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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 10549



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FORM 10-Q



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|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2004



or



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



Commission file number: 0-28432



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Boston Communications Group, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Massachusetts                                                  |  | 04-3026859                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



100 Sylvan Road,
Woburn, Massachusetts 01801

(Address of principal executive offices)



Registrants telephone number, including area code: (781) 904-5000





(Former name, former address, former fiscal year, if changed since last report)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    YES  x    NO ̈



Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2)    YES  x    NO ̈



Indicate the number of shares outstanding of
each of the issuers classes of common stock as of the latest practicable date. As of Aug 6, 2004, the Company had outstanding 17,498,271 shares of common stock, $.01 par value per share.



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INDEX



|                               |  |                                                                                                                                        |  |   
|------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION: |  |                                                                                                                                       
|                               |  |                                                                                                                                       
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                                       |  |   
|                               |  |                                                                                                                                       
|                               |  | Condensed Consolidated Balance Sheets                                                                                                  |  | 3 
|                               |  | Condensed Consolidated Statements of Operations                                                                                        |  | 4 
|                               |  | Condensed Consolidated Statements of Cash Flows                                                                                        |  | 5 
|                               |  | Notes to Condensed Consolidated Financial Statements                                                                                   |  | 6 
|                               |  |                                                                                                                                       
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations   Certain Factors That May Affect Future Results |  | 13
|                               |  |                                                                                                                                       
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                             |  | 24
|                               |  |                                                                                                                                       
|Item 4.                        |  | Controls and Procedures                                                                                                                |  | 24
|                               | 
|PART II.
OTHER INFORMATION:    |  |                                                                                                                                       
|                               |  |                                                                                                                                       
|Item 1.                        |  | Legal Proceedings                                                                                                                      |  | 24
|                               |  |                                                                                                                                       
|Item 2.                        |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                                       |  | 25
|                               |  |                                                                                                                                       
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                                    |  | 26
|                               |  |                                                                                                                                       
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                                       |  | 26



This Quarterly Report contains
forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including without limitation, statements regarding the expectations regarding our new product offerings,
expansion into new markets, Verizon Wireless timetable to transfer subscribers from our platform to their internal prepaid platform, diversification of our product and customer base, total revenues, earnings per share, billing and transaction
processing services revenues and gross margin, engineering, research and development expenses, sales and marketing expenses, costs to defend Freedom Wireless lawsuit, additional capital investments, payment of additional contingent cash
consideration to Infotech Solutions Corporation, and the ability to finance our operations for the next 12 months. These statements are based on the current beliefs and assumptions of management.



Any statements contained herein that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the foregoing, the words believe, anticipate, plan, expect, intend, and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these words.



A
number of important factors could cause actual events or our actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under the captions
Managements Discussion and Analysis of Financial Condition and Results of Operations, Certain Factors That May Affect Future Results and Quantitative and Qualitative Disclosures About Market Risk. The
statements discussed herein do not reflect the potential future impact of any mergers, acquisitions or dispositions. We do not assume any obligation to update any forward-looking statements made herein.



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BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                           |  | June 30,2004 |         |   | December 31,2003 |  
|                                                                                                                                                                           |  | (unaudited)  |         |   |                  |  
|ASSETS                                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                            |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                  |  |              | 2,753   |   |                  | $ | 2,960   |  
|Short-term investments                                                                                                                                                     |  |              | 62,375  |   |                  |   | 63,553  |  
|Accounts receivable, net of allowance for billing adjustments and doubtful accounts of $756 in 2004 and $878 in 2003                                                       |  |              | 23,565  |   |                  |   | 18,386  |  
|Inventory                                                                                                                                                                  |  |              | 603     |   |                  |   | 679     |  
|Deferred income taxes                                                                                                                                                      |  |              | 1,152   |   |                  |   | 1,260   |  
|Prepaid expenses and other assets                                                                                                                                          |  |              | 2,937   |   |                  |   | 2,121   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                                       |  |              | 93,385  |   |                  |   | 88,959  |  
|Property and equipment:                                                                                                                                                    |  |              |         |   |                  |   |         |  
|Building and leasehold improvements                                                                                                                                        |  |              | 11,078  |   |                  |   | 10,989  |  
|Telecommunications systems & software                                                                                                                                      |  |              | 90,763  |   |                  |   | 86,418  |  
|Furniture and fixtures                                                                                                                                                     |  |              | 547     |   |                  |   | 540     |  
|Systems in development                                                                                                                                                     |  |              | 10,220  |   |                  |   | 10,789  |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|                                                                                                                                                                           |  |              | 112,608 |   |                  |   | 108,736 |  
|Less allowance for depreciation and amortization                                                                                                                           |  |              | 54,769  |   |                  |   | 50,098  |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|                                                                                                                                                                           |  |              | 57,839  |   |                  |   | 58,638  |  
|Intangible assets, net                                                                                                                                                     |  |              | 800     |   |                  |   | 920     |  
|Goodwill                                                                                                                                                                   |  |              | 4,163   |   |                  |   | 4,177   |  
|Other assets                                                                                                                                                               |  |              | 3,447   |   |                  |   | 1,897   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                               |  | $            | 159,634 |   |                  | $ | 154,591 |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                       |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                       |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                           |  | $            | 1,796   |   |                  | $ | 1,844   |  
|Accrued expenses                                                                                                                                                           |  |              | 10,144  |   |                  |   | 12,363  |  
|Deferred revenue                                                                                                                                                           |  |              | 4,831   |   |                  |   | 3,788   |  
|Income taxes payable                                                                                                                                                       |  |              | 1,941   |   |                  |   | 760     |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                  |  |              | 18,712  |   |                  |   | 18,755  |  
|Non-current liabilities:                                                                                                                                                   |  |              |         |   |                  |   |         |  
|Accrued pension liability                                                                                                                                                  |  |              | 1,093   |   |                  |   | 632     |  
|Deferred income taxes                                                                                                                                                      |  |              | 7,003   |   |                  |   | 7,003   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total non-current liabilities                                                                                                                                              |  |              | 8,096   |   |                  |   | 7,635   |  
|Commitments and contingencies                                                                                                                                              |  |              |         |   |                  |   |         |  
|Shareholders equity:                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued and outstanding                                                                                  |  |              |        |   |                  |   |        |  
|Common stock, voting, par value $.01 per share, 35,000,000 shares authorized; 18,611,236 and 18,522,448 shares issued at June 30, 2004 and
December 31, 2003, respectively |  |              | 186     |   |                  |   | 185     |  
|Additional paid-in capital                                                                                                                                                 |  |              | 113,672 |   |                  |   | 112,962 |  
|Treasury stock; 777,920 and 273,420, at cost, at June 30, 2004 and December 31, 2003, respectively                                                                         |  |              | (7,066  | ) |                  |   | (2,131  | )
|Retained earnings                                                                                                                                                          |  |              | 26,305  |   |                  |   | 17,230  |  
|Accumulated other comprehensive loss                                                                                                                                       |  |              | (271    | ) |                  |   | (45     | )
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                 |  |              | 132,826 |   |                  |   | 128,201 |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                 |  | $            | 159,634 |   |                  | $ | 154,591 |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  



See accompanying notes.



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BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)



|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------- |  | -------------------------- | ------ | ---- | ------------------------ | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                              |  | Three months endedJune 30, |        |      | Six months endedJune 30, |       
|                                                              |  | 2004                       |        | 2003 |                          |        | 2004 |  |   | 2003   |  
|REVENUES:                                                     |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Billing and Transaction Processing Services                   |  | $                          | 26,980 |      | $                        | 24,097 |      |  | $ | 53,536 |   |  | $ | 45,171 |  
|Prepaid Systems                                               |  |                            | 670    |      |                          | 1,427  |      |  |   | 1,359  |   |  |   | 2,483  |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|                                                              |  |                            | 27,650 |      |                          | 25,524 |      |  |   | 54,895 |   |  |   | 47,654 |  
|EXPENSES:                                                     |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Cost of Billing and Transaction Processing Services revenues* |  |                            | 5,996  |      |                          | 6,014  |      |  |   | 11,861 |   |  |   | 11,004 |  
|Cost of Prepaid Systems revenues*                             |  |                            | 463    |      |                          | 871    |      |  |   | 976    |   |  |   | 1,438  |  
|Engineering, research and development                         |  |                            | 3,497  |      |                          | 3,362  |      |  |   | 7,293  |   |  |   | 6,231  |  
|Sales and marketing                                           |  |                            | 1,667  |      |                          | 1,516  |      |  |   | 3,539  |   |  |   | 3,083  |  
|General and administrative                                    |  |                            | 2,125  |      |                          | 1,985  |      |  |   | 4,211  |   |  |   | 3,870  |  
|General and administrative  legal expenses                   |  |                            | 450    |      |                          | 725    |      |  |   | 1,600  |   |  |   | 1,640  |  
|Depreciation and amortization                                 |  |                            | 5,490  |      |                          | 4,813  |      |  |   | 10,959 |   |  |   | 9,205  |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|                                                              |  |                            | 19,688 |      |                          | 19,286 |      |  |   | 40,439 |   |  |   | 36,471 |  
|Operating income                                              |  |                            | 7,962  |      |                          | 6,238  |      |  |   | 14,456 |   |  |   | 11,183 |  
|Interest income                                               |  |                            | 251    |      |                          | 302    |      |  |   | 563    |   |  |   | 638    |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations before income taxes         |  |                            | 8,213  |      |                          | 6,540  |      |  |   | 15,019 |   |  |   | 11,821 |  
|Provision for income taxes                                    |  |                            | 3,211  |      |                          | 2,489  |      |  |   | 5,933  |   |  |   | 4,496  |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Net income from continuing operations                         |  |                            | 5,002  |      |                          | 4,051  |      |  |   | 9,086  |   |  |   | 7,325  |  
|Discontinued operations (Note 6):                             |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Income (loss) from discontinued operations, before taxes      |  |                            |       |      |                          | 58     |      |  |   | (19    | ) |  |   | 81     |  
|Income tax (expense) / benefit from discontinued operations   |  |                            |       |      |                          | (22    | )    |  |   | 8      |   |  |   | (31    | )
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Net income / (loss) from discontinued operations              |  |                            |       |      |                          | 36     |      |  |   | (11    | ) |  |   | 50     |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Net income                                                    |  | $                          | 5,002  |      | $                        | 4,087  |      |  |   | 9,075  |   |  | $ | 7,375  |  
|                                                              |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Basic net income per share:                                   |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                         |  | $                          | 0.27   |      | $                        | 0.22   |      |  | $ | 0.50   |   |  | $ | 0.41   |  
|Net income                                                    |  | $                          | 0.27   |      | $                        | 0.23   |      |  | $ | 0.50   |   |  | $ | 0.42   |  
|Weighted average common shares outstanding                    |  |                            | 18,295 |      |                          | 18,009 |      |  |   | 18,286 |   |  |   | 17,744 |  
|                                                              |  |                            |        |     
|Diluted net income per share:                                 |  |                            |        |      |                          |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                         |  | $                          | 0.27   |      | $                        | 0.21   |      |  | $ | 0.49   |   |  | $ | 0.39   |  
|Net income                                                    |  | $                          | 0.27   |      | $                        | 0.22   |      |  | $ | 0.48   |   |  | $ | 0.40   |  
|Weighted average common shares outstanding                    |  |                            | 18,735 |      |                          | 18,878 |      |  |   | 18,728 |   |  |   | 18,609 |  

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|* | exclusive of depreciation, which is shown separately.
|- | -----------------------------------------------------



See accompanying notes.



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BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



|                                                                                  |  |                           |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Six months ended June 30, |        
|                                                                                  |  | 2004                      |         |   | 2003 |  
|OPERATING ACTIVITIES                                                              |  |                           |         |   |      |   |         |  
|Net income from continuing operations                                             |  | $                         | 9,086   |   |      | $ | 7,325   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                           | 10,959  |   |      |   | 9,205   |  
|Deferred income taxes                                                             |  |                           | 108     |   |      |   | 1,139   |  
|Changes in operating assets and liabilities:                                      |  |                           |         |   |      |   |         |  
|Accounts receivable                                                               |  |                           | (5,373  | ) |      |   | (2,251  | )
|Inventory                                                                         |  |                           | 76      |   |      |   | (267    | )
|Prepaid expenses and other assets                                                 |  |                           | (848    | ) |      |   | (1,212  | )
|Accounts payable, accrued expenses and deferred revenue                           |  |                           | (759    | ) |      |   | 5,666   |  
|Other non-current liabilities                                                     |  |                           | 461     |   |      |   |        |  
|Income taxes payable                                                              |  |                           | 1,181   |   |      |   | 984     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities of continuing operations                |  |                           | 14,891  |   |      |   | 20,589  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Income (loss) from discontinued operations                                        |  |                           | (11     | ) |      |   | 50      |  
|Net change in operating assets and liabilities of discontinued operations         |  |                           | (258    | ) |      |   | (22     | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by (used in) operating activities of discontinued operations    |  |                           | (269    | ) |      |   | 28      |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by operations                                                   |  |                           | 14,622  |   |      |   | 20,617  |  
|                                                                                  |  |                          
|INVESTING ACTIVITIES                                                              |  |                           |         |   |      |   |         |  
|Purchases of long-term investments                                                |  |                           | (1,517  | ) |      |   | (1,517  | )
|Purchases of short-term investments                                               |  |                           | (31,043 | ) |      |   | (20,448 | )
|Sales of short-term investments                                                   |  |                           | 31,995  |   |      |   | 4,800   |  
|Purchase of property and equipment                                                |  |                           | (10,039 | ) |      |   | (23,482 | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                           | (10,604 | ) |      |   | (40,647 | )
|                                                                                  |  |                          
|FINANCING ACTIVITIES                                                              |  |                           |         |   |      |   |         |  
|Proceeds from exercise of stock options and employee stock purchase plan          |  |                           | 710     |   |      |   | 5,579   |  
|Repurchase of common stock                                                        |  |                           | (4,935  | ) |      |   |        |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                           | (4,225  | ) |      |   | 5,579   |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Decrease in cash and cash equivalents                                             |  |                           | (207    | ) |      |   | (14,451 | )
|Cash and cash equivalents at beginning of period                                  |  |                           | 2,960   |   |      |   | 31,146  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                         | 2,753   |   |      | $ | 16,695  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |                           |         |   |      |   |         |  
|Cash paid for income taxes                                                        |  | $                         | 4,961   |   |      | $ | 1,574   |  
|                                                                                  |  |                           |         |   |      |   |         |  



See accompanying notes.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

|1. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended
June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.



The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements.



For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Companys annual report on
Form 10-K for the year ended December 31, 2003.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



Reclassifications



Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current year presentation.



Revenue Recognition



Revenues are recognized in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition and application of Emerging Issues Task Force Issue No. 00-21 Revenue Arrangements with Multiple Deliverables.



The Company earns Billing and Transaction Processing Services revenues in
various ways, depending on the type of transaction:



1)
bcgi Real-Time Subscriber Management solutions - the Company principally earns revenues by processing prepaid wireless minutes and transactions, net of any penalties incurred related to outages on the platform;



2) bcgiPayment Services - the Company earns revenues by processing
transactions on behalf of wireless carriers subscribers; and



3) bcgiVoyager Billing and Customer Care - the Company earns revenues by generating a subscribers monthly bill.



Revenues for each of these solutions are recognized as the services are provided.



Billing and Transaction Processing Services revenues also include amounts for licensing fees and related maintenance,
development projects and implementations, which are typically recognized ratably over the remaining life of the contract with the respective carrier. For multiple element arrangements, the Company determines the fair value of each element based on
specific objective evidence for that element and allocates total revenue from these arrangements to each element based on its fair value.



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The Company typically recognizes revenue for its Prepaid Systems business from the sale of systems at the
time the systems are shipped or delivered to the customer, depending on contract terms. In the event there are acceptance terms that are not perfunctory, the Company defers revenue until acceptance has occurred. The fair value of installation
revenue, based on vendor-specific objective evidence, is deferred until the entire installation is complete. Revenues from maintenance and support services are recognized ratably over the term of the contract period, which is generally one year,
based on vendor-specific objective evidence of fair value. Vendor-specific objective evidence of fair value is based upon the amount charged when the service is sold separately, which is typically the contracts renewal rate.



All revenues are recorded net of unbillable amounts, and a reserve for
billing adjustments and doubtful accounts is recorded based on historical experience or specific identification of an event necessitating a reserve.



Legal Costs



The Company accrues the costs of settlements, damages and, under certain conditions, costs of defense when such costs are probable and reasonably
estimable; otherwise, such costs are expensed as incurred. As discussed in Note 3 to the condensed consolidated financial statements, the Company began to expense legal costs related to the Freedom Wireless lawsuit as incurred due to the lengthy and
unpredictable discovery process, which made it difficult to continue to reasonably estimate legal costs for the suit. Other litigation will continue to be accounted for in accordance with the Companys accounting policy, and generally, the
Company develops an estimate of probable costs in consultation with the Companys outside legal counsel who is handling the case. There can be no assurances that the Companys expenses will not exceed its estimates.



Research and Development, Software Development Costs and Assets Obtained
and Deployed for Internal Use



Research and development
costs are charged to expense as incurred. However, certain costs incurred for the development of computer software or deployment of assets for internal use are capitalized. The direct labor and payroll-related costs of development of computer
software, primarily for the coding and testing of the software, are capitalized in accordance with the American Institute of Certified Public Accountants Statement of Position 98-1 Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. The direct labor, travel and payroll related costs to deploy assets for internal use are capitalized until the asset is placed in service. The capitalized costs are subject to an ongoing assessment of
recoverability based on the Companys anticipated use, changes in hardware and software technologies and anticipated future undiscounted net cash flows.



Amortization of capitalized software development costs begins when the product is available and released for general use on the companys
platforms. Amortization of internal use costs begins when the related asset is first placed in service. These costs are amortized on a straight-line basis over a three-year period.



Impairment of Long-Lived Assets



The Company reviews the carrying value of its long-lived assets, including definite-lived intangible assets, and assesses
the recoverability of these assets in accordance with Statement of Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company assesses assets for impairment when
events and circumstances indicate that the assets may be impaired because of a change in anticipated use or technology, and the undiscounted operating cash flows estimated to be generated by those assets over their useful life are less than the
carrying amounts of those assets. The impairment loss is measured by comparing the fair value of the assets to their carrying values. Fair value is determined by either a quoted market price or use of a discounted cash flow method, whichever is more
appropriate under the circumstances involved.



In accordance
with Statement of Financial Accounting Standards Board Statement No. 142 Goodwill and Other Intangible Assets (FAS 142), goodwill is not amortized but is subject to annual impairment tests. Goodwill is evaluated for impairment annually
or whenever events or changes in circumstances indicate that



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the carrying amount may not be recoverable. Goodwill is tested for impairment by comparing the carrying
amount to the estimated future undiscounted cash flows of the lowest level of related assets. If this review indicates that goodwill is not recoverable, the carrying amount would be reduced to fair value based on a discounted cash flow analysis
taking into consideration the time value of money and investment risk factors.



For impairment tests of goodwill, the goodwill is attributed to the billing and transaction processing services and prepaid systems businesses as a single unit. As a result, the enterprise-wide approach, which is
based on the market value of the Companys common stock, is utilized to determine if an impairment loss exists.



Stock Based Compensation



The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its stock-based compensation plans, rather than the alternative fair value method promulgated under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).
Under APB 25, since the exercise price of options granted under these plans equals the fair market price of the underlying stock on the date of grant, the Company recognizes no compensation expense for stock option grants.



Had compensation expense for the Companys stock plans been recorded
consistent with the provisions of FAS 123, the pro forma net income and net income per share would have been as follows:



(in thousands, except per-share amounts)



|                                                                                                                                    |  |                            |       |                          |   |       |  |      |       |  |   |      
|----------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                                                                                                                    |  | Three months endedJune 30, |       | Six months endedJune 30,
|                                                                                                                                    |  | 2004                       |       | 2003                     |   | 2004  |  | 2003
|Net income as reported                                                                                                              |  | $                          | 5,002 |                          | $ | 4,087 |  | $    | 9,075 |  | $ | 7,375
|Add: Stock-based employee compensation expense included in reported net income                                                      |  |                            |      |                          |   |      |  |      |      |  |   |     
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of tax
benefit |  |                            | 566   |                          |   | 655   |  |      | 1,189 |  |   | 1,299
|                                                                                                                                    |  |                            |       |                          |   |       |  |      |       |  |   |      
|Pro forma net income                                                                                                                |  | $                          | 4,436 |                          | $ | 3,432 |  | $    | 7,886 |  | $ | 6,076
|                                                                                                                                    |  |                            |       |                          |   |       |  |      |       |  |   |      
|Basic net income per share:                                                                                                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|As reported                                                                                                                         |  | $                          | 0.27  |                          | $ | 0.23  |  | $    | 0.50  |  | $ | 0.42 
|Pro forma                                                                                                                           |  | $                          | 0.24  |                          | $ | 0.19  |  | $    | 0.43  |  | $ | 0.34 
|Diluted net income per share:                                                                                                       |  |                            |       |                          |   |       |  |      |       |  |   |      
|As reported                                                                                                                         |  | $                          | 0.27  |                          | $ | 0.22  |  | $    | 0.48  |  | $ | 0.40 
|Pro forma                                                                                                                           |  | $                          | 0.24  |                          | $ | 0.18  |  | $    | 0.42  |  | $ | 0.33 



Comprehensive
Income



Comprehensive income is comprised of net income
and unrealized gains and losses on available-for-sale securities.



|                                                 |  |                            |       |                          |      |   |       |  |   |       |   |  |   |      
|------------------------------------------------ |  | -------------------------- | ----- | ------------------------ | ---- | - | ----- |  | - | ----- | - |  | - | -----
|                                                 |  | Three months endedJune 30, |       | Six months endedJune 30,
|                                                 |  | 2004                       |       |                          | 2003 |   | 2004  |  |   | 2003 
|Net income as reported                           |  | $                          | 5,002 |                          |      | $ | 4,087 |  | $ | 9,075 |   |  | $ | 7,375
|Unrealized loss on available for sale securities |  |                            | (206  | )                        |      |   |      |  |   | (226  | ) |  |   |     
|                                                 |  |                            |       |                          |      |   |       |  |   |       |   |  |   |      
|Comprehensive Income                             |  | $                          | 4,796 |                          |      | $ | 4,087 |  | $ | 8,849 |   |  | $ | 7,375
|                                                 |  |                            |       |                          |      |   |       |  |   |       |   |  |   |      



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|3. | Contingencies
|-- | -------------



Legal



In March 2000, Freedom Wireless, Inc. filed a suit against the Company and a number of wireless carriers. The suit is being tried in the United States
District Court in Massachusetts and alleges that the defendants infringe two patents held by Freedom Wireless, Inc. and seeks damages in an unspecified amount as well as injunctive relief. If there was a ruling that the Company infringed the Freedom
Wireless patents, it could significantly restrict the Companys ability to conduct business. In addition, the Company has an obligation to indemnify the other defendants for damages they may incur with respect to any infringement by the
Companys technology. The suit is in the pre-trial phase and various summary judgment motions have been filed by both parties in the case. The Court is expected to rule on these motions in the normal course of proceedings. The Company does not
believe that it infringes these patents and believes that the patents are invalid in light of prior art and other reasons.



On November 10, 2003, a putative class action complaint was filed in U.S. District Court for the District of Massachusetts against the Company, its Chief
Executive Officer and Chief Financial Officer on behalf of persons who purchased the Companys common stock between June 12, 2003 and July 16, 2003. The complaint alleged that the defendants violated Sections 10(b) and 20(a) of the Exchange
Act, as well as Rule 10b-5 promulgated thereunder by allegedly failing to disclose material adverse information about the Companys business, operations and future prospects, specifically with respect to the Companys contract negotiations
with Verizon Wireless. On June 9, 2004, the class action complaint was voluntarily dismissed by the plaintiffs without prejudice to the plaintiffs ability to re-file a complaint. Neither the Company nor its insurers made any payment in
connection with the dismissal of these lawsuits and have no obligation to make payments in the future.



From time to time, as a normal incidence of the nature of the Companys business, various claims, charges and litigation are asserted or commenced
against the Company arising from, or related to, contractual matters, patents, trademarks, personal injury, and personnel and employment disputes. As to such claims and litigation, the Company can give no assurance that it will prevail. However, the
Company does not believe that any of these current matters (other than as disclosed) will have a material adverse effect on its consolidated financial position, although an adverse outcome of any of these matters could have a material adverse effect
on its consolidated results of operations or cash flows in future quarters or in the quarter or annual period in which one or more of these matters are resolved.



Indemnifications



In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), which requires certain guarantees to be recorded at fair value as opposed to the previous practice of recording a liability only when a loss is
probable and reasonably estimable. FIN 45 also requires a guarantor to make significant new guaranty disclosures, even when the likelihood of making any payments under the guarantee is remote.



The Company has agreed to indemnification provisions in certain of its
agreements with customers and its leases of real estate in the ordinary course of its business.



With respect to customer agreements, these provisions generally obligate the Company to indemnify the customer against losses, expenses, liabilities and
damages that may be awarded against the customer in the event the Companys systems or services infringe upon a patent or other intellectual property right of a third party. The agreements generally limit the scope of and remedies for such
indemnification obligations in certain respects, including but not limited to geographical limitations and the right to replace or modify an infringing product or service. The Company believes its internal development processes and other policies
and practices limit its exposure related to the indemnification provisions of these agreements.



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With respect to real estate leases, these indemnification provisions typically apply to claims asserted
against the landlord by a third party relating to personal injury and property damage occurring at the leased premises or to certain breaches of the Companys contractual obligations. The term of these indemnification provisions generally
survive the termination of the lease, although the exposure is greatest during the lease term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these
indemnification provisions is unlimited. The Company has purchased insurance that reduces the amount of such exposure for landlord indemnifications. The Company has never paid any amounts to defend lawsuits or settle claims related to these landlord
indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.



|4. | Earnings Per Share
|-- | ------------------



The following table sets forth the computation of basic and diluted net income per share:



(in thousands, except per share amounts)



|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|--------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | - | ------ | - |  | - | ------
|                                                    |  | Three months endedJune 30, |        | Six months endedJune 30,
|                                                    |  | 2004                       |        | 2003                     |   | 2004   |  |   | 2003  
|Numerator for basic and diluted earnings per share: |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                          | 5,002  |                          | $ | 4,051  |  | $ | 9,086  |   |  | $ | 7,325 
|Income (loss) from discontinued operations          |  |                            |       |                          |   | 36     |  |   | (11    | ) |  |   | 50    
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Net income                                          |  | $                          | 5,002  |                          | $ | 4,087  |  | $ | 9,075  |   |  | $ | 7,375 
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Denominator:                                        |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Denominator for basic net income per share          |  |                            | 18,295 |                          |   | 18,009 |  |   | 18,286 |   |  |   | 17,744
|Effect of dilutive employee stock options           |  |                            | 440    |                          |   | 869    |  |   | 442    |   |  |   | 865   
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Denominator for diluted net income per share        |  |                            | 18,735 |                          |   | 18,878 |  |   | 18,728 |   |  |   | 18,609
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Basic net income per common share:                  |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                          | 0.27   |                          | $ | 0.23   |  | $ | 0.50   |   |  | $ | 0.41  
|Income (loss) from discontinued operations          |  |                            |       |                          |   |       |  |   |       |   |  |   | 0.01  
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Net income per common share                         |  | $                          | 0.27   |                          | $ | 0.23   |  | $ | 0.50   |   |  | $ | 0.42  
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Diluted net income per common share:                |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                          | 0.27   |                          | $ | 0.21   |  | $ | 0.49   |   |  | $ | 0.39  
|Income (loss) from discontinued operations          |  |                            |       |                          |   | 0.01   |  |   | (0.01  | ) |  |   | 0.01  
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       
|Net income per common share                         |  | $                          | 0.27   |                          | $ | 0.22   |  | $ | 0.48   |   |  | $ | 0.40  
|                                                    |  |                            |        |                          |   |        |  |   |        |   |  |   |       



|5. | Segment Reporting
|-- | -----------------



The Companys reportable operating segments consist of Billing and Transaction Processing Services and Prepaid Systems. The Companys Billing
and Transaction Processing Services solutions allow wireless carriers to access the Companys real-time subscriber management network and transaction processing platform, enabling such carriers to offer prepaid wireless calling, payment
services replenishment capabilities and postpaid billing and customer care to their subscribers. The real-time subscriber management network and transaction processing platform also enables bcgiMobile Guardian, a Web-based solution that
allows end-users to actively manage their wireless usage and access. The Prepaid Systems segment assembles and markets prepaid systems principally to international carriers.



As described in footnote 6, the Company ceased providing its ROAMERplus solution in March 2004, effectively
discontinuing its Roaming Services segment.



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##### Table of Contents

(in thousands, except percentages)



|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|--------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Three months ended June 30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                        |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                    |  | $                                           | 26,980 |   |                 | $ | 670   |       |  | $ | 27,650 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                |  |                                             | 20,984 |   |                 |   | 207   |       |  |   | 21,191 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage     |  |                                             | 78     | % |                 |   | 31    | %     |  |   | 77     | %
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003                        |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                    |  | $                                           | 24,097 |   |                 | $ | 1,427 |       |  | $ | 25,524 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                |  |                                             | 18,083 |   |                 |   | 556   |       |  |   | 18,639 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage     |  |                                             | 75     | % |                 |   | 39    | %     |  |   | 73     | %
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  



|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Six months ended June 30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                      |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                  |  | $                                           | 53,536 |   |                 | $ | 1,359 |       |  | $ | 54,895 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin              |  |                                             | 41,675 |   |                 |   | 383   |       |  |   | 42,058 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage   |  |                                             | 78     | % |                 |   | 28    | %     |  |   | 77     | %
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003                      |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                  |  | $                                           | 45,171 |   |                 | $ | 2,483 |       |  | $ | 47,654 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin              |  |                                             | 34,167 |   |                 |   | 1,045 |       |  |   | 35,212 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage   |  |                                             | 76     | % |                 |   | 42    | %     |  |   | 74     | %
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  



|6. | Discontinued Operations
|-- | -----------------------



Due to industry consolidation and a change in the fundamentals of inter-carrier roaming, resulting in a continued decline in profitability, the Company
ceased providing its ROAMERplus solution in March 2004, effectively discontinuing its Roaming Services segment. Pursuant to Statement of Financial Accounting Standards 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (FAS 144), the condensed consolidated financial statements have been reclassified to reflect this discontinued operation. Accordingly, the operating results of the Roaming Services segment have been segregated as a
discontinued operation in the Condensed Consolidated Statements of Operations and Consolidated Statements of Cash Flows. In addition, 2003 amounts have been restated to reflect Roaming Services as discontinued operations. At June 30, 2004 there were
$5,000 in liabilities classified as accrued expenses related to the Roaming Services segment. Revenues for the Roaming Services segment were $0 and $914,000 for the three months ended June 30, 2004 and 2003, respectively, and $563,000 and $1.9
million for the six months ended June 30, 2004 and 2003, respectively.



|7. | Retirement Plans
|-- | ----------------



Defined Benefit Plan



In 2002, the Company adopted a defined benefit retirement plan (the Plan) for certain executives. Contributions are based on periodic actuarial valuations
and are charged to the Consolidated Statement of Operations on a systematic basis over the expected average remaining service lives of the executives as prescribed by Statement of Financial Accounting Standards No. 87, Employers
Accounting for Pensions



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(FAS 87). The Companys funding policy is to make annual contributions to the extent such
contributions are tax deductible as actuarially determined. The benefits under the defined benefit plan are based on years of service and compensation.



The components of net periodic benefit costs for the three and six months ended June 30, 2004 and 2003 are as follows (unaudited and in thousands):



|                                                    |  |                             |     |                           |   |      |  |      |     |  |   |    
|--------------------------------------------------- |  | --------------------------- | --- | ------------------------- | - | ---- |  | ---- | --- |  | - | ---
|                                                    |  | Three months Ended June 30, |     | Six Months Ended June 30,
|                                                    |  | 2004                        |     | 2003                      |   | 2004 |  | 2003
|Components of net periodic benefit costs            |  |                             |     |                           |   |      |  |      |     |  |   |    
|Service cost                                        |  | $                           | 144 |                           | $ | 82   |  | $    | 253 |  | $ | 165
|Interest cost                                       |  |                             | 76  |                           |   | 38   |  |      | 132 |  |   | 77 
|Amortization of unrecognized net prior service cost |  |                             | 41  |                           |   | 24   |  |      | 76  |  |   | 47 
|                                                    |  |                             |     |                           |   |      |  |      |     |  |   |    
|Net periodic benefit costs                          |  | $                           | 261 |                           | $ | 144  |  | $    | 461 |  | $ | 289
|                                                    |  |                             |     |                           |   |      |  |      |     |  |   |    



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MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



We are a leader in transaction processing solutions for real-time wireless subscriber management, payment services and billing and customer
care. Through these solutions, we deliver prepaid and postpaid billing, wireless account recharge and mobile commerce services. We provide solutions to wireless operators worldwide through a combination of our industry-leading, proprietary software
applications, world-class infrastructure and data centers, expertise in telecommunications platform integration and flexible implementation models. Our solutions provide carriers with a distinct competitive advantage by empowering them to attract,
retain and maximize the value of subscribers, while lowering the cost associated with customer care, payment processing and churn.



We operate our billing and transaction processing services as a business process outsourcer, primarily in the United States. Our customers include Nextel Communications,
Inc., branded as BOOST Mobile, ALLTEL, Verizon
Wireless, Cingular Wireless and other regional carriers. Our prepaid systems business sells turnkey systems primarily to wireless carriers outside the United States. We sell our products and services to our wireless carrier customers through our
direct sales force. The specifics of each segments revenues and gross margins are discussed in greater detail below.



In the second quarter of 2004, we generated revenues of $27.7 million and diluted earnings per share of $0.27. These results were driven by the growth in our billing and
transaction processing services revenues, which increased 12% to $27.0 million for the three months ended June 30, 2004 compared to $24.1 million for the three months ended June 30, 2003 and increased 19% to $53.5 million for the six months ended
June 30, 2004 compared to $45.2 million for the six months ended June 30, 2003. The increase in billing and transaction processing services revenues principally resulted from an increase in our prepaid subscriber base from 3.58 million subscribers
at June 30, 2003 to 4.07 million subscribers at June 30, 2004, as well as an increase in our average billed minutes of use (which includes minutes of use processed by our platform from which we earn revenues). The increase in our subscriber base
resulted from additional subscriber growth from certain of our carrier customers.



Verizon Wireless accounted for 51% of our total revenues in 2003 and 47% of our total revenues for the three months ended June 30, 2004. On July 11, 2003, Verizon Wireless notified us that they intended to test their own internal prepaid
platform in 2004. Our existing prepaid wireless services agreement with Verizon Wireless is in its auto-renewal term and may be terminated by either party upon 90 days written notice. On June 9, 2004, Verizon Wireless informed us that they intend to
move forward with a national launch of their internal prepaid platform, and they began activating new retail subscribers on this platform on June 10, 2004. Additionally, Verizon Wireless stated that they intend to manually convert existing
subscribers from bcgis prepaid platform onto their own internal platform over a period of time. They have not yet informed us of the specific rate at which these conversions will take place or when they expect this process to commence.
However, Verizon Wireless informed us that they anticipate the conversion process will be completed no later than the third quarter of 2005.



We currently support Cingular Wirelesss TDMA prepaid program, which represented 23% of our total revenues for the three months ended June 30, 2004, under a contract
that expires in the first half of 2005. Cingular Wireless has begun offering GSM service to certain of its prepaid subscribers. Since we only support its TDMA business, we expect that Cingular Wirelesss subscribers will churn off of our
network over time.



We are mitigating the impact of the potential loss of
prepaid wireless revenues from our two largest customers by diversifying our customer base, generating revenue from new products and achieving growth in regional markets. Over the past six months, our revenue growth has been principally generated
from customers other than Verizon and Cingular. We recently introduced our newest solution, bcgi Mobile Guardian, a first-of-its-kind offering that provides unique, Web-based tools for use by parents and enterprises seeking to better manage
postpaid wireless usage of their children or employees. This solution has generated significant interest from both existing and prospective national and regional carrier customers. In addition, Nextel expanded its youth-oriented, pay-as-you-go
service, branded as BOOST Mobile, into seven major new markets during the past quarter using the bcgiPrepaid Wireless solution. Nextel, which represented 11% of our total revenues for the three months ended June 30, 2004, is expected



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to add more than 500,000 BOOST subscribers in 2004, of which approximately 200,000 were added through June 30, 2004.
Finally, we continue to expand our presence across the regional wireless marketplace with all of our new and existing solutions.



Although we do not have specific guidance from Verizon Wireless regarding the timing and rate of subscriber migrations and we do not have any information on how Cingular
Wireless nationwide GSM network will impact total churn, we anticipate that, for the third quarter ending September 30, 2004, our total revenues will range between $26 million to $28 million. Additionally, we anticipate that our earnings per
share will approximate $0.20 to $0.24, including approximately $0.02-0.03 per share of legal costs, primarily associated with the Freedom Wireless lawsuit.



Segment Data

(in thousands, except
percentages)



|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|--------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Three months ended June 30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                        |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                    |  | $                                           | 26,980 |   |                 | $ | 670   |       |  | $ | 27,650 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                |  |                                             | 20,984 |   |                 |   | 207   |       |  |   | 21,191 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage     |  |                                             | 78     | % |                 |   | 31    | %     |  |   | 77     | %
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003 (1)                    |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                    |  | $                                           | 24,097 |   |                 | $ | 1,427 |       |  | $ | 25,524 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                |  |                                             | 18,083 |   |                 |   | 556   |       |  |   | 18,639 |  
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage     |  |                                             | 75     | % |                 |   | 39    | %     |  |   | 73     | %
|                            |  |                                             |        |   |                 |   |       |       |  |   |        |  



|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Six months ended June 30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                      |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                  |  | $                                           | 53,536 |   |                 | $ | 1,359 |       |  | $ | 54,895 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin              |  |                                             | 41,675 |   |                 |   | 383   |       |  |   | 42,058 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage   |  |                                             | 78     | % |                 |   | 28    | %     |  |   | 77     | %
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003 (1)                  |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                  |  | $                                           | 45,171 |   |                 | $ | 2,483 |       |  | $ | 47,654 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin              |  |                                             | 34,167 |   |                 |   | 1,045 |       |  |   | 35,212 |  
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage   |  |                                             | 76     | % |                 |   | 42    | %     |  |   | 74     | %
|                          |  |                                             |        |   |                 |   |       |       |  |   |        |  



---

|(1) | Our Roaming Service business was discontinued in the quarter ended March 31, 2004. 2003 amounts have been restated to reflect Roaming Services as a discontinued operation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Billing and Transaction Processing Services



Billing and transaction processing services revenues consist primarily of revenues from
our three primary solution sets: bcgiReal-Time Subscriber Management solutions (which includes bcgi Prepaid Wireless, bcgi Mobile GuardianTMand bcgi Network GovernorTM), bcgi Voyager Billing
and Customer Care and bcgi Payment Services. Billing and transaction processing services revenues increased 12% to $27.0 million for the three months ended June 30, 2004 compared to $24.1 million for the three months ended June 30, 2003 and
increased 19% to $53.5 million



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for the six months ended June 30, 2004 compared to $45.2 million for the six months ended June 30, 2003. The revenue
increase for the three and six month periods ended June 30, 2004 compared to the corresponding periods in the previous year was primarily a result of the 13% increase in the subscriber base to 4.07 million as of June 30, 2004 from 3.58 million as of
June 30, 2003. The increase in our subscriber base resulted from additional subscriber growth from certain of our carrier customers. The revenue increase also resulted from an increase in average billed minutes of use per subscriber to 116 per month
for the three and six-month period ended June 30, 2004 from 113 and 110 for the three and six-month periods ended June 30, 2003, respectively. The higher average billed minutes of use resulted primarily from more attractive features and more
competitive pricing offered by our carrier customers to their subscribers. These revenue increases were partially offset by a decrease of approximately 10% and 11% in our average billed rate per minute compared to the three and six-month periods in
the prior year, respectively, principally due to carriers availing themselves of our volume pricing discounts. We expect billing and transaction processing revenues to decrease in the third quarter of 2004 compared to the three months ended June 30,
2004 due primarily to the anticipated loss of Verizon subscribers.



Gross
margins for billing and transaction processing services increased to 78% of billing and transaction processing services revenues for the three months ended June 30, 2004 compared to 75% of such revenues for the three months ended June 30, 2003 and
increased to 78% of billing and transaction processing services revenues for the six months ended June 30, 2004 compared to 76% of such revenues for the six months ended June 30, 2003. While our cost of services in absolute dollars increased to
support our technology enhancement initiatives, Nextels market expansion and bcgi Mobile Guardian launch, our gross margins increased due mainly to increased revenue and our predominantly fixed cost infrastructure.



Prepaid Systems



Prepaid systems revenues decreased to $670,000 for the three months ended June 30, 2004 from $1.4 million for the three months ended June
30, 2003 and decreased to $1.4 million for the six months ended June 30, 2004 compared to $2.5 million for the six months ended June 30, 2003. The decrease in prepaid systems revenues resulted primarily from fewer system sales during the quarter.
Our prepaid system sales levels are not easily predictable and often fluctuate on an annual and quarter-to-quarter basis.



Gross margins for prepaid systems decreased to 31% of prepaid systems revenues for the three months ended June 30, 2004 from 39% for the three months ended June 30, 2003
and decreased to 28% of prepaid systems revenues for the six months ended June 30, 2004 compared to 42% of such revenues for the six months ended June 30, 2003. The decrease for the three and six months ended June 30, 2004 was due mainly to fixed
costs not absorbed at lower levels of system sales.



Operating Data

(in thousands)



|                                      |  |                             |        |                    |      |   |       |   |                    |  |     |  
|------------------------------------- |  | --------------------------- | ------ | ------------------ | ---- | - | ----- | - | ------------------ |  | --- | -
|                                      |  | Three months ended June 30, |       
|                                      |  | 2004                        |        |                    | 2003 |  
|                                      |  | Total                       |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Total revenues                        |  | $                           | 27,650 |                    | 100  | % |       | $ | 25,524             |  | 100 | %
|Engineering, research and development |  |                             | 3,497  |                    | 13   | % |       |   | 3,362              |  | 13  | %
|Sales and marketing                   |  |                             | 1,667  |                    | 6    | % |       |   | 1,516              |  | 6   | %
|General and administrative            |  |                             | 2,125  |                    | 8    | % |       |   | 1,985              |  | 8   | %
|General and administrative  legal    |  |                             | 450    |                    | 2    | % |       |   | 725                |  | 3   | %
|Depreciation and amortization         |  |                             | 5,490  |                    | 20   | % |       |   | 4,813              |  | 19  | %



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|                                      |  |                           |        |                    |      |   |       |   |                    |  |     |  
|------------------------------------- |  | ------------------------- | ------ | ------------------ | ---- | - | ----- | - | ------------------ |  | --- | -
|                                      |  | Six months ended June 30, |       
|                                      |  | 2004                      |        |                    | 2003 |  
|                                      |  | Total                     |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Total revenues                        |  | $                         | 54,895 |                    | 100  | % |       | $ | 47,654             |  | 100 | %
|Engineering, research and development |  |                           | 7,293  |                    | 13   | % |       |   | 6,231              |  | 13  | %
|Sales and marketing                   |  |                           | 3,539  |                    | 6    | % |       |   | 3,083              |  | 6   | %
|General and administrative            |  |                           | 4,211  |                    | 8    | % |       |   | 3,870              |  | 8   | %
|General and administrative  legal    |  |                           | 1,600  |                    | 3    | % |       |   | 1,640              |  | 3   | %
|Depreciation and amortization         |  |                           | 10,959 |                    | 20   | % |       |   | 9,205              |  | 19  | %



Engineering, research and
development expenses



Engineering, research and development expenses
primarily include the salaries and benefits for software development and engineering personnel associated with the development, implementation and maintenance of new and existing solutions. The increase in engineering, research and development
expenses for both the three and six month periods ended June 30, 2004 in absolute dollar terms principally resulted from additional resources devoted to expanding and enhancing the features and functionality of our billing and transaction processing
services business, as well as additional resources added to support our growth and new solutions, including our newest product, bcgi Mobile Guardian, as well as other technology enhancement initiatives. Spending for engineering, research and
development remained consistent as a percentage of revenues over both of these periods as we generated greater revenues in each of the three and six month periods ended June 30, 2004 from the year-earlier periods. For the three months ending
September 30, 2004, we expect spending for engineering, research and development to increase principally to support our continued investment in new solutions and other technology enhancements, which we believe are key to our diversification
strategy.



Sales and marketing expenses



Sales and marketing expenses include direct sales and product management salaries,
commissions, travel and entertainment expenses, in addition to the cost of trade shows, direct mail and other promotional expenses. In absolute dollars, sales and marketing expenses increased for both the three and six-month periods ended June 30,
2004 primarily to support our marketing efforts for our newest solution, bcgi Mobile Guardian. As we generated greater revenues in each of the three and six month periods ended June 30, 2004 from the year-earlier periods, spending for sales
and marketing remained consistent as a percentage of revenues over both of these periods. For the three months ending September 30, 2004, we expect spending for sales and marketing to increase principally to support the promotion and sales strategy
for our new solutions.



General and administrative expenses



General and administrative expenses include salaries and benefits of employees and other
expenses that provide administrative support. For both the three and six month periods ended June 30, 2004 , general and administrative expenses increased in absolute dollars principally due to additional resources and costs associated with
additional regulatory requirements and an increase in legal costs incurred to enhance our intellectual property portfolio. However, as we generated greater revenues in each of the three and six month periods ended June 30, 2004 from the year-earlier
periods, spending for general and administrative expenses remained consistent as a percentage of revenues over both of these periods.



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General and administrative expenses  legal expenses



General and administrative - legal expenses are incurred primarily for legal expenses to
defend the patent infringement lawsuit initiated by Freedom Wireless. General and administrative - legal expenses decreased for both the three and six month periods ended June 30, 2004 compared to the respective year-earlier periods principally due
to lower costs to defend the Freedom Wireless lawsuit. We expect to incur, on average, approximately $1 million per quarter (before taxes) for legal costs until the Freedom Wireless matter is resolved. However, this cost will likely continue to vary
from quarter to quarter, depending on the timing of proceedings.



Depreciation and amortization expense



Depreciation and
amortization expense includes depreciation of telecommunications systems and software, building, furniture, equipment and leasehold improvements and amortization of certain intangible assets. We provide for depreciation and amortization using the
straight-line method over the estimated useful lives of the assets, which range from three to twenty years. The increase in depreciation and amortization expense for both the three and six month periods ended June 30, 2004 was primarily due to more
capital deployed to support growth and continued enhancements in billing and transaction processing services, including bcgi Mobile Guardian and other technology enhancement initiatives.



Interest income



Interest income decreased 17% to $251,000 for the three months ended June 30, 2004 from $302,000 for the three months ended June 30, 2003
and decreased 12% to $563,000 for the six months ended June 30, 2004 from $638,000 for the six months ending June 30, 2003. Compared to the year-earlier periods, the decrease in interest income for the three and six-month periods ended June 30, 2004
was principally due to lower yields on certain investments during the three months ended June 30, 2004.



Provision for income taxes



The income tax rate for the six months ended June 30, 2004 was 39.5% compared to an income tax rate of 38% for the six months ended June 30, 2003. The increase in the
income tax rate is primarily due to the use of net operating loss carry forwards in the prior year that were completely utilized during the year ended December 31, 2003.



Discontinued Operations



In March 2004, we ceased providing our ROAMERplus solution, effectively discontinuing our Roaming Services segment. This business generated a net loss of $0 and
$11,000 for the three and six months ended June 30, 2004 and net income of $36,000 and $50,000 for the three and six months ended June 30, 2003, respectively. At June 30, 2004, the discontinued Roaming Services segment had net liabilities of $5,000.
We expect to liquidate all liabilities as of December 31, 2004.



Liquidity
and Capital Resources



Cash, cash equivalents and short-term investments
decreased to $65.1 million at June 30, 2004 compared to $66.5 million at December 31, 2003. Net cash provided by continuing operations of $14.9 million for the six months ended June 30, 2004 resulted from net income of $9.1 million, adjustments for
depreciation and amortization of $11.0 million and an increase in income taxes payable of $1.2 million. These amounts were partially offset by an increase in accounts receivable of $5.4 million, which was largely due to the timing of cash receipts
during the quarter along with an increase in revenues.



Our investing
activities utilized $10.6 million of net cash for the six months ended June 30, 2004. We utilized approximately $10 million for capital expenditures, including approximately $1.9 million for internally capitalized labor, and purchased long-term
investments of $1.5 million during the period. We anticipate that, during the third



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quarter ending September 30, 2004, we will make additional capital investments of approximately $5 million for additional
equipment and software to support new solutions and enhanced feature capabilities and for our billing and transaction processing services. Also, we may pay additional contingent cash consideration of up to $3.1 million to Infotech Solutions
Corporation in 2005 and 2006, if we achieve certain defined annual revenue targets for calendar years 2004 and 2005. We expect to make a payment to Infotech Solutions Corporation in 2005 based on qualified revenues earned in 2004. We intend to
finance such capital investments or contingent consideration payments from cash or short-term investments on-hand or cash flow generated from operations.



Our financing activities used cash of $4.2 million during the six months ended June 30, 2004 due mainly to the repurchase of common stock pursuant to our 2004 Share
Repurchase Plan, approved by our Board of Directors on June 11, 2004, allowing for the repurchase of up to two million shares of our outstanding common stock. As of June 30, 2004, we repurchased 504,500 shares for a total of $4.9 million and through
August 9, 2004, we had repurchased an additional 334,000 shares for an additional $3.7 million, for a total of 838,500 shares at a total cost of $8.2 million. This use of cash was slightly offset by proceeds from the exercise of stock options and
the issuance of common stock under our employee stock purchase plan.



We have
non-cancelable operating lease commitments for office space, many of which are renewable at our option, equipment lease commitments and various other commitments under which we are contractually obligated beyond the current period. Future minimum
payments due under non-cancelable agreements are as follows (in thousands):



|                         |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  
|------------------------ |  | ----- | ----- | --------------------- | - | --------- |  | --------- | ----- | ----------------- | - | --- |  | - | -
|                         |  |       |       | Payment due by period
|                         |  | Total |       | Within 1 year         |   | 2-3 years |  | 4-5 years |       | More than 5 years
|Contractual obligations: |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  
|Operating leases         |  | $     | 2,785 |                       | $ | 1,595     |  | $         | 1,138 |                   | $ | 52  |  | $ | 
|Purchase commitments     |  |       | 8,069 |                       |   | 4,577     |  |           | 2,281 |                   |   | 211 |  |   | 
|                         |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  
|Total                    |  | $     | 9,854 |                       | $ | 6,172     |  | $         | 3,419 |                   | $ | 263 |  | $ | 
|                         |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  



We believe that our cash and
short-term investments and the funds we anticipate to generate from operations will be sufficient to finance our operations for at least the next 12 months.



Off Balance Sheet Arrangements



During the three months ended June 30, 2004, we did not engage in:



| |  | Material off-balance sheet activities, including the use of structured finance or special purpose entities;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | Material trading activities in non-exchange traded commodity contracts; or
| | - | --------------------------------------------------------------------------



| |  | Material transactions with persons or entities that benefit from their non-independent relationship with us.
| | - | ------------------------------------------------------------------------------------------------------------



Critical Accounting Policies and Estimates



Our discussion and analysis of our financial condition and results of operations is based
upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of those financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to bad
debts, inventories, capitalized software and labor, long-lived assets, goodwill and intangible asset impairment, legal expenses, contingencies and litigation. We base our estimates on historical experience, known trends and events and various other
assumptions that are believed to be reasonable under the circumstances, the



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results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from such estimates under different assumptions or conditions.



We believe the following policies to be our most critical policies in the preparation of our condensed consolidated financial statements:



| |  | Revenue recognition and allowance for bad debts
| | - | -----------------------------------------------



| |  | Legal costs
| | - | -----------



| |  | Research and development, software development costs and costs capitalized for internal use
| | - | -------------------------------------------------------------------------------------------



| |  | Impairment of long-lives and intangible assets and goodwill
| | - | -----------------------------------------------------------



These policies were identified in our Annual Report on Form 10-K for the year ended December 31, 2003. During the three months ended June 30, 2004, there has been no
change in the above critical accounting policies. In addition, there has been no significant change in the underlying accounting assumptions and estimates used in the above critical accounting policies.



Certain Factors That May Affect Future Results



Verizon Wireless and Cingular Wireless, our two largest customers, are currently
utilizing new prepaid solutions, which will result in fewer subscriber additions to our platforms.



On July 11, 2003, Verizon Wireless notified us that they intend to test their own internal prepaid platform in 2004. On June 9, 2004, Verizon Wireless informed us that they were moving forward with a national launch
of their internal prepaid platform and began to activate new prepaid retail subscribers on this platform on June 10, 2004. Additionally, Verizon Wireless stated that they intend to manually convert existing subscribers off of bcgis
prepaid platform and onto their own over a period of time. While Verizon Wireless has not yet provided us with the specific timing and rate of conversion, they anticipate that the conversion process will be completed no later than the third quarter
of 2005. Verizon Wirelesss internal prepay platform launch and the expected conversion process will have a material, adverse effect on our revenues and net income for the three months ended September 30, 2004 and thereafter.



We currently provide prepaid wireless solutions to Cingular Wirelesss TDMA markets
under a contract that expires in the first half of 2005. Cingular Wireless uses other vendors to provide prepaid wireless service in its GSM markets. As we do not provide prepaid solutions on Cingular Wireless GSM network, and because Cingular
Wireless has begun offering prepaid service on its newest GSM network, we expect that our revenue from this TDMA business to decrease over time. Additionally, there is no guarantee that Cingular Wireless will not migrate its existing TDMA prepaid
business onto its GSM network, thereby causing a reduction in our revenues and net income.



The loss or significant reduction of business from one of our major customers, including Verizon Wireless or Cingular Wireless, would have a material adverse effect on our business.



Historically, a significant portion of our revenues in any particular period has been
attributable to a limited number of customers in the wireless telecommunications business. Verizon Wireless represented 47%, Cingular Wireless represented 23% and Nextel Communications represented 11% of our total revenues for the three months ended
June 30, 2004.



Most of our customer contracts are not exclusive. Therefore,
our carrier customers have used and/or tested and continue to use and/or test their own services or services of our competitors in certain markets. In addition, certain of our contracts are up for renewal in 2004 and beyond. If and when each of the
contracts is renewed, some contractual rates may be lower than in previous years and at lower rates than we have estimated.



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In addition, we depend on our wireless carrier customers to market and sell our solutions to consumers. We can provide no
assurance that they will do so successfully, and therefore, that there will be a significant market for wireless programs, including our wireless wireless solutions.



An unfavorable judgment in the Freedom Wireless lawsuit would have a material adverse impact on our business.



In March 2000, Freedom Wireless filed a suit against us and a number of wireless carriers
claiming that we and the other defendants infringe a patent of Freedom Wireless. In March 2001, Freedom Wireless amended the complaint to include a continuation patent. Freedom Wireless seeks injunctive relief and damages in an unspecified amount.
In addition, we are contractually obligated to indemnify the other defendants for any damages that they incur as a result of any infringement by our technology.



The suit is in the pre-trial phase and various summary judgment motions have been filed by both parties in the case. The court is expected to rule on these motions in
the normal course of proceedings. We cannot yet assess our potential liability, if any. Any adverse outcome, including the following, would have a material adverse effect on our business, financial condition and results of operations:



| |  | Injunctive relief against us, which could significantly restrict our ability to conduct our business;
| | - | -----------------------------------------------------------------------------------------------------



| |  | An adverse judgment against us for significant monetary damages;
| | - | ----------------------------------------------------------------



| |  | A settlement on unfavorable terms;
| | - | ----------------------------------



| |  | Obligations to the other defendants to indemnify them for damages;
| | - | ------------------------------------------------------------------



| |  | Obligations to customers for breach of a contractual warranty of non-infringement; and/or
| | - | -----------------------------------------------------------------------------------------



| |  | A requirement to reengineer our prepaid processing solution to avoid patent infringement, which would likely result in additional expense and delay.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



Regardless of the outcome, we will continue to incur significant expenses to defend this
lawsuit. We have incurred approximately $15.3 million in legal costs as of June 30, 2004 to defend this lawsuit, and we expect to incur approximately $1 million per quarter in legal costs until the Freedom Wireless matter is resolved. However, this
cost will likely continue to vary from quarter to quarter, depending on the timing of proceedings. Moreover, this lawsuit may divert the efforts and attention of our management team from normal business operations. Finally, we may become subject to
additional patent infringement lawsuits in the future.



Our future operating
results are difficult to predict and may materially fluctuate, which may result in significant fluctuations in our stock price.



We have experienced fluctuations in our quarterly operating results and such fluctuations may continue and could intensify. Our quarterly operating results may vary
significantly depending on a number of factors, including:



| |  | Extent of our carrier customers emphasis on promoting prepaid solutions and the timing of related marketing initiatives, including our carriers allocation of marketing
resources for initiatives other than prepaid wireless services, such as wireless number portability, data services, new technologies, etc.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our and our carrier customers ability to minimize churn (the percentage of total prepaid subscribers that terminate service on our network);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Variations in volumes of minutes of use generated by our carrier customers subscribers;
| | - | ----------------------------------------------------------------------------------------



| |  | Rates paid by our customers;
| | - | ----------------------------



| |  | Impact and acceptance of existing solutions or the introduction of competing solutions by wireless carriers, including those who are currently our prepaid wireless services
customers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our carriers customers ability to generate additional prepaid subscribers using our solutions;
| | - | -----------------------------------------------------------------------------------------------



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| |  | Number and significance of network outages in a particular quarter and the severity and timing of penalties that result from such outages.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| |  | Decreased demand for our prepaid systems, caused by reductions in capital budgets of our customers, changing technologies, and other reasons beyond our control;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in the mix of solutions we provide;
| | - | -------------------------------------------



| |  | Seasonal trends, particularly in the second and third quarters when carriers are not usually marketing and selling prepaid services as aggressively as in the first and fourth
quarters of the year; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Consolidation within the wireless industry, which could lead to the loss of a major customer or the reduction in rates per minute paid by our customers.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



Due to all of the foregoing factors, it is possible that in some future quarter our results
of operations will be below prior results or the expectations of public market analysts and investors. In such event, the price of our common stock would likely be materially and adversely affected. In addition, a significant portion of our expenses
is fixed in the short term. Accordingly, our results of operations are particularly sensitive to fluctuations in revenues. If our revenues fall below our expectations, we would most likely not be able to reduce our fixed or other expenses in
sufficient time to respond to such a shortfall.



If we do not continue to
develop and offer more desirable functionality and features in our solutions at competitive prices, including the new solutions currently in our pipeline, we will not be able to compete effectively and our business will be materially and adversely
affected.



Our business will not be successful if we do not develop and
offer more functionality and features in our solutions than those available in competitive offerings or if we are unable to develop new solutions to offer our carrier customers. Also, there can be no assurance that we will successfully support and
enhance our real-time subscriber management network and billing and transaction processing platform effectively or that our network will successfully support current and future growth. In addition, we may be unable to leverage our existing
infrastructure to provide enhancements to our current solutions or new solutions cost-effectively. If we cannot develop and provide more desirable functionality and features than our competitors, if we cannot sell our new solutions to our customers,
or if we are unable to keep our costs down to provide new and enhanced solutions at competitive prices, we would likely lose market share or be required to reduce our margins, which would have a material adverse effect on our business, financial
condition and results of operations. In addition, if we do not successfully continue to upgrade our software and hosting environment as new wireless technologies evolve, including but not limited to SIM, 2.5G and 3G technologies, we may lose
existing and prospective customers.



If we experience outages in our
network, we will be subject to financial penalties that could adversely affect our business and operating results.



Each quarter, we have experienced network outages, some of which have resulted in significant reductions in revenue due to penalty clauses contained in certain of our
carrier customer contracts. Any failure to successfully support current and future growth, or an increase in the frequency or duration of outages would reduce our revenue and damage our reputation.



Our operations depend on our ability to maintain our computer and other telecommunications
equipment and systems in effective working order and to protect our systems against damage from fire, natural disaster, power loss, telecommunications failure, computer viruses or similar events. Although we have built redundancy into our network,
providing for backup systems, equipment and telecommunications connections, there are still parts of the network that are not redundant at this time. Our Bedford, Massachusetts building is operational and currently performs nearly all significant
processing functions of our network, but not all portions of the network have been made fully redundant at our Bedford facility. Although the Woburn facility is designed for redundancy, until our Bedford facility becomes fully operational (expected
to be in the third quarter of 2004), we will not have complete geographical redundancy. When the Bedford site does become fully operational, we still may not be protected from a natural disaster within the greater Boston, Massachusetts area.



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Our business would be materially adversely impacted if we cannot protect our intellectual property.



Our success and ability to compete depends in part upon our proprietary technology and our
ability to protect such technology. We have a number of patent applications pending to protect our proprietary technology in the United States and internationally. If these patent applications are not approved, we may not be able to prevent others
from using similar technologies and we may be subject to additional patent infringement lawsuits or royalty payments to use the technology. We rely on a combination of contractual provisions, confidentiality procedures, and patent, trademark, trade
secret and copyright laws to protect the proprietary aspects of our technology. These legal protections afford only limited protection and competitors may gain access to our intellectual property which may result in the loss of customers. In
addition, despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology or to obtain and use our proprietary information. Litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Any litigation could result in substantial costs and diversion of resources with no assurance of success and could seriously harm our
business and operating results.



We may never realize the anticipated
benefits of any acquisitions.



A key part of our growth and
diversification strategy is to engage in acquisitions. We regularly review future acquisition opportunities. There can be no assurance that we will be able to identify any appropriate acquisition candidates or that any identified acquisition
opportunities will be available on terms and conditions acceptable to us. Acquisitions involve numerous risks, including, among other things:



| |  | Possible decreases in capital resources or dilution to existing stockholders;
| | - | -----------------------------------------------------------------------------



| |  | Difficulties and expenses incurred in connection with the acquisitions and the subsequent assimilation of the operations and the services or products of the acquired company;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Difficulties of operating a new business;
| | - | -----------------------------------------



| |  | Potential inherited liability for the past actions of the acquired company;
| | - | ---------------------------------------------------------------------------



| |  | Risk that any acquired companys internal controls may not be adequate;
| | - | -----------------------------------------------------------------------



| |  | Diversion of managements attention from other business concerns;
| | - | -----------------------------------------------------------------



| |  | Limited ability to predict future operating results of the acquired company; and
| | - | --------------------------------------------------------------------------------



| |  | Potential loss of key employees and customers of the acquired company.
| | - | ----------------------------------------------------------------------



In the event that the operations of an acquired business do not meet expectations, we may be required to restructure the acquired business or write-off the value of some
or all of the assets of the acquired business. There can be no assurance that any acquisition will be successfully integrated into our operations or will have the intended financial or strategic results.



We may not be able to effectively manage the expansion of our business, which would
adversely impact our ability to offer competitive solutions and grow.



We
have expanded our operations rapidly, creating significant demands on our management, administrative, operational, development and financial personnel and other resources. Any additional expansion by us may further strain our management, financial
and other resources. There can be no assurance that our systems, procedures, controls and existing space will be adequate to support expansion of our operations. Inability of our management to manage operational changes effectively, would materially
and adversely affect the quality of our solutions, our ability to retain key personnel and our business, financial condition and results of operations.



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Our business may suffer if we are unable to attract and retain key employees.



Competition for employees with the skills we require is intense. Our success will depend on
our ability to attract and retain key employees, including members of the executive management team as well as those employees in crucial technical, marketing and staff positions. The loss of one or more key employees, our inability to attract
additional qualified employees, or the delay in hiring key personnel could have a material adverse impact on our business, financial condition and results of operations.



The market for our solutions is very competitive and depends on the growth and health of the wireless industry and wireless
carriers.



We have historically provided our solutions
almost exclusively to wireless carriers. The market for solutions to wireless carriers is highly competitive and subject to rapid change as new technologies are continually introduced in the wireless marketplace. We anticipate continued growth and
competition in the wireless services industry and, consequently, the entrance of new competitors in the future. Our competitors include independent providers of prepaid and other solutions to wireless carriers and the wireless carriers themselves
who provide, or can provide, in-house services similar to ours. These wireless carriers, and many of the independent service providers, have significantly greater financial and other resources than we do. In addition, the wireless industry is
subject to consolidation, which could potentially result in the loss of carrier customers and/or subscribers. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our service
solutions. We cannot be certain that we will be able to compete successfully with existing or new competitors. Our failure to maintain and enhance our competitive position would limit our ability to retain and increase our market share, resulting in
serious harm to our business and operating results.



To provide our
solutions, we depend on a number of third-party software, hardware and service vendors and our business, financial condition and results of operations would be materially adversely affected if we are unable or delayed in our ability to obtain these
components and applications.



Our operations are supported by many
hardware components and software applications from third-party vendors, sometimes licensed from single vendors. There can be no assurance that these vendors will continue to license these components and applications to us or that they will do so at
reasonable prices. In addition, there can be no assurance that these hardware components and software applications will function in accordance with specifications agreed upon by us and our vendors. If we cannot obtain these components and
applications from our existing vendors, we may not be able to timely procure or develop replacement software and hardware at commercially reasonable costs, or at all. If we are unable to do so, we may be required to delay the development or sale of
our current or future solutions, which would materially and adversely affect our business, financial condition and results of operations.



We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption could have a material, adverse
effect on our business and operating results.



We rely on the efficient
and uninterrupted operation of complex information technology systems and networks. All information technology systems and networks are potentially vulnerable to damage or interruption from a variety of sources, including, but not limited to
computer viruses, security breach, natural disasters, terrorism, war and telecommunication failure. There may also be system or network disruptions if new or upgraded business management systems are defective or are not installed properly. We have
implemented various measures to guard against these risks. However, there can be no assurance that a system or network failure or significant disruption will not have a material adverse impact on our business and our operating results. In addition,
in the event of such a disruption or failure, we may incur significant costs to remedy the damages caused by such a situation.



Changes in international economic conditions could harm our prepaid systems business.



We currently price and sell all of our prepaid systems to international customers in U.S. dollars. In addition, many prepaid systems
customers are multi-national corporations. We currently receive payments in U.S. dollars in order to protect us from foreign currency fluctuations. However, in the future, prepaid systems sales to foreign countries may result in losses due to
devaluation of foreign currencies or other international business conditions beyond our control.



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Changes in government regulations could adversely impact our business.



Proposals to intensify or reduce government regulations of the wireless telephone industry
continue to be discussed at both the federal and state levels. Such changes may decrease the growth of the wireless telephone industry, result in new competitors or industry consolidation, limit the number of potential customers for our solutions or
impede our ability to offer competitive solutions to the wireless market or otherwise have a material adverse effect on our business, financial condition and results of operations.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



We maintain an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize
yields. Although our investments are subject to credit risk, our policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. While our investments are
also subject to interest rate risk and will decrease in value if market interest rates increase, we typically hold all of our investments until maturity. However, since the investments are typically held to maturity and are generally conservative in
nature and of relatively short duration, interest rate risk is mitigated. We do not currently use derivative financial instruments.



Item 4. Controls and Procedures



Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
June 30, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to us,
including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and
forms.



No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION:



Item 1. Legal Proceedings



In March
2000, Freedom Wireless, Inc. filed a suit against us and a number of wireless carriers. The suit is being tried in the United States District Court in Massachusetts and alleges that the defendants infringe two patents held by Freedom Wireless, Inc.
and seeks damages in an unspecified amount as well as injunctive relief. If there were a ruling that we infringed the Freedom Wireless patents, it could significantly restrict our ability to conduct business. In addition, we have an obligation to
indemnify the other defendants for damages they may incur with respect to any infringement by our technology. The suit is in the pre-trial phase and various summary judgment motions have been filed by both parties in the case. The Court is expected
to rule on these motions in the normal course of its proceedings. We do not believe that we infringe these patents and believe that the patents are invalid in light of prior art and other reasons.



We expect to incur, on average, approximately $1 million per quarter for legal costs until
the Freedom Wireless matter is resolved. However, this cost will likely continue to vary from quarter to quarter, depending on the timing of proceedings. There can be no assurances that costs to defend the Freedom Wireless suit will not exceed our
estimates. If Freedom Wireless prevails in this case, the amount of damages could be substantial and our business, financial condition and results of operations would be materially adversely affected.



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On November 10, 2003, a putative class action complaint was filed in the U.S. District Court for the District of
Massachusetts, against us, our Chief Executive Officer and our Chief Financial Officer on behalf of persons who purchased our common stock between June 12, 2003 and July 16, 2003. The complaint alleged that the defendants violated Sections 10(b) and
20(a) of the Exchange Act as well as Rule 10b-5 promulgated thereunder by allegedly failing to disclose material adverse information about our business, operations and future prospects, specifically with respect to our contract negotiations with
Verizon Wireless. On June 9, 2004, the class action complaint was voluntarily dismissed by the plaintiffs without prejudice to the plaintiffs ability to re-file a complaint. bcgi and its insurers made no payment in connection with the
dismissal of these lawsuits and have no obligation to make payments in the future.



From time to time, as a normal incidence of the nature of our business, various claims, charges and litigation are asserted or commenced against us arising from, or related to, contractual matters, patents, trademarks, personal injury, and
personnel and employment disputes. As to such claims and litigation, we can give no assurance that we will prevail. However, we do not believe that any of these current matters (other than as disclosed) will have a material adverse effect on our
consolidated financial position, although an adverse outcome of any of these matters could have a material adverse effect on our consolidated results of operations or cash flows in future quarters or in the quarter or annual period in which one or
more of these matters are resolved.



Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities



The following table provides information about purchases of equity securities by us during the quarter ended June 30, 2004:



ISSUER PURCHASES OF EQUITY SECURITIES



|                        |  |                                     |  |                             |  |                                                                              |  |                                                                                                           
|----------------------- |  | ----------------------------------- |  | --------------------------- |  | ---------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|Period                  |  | Total Number ofShares Purchased (1) |  | Average Price Paidper Share |  | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |  | Maximum Number(or AppropriateDollar Value) ofShares that May YetBe Purchased Underthe Plans orPrograms
(2)
|06/01/2004  06/30/2004 |  | 504,500                             |  | 9.78                        |  | 504,500                                                                      |  | 1,495,500                                                                                                 

---

|(1) | We repurchased an aggregate of 504,500 shares of our common stock pursuant to the repurchase program that we publicly announced on June 14, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our board of directors approved the repurchase by us of up to an aggregate of 2,000,000 shares of our common stock pursuant to the repurchase program. The program will expire at the
earliest occurrence of any of the following events:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | The repurchase of all shares that are authorized to be repurchased under the program,
| | -- | -------------------------------------------------------------------------------------

| | b. | Termination of the repurchase program by our board of directors; and
| | -- | --------------------------------------------------------------------

| | c. | June 10, 2005.
| | -- | --------------



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Item 4. Submission of Matters to a Vote of Security Holders



We held our 2004 Annual Meeting of Shareholders on May 26, 2004. At our Annual meeting, the following actions were taken:



|1. | The shareholders elected three Class II Directors to serve three-year terms. The table below outlines the voting results:
|-- | -------------------------------------------------------------------------------------------------------------------------



|                        |  |                        |  |          
|----------------------- |  | ---------------------- |  | ---------
|                        |  | Number of Shares/Votes
|                        |  | For                    |  | Withheld 
|James A. Dwyer, Jr.     |  | 16,150,654             |  | 1,082,768
|Paul R. Gudonis         |  | 14,246,947             |  | 2,986,475
|Frederick E. von Mering |  | 16,107,143             |  | 1,126,279



In addition, Gerald
McGowan, Gerald Segel, Daniel E. Somers, E.Y. Snowden, Brian E. Boyle and Paul Tobin are continuing directors. Jerrold D. Adams did not seek reelection to the Board of Directors.



|2. | The shareholders ratified the adoption of our 2004 Stock Incentive Plan, by a vote of 6,980,155 shares of Common Stock for, 3,642,991 shares of Common Stock against, and 17,457
shares of Common Stock abstaining.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The shareholders ratified the adoption of our 2004 Employee Stock Purchase Plan, by a vote of 10,074,577 shares of Common Stock for, 550,606 shares of Common Stock against, and
15,420 shares of Common Stock abstaining.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | The shareholders ratified the appointment of Ernst & Young LLP as our independent auditors by a vote of 17,112,159 shares of Common Stock for, 112,888 shares of Common Stock
against and 8,375 shares of Common Stock abstaining.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 6. Exhibits and Reports on Form 8-K



a) Exhibits



|     |  |                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------
|10.1 |  | + 2004 Employees Stock Incentive Plan                                                          
|     | 
|10.2 |  | + 2004 Employee Stock Purchase Plan                                                            
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)                            
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)                            
|     | 
|32   |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)

---

|+ | Management contract or compensatory plan or arrangement filed as an exhibit pursuant to Item 15(c) of this Report.
|- | ------------------------------------------------------------------------------------------------------------------



b) Reports on Form 8-K



On April 20, 2004, we filed a current report on Form 8-K to report, under
Items 9 and 12, our financial results for the quarter ended March 31, 2004.

|
|



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                     |  |     |  |                                                                                                                                                
|-------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Date: August 9, 2004 |  |     |  | Boston Communications Group, Inc.                                                                                                              
|                     |  |     |  | (Registrant)                                                                                                                                   
|                     |  |    
|                     |  | By: |  | /s/ Karen A. Walker                                                                                                                            
|                     |  |     |  | Karen A. Walker                                                                                                                                
|                     |  |     |  | Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)



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