##### 



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
    September 30, 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

(I.R.S. Employer Identification No.)Incorporation or Organization)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
  Large accelerated filer
    o


Accelerated filer
    þ



Non-accelerated filer
    o   Rule 12b-2 o þ
    Shares
    outstandingas of
    September 30,Title of Each
    Class

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


34,662,271Class B Common Stock, par value
    $0.01 per share


7,351,334Total Common Stock Outstanding


42,013,605




---



##### 



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

Financial StatementsConsolidated Statements of Operations for the
    three-and nine-months ended September 30, 2007 and 2006
    (Unaudited)


1Consolidated Balance Sheets as of
    September 30, 2007 (Unaudited) and December 31,
    2006


2Consolidated Statement of Stockholders
    Equity for the nine-months ended September 30, 2007
    (Unaudited)


3Consolidated Statements of Cash Flows for the
    nine-months ended September 30, 2007 and 2006
    (Unaudited)


4Notes to Consolidated Financial Statements
    (Unaudited)


5Item 2.

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


15Item 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 6.

Exhibits


31SIGNATURES


32




---



##### 



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


Nine Months
    EndedSeptember 30,


September 30,2007


2006


2007


2006RevenueServices

$
22,049


$
21,473


$
65,552


$
66,060Systems


15,586



9,337



41,538



28,380Total revenue


37,635



30,810



107,090



94,440Direct costs of revenueDirect cost of services revenue


12,889



12,813



39,487



39,565Direct cost of systems revenue, including amortization of
    software development costs of $396, $369, $1,112 and $931,
    respectively


10,608



4,423



28,489



13,497Total direct cost of revenue


23,497



17,236



67,976



53,062Services gross profit


9,160



8,660



26,065



26,495Systems gross profit


4,978



4,914



13,049



14,883Total gross profit


14,138



13,574



39,114



41,378Operating costs and expensesResearch and development expense


3,329



2,994



9,700



9,403Sales and marketing expense


2,729



2,787



9,049



8,976General and administrative expense


4,656



4,275



14,808



12,649Depreciation and amortization of property and equipment


1,497



1,895



4,721



6,196Amortization of acquired intangible assets


37



37



111



111Total operating costs and expenses


12,248



11,988



38,389



37,335Income from operations


1,890



1,586



725



4,043Interest expenses


(328
)


(469
)


(1,432
)


(1,673
)Amortization of debt discount and debt issuance expenses,
    including $2,458 in June 2007


(23
)


(402
)


(3,134
)


(644
)Other income, net


177



46



330



137Income/(loss) from continuing operations


1,716



761



(3,511
)


1,863Income/(loss) from discontinued operations


54



(14,510
)


(215
)


(18,878
)Net income/(loss)

$
1,770


$
(13,749
)

$
(3,726
)

$
(17,015
)Income/(loss) per share-basicIncome/(loss) per share from continuing operations

$
0.04


$
0.02


$
(0.08
)

$
0.05Income/(loss) per share from discontinued operations


0.00



(0.37
)


(0.01
)


(0.48
)Net loss per share-basic

$
0.04


$
(0.35
)

$
(0.09
)

$
(0.43
)Income/(loss) per share-dilutedIncome/(loss) per share from continuing operations

$
0.04


$
0.02


$
(0.08
)

$
0.05Income (loss) per share from discontinued operations


0.00



(0.37
)


(0.01
)


(0.48
)Net loss per share-diluted

$
0.04


$
(0.35
)

$
(0.09
)

$
(0.43
)Weighted average shares outstanding-basic


41,814



39,468



41,210



39,290Weighted average shares outstanding-diluted


44,792



39,813



41,210



39,838    1




---



##### 



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


December 31,2007


2006(unaudited)AssetsCurrent assets:Cash and cash equivalents

$
14,526


$
10,358Accounts receivable, net of allowance of $266 in 2007 and $290
    in 2006


26,401



21,544Unbilled receivables


8,938



7,636Inventory


5,403



5,293Investment in marketable securities


1,500



Other current assets


4,226



2,818Current assets of discontinued operations






13,596Total current assets


60,994



61,245Property and equipment, net of accumulated depreciation and
    amortization of $45,070 in 2007 and $40,594 in 2006


11,546



12,853Software development costs, net of accumulated amortization of
    $4,374 in 2007 and $3,262 in 2006


4,490



4,402Acquired intangible assets, net of accumulated amortization of
    $473 in 2007 and $362 in 2006


746



856Goodwill


1,813



1,813Other assets


2,764



2,526Total assets

$
82,353


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

$
14,683


$
10,421Accrued payroll and related liabilities


4,033



5,663Deferred revenue


5,928



3,485Current portion of notes payable


3,620



2,160Current portion of capital lease obligations


1,914



2,740Current liabilities of discontinued operations






11,400Total current liabilities


30,178



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


11,558



12,721Total liabilities


41,736



48,590Stockholders Equity:Class A Common Stock; $0.01 par value:Authorized shares  225,000,000; issued and
    outstanding shares of 34,662,271 in 2007 and 32,267,893 in 2006


347



322Class B Common Stock; $0.01 par value:Authorized shares  75,000,000; issued and outstanding
    shares of 7,351,334 in 2007 and 7,525,672 in 2006


74



76Additional paid-in capital


226,438



217,739Accumulated other comprehensive Income


516



Accumulated deficit


(186,758
)


(183,032
)Total stockholders equity


40,617



35,105Total liabilities and stockholders equity

$
82,353


$
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


Deficit


TotalBalance at January 1, 2007

$
322


$
76


$
217,739


$



$
(183,032
)

$
35,105Options exercised for the purchase of 1,159,507 shares of
    Class A Common Stock


12







2,806











2,818Issuance of 147,660 shares of Class A Common Stock
    under Employee Stock Purchase Plan


1







449











450Conversion of 174,338 shares of Class B Common Stock
    to Class A Common Stock


2



(2
)














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


9







2,208











2,217Surrender of 11,779 Restricted shares of Class A Common
    Stock as payment for tax withholdings










(57
)










(57
)Issuance of Restricted Class A Common Stock


1







(1
)










Stock compensation expense for continuing operations










3,041











3,041Stock compensation expense of discontinued operations










132











132Valuation adjustment for stock options issued to non-employee
    for service










121











121Unrealized gain on securities














475







475Foreign currency translation adjustment














41







41Net loss for the nine-months ended September 30, 2007


















(3,726
)


(3,726
)Balance at September 30, 2007

$
347


$
74


$
226,438


$
516


$
(186,758
)

$
40,617    3




---



##### 



TeleCommunication
    Systems, Inc.
    Consolidated Statements of Cash Flows
    (amounts in thousands)
    (unaudited)
  Nine Months
    EndedSeptember 30,2007


2006Operating activities:Net loss

$
(3,726
)

$
(17,015
)Less: Loss from discontinued operations


(215
)


(18,878
)Income/(loss) from continuing operations


(3,511
)


1,863Adjustments to reconcile net loss from continuing operations to
    net cash provided by operating activities:Depreciation and amortization of property and equipment


4,721



6,196Non-cash stock compensation expense


3,121



2,428Amortization of software development costs


1,112



931Amortization of debt discount


480



673Amortization of deferred financing fees


253



369Write-off of unamortized debt discount and debt issuance expenses


2,458



Amortization of acquired intangible assets


111



111Other non-cash income(expense)


(45
)


(15
)Changes in operating assets and liabilities:Accounts receivable, net


(4,857
)


(192
)Unbilled receivables


(1,302
)


(690
)Inventory


(110
)


(695
)Other current assets


(1,408
)


(737
)Other assets


(488
)


481Accounts payable and accrued expenses


4,262



547Accrued payroll and related liabilities


(1,630
)


(2,296
)Deferred revenue


2,444



41Net cash provided by operating activities of continuing
    operations


5,611



9,015Net cash used in operating activities of discontinued operations


(3,280
)


(6,985
)Total net cash provided by operating activities


2,331



2,030Investing activities:Purchases of property and equipment


(1,899
)


(1,960
)Capitalized software development costs


(1,200
)


(1,324
)Net cash used in investing activities of continuing operations


(3,099
)


(3,284
)Net cash (used in)/provided by investing activities of
    discontinued operations


4,000



(1,217
)Total net cash (used in)/provided by investing activities


901



(4,501
)Financing activities:Payments on long-term debt and capital lease obligations


(14,540
)


(4,160
)Proceeds from issuance of long-term debt


10,000



11,000Proceeds from exercise of warrants


2,208



Payments on short-term line of credit, net






(2,504
)Financing fees related to issuance of long-term debt and
    Class A Common Stock






(1,320
)Proceeds from exercise of stock options and sale of stock


3,268



536Net cash provided by financing activities of continuing
    operations


936



3,552Net cash provided by financing activities of discontinued
    operations






76Total net cash provided by financing activities


936



3,628Effect of exchange rates on cash of discontinued operations






198Net increase in cash from continuing operations


3,448



9,283Net increase/(decrease) in cash from discontinued operations


720



(7,928
)Total net increase in cash


4,168



1,355Cash and cash equivalents at the beginning of the period


10,358



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

$
14,526


$
10,675    4




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to Consolidated Financial Statements
 September 30,
    2007
 (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.
  Accounting Changes and Error Corrections
  Stock-Based Compensation. Share Based Payment
  Earnings per share.
  Three Months
    Ended


Nine Months
    EndedSeptember 30,


September 30,2007


2006


2007


2006Basic weighted average common shares outstanding


41,814



39,468



41,210



39,290Dilutive common shares outstanding


2,978



345







548Diluted weighted average common shares outstanding used in the
    calculation of diluted income/(loss)


44,792



39,813



41,210



39,838  5




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Recent Accounting
    Pronouncements.
        2.
    Stock-Based
    Compensation      Nine MonthsThree Months
    Ended September 30,


Ended
    September 30,2007


2006


2007


2006Continuing operations:Stock options granted at fair value

$
894


$
674


$
2,807


$
2,159Restricted stock


79



16



236



231Employee stock purchase plan


27



11



78



38Total stock compensation expense included in continuing
    operations

$
1,000


$
701


$
3,121


$
2,428Discontinued operations:Stock options granted at fair value

$



$
120


$
132


$
385Total stock compensation expense included in discontinued
    operations

$



$
120


$
132


$
385  6




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Three Months
    Ended September 30,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


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

$
260


$
160


$
420


$
187


$
129


$
316Direct cost of systems


40



20



60



24



14



38Total stock compensation included in direct costs of revenue

$
300


$
180


$
480


$
211


$
143


$
354   Nine Months Ended
    September 30,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


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

$
811


$
499


$
1,310


$
611


$
423


$
1,034Direct cost of systems


125



63



188



80



46



126Total stock compensation included in direct costs of revenue

$
936


$
562


$
1,498


$
691


$
469


$
1,160   Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


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

$
200


$
143


$
624


$
416Sales and marketing expense


145



80



453



248General and administrative expense


175



124



546



604Total stock compensation included in operating expenses

$
520


$
347


$
1,623


$
1,268  7




---



##### 



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


Exercise(Share amounts in
    thousands)

Options


PriceOutstanding, beginning of year


11,662


$
3.62Granted


2,412


$
3.67Exercised


(1,160
)

$
2.43Forfeited


(1,196
)

$
3.92Outstanding, at September 30, 2007


11,718


$
3.71Exercisable, at September 30, 2007


6,781


$
4.20Vested and expected to vest at September 30, 2007


8,076


$
3.71Estimated weighted-average grant- date fair value of options
    granted during the period

$
3.71Weighted-average remaining contractual life of options
    outstanding at end of period


6.81 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


4,226


$
2.31



7.32



2,024


$
2.21$2.61 - $5.21


5,100


$
3.44



6.87



2,365


$
3.27$5.21 - $7.82


2,362


$
6.74



5.79



2,362


$
6.74$7.82 - $26.05


30


$
11.07



5.26



30


$
11.0711,718











6,781     3.
    Supplemental
    Disclosure of Cash Flow Information      4.
    Enterprise
    Assets-Discontinued Operations   8




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Form 10-Q Accounting for the Impairment or Disposal of
    Long-Lived Assets
  ® 18-month
  Three Months
    Ended


Nine Months
    EndedSeptember 30,


September 30,2007


2006


2007


2006Total revenue

$



$
6,013


$
5,569


$
16,951Total gross profit

$



$
900


$
833


$
2,668Income/(loss) from discontinued operations, including 2006
    impairment charges

$
54


$
(14,510
)

$
(215
)

$
(18,878
)     5.
    Financing
    Arrangements    6.
    Segment
    Information     9




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  tm
  ®
      Three Months
    Ended September 30,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
15,014


$
7,035


$
22,049


$
14,153


$
7,320


$
21,473Systems


4,418



11,168



15,586



5,471



3,866



9,337Total revenue


19,432



18,203



37,635



19,624



11,186



30,810Operating costs and expensesDirect cost of services


7,434



5,455



12,889



7,464



5,349



12,813Direct cost of systems


1,141



9,467



10,608



1,786



2,637



4,423Total direct costs


8,575



14,922



23,497



9,250



7,986



17,236Gross profitServices gross profit


7,580



1,580



9,160



6,689



1,971



8,660Systems gross profit


3,277



1,701



4,978



3,685



1,229



4,914Total gross profit

$
10,857


$
3,281


$
14,138


$
10,374


$
3,200


$
13,574   10




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Nine Months Ended
    September 30,2007


2006Comm.


Gvmt


Total


Comm.


Gvmt


TotalRevenueServices

$
43,320


$
22,232


$
65,552


$
44,838


$
21,222


$
66,060Systems


12,520



29,018



41,538



12,701



15,679



28,380Total revenue


55,840



51,250



107,090



57,539



36,901



94,440Operating costs and expensesDirect cost of services


22,273



17,214



39,487



23,938



15,627



39,565Direct cost of systems


3,791



24,698



28,489



3,548



9,949



13,497Total direct costs


26,064



41,912



67,976



27,486



25,576



53,062Gross profitServices gross profit


21,047



5,018



26,065



20,900



5,595



26,495Systems gross profit


8,729



4,320



13,049



9,153



5,730



14,883Total gross profit

$
29,776


$
9,338


$
39,114


$
30,053


$
11,325


$
41,378   Three Months
    Ended


Nine Months
    EndedSeptember 30,


September 30,2007


2006


2007


2006Total gross profit

$
14,138


$
13,574


$
39,114


$
41,378Research and development expense


(3,329
)


(2,994
)


(9,700
)


(9,403
)Sales and marketing expense


(2,729
)


(2,787
)


(9,049
)


(8,976
)General and administrative expense


(4,656
)


(4,275
)


(14,808
)


(12,649
)Depreciation and amortization of property and equipment


(1,497
)


(1,895
)


(4,721
)


(6,196
)Amortization of acquired intangible assets


(37
)


(37
)


(111
)


(111
)Interest expense


(328
)


(469
)


(1,432
)


(1,673
)Amortization of debt discount and debt issuance expenses,
    including $2,458 in June 2007


(23
)


(402
)


(3,134
)


(644
)Other income, net


177



46



330



137Income/(loss) from continuing operations


1,716



761



(3,511
)


1,863Income/(loss) from discontinued operations


54



(14,510
)


(215
)


(18,878
)Net income/(loss)

$
1,770


$
(13,749
)

$
(3,726
)

$
(17,015
)  11




---



##### 



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


Dec. 31,2007


2006Component parts

$
3,255


$
2,942Finished goods


2,148



2,351Total inventory at period end

$
5,403


$
5,293   8.
    Acquired
    Intangible Assets and Capitalized Software Development
    Costs    September 30,


December 31,2007


2006Gross








GrossCarrying


Accumulated





Carrying


AccumulatedAmount


Amortization


Net


Amount


Amortization


NetAcquired intangible assets:Customer Lists

$
606


$
376


$
230


$
606


$
290


$
316Trademarks & Patents


612



96



516



612



72



540Software development costs, including acquired technology


8,864



4,374



4,490



7,664



3,262



4,402Total

$
10,082


$
4,846


$
5,236


$
8,882


$
3,624


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

$
509Year ending December 31, 2008

$
2,038Year ending December 31, 2009

$
1,444Year ending December 31, 2010

$
387Thereafter

$
858     9.
    Concentrations
    of Credit Risk and Major Customers   12




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    % of Total
    Revenue For the ThreeMonths Ended

% of Total
    Revenue For the Nine Months EndedSeptember 30,

September 30,Customer

Segment

2007

2006

2007

2006Federal Agencies

Government

38%

23%

37%

27%Customer A

Commercial

21%

21%

20%

22%   As of
    September 30,2007Accounts

UnbilledCustomer

Segment

Receivable

ReceivablesFederal Agencies

Government

35%

47%Customer A

Commercial

18%

Less than 10%Customer B

Commercial

13%

Less than 10%Customer C

Commercial

Less than 10%

17%   10.
    Line of
    Credit        10.
    Contingencies   13




---



##### 



TeleCommunication
    Systems, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  successor-in-interest
 14




---



##### 



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
    
    accounting for our percentage-of-completion and proportional
    performance contracts involving multiple elements and software,
    accounts receivable realizability, 15




---



##### 




    inventory value,
    evaluating goodwill for impairment,
    the realizability and remaining useful lives of long-lived
    assets, and
    contingent liabilities.      
    revenue recognition for our software and other contracts with
    multiple elements,
    revenue recognition for our contracts accounted for using the
    percentage-of-completion and proportional performance methods,
    capitalized software development costs,
    acquired intangible assets,
    goodwill impairment,
    stock compensation expense, and
    income taxes.  Form 10-K Form 10-K).
  Overview
    ® Form 10-Q.
   16




---



##### 



Form 10-K Form 10-Q.
  Indicators of Our
    Financial and Operating Performance
    
    Revenue and gross profit.  We derive revenue
    from the sales of services and systems 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. Important
    sources of our liquidity have been cash generated from our
    operations, cash raised from debt financing as described below
    under Liquidity and Capital Resources, 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. 17




---



##### 



Results of
    Operations
  Revenue and Cost
    of Revenue
  Discontinued Operations  Enterprise assets
  Commercial
    Segment:
  Three Months
    Ended September 30,


2007 vs.
    2006


Nine Months Ended
    September 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%


2007


2006


$


%Services revenue

$
15.0


$
14.2


$
0.8



6
%

$
43.3


$
44.8


$
(1.5
)


(3
)%Systems revenue


4.4



5.4



(1.0
)


(19
)%


12.5



12.7



(0.2
)


(2
)%Commercial segment revenue


19.4



19.6



(0.2
)


(1
)%


55.8



57.5



(1.7
)


(3
)%Direct cost of services revenue


7.4



7.5



(0.1
)


(1
)%


22.2



23.9



(1.7
)


(7
)%Direct cost of systems revenue


1.1



1.8



(0.7
)


(39
)%


3.8



3.5



0.3



9
%Commercial segment cost of revenue


8.5



9.3



(0.8
)


(9
)%


26.0



27.5



(1.5
)


(5
)%Services gross profit


7.6



6.7



0.9



13
%


21.1



20.9



0.2



1
%% of revenue


51
%


47
%










49
%


47
%Systems gross profit


3.3



3.7



(0.4
)


(11
)%


8.7



9.2



(0.5
)


(5
)%% of revenue


75
%


69
%










70
%


72
%Commercial segment gross profit

$
10.9


$
10.4


$
0.5



5
%

$
29.8


$
30.1


$
(0.3
)


(1
)%% of revenue


56
%


53
%










53
%


52
%   Commercial
    Services Revenue, Cost of Revenue, and Gross Profit:
    E-911, tm ®
   18




---



##### 



Commercial
    Systems Revenue, Cost of Revenue, and Gross Profit:
         19




---



##### 



Government
    Segment:
  Three Months








Nine MonthsEnded
    September 30,


2007 vs.
    2006


Ended
    September 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%


2007


2006


$


%Services revenue

$
7.0


$
7.3


$
(0.3
)


(4
)%

$
22.2


$
21.2


$
1.0



5
%Systems revenue


11.2



3.9



7.3



187
%


29.0



15.7



13.3



85
%Government segment revenue


18.2



11.2



7.0



63
%


51.2



36.9



14.3



39
%Direct cost of services revenue


5.4



5.3



0.1



2
%


17.2



15.6



1.6



10
%Direct cost of systems revenue


9.5



2.6



6.9



265
%


24.7



9.9



14.8



149
%Government segment cost of revenue


14.9



7.9



7.0



89
%


41.9



25.6



16.3



64
%Services gross profit


1.6



2.0



(0.4
)


(20
)%


5.0



5.6



(0.6
)


(11
)%% of revenue


23
%


27
%










23
%


26
%Systems gross profit


1.7



1.2



0.5



42
%


4.3



5.7



(1.4
)


(25
)%% of revenue


15
%


31
%










15
%


36
%Government segment gross profit

$
3.3


$
3.2


$
0.1



3
%

$
9.3


$
11.3


$
(2.0
)


(18
)%% of revenue


18
%


29
%










18
%


31
%     Government
    Services Revenue, Cost of Revenue, and Gross Profit:
   20




---



##### 



Government
    Systems Revenue, Cost of Revenue, and Gross Profit:
  ®
  5-year
    ®
  Major
    Customers
   21




---



##### 



Revenue
    Backlog
    September 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%Commercial Segment

$
93.9


$
50.4


$
43.5



86
%Government Segment


46.0



20.8



25.2



121
%Total funded contract backlog

$
139.9


$
71.2


$
68.7



96
%Commercial Segment

$
111.5


$
50.4


$
61.1



121
%Government Segment


141.5



44.2



97.3



220
%Total backlog of orders and commitments, including customer
    options

$
253.0


$
94.6


$
158.4



167
%Expected to be realized within next 12 months

$
88.4


$
60.2


$
28.2



47
%   and/or
  Operating
    Expenses
  Research and
    development expense:
  Three Months
    Ended



Nine  MonthsSeptember 30,

2007 vs.
    2006

Ended
    September 30,

2007 vs.
    2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%Research and development expense

$
3.3


$
3.0


$
0.3



10
%

$
9.7


$
9.4


$
0.3



3
%% of total revenue


9
%


10
%










9
%


10
%    22




---



##### 



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

2007 vs.

Nine MonthsEnded
    September 30,

2006

Ended
    September 30,

2007 vs.
    2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%Sales and marketing expense

$
2.7


$
2.8


$
(0.1
)


(4
)%

$
9.0


$
9.0


$




% of total revenue


7
%


9
%










8
%


10
%     General and
    administrative expense:
  Three Months





Nine Months

2007 vs.Ended
    September 30,

2007 vs.
    2006

Ended
    September 30,

2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%General and administrative expense

$
4.7


$
4.3


$
0.4



9
%

$
14.8


$
12.6


$
2.2



17
%% of total revenue


13
%


14
%










14
%


13
%    23




---



##### 



Depreciation and
    amortization of property and equipment:
  Three Months

2007 vs.

Nine Months

2007 vs.Ended
    September 30,

2006

Ended
    September 30,

2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%Depreciation and amortization of property and equipment

$
1.5


$
1.9


$
(0.4
)


(21
)%

$
4.7


$
6.2


$
(1.5
)


(24
)%Average gross cost of property and equipment during the period

$
55.7


$
51.7










$
55.0


$
50.9     Amortization of
    acquired intangible assets:
  Three Months



Nine MonthsEnded
    September 30,

2007 vs.
    2006

Ended
    September 30,

2007 vs.
    2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%Amortization of acquired intangible assets

$
0.1


$
0.1


$







$
0.1


$
0.1


$




    24




---



##### 



Interest
    expense:
  NineThree Months





MonthsEnded





EndedSeptember 30,


2007 vs.
    2006


September 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%


2007


2006


$


%Interest expense incurred on notes payable and line of credit

$
0.2


$
0.4


$
(0.2
)


(50
)%

$
1.2


$
1.0


$
0.2



20
%Interest expense incurred on capital lease obligations


0.1



0.1







NM



0.2



0.2







NMAmortization of deferred financing fees


0.1



0.1







NM



0.3



0.8



(0.5
)


(63
)%Amortization of debt discount






0.3



(0.3
)


(100
)%


0.5



0.3



0.2



67
%Write-off of unamortized debt discount and debt issuance expenses














NM



2.4







2.4



100
%Total interest and financing expense

$
0.4


$
0.9


$
(0.5
)


(56
)%

$
4.6


$
2.3


$
2.3



100
%              25




---



##### 



Other
    income/(expense), net:
    Income
    taxes:
    Discontinued
    Operations  Enterprise assets
  ® 18-month
    Three Months





Nine MonthsEnded
    September 30,


2007 vs.
    2006


Ended
    September 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


%


2007


2006


$


%Enterprise revenue

$



$
6.0


$
(6.0
)


NM


$
5.6


$
17.0


$
(11.4
)


NMEnterprise gross profit






0.9



(0.9
)


NM



0.9



2.7



(1.8
)


NMEnterprise operating income and (expenses), net


0.1



(15.4
)


15.5



NM



(1.1
)


(21.6
)


22.7



NMIncome/(loss) from discontinued operations

$
0.1


$
(14.5
)

$
14.6



NM


$
(0.2
)

$
(18.9
)

$
18.7



NM     Net
    loss:
  Three Months



Nine MonthsEnded
    September 30,

2007 vs.
    2006

Ended
    September 30,

2007 vs.
    2006($ in
    millions)

2007

2006

$

%

2007

2006

$

%Net income/(loss)

$
1.8


$
(13.7
)

$
15.5



113
%

$
(3.7
)

$
(17.0
)

$
13.3



78
%    26




---



##### 



Liquidity and
    Capital Resources
  Nine MonthsEndedSeptember 30,


2007 vs.
    2006($ in
    millions)

2007


2006


$


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

$
(3.5
)

$
1.9


$
(5.4
)


(284
)%Non-cash charges


12.2



10.7



1.5



14
%Net changes in working capital including changes in other assets


(3.1
)


(3.6
)


0.5



14
%Operating activities


5.6



9.0



(3.4
)


(38
)%Purchases of property and equipment


(1.9
)


(2.0
)


0.1



5
%Capitalized software development costs


(1.2
)


(1.3
)


0.1



8
%Proceeds from new borrowings


10.0



11.0



(1.0
)


(9
)%Other financing activities


(9.0
)


(7.4
)


(1.6
)


(22
)%Cash provided by continuing operations


3.5



9.3



(5.8
)


(62
)%Discontinued operationsOperating activities


(3.3
)


(7.0
)


3.7



53
%Investing activities


4.0



(0.9
)


4.9



544
%Cash provided by/(used in) discontinued operations


0.7



(7.9
)


8.6



109
%Net increase in cash

$
4.2


$
1.4


$
2.8



200
%Days revenue outstanding in accounts receivable, including
    unbilled receivables


85



82          27




---



##### 



Off-Balance Sheet
    Arrangements
    Contractual
    Commitments
   28




---



##### 



Within 12


1-3


3-5


More than($ in
    millions)

Months


Years


Years


5 Years


TotalTerm notes payable

$
4.7


$
7.4


$
4.0






$
16.1Capital lease obligations


2.1



1.5



0.2







3.8Operating leases


3.3



4.1



0.6



0.1



8.1Total contractual commitments

$
10.1


$
13.0


$
4.8


$
0.1


$
28.0   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
    successor-in-interest
  Item 1A.
    Risk
    Factors  Form 10-K.
  Our definition of
    backlog may not be the same as our competitors and
    there can be no assurances that the backlog will be
    realized.
  and/or
 30




---



##### 



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  31




---



##### 



SIGNATURES
      By:
    /s/  Maurice
    B. Tosé       /s/  Maurice
    B. ToséMaurice
    B. Tosé

Chairman, President and Chief Executive Officer (Principal
    Executive Officer)

November 7, 2007/s/  Thomas
    M. Brandt, Jr.Thomas
    M. Brandt, Jr.

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

November 7, 2007  32