
    liabilities


1,933



5,663Deferred revenue


5,125



3,485Borrowings under revolving credit
    line


8,000



Current portion of notes payable


1,707



2,160Current portion of capital lease
    obligations


2,424



2,740Current liabilities of
    discontinued operations


6,713



11,400Total current liabilities


39,266



35,869Capital lease obligations and
    notes payable, less current portion


12,421



12,721Stockholders equity:Class A Common Stock;
    $0.01 par value:Authorized shares 
    225,000,000; issued and outstanding shares of 33,388,942 in 2007
    and 32,267,893 in 2006


334



322Class B Common Stock;
    $0.01 par value:Authorized shares 
    75,000,000; issued and outstanding shares of 7,525,672 in 2007
    and 7,525,672 in 2006


76



76Additional paid-in capital


222,644



217,739Accumulated other comprehensive
    loss:Cumulative foreign currency
    translation adjustment


(1
)


Accumulated deficit


(182,389
)


(183,032
)Total stockholders equity


40,664



35,104Total liabilities and
    stockholders equity

$
92,351


$
83,695    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
    (Loss)


Deficit


TotalBalance at January 1,
    2007

$
322


$
76


$
217,739


$



$
(183,032
)

$
35,105Options exercised for the purchase
    of 145,329 shares of Class A Common Stock


1







331











332Issuance of 51,767 shares of
    Class A Common Stock under Employee Stock Purchase Plan


1







133











134Exercise of warrants to purchase
    886,787 shares of Class A Common Stock


9







2,208











2,217Issuance of Restricted
    Class A Common Stock


1







(1
)










Stock compensation expense for
    continuing operations










988











988Stock compensation expense for
    discontinued operations










79











79Valuation adjustment for stock
    options issued to non-employees for service










92











92Unrealized gain on securities














1,075







1,075Foreign currency translation
    adjustment














(1
)






(1
)Net income for the three months
    ended March 31, 2007


















643



643Balance at March 31,
    2007

$
334


$
76


$
221,569


$
1,074


$
(182,389
)

$
40,664    3




---



##### 



TeleCommunication
    Systems, Inc.
 Consolidated
    Statements of Cash Flows
    (amounts in thousands)
    (unaudited)  Three Months
    EndedMarch 31,2007


2006Operating activities:Net income/(loss)

$
643


$
(1,712
)Less: Loss from discontinued
    operations


(124
)


(2,054
)Income from continuing operations


767



342Adjustments to reconcile net loss
    from continuing operations to net cash (used in)/provided by
    operating activities:Depreciation and amortization of
    property and equipment


1,668



2,445Amortization of acquired intangible
    assets


37



37Non-cash stock compensation expense


988



811Amortization of software
    development costs


344



281Amortization of debt discount


288



96Amortization of deferred financing
    fees included in interest expense


123



226Other non-cash income


11



(45
)Changes in operating assets and
    liabilities:Accounts receivable, net


(8,053
)


(1,226
)Unbilled receivables


1,262



(960
)Inventory


357



261Other current assets


(3,796
)


(511
)Other assets


(259
)


17Accounts payable and accrued
    expenses


2,943



(1,928
)Accrued payroll and related
    liabilities


(3,730
)


(2,588
)Deferred revenue


1,640



1,702Net cash used in operating
    activities of continuing operations


(5,410
)


(1,040
)Net cash used in operating
    activities of discontinued operations


(2,370
)


(862
)Total net cash used in operating
    activities


(7,780
)


(1,902
)Investing activities:Purchases of property and equipment


(389
)


(484
)Capitalized software development
    costs


(445
)


(500
)Net cash used in investing
    activities of continuing operations


(834
)


(984
)Net cash (used in)/provided by
    investing activities of discontinued operations






(275
)Total net cash used in investing
    activities


(834
)


(1,259
)Financing activities:Payments on long-term debt and
    capital lease obligations


(1,677
)


(1,285
)Proceeds from short-term line of
    credit, net


8,000



(5,004
)Proceeds from exercise of warrants


2,208



Proceeds from issuance of long-term
    debt






11,000Financing fees related to issuance
    of long-term debt and Class A Common Stock






(672
)Proceeds from exercise of employee
    stock options and sale of stock


488



112Net cash provided by financing
    activities from continuing operations


9,019



4,151Net cash used in financing
    activities of discontinued operations


(5
)


Total net cash provided by
    financing activities


9,014



4,151Effect of exchange rates on cash of
    discontinued operations






20Net increase in cash from
    continuing operations


2,775



2,127Net decrease in cash from
    discontinued operations


(2,375
)


(1,117
)Net increase in cash


400



1,010Cash and cash equivalents at the
    beginning of the period


10,358



9,320Cash and cash equivalents at the
    end of the period

$
10,758


$
10,330    4




---



##### 



TeleCommunication
    Systems, Inc.
 Notes to
    Consolidated Financial Statements
    March 31, 2007(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.
  Reclassifications.
  Use of Estimates.
    Software Development Costs.
  Stock-Based Compensation. Share Based
    Payment
   5




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Earnings per share.
  Three Months
    EndedMarch 31,2007


2006Basic weighted average common
    shares outstanding


40,630



39,085Dilutive common shares outstanding


1,841



461Diluted weighted average common
    shares outstanding used in the calculation of diluted
    income/(loss)


42,471



39,546   Recent Accounting Pronouncements.
      2.
    Stock-Based
    Compensation     6




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Three MonthsEnded
    March 31,2007


2006Continuing
    operations:Stock options granted at fair value

$
900


$
646Restricted stock


65



155Employee stock purchase plan


23



10Total stock compensation expense
    included in continuing operations

$
988


$
811Discontinued
    operations:Stock options granted at fair value

$
79


$
114Total stock compensation expense
    included in discontinued operations

$
79


$
114     Three Months
    Ended March 31,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


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

$
257


$
158


$
415


$
191


$
134


$
325Direct cost of systems


39



20



59



25



14



39Total stock compensation included
    in direct costs of revenue

$
296


$
178


$
474


$
216


$
148


$
364   Three Months
    Ended March 31,2007


2006Stock compensation included in
    operating expenses:Research and development expense

$
198


$
95Sales and marketing expense


143



69General and administrative expense


173



283Total stock compensation included
    in operating expenses

$
514


$
447  7




---



##### 



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


Exercise(Share amounts in
    thousands)

Options


PriceOutstanding, beginning of year


11,622


$
3.62Granted


2,145


$
3.64Exercised


(145
)

$
2.29Forfeited


(362
)

$
3.24Outstanding, at March 31, 2007


13,260


$
3.65Exercisable, at March 31, 2007


7,382


$
4.21Vested and expected to vest at
    March 31, 2007


9,473


$
3.65Estimated weighted-average grant-
    date fair value of options granted during the year

$
3.65Weighted-average remaining
    contractual life of options outstanding at March 31, 2007


7.1 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$ 0.01 - $ 2.61


5,193


$
2.29



7.66



2,137


$
2.12$ 2.61 - $ 5.21


5,575


$
3.48



7.05



2,753


$
3.43$ 5.21 - $ 7.82


2,436


$
6.74



6.28



2,436


$
6.74$ 7.82 - $10.42


25


$
8.30



6.35



25


$
8.30$10.42 - $26.05


31


$
14.07



3.32



31


$
14.0713,260











7,382       Three MonthsEndedMarch 31,2007

2006Expected life (in years)

5.5


5.5Risk-free interest rate (%)

4.66%-4.76%


4.75
%Volatility (%)

79%-83%


94
%Dividend yield (%)

0%


0
%  8




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  3.
    Supplemental
    Disclosure of Cash Flow Information      4.
    Enterprise
    Assets-Discontinued Operations  ®
    March 31,


December 31,2007


2006Assets:Current assets

$
5,652


$
8,739Long-lived assets


4,487



4,816Other long term assets


20



41Assets of discontinued operations


10,159



13,596Liabilities:Accounts payable and accrued
    liabilities


5,238



9,036Deferred revenue and other
    liabilities


1,475



2,364Liabilities of discontinued
    operations


6,713



11,400Net assets of discontinued
    operations

$
3,446


$
2,196     GrossCarrying


AccumulatedAmount


Amortization


NetAcquired intangible assets:Customer Contracts

$
5,558


$
3,043


$
2,515Customer Lists


2,165



1,458



707Trademarks


630



297



333Subtotal


8,353



4,798



3,555Software development costs,
    including acquired technology


844



311



533Total

$
9,197


$
5,109


$
4,088  9




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  ®
    Three Months
    EndedMarch 31,2007


2006Total revenue

$
3,886


$
4,589Gross profit


472



562Research and development, sales,
    marketing, and general and administrative expenses, net


745



2,616Other income/(expenses)


149



Loss from discontinued operations

$
(124
)

$
(2,054
)     5.
    Segment
    Information    tm
  ®
   10




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Three Months
    Ended March 31,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
13,641


$
7,244


$
20,885


$
15,149


$
6,795


$
21,944Systems


6,810



6,424



13,234



3,466



6,276



9,742Total revenue


20,451



13,668



34,119



18,615



13,071



31,686Operating costs and
    expensesDirect cost of services


7,323



5,625



12,948



8,197



4,977



13,174Direct cost of systems


1,442



5,434



6,876



889



4,061



4,950Total direct costs


8,765



11,059



19,824



9,086



9,038



18,124Gross profitServices gross profit


6,318



1,619



7,937



6,952



1,818



8,770Systems gross profit


5,368



990



6,358



2,577



2,215



4,792Total gross profit

$
11,686


$
2,609


$
14,295


$
9,529


$
4,033


$
13,562   Three Months
    EndedMarch 31,2007


2006Total segment gross profit

$
14,295


$
13,562Research and development expense


(3,105
)


(2,932
)Sales and marketing expense


(3,163
)


(3,048
)General and administrative expense


(4,652
)


(4,227
)Depreciation and amortization of
    property and equipment


(1,668
)


(2,445
)Amortization of acquired
    intangible assets


(37
)


(37
)Interest expense


(963
)


(559
)Other income/(expense), net


60



28Income from continuing
    operations


767



342Loss from discontinued operations


(124
)


(2,054
)Net income/(loss)

$
643


$
(1,712
)   6.
    Inventory  Mar. 31,


Dec. 31,2007


2006Component parts

$
2,612


$
2,942Finished goods


2,324



2,351Total inventory at period end

$
4,936


$
5,293  11




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs  March 31,
    2007


December 31,
    2006Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
606


$
318


$
288


$
606


$
290


$
316Trademarks & Patents


612



81



531



612



72



540Software development costs,
    including acquired technology


8,113



3,610



4,503



7,664



3,262



4,402Total

$
9,331


$
4,009


$
5,322


$
8,882


$
3,624


$
5,258Estimated future amortization
    expense:Nine-months ending
    December 31, 2007

$
1,208Year ending December 31, 2008

$
1,781Year ending December 31, 2009

$
1,188Year ending December 31, 2010

$
289Thereafter

$
856     8.
    Concentrations
    of Credit Risk and Major Customers      % of Total
    Revenue for the Three Months EndedMarch 31,Customer

Segment

2007

2006All US Government Agencies

Government

27%

31%Verizon Wireless, including
    indirect sales

Commercial

27%

21%   As of
    March 31, 2007Accounts

UnbilledCustomer

Segment

Receivable

ReceivablesAll US Government Agencies

Government

34%

42%Customer A

Commercial

28%

Less than 10%Customer B

Commercial

Less than 10%

15%  12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  9.
    Line of
    Credit           13




---



##### 



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
  percentage-of-completion
 14




---



##### 



percentage-of-completion Form 10-K Form 10-K.)
  Overview
    slower-than-anticipated ® Form 10-Q.
    Form 10-K Form 10-Q.
 15




---



##### 



Indicators of Our
    Financial and Operating Performance
    
    Revenue and gross profit.  We derive revenue
    from the sales of systems and services including recurring
    monthly service and subscriber fees, software licenses and
    related service fees for the design, development, and deployment
    of software and communication systems, and products and services
    derived from the delivery of information processing and
    communication systems to governmental agencies.
    Gross profit represents revenue minus direct cost of revenue,
    including certain non-cash expenses.  The major
    items comprising our cost of revenue are compensation and
    benefits, third-party hardware and software, amortization of
    software development costs, non-cash stock-based compensation,
    and overhead expenses. The costs of hardware and third-party
    software are primarily associated with the delivery of systems,
    and fluctuate from period to period as a result of the relative
    volume, mix of projects, level of service support required and
    the complexity of customized products and services delivered.
    Amortization of software development costs, including acquired
    technology, is associated with the recognition of systems
    revenue from our Commercial Segment.
    Operating expenses.  Our operating expenses are
    primarily compensation and benefits, professional fees, facility
    costs, marketing and sales-related expenses, and travel costs as
    well as certain non-cash expenses such as non-cash stock
    compensation expense, depreciation and amortization of property
    and equipment, and amortization of acquired intangible assets.
    Liquidity and cash flows.  The primary driver
    of our cash flows is the results of our operations including
    discontinued operations. Important sources of our liquidity have
    been cash raised from our 2006 debt financing, all as described
    below under Liquidity and Capital Resources, and
    borrowings under our bank credit agreement and lease financings
    secured for the purchase of equipment.
    Balance sheet.  We view cash, working capital,
    and accounts receivable balances and days revenues outstanding
    as important indicators of our financial health. 16




---



##### 



Results of
    Operations
  Revenue and Cost
    of Revenue
  Discontinued Operations  Enterprise assets
  Commercial
    Segment:
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Services revenue

$
13.7


$
15.1


$
(1.4
)


(9
)%Systems revenue


6.8



3.5



3.3



94
%Commercial Segment revenue


20.5



18.6



1.9



10
%Direct cost of services revenue


7.4



8.2



(0.8
)


(10
)%Direct cost of systems revenue


1.4



0.9



0.5



56
%Commercial Segment cost of revenue


8.8



9.1



(0.3
)


(3
)%Services gross profit


6.3



6.9



(0.6
)


(9
)%Systems gross profit


5.4



2.6



2.8



108
%Commercial Segment gross
    profit1

$
11.7


$
9.5


$
2.2



23
%Segment gross profit as a
    percent of revenue


57
%


51
%     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:
    E9-1-1 E-911, tm
   17




---



##### 



Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
    percentage-of-completion
     18




---



##### 



Government
    Segment:
  Three MonthsEndedMarch
    31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Services revenue

$
7.3


$
6.9


$
0.4



6
%Systems revenue


6.4



6.2



0.2



3
%Government Segment revenue


13.7



13.1



0.6



5
%Direct cost of services revenue


5.7



5.0



0.7



14
%Direct cost of systems revenue


5.4



4.1



1.3



32
%Government Segment cost of revenue


11.1



9.1



2.0



22
%Services gross profit


1.6



1.9



(0.3
)


(16
)%Systems gross profit


1.0



2.1



(1.1
)


(52
)%Government Segment gross
    profit1

$
2.6


$
4.0


$
(1.4
)


(35
)%Segment gross profit as a
    percent of revenue


19
%


31
%     1 See
    discussion of segment reporting in Note 6 to the
    accompanying unaudited consolidated financial statements  percentage-of-completion
  Government
    Services Revenue, Cost of Revenue, and Gross Profit:
     19




---



##### 



Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ® percentage-of-completion 5-year
      Major
    Customers
   20




---



##### 



Revenue
    Backlog
    March 31,($ in
    millions)

2007


2006Commercial Segment

$
39.2


$
64.1Government Segment


50.4



51.2Total backlog

$
89.6


$
115.3Backlog expected to be realized
    during the current fiscal year

$
41.0


$
49.4Backlog expected to be realized
    within 12 months

$
57.8


$
61.4     Operating
    Expenses
  Research and
    development expense:
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Research and development expense

$
3.1


$
2.9


$
0.2



7
%Percent of total
    revenue


9
%


9
%     point-of-interest
  product-by-product
 21




---



##### 



Sales and
    marketing expense:
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Sales and marketing expense

$
3.2


$
3.0


$
0.2



7
%Percent of total
    revenue


9
%


10
%     General and
    administrative expense:
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%General and administrative expense

$
4.7


$
4.2


$
0.5



12
%Percent of total
    revenue


14
%


13
%     Depreciation and
    amortization of property and equipment:
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Depreciation and amortization of
    property and equipment

$
1.7


$
2.4


$
(0.7
)


(29
)%Average gross cost of property and
    equipment during the period

$
53.6


$
50.8


$
2.8



6
%    22




---



##### 



Amortization of
    acquired intangible assets:
  Three MonthsEndedMarch 31


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Amortization of acquired
    intangible assets

$
0.1


$
0.1


$




     Interest
    expense:
  Three MonthsEndedMarch
    31


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Interest expense incurred on notes
    payable

$
0.1


$
0.2


$
(0.1
)


(50
)%Interest expense incurred on
    capital lease obligations


0.1



0.1







NMAmortization of deferred financing
    fees


0.4



0.2



0.2



100
%Amortization of debt discount


0.4



0.1



0.3



300
%Total interest and financing
    expense

$
1.0


$
0.6


$
0.4



67
%          23




---



##### 



Other
    income/(expense), net:
    Income
    taxes:
    Discontinued
    Operations  Enterprise assets
  slower-than-anticipated ®
 24




---



##### 



Three MonthsEndedMarch 31


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Services revenue

$
0.8


$
3.9


$
(3.1
)


(79
)%Systems revenue


3.1



0.7



2.4



343
%Total Enterprise revenue


3.9



4.6



(0.7
)


(15
)%Services profit


0.8



1.0



(0.2
)


(20
)%Systems gross profit/(loss)


(0.3
)


(0.4
)


0.1



25
%Total Enterprise gross profit


0.5



0.6



(0.1
)


(17
)%Research and development, sales,
    marketing, and general and administrative expenses


0.7



2.6



(1.9
)


(73
)%Other income/(expenses), net


0.1







0.1



NMLoss from discontinued
    operations

$
(0.1
)

$
(2.1
)

$
(2.0
)


(95
)%     Net income/(
    loss):
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Net income/(loss)

$
0.6


$
(1.7
)

$
2.3



135
%    25




---



##### 



Liquidity and
    Capital Resources
  Three MonthsEndedMarch 31,


2007 vs.
    2006($ in
    millions)

2007


2006


$


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

$
0.8


$
0.3


$
0.5



166
%Non-cash charges


3.4



3.9



(0.5
)


(13
)%Net changes in working capital
    including changes in other assets


(9.6
)


(5.2
)


(4.4
)


(85
)%Operating activities


(5.4
)


(1.0
)


(4.4
)


(44
)%Purchases of property and equipment


(0.4
)


(0.5
)


0.1



20
%Capitalized software development
    costs


(0.4
)


(0.5
)


0.1



20
%Proceeds from new borrowings


8.0



11.0



(3.0
)


(27
)%Other financing activities


1.0



(6.9
)


7.9



114
%Cash provided by/(used in)
    continuing operations


2.8



2.1



0.7



33
%Discontinued
    operationsOperating activities


(2.4
)


(0.9
)


(1.5
)


(167
)%Investing activities






(0.3
)


0.0



NMCash provided by/(used in)
    discontinued operations


(2.4
)


(1.2
)


(1.2
)


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

$
0.4


$
1.0


$
(0.6
)


(60
)%Days revenues outstanding in
    accounts receivable, including unbilled receivables


95



84        26




---



##### 



Off-Balance Sheet
    Arrangements
   27




---



##### 



Contractual
    Commitments
    Within 12


1-3


3-5


More than($ in
    millions)

Months


Years


Years


5 Years


TotalNotes payable

$
2.1


$
13.4


$



$



$
15.5Line of credit


8.0















8.0Capital lease obligations


2.6



1.6











4.2Operating leases


3.6



5.5



0.4







9.5Total contractual commitments

$
16.3


$
20.5


$
0.4


$



$
37.2  28




---



##### 



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest Rate
    Risk
  Form 10-K.
  Foreign Currency
    Risk
    Form 10-K.
  Item 4.
    Controls and
    Procedures    Rule 13a-15(b),
   29




---



##### 



PART II. 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Form 10-K.
  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      Item 6.
    Exhibits  ExhibitNumbers

Description31
.1

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

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

Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2

Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002  30




---



##### 



SIGNATURES       By:
    /s/  Maurice
    B. Tosé       /s/  Maurice
    B.
    ToséMaurice
    B. ToséMay 10, 2007

Chairman, President and Chief
    Executive Officer 
    (Principal Executive Officer)/s/  Thomas
    M. Brandt,
    Jr.Thomas
    M. Brandt, Jr.May 10, 2007

Senior Vice President and Chief
    Financial Officer
    (Principal Financial Officer)  31