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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 September 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 November 1, 2004, the Company had outstanding 17,560,192 shares of common stock, $.01 par value per share.



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##### Table of Contents

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:                                                                                                                   |  | 25
|         |  |                                                                                                                                     
|Item 1.  |  | Legal Proceedings                                                                                                                    |  | 25
|         |  |                                                                                                                                     
|Item 2.  |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                                     |  | 25
|         |  |                                                                                                                                     
|Item 6.  |  | Exhibits                                                                                                                             |  | 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, bcgiMobile Guardian revenues,
earnings per share, billing and transaction processing services revenues, sales and marketing expenses, depreciation and amortization, costs to defend the Freedom Wireless lawsuit and the belief that the Company does not infringe on the Freedom
Wireless patents, 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)



|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                |  | September 30,2004 |         |   | December 31,2003 |  
|                                                                                                                                                                                |  | (unaudited)       |         |   |                  |  
|ASSETS                                                                                                                                                                          |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                       |  | $                 | 12,197  |   |                  | $ | 2,960   |  
|Short-term investments                                                                                                                                                          |  |                   | 58,680  |   |                  |   | 63,553  |  
|Accounts receivable, net of allowance for billing adjustments and doubtful accounts of $794 in 2004 and $878 in 2003                                                            |  |                   | 16,629  |   |                  |   | 18,386  |  
|Inventory                                                                                                                                                                       |  |                   | 361     |   |                  |   | 679     |  
|Deferred income taxes                                                                                                                                                           |  |                   | 902     |   |                  |   | 1,260   |  
|Prepaid expenses and other assets                                                                                                                                               |  |                   | 3,605   |   |                  |   | 2,121   |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                                            |  |                   | 92,374  |   |                  |   | 88,959  |  
|Property and equipment:                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Building and leasehold improvements                                                                                                                                             |  |                   | 14,448  |   |                  |   | 10,989  |  
|Telecommunications systems & software                                                                                                                                           |  |                   | 91,943  |   |                  |   | 86,418  |  
|Furniture and fixtures                                                                                                                                                          |  |                   | 647     |   |                  |   | 540     |  
|Systems in development                                                                                                                                                          |  |                   | 6,117   |   |                  |   | 10,789  |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|                                                                                                                                                                                |  |                   | 113,155 |   |                  |   | 108,736 |  
|Less allowance for depreciation and amortization                                                                                                                                |  |                   | 57,286  |   |                  |   | 50,098  |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|                                                                                                                                                                                |  |                   | 55,869  |   |                  |   | 58,638  |  
|Intangible assets, net                                                                                                                                                          |  |                   | 740     |   |                  |   | 920     |  
|Goodwill                                                                                                                                                                        |  |                   | 4,753   |   |                  |   | 4,177   |  
|Other assets                                                                                                                                                                    |  |                   | 3,896   |   |                  |   | 1,897   |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                                    |  | $                 | 157,632 |   |                  | $ | 154,591 |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                |  | $                 | 1,029   |   |                  | $ | 1,844   |  
|Accrued expenses                                                                                                                                                                |  |                   | 9,434   |   |                  |   | 12,363  |  
|Deferred revenue                                                                                                                                                                |  |                   | 3,211   |   |                  |   | 3,788   |  
|Income taxes payable                                                                                                                                                            |  |                   | 351     |   |                  |   | 760     |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                       |  |                   | 14,025  |   |                  |   | 18,755  |  
|Non-current liabilities:                                                                                                                                                        |  |                   |         |   |                  |   |         |  
|Accrued pension liability                                                                                                                                                       |  |                   | 1,291   |   |                  |   | 632     |  
|Deferred income taxes                                                                                                                                                           |  |                   | 8,103   |   |                  |   | 7,003   |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total non-current liabilities                                                                                                                                                   |  |                   | 9,394   |   |                  |   | 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; 17,550,310 and 18,249,028 shares issued at September 30, 2004
and December 31, 2003, respectively |  |                   | 176     |   |                  |   | 182     |  
|Additional paid-in capital                                                                                                                                                      |  |                   | 103,710 |   |                  |   | 110,834 |  
|Retained earnings                                                                                                                                                               |  |                   | 30,473  |   |                  |   | 17,230  |  
|Accumulated other comprehensive loss                                                                                                                                            |  |                   | (146    | ) |                  |   | (45     | )
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                      |  |                   | 134,213 |   |                  |   | 128,201 |  
|                                                                                                                                                                                |  |                   |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                      |  | $                 | 157,632 |   |                  | $ | 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 endedSeptember 30, |        |      | Nine months endedSeptember 30, |       
|                                                              |  | 2004                            |        | 2003 |                                |        | 2004 |  |   | 2003   |  
|REVENUES:                                                     |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Billing and Transaction Processing Services                   |  | $                               | 25,591 |      | $                              | 24,669 |      |  | $ | 79,127 |   |  | $ | 69,840 |  
|Prepaid Systems                                               |  |                                 | 1,429  |      |                                | 1,907  |      |  |   | 2,788  |   |  |   | 4,390  |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|                                                              |  |                                 | 27,020 |      |                                | 26,576 |      |  |   | 81,915 |   |  |   | 74,230 |  
|EXPENSES:                                                     |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Cost of Billing and Transaction Processing Services revenues* |  |                                 | 6,232  |      |                                | 5,775  |      |  |   | 18,093 |   |  |   | 16,779 |  
|Cost of Prepaid Systems revenues*                             |  |                                 | 660    |      |                                | 706    |      |  |   | 1,636  |   |  |   | 2,144  |  
|Engineering, research and development                         |  |                                 | 3,694  |      |                                | 3,365  |      |  |   | 10,987 |   |  |   | 9,596  |  
|Sales and marketing                                           |  |                                 | 1,567  |      |                                | 1,618  |      |  |   | 5,106  |   |  |   | 4,701  |  
|General and administrative                                    |  |                                 | 1,955  |      |                                | 2,005  |      |  |   | 6,166  |   |  |   | 5,875  |  
|General and administrative  legal expenses                   |  |                                 | 450    |      |                                | 1,350  |      |  |   | 2,050  |   |  |   | 2,990  |  
|Depreciation and amortization                                 |  |                                 | 5,894  |      |                                | 5,132  |      |  |   | 16,853 |   |  |   | 14,337 |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|                                                              |  |                                 | 20,452 |      |                                | 19,951 |      |  |   | 60,891 |   |  |   | 56,422 |  
|Operating income                                              |  |                                 | 6,568  |      |                                | 6,625  |      |  |   | 21,024 |   |  |   | 17,808 |  
|Interest income                                               |  |                                 | 322    |      |                                | 287    |      |  |   | 885    |   |  |   | 925    |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations before income taxes         |  |                                 | 6,890  |      |                                | 6,912  |      |  |   | 21,909 |   |  |   | 18,733 |  
|Provision for income taxes                                    |  |                                 | 2,722  |      |                                | 2,626  |      |  |   | 8,655  |   |  |   | 7,123  |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net income from continuing operations                         |  |                                 | 4,168  |      |                                | 4,286  |      |  |   | 13,254 |   |  |   | 11,610 |  
|Discontinued operations (Note 6):                             |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Income (loss) from discontinued operations, before taxes      |  |                                 |       |      |                                | 14     |      |  |   | (19    | ) |  |   | 95     |  
|Income tax (expense) / benefit from discontinued operations   |  |                                 |       |      |                                | (6     | )    |  |   | 8      |   |  |   | (36    | )
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net income / (loss) from discontinued operations              |  |                                 |       |      |                                | 8      |      |  |   | (11    | ) |  |   | 59     |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net income                                                    |  | $                               | 4,168  |      | $                              | 4,294  |      |  | $ | 13,243 |   |  | $ | 11,669 |  
|                                                              |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Basic net income per share:                                   |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                         |  | $                               | 0.24   |      | $                              | 0.24   |      |  | $ | 0.73   |   |  | $ | 0.65   |  
|Net income                                                    |  | $                               | 0.24   |      | $                              | 0.24   |      |  | $ | 0.73   |   |  | $ | 0.65   |  
|Weighted average common shares outstanding                    |  |                                 | 17,534 |      |                                | 18,202 |      |  |   | 18,035 |   |  |   | 17,897 |  
|                                                              |  |                                 |        |     
|Diluted net income per share:                                 |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                         |  | $                               | 0.24   |      | $                              | 0.23   |      |  | $ | 0.72   |   |  | $ | 0.62   |  
|Net income                                                    |  | $                               | 0.24   |      | $                              | 0.23   |      |  | $ | 0.72   |   |  | $ | 0.62   |  
|Weighted average common shares outstanding                    |  |                                 | 17,732 |      |                                | 18,797 |      |  |   | 18,395 |   |  |   | 18,672 |  

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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)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine months endedSeptember 30, |        
|                                                                                  |  | 2004                           |         |   | 2003 |  
|OPERATING ACTIVITIES                                                              |  |                                |         |   |      |   |         |  
|Net income from continuing operations                                             |  | $                              | 13,254  |   |      | $ | 11,610  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                | 16,853  |   |      |   | 14,337  |  
|Deferred income taxes                                                             |  |                                | 1,458   |   |      |   | 1,814   |  
|Income tax benefit from exercise of stock options                                 |  |                                |        |   |      |   | 2,323   |  
|Changes in operating assets and liabilities:                                      |  |                                |         |   |      |   |         |  
|Accounts receivable                                                               |  |                                | 1,607   |   |      |   | (2,666  | )
|Inventory                                                                         |  |                                | 318     |   |      |   | (155    | )
|Prepaid expenses and other assets                                                 |  |                                | (1,466  | ) |      |   | (1,170  | )
|Accounts payable, accrued expenses and deferred revenue                           |  |                                | (4,020  | ) |      |   | 1,965   |  
|Other non-current liabilities                                                     |  |                                | 659     |   |      |   | 482     |  
|Income taxes payable                                                              |  |                                | (409    | ) |      |   | (697    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities of continuing operations                |  |                                | 28,254  |   |      |   | 27,843  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Income (loss) from discontinued operations                                        |  |                                | (11     | ) |      |   | 59      |  
|Net change in operating assets and liabilities of discontinued operations         |  |                                | (303    | ) |      |   | (112    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) operating activities of discontinued operations    |  |                                | (314    | ) |      |   | (53     | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operations                                                   |  |                                | 27,940  |   |      |   | 27,790  |  
|                                                                                  |  |                               
|INVESTING ACTIVITIES                                                              |  |                                |         |   |      |   |         |  
|Payment of earn-out in connection with acquisition                                |  |                                | (424    | ) |      |   |        |  
|Purchases of long-term investments                                                |  |                                | (2,017  | ) |      |   | (1,517  | )
|Purchases of short-term investments                                               |  |                                | (48,739 | ) |      |   | (33,943 | )
|Sales of short-term investments                                                   |  |                                | 53,511  |   |      |   | 15,850  |  
|Purchase of property and equipment                                                |  |                                | (13,904 | ) |      |   | (26,680 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (11,573 | ) |      |   | (46,290 | )
|FINANCING ACTIVITIES                                                              |  |                                |         |   |      |   |         |  
|Proceeds from issuance of common stock                                            |  |                                | 627     |   |      |   | 683     |  
|Proceeds from exercise of stock options and employee stock purchase plan          |  |                                | 424     |   |      |   | 6,158   |  
|Repurchase of common stock                                                        |  |                                | (8,181  | ) |      |   |        |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                                | (7,130  | ) |      |   | 6,841   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                | 9,237   |   |      |   | (11,659 | )
|Cash and cash equivalents at beginning of period                                  |  |                                | 2,960   |   |      |   | 31,146  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                              | 12,197  |   |      | $ | 19,487  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |                                |         |   |      |   |         |  
|Cash paid for income taxes                                                        |  | $                              | 7,870   |   |      | $ | 3,194   |  
|                                                                                  |  |                                |         |   |      |   |         |  



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 nine month periods ended
September 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.



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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 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 the intrinsic value method under 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 endedSeptember 30, |       | Nine months endedSeptember 30,
|                                                                                                                                    |  | 2004                            |       | 2003                           |   | 2004  |  | 2003
|Net income as reported                                                                                                              |  | $                               | 4,168 |                                | $ | 4,294 |  | $    | 13,243 |  | $ | 11,669
|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 |  |                                 | 584   |                                |   | 655   |  |      | 1,832  |  |   | 1,954 
|                                                                                                                                    |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Pro forma net income                                                                                                                |  | $                               | 3,584 |                                | $ | 3,639 |  | $    | 11,411 |  | $ | 9,715 
|                                                                                                                                    |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Basic net income per share:                                                                                                         |  |                                 |       |                                |   |       |  |      |        |  |   |       
|As reported                                                                                                                         |  | $                               | 0.24  |                                | $ | 0.24  |  | $    | 0.73   |  | $ | 0.65  
|Pro forma                                                                                                                           |  | $                               | 0.20  |                                | $ | 0.20  |  | $    | 0.63   |  | $ | 0.54  
|Diluted net income per share:                                                                                                       |  |                                 |       |                                |   |       |  |      |        |  |   |       
|As reported                                                                                                                         |  | $                               | 0.24  |                                | $ | 0.23  |  | $    | 0.72   |  | $ | 0.62  
|Pro forma                                                                                                                           |  | $                               | 0.20  |                                | $ | 0.19  |  | $    | 0.62   |  | $ | 0.52  



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Comprehensive Income



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



|                                                        |  |                                 |       |                                |   |       |  |   |        |   |  |   |       
|------------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | - | ------ | - |  | - | ------
|                                                        |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                                                        |  | 2004                            |       | 2003                           |   | 2004  |  |   | 2003  
|Net income as reported                                  |  | $                               | 4,168 |                                | $ | 4,294 |  | $ | 13,243 |   |  | $ | 11,669
|Unrealized gain (loss) on available for sale securities |  |                                 | 125   |                                |   |      |  |   | (101   | ) |  |   |      
|                                                        |  |                                 |       |                                |   |       |  |   |        |   |  |   |       
|Comprehensive income                                    |  | $                               | 4,293 |                                | $ | 4,294 |  | $ | 13,142 |   |  | $ | 11,669
|                                                        |  |                                 |       |                                |   |       |  |   |        |   |  |   |       



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



Legal



In March 2000, Freedom Wireless, Inc. filed a suit against the Company and a number of the Companys wireless carrier customers. 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. On August 10, 2004, the plaintiff and the defendant each had four summary judgment motions denied by the court, bringing the case closer to the trial phase. The suit is in the pre-trial phase and
the trial is scheduled to begin on January 31, 2005. 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.



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



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##### Table of Contents

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.



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. | Basic and Diluted Net Income Per Share
|-- | --------------------------------------



Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during the period plus the impact, if dilutive, of common share equivalents, which comprise stock options. For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise price that exceeds the average market price of the Companys Common Stock for the respective period. Accordingly, for the three months ended September 30, 2004 and 2003
options to purchase 1,636,000 and 227,000 shares, respectively, of Common Stock have been excluded from the computation. In addition, for the nine months ended September 30, 2004 and 2003 options to purchase 1,246,000, and 80,000 shares,
respectively, of Common Stock have been excluded from the computation.



The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):



|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|--------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | - | ------ | - |  | - | ------
|                                                    |  | Three months endedSeptember 30, |        | Nine months endedSeptember 30,
|                                                    |  | 2004                            |        | 2003                           |   | 2004   |  |   | 2003  
|Numerator for basic and diluted earnings per share: |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                               | 4,168  |                                | $ | 4,286  |  | $ | 13,254 |   |  | $ | 11,610
|Income (loss) from discontinued operations          |  |                                 |       |                                |   | 8      |  |   | (11    | ) |  |   | 59    
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Net income                                          |  | $                               | 4,168  |                                | $ | 4,294  |  | $ | 13,243 |   |  | $ | 11,669
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Denominator:                                        |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Denominator for basic net income per share          |  |                                 | 17,534 |                                |   | 18,202 |  |   | 18,035 |   |  |   | 17,897
|Effect of dilutive employee stock options           |  |                                 | 198    |                                |   | 595    |  |   | 360    |   |  |   | 775   
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Denominator for diluted net income per share        |  |                                 | 17,732 |                                |   | 18,797 |  |   | 18,395 |   |  |   | 18,672
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Basic net income per common share:                  |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                               | 0.24   |                                | $ | 0.24   |  | $ | 0.73   |   |  | $ | 0.65  
|Income (loss) from discontinued operations          |  |                                 |       |                                |   |       |  |   |       |   |  |   |      
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Net income per common share                         |  | $                               | 0.24   |                                | $ | 0.24   |  | $ | 0.73   |   |  | $ | 0.65  
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Diluted net income per common share:                |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Income from continuing operations                   |  | $                               | 0.24   |                                | $ | 0.23   |  | $ | 0.72   |   |  | $ | 0.62  
|Income (loss) from discontinued operations          |  |                                 |       |                                |   |       |  |   |       |   |  |   |      
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Net income per common share                         |  | $                               | 0.24   |                                | $ | 0.23   |  | $ | 0.72   |   |  | $ | 0.62  
|                                                    |  |                                 |        |                                |   |        |  |   |        |   |  |   |       



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



The Companys reportable operating segments consist of Billing and Transaction Processing Services and



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##### Table of Contents

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 has been operating from the Companys Tulsa location where it assembles and markets prepaid systems principally to international carriers. In September 2004, the Company began the process of consolidating the
Tulsa operations into the corporate headquarters in Massachusetts. As a result of this consolidation, the Company does not expect to be reporting Prepaid Systems as a separate segment in 2005.



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



(in thousands, except percentages)



|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|-------------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Three months ended September
30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                             |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 25,591 |   |                 | $ | 1,429 |       |  | $ | 27,020 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 19,359 |   |                 |   | 769   |       |  |   | 20,128 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 76     | % |                 |   | 54    | %     |  |   | 74     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003                             |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 24,669 |   |                 | $ | 1,907 |       |  | $ | 26,576 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 18,894 |   |                 |   | 1,201 |       |  |   | 20,095 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 77     | % |                 |   | 63    | %     |  |   | 76     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  



|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|------------------------------- |  | ------------------------------------------- | ------ | - | --------------- | - | ----- | ----- |  | - | ------ | -
|Nine months ended September
30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                        |  | $                                           | 79,127 |   |                 | $ | 2,788 |       |  | $ | 81,915 |  
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                    |  |                                             | 61,034 |   |                 |   | 1,152 |       |  |   | 62,186 |  
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage         |  |                                             | 77     | % |                 |   | 41    | %     |  |   | 76     | %
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003                            |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                        |  | $                                           | 69,840 |   |                 | $ | 4,390 |       |  | $ | 74,230 |  
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                    |  |                                             | 53,061 |   |                 |   | 2,246 |       |  |   | 55,307 |  
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage         |  |                                             | 76     | % |                 |   | 51    | %     |  |   | 75     | %
|                                |  |                                             |        |   |                 |   |       |       |  |   |        |  



|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.



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At September 30, 2004 there was $39,000 in accounts receivable related to the Roaming Services segment.
Revenues for the Roaming Services segment were $0 and $924,000 for the three months ended September 30, 2004 and 2003, respectively, and $563,000 and $2.8 million for the nine months ended September 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 (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 nine months ended September 30, 2004 and 2003 are as follows (unaudited and in thousands):



|                                                    |  |                                 |     |                                |   |      |  |      |     |  |   |    
|--------------------------------------------------- |  | ------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                    |  | Three months EndedSeptember 30, |     | Nine Months EndedSeptember 30,
|                                                    |  | 2004                            |     | 2003                           |   | 2004 |  | 2003
|Components of net periodic benefit costs            |  |                                 |     |                                |   |      |  |      |     |  |   |    
|Service cost                                        |  | $                               | 109 |                                | $ | 82   |  | $    | 362 |  | $ | 247
|Interest cost                                       |  |                                 | 58  |                                |   | 38   |  |      | 220 |  |   | 115
|Amortization of unrecognized net prior service cost |  |                                 | 31  |                                |   | 24   |  |      | 77  |  |   | 71 
|                                                    |  |                                 |     |                                |   |      |  |      |     |  |   |    
|Net periodic benefit costs                          |  | $                               | 198 |                                | $ | 144  |  | $    | 659 |  | $ | 433
|                                                    |  |                                 |     |                                |   |      |  |      |     |  |   |    



|8. | Stockholders Equity
|-- | --------------------



Effective July 1, 2004, companies incorporated in Massachusetts became subject to Chapter 156D of the Massachusetts Business Corporation Act. Chapter 156D
eliminates the concept of treasury shares and provides that shares reacquired by a company are to be treated as authorized but unissued shares of common stock. As a result of this change, the Company has reclassified, for balance sheets presented,
shares previously classified as treasury shares as authorized but unissued shares of common stock. At December 31, 2003 the Company had 273,420 shares at a cost of $2.1 million classified as treasury stock.



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##### Table of Contents

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 third quarter of 2004, we generated revenues of $27.0 million and diluted earnings per share of $0.24. These results were driven by the growth in our billing and
transaction processing services revenues, which increased 4% to $25.6 million for the three months ended September 30, 2004 compared to $24.7 million for the three months ended September 30, 2003 and increased 13% to $79.1 million for the nine
months ended September 30, 2004 compared to $69.8 million for the nine months ended September 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 September 30, 2003 to 3.91 million subscribers at September 30, 2004. The increase in our subscriber base resulted from additional subscriber growth from certain of our carrier customers, partially offset by the loss of
subscribers from Verizon Wireless.



Verizon Wireless accounted for 51% of our
total revenues for the year ended December 31, 2003 and 41% of our total revenues for the three months ended September 30, 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. In June 2004, Verizon Wireless began activating new retail subscribers on their internal prepaid platform, and in October 2004 began to convert subscribers off bcgis platform. The subscriber
conversions are expected to be completed by the third quarter of 2005, although we can provide no assurance that conversions will not be completed sooner than expected.



We currently support Cingular Wireless TDMA prepaid program, which represented 23% of our total revenues for the year ended December
31, 2003 and for the three months ended September 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 we currently support will expire off our network over time.



We are seeking to mitigate the impact of the expected loss of prepaid wireless revenues from our two largest customers by focusing on diversifying our revenues, as we enable growth from other existing customers and
target new and current customers with our expanded product offerings. Over the past nine months, our revenue growth has been principally generated from customers other than Verizon and Cingular. In 2004, we introduced bcgi Mobile Guardian, a
unique offering that provides Web-based tools for 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 and we expect to generate revenue from this solution in 2005. In addition, Nextel further 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 14% of our total revenues for the three months ended September 30, 2004, up from 11% for the three months ended June 30, 2004, has added approximately 400,000 net
subscribers during the nine months ended September 30, 2004. Finally, we continue to expand our presence across the regional wireless and mobile virtual network operator (MVNO) marketplace with all of our new and existing solutions.



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Although we cannot anticipate the level at which Verizon Wireless will convert subscribers off bcgis
platform and do not have sufficient information on how Cingular Wirelesss nationwide GSM network will impact our subscriber base, given our baseline of revenues and related trends, we anticipate that for the fourth quarter ending December 31,
2004, our total revenues will range between $24 million and $26 million. Additionally, we anticipate that our earnings per share for the quarter ending December 31, 2004 will approximate $0.14 to $0.18, 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 September
30, |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                             |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 25,591 |   |                 | $ | 1,429 |       |  | $ | 27,020 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 19,359 |   |                 |   | 769   |       |  |   | 20,128 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 76     | % |                 |   | 54    | %     |  |   | 74     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003 (1)                         |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 24,669 |   |                 | $ | 1,907 |       |  | $ | 26,576 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 18,894 |   |                 |   | 1,201 |       |  |   | 20,095 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 77     | % |                 |   | 63    | %     |  |   | 76     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|                                 |  |                                             |       
|Nine months ended September
30,  |  | Billing and Transaction Processing Services |        |   | Prepaid Systems |   |       | Total | 
|2004                             |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 79,127 |   |                 | $ | 2,788 |       |  | $ | 81,915 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 61,034 |   |                 |   | 1,152 |       |  |   | 62,186 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 77     | % |                 |   | 41    | %     |  |   | 76     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|2003 (1)                         |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Revenues                         |  | $                                           | 69,840 |   |                 | $ | 4,390 |       |  | $ | 74,230 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin                     |  |                                             | 53,061 |   |                 |   | 2,246 |       |  |   | 55,307 |  
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  
|Gross margin percentage          |  |                                             | 76     | % |                 |   | 51    | %     |  |   | 75     | %
|                                 |  |                                             |        |   |                 |   |       |       |  |   |        |  

---

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Billing and Transaction Processing Services



Billing and transaction processing services revenues consist principally 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 4% to $25.6 million for the three months ended September 30, 2004 compared to $24.7 million for the three months ended September 30, 2003 and increased 13% to $79.1
million for the nine months ended September 30, 2004 compared to $69.8 million for the nine months ended September 30, 2003. The revenue increase for the three and nine month periods ended September 30, 2004 compared to the corresponding periods in
the previous year was primarily a result of the 9% increase in the subscriber base to 3.91 million as of September 30, 2004 from 3.58 million as of September 30, 2003. The increase in our subscriber base resulted from additional subscriber growth
from certain of our carrier customers, partially offset by a decrease in Verizon Wireless subscribers.



Average billed minutes of use per subscriber decreased to 108 per month for the three-month period ended September 30, 2004 from 113 per month for the three-month period ended September 30, 2003. The lower average
billed minutes of use for the three-month period ended September 30, 2004 compared to the same period in the previous year resulted from a reduction in the minutes of use from Verizon Wireless and Cingular Wireless. Average billed minutes of use per
subscriber increased to 113 per month for the nine-month period ended September 30, 2004 from 111 per month for the nine-month period ended September 30, 2003. The increase in average billed minutes of use for the nine-month period ended September
30, 2004 compared to the same period in the previous year resulted primarily from new carrier programs that offered more attractive features and more competitive pricing, resulting in greater usage.



For the three-month period ended September 30, 2004 the average billed rate per minute was
consistent with the same period in the previous year. For the nine month period ended September 30, 2004, our average billed rate per minute decreased approximately 9% compared to the same period in the prior year principally due to carriers
availing themselves of our volume pricing discounts. We expect billing and transaction processing revenues to decrease in the fourth quarter of 2004 compared to the three months ended September 30, 2004 due primarily to the anticipated loss of
Verizon and Cingular subscribers.



Gross margins for billing and transaction
processing services were 76% of billing and transaction processing services revenues for the three months ended September 30, 2004 compared to 77% of such revenues for the three months ended September 30, 2003. The decrease in our gross margin for
the three month period resulted from costs incurred to support our technology enhancement initiatives. Gross margins increased to 77% of billing and transaction processing services revenues for the nine months ended September 30, 2004 compared to
76% of such revenues for the nine months ended September 30, 2003. While our cost of services in absolute dollars increased for the nine month period ended September 30, 2004 to support our technology enhancement initiatives, Nextels market
expansion and our bcgi Mobile Guardian product introduction, our gross margins increased due mainly to increased revenue and our predominantly fixed cost infrastructure.



Prepaid Systems



Prepaid systems revenues decreased to $1.4 million for the three months ended September 30, 2004 from $1.9 million for the three months ended September 30, 2003 and
decreased to $2.8 million for the nine months ended September 30, 2004 compared to $4.4 million for the nine months ended September 30, 2003. The decrease in prepaid systems revenues resulted primarily from fewer system sales. 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 54% of prepaid systems revenues for the three months ended September 30, 2004 from 63% for the three months ended September 30, 2003 and decreased to 41% of prepaid
systems revenues for the nine months ended September 30, 2004 compared to 51% of such revenues for the nine months ended September 30, 2003. The decrease for the three and nine months ended September 30, 2004 was due mainly to fixed costs not
absorbed at lower levels of system sales. During the quarter ended September 30, 2004 we



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began a phased shut down of our Tulsa operation, which housed much of the operations that support our prepaid systems
business. We expect that our systems business will be fully integrated into our Massachusetts locations within the first half of 2005. The expenses we have incurred to begin closing this facility are reflected in our operating results. Additionally,
as a result of the consolidation, we do not expect to be reporting prepaid systems as a separate segment in 2005.



Operating Data

(in thousands)



|                                      |  |                                  |        |                   |      |   |       |   |                   |  |     |  
|------------------------------------- |  | -------------------------------- | ------ | ----------------- | ---- | - | ----- | - | ----------------- |  | --- | -
|                                      |  | Three months ended September 30, |       
|                                      |  | 2004                             |        |                   | 2003 |  
|                                      |  | Total                            |        | % ofTotalRevenues |      |   | Total |   | % ofTotalRevenues | 
|Total revenues                        |  | $                                | 27,020 |                   | 100  | % |       | $ | 26,576            |  | 100 | %
|Engineering, research and development |  |                                  | 3,694  |                   | 14   | % |       |   | 3,365             |  | 13  | %
|Sales and marketing                   |  |                                  | 1,567  |                   | 6    | % |       |   | 1,618             |  | 6   | %
|General and administrative            |  |                                  | 1,955  |                   | 7    | % |       |   | 2,005             |  | 8   | %
|General and administrative  legal    |  |                                  | 450    |                   | 2    | % |       |   | 1,350             |  | 5   | %
|Depreciation and amortization         |  |                                  | 5,894  |                   | 22   | % |       |   | 5,132             |  | 19  | %
|                                      | 
|                                      |  | Nine months ended September 30,  |       
|                                      |  | 2004                             |        |                   | 2003 |  
|                                      |  | Total                            |        | % ofTotalRevenues |      |   | Total |   | % ofTotalRevenues | 
|Total revenues                        |  | $                                | 81,915 |                   | 100  | % |       | $ | 74,127            |  | 100 | %
|Engineering, research and development |  |                                  | 10,987 |                   | 13   | % |       |   | 9,596             |  | 13  | %
|Sales and marketing                   |  |                                  | 5,106  |                   | 6    | % |       |   | 4,701             |  | 6   | %
|General and administrative            |  |                                  | 6,166  |                   | 8    | % |       |   | 5,875             |  | 8   | %
|General and administrative  legal    |  |                                  | 2,050  |                   | 3    | % |       |   | 2,990             |  | 4   | %
|Depreciation and amortization         |  |                                  | 16,853 |                   | 21   | % |       |   | 14,337            |  | 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 nine month periods ended September 30, 2004 in absolute dollars 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, technology enhancements and new solutions, including bcgi Mobile Guardian. Spending for engineering, research and development remained consistent as a
percentage of revenues as we generated greater revenues in the periods ended September 30, 2004 compared to the year-earlier periods.



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 were relatively consistent for the three month period ended September 30, 2004 compared to the same period in the previous year. Sales and marketing
expenses increased for the nine-month period ended September 30, 2004 compared to the same period in the prior year primarily to support our marketing efforts for the product introduction of bcgi Mobile Guardian in the first half of the year.
As we



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generated greater revenues in each of the three and nine month periods ended September 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 December 31, 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. General and administrative expenses in absolute dollars decreased for the three month period ended September 30, 2004 and increased for nine month period
ended September 30, 2004 as compared to the same periods the prior year. This decrease in the three month period ended September 30, 2004 was principally due to lower general corporate legal expenses. The increase for the nine month period ended
September 30, 2004 was due primarily 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 the three month period ended September 30, 2004 from the year-earlier periods, spending for general and administrative expenses declined as a percentage of revenues from 8% to 7%.



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 nine month periods ended September 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 level of activity and timing of proceedings.



Depreciation and amortization expense



Depreciation and amortization expense includes depreciation and amortization of telecommunications systems and software, building, furniture, equipment, leasehold improvements and 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 nine month periods ended September 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. In addition, to a lesser
extent, the increase was due to write-offs of certain assets during the quarter ended September 30, 2004, including assets of our Tulsa location. As a result, we expect depreciation and amortization expense to decrease in the quarter ended December
31, 2004.



Interest income



Interest income increased 12% to $322,000 for the three months ended September 30, 2004 from
$287,000 for the three months ended September 30, 2003 and decreased 4% to $885,000 for the nine months ended September 30, 2004 from $925,000 for the nine months ending September 30, 2003. The increase in interest income for the three month period
ended September 30, 2004 compared to the same period in the previous year resulted from an increased cash and investment balance. The decrease in interest income for the nine month period ended September 30, 2004 compared to the prior year resulted
from lower yield on certain investments.



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Provision for income taxes



The income tax rate for the nine months ended September 30, 2004 was 39.5% compared to an income tax rate of 38% for the nine months ended
September 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 nine months ended September 30, 2004 and net income of $8,000 and $59,000 for the three and nine months ended September 30, 2003, respectively. At September 30, 2004, the discontinued Roaming
Services segment had net accounts receivable of $39,000.



Liquidity
and Capital Resources



Cash, cash equivalents and short-term investments
increased to $70.9 million at September 30, 2004 compared to $66.5 million at December 31, 2003. Net cash provided by continuing operations of $27.9 million for the nine months ended September 30, 2004 resulted from net income of $13.3 million,
adjustments for depreciation and amortization of $16.9 million. In addition, the increase in cash and investments was due to a decrease in accounts receivable of $1.6 million as our DSO (days sales outstanding) decreased to 59 days. These amounts
were partially offset by a decrease in accounts payable, accrued expenses and deferred revenue of $4.0 million as certain fixed asset purchases were accrued just prior to year end along with lower levels of bonus accrued at September 30, 2004
compared to December 31, 2003. In addition, the net cash provided by continuing operations was partially offset by an increase in prepaid expenses and other assets of $1.5 million primarily to purchase certain long-term maintenance contracts in
2004.



Our investing activities utilized $11.6 million of net cash for the nine
months ended September 30, 2004. We utilized $13.9 million for capital expenditures, including approximately $2.8 million for internally capitalized labor and purchased long-term investments of $2.0 million during the period. We anticipate that,
during the fourth quarter ending September 30, 2004, we will make additional capital investments of $5 to 6 million for equipment and software to support new solutions and enhanced feature capabilities and for our billing and transaction processing
services. We have recorded $590,000 as our estimate of the anticipated payment to Infotech Solutions Corporation in 2005 based on qualified revenues estimated to be earned in 2004 under the terms of our earn-out provisions from the acquisition. 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 $7.1 million during the nine months ended September 30, 2004 due mainly to the repurchase of common
stock pursuant to our 2004 Share Repurchase Plan. As of September 30, 2004, we repurchased 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: |  | $     | 5,005 |                       | $ | 2,998     |  |           | 1,852 |                   |   | 155 |  | $ | 
|Operating leases         |  |       | 2,680 |                       |   | 1,707     |  |           | 884   |                   |   | 89  |  |   | 
|Purchase commitments     |  |       | 2,137 |                       |   | 1,994     |  |           | 143   |                   |   |    |  |   | 
|                         |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  
|Total                    |  | $     | 9,822 |                       | $ | 6,699     |  | $         | 2,879 |                   | $ | 244 |  | $ | 
|                         |  |       |       |                       |   |           |  |           |       |                   |   |     |  |   |  



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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 September 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 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
| | - | -----------------------------------------------------------



A summary of these policies may be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange
Commission on March 11, 2004. During the three months ended September 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 our competitors prepaid solutions, which will result in the loss of existing subscribers and fewer subscriber additions to our platforms.



On July 11, 2003, Verizon Wireless notified us that they intend to test their own internal
prepaid platform, purchased from one of our competitors in 2004. In June 2004, Verizon Wireless began to activate new prepaid retail subscribers on their internal prepaid platform and in October 2004, began to convert subscribers off
bcgis platform. The subscriber conversions are expected to be completed by the third quarter of 2005, although we can provide no assurance that conversions will not be completed sooner than expected. Verizon Wireless use of their
internal prepay platform and the expected conversion process will have a material, adverse effect on our revenues and net income for the three months ended December 31, 2004 and thereafter.



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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 another vendor to provide prepaid wireless service in its GSM markets. Because Cingular Wireless has begun offering prepaid service on its newest GSM network, we expect our revenue from this TDMA
business to decrease over time, although we can give no assurances as to the timing and rate of our revenue loss. Additionally, there is no guarantee that Cingular Wireless will not migrate its existing TDMA prepaid business onto its GSM network,
thereby causing a more rapid reduction in our revenues and net income.



The
loss or significant reduction of business from one of our major customers, including Verizon Wireless, Cingular Wireless or Nextel Communications, 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 41%, Cingular Wireless represented 23% and Nextel Communications represented 14% of our total revenues for the three months ended
September 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.



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 prepaid programs, including our prepaid wireless solutions.



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



In March 2000, Freedom Wireless, Inc. filed a suit against us and a number of our wireless
carrier customers 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 the trial is scheduled to begin on January 31, 2005. 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



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Regardless of the outcome, we will continue to incur significant expenses to defend this lawsuit. We have incurred
approximately $15.7 million in legal costs as of September 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 level of activity and 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:



| |  | The 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);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | The lack of acceptance or delayed acceptance of our newest solutions, including bcgiMobile Guardian;
| | - | ----------------------------------------------------------------------------------------------------



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



| |  | The 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 and licensed solutions, 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 time to
sufficiently 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.



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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, including bcgi Mobile Guardian, 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 3G technology, 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 fourth 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.



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;
| | - | -----------------------------------------------------------------------------



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| |  | 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.



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.



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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 arent 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 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
September 30, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of September 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.



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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 September 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 our wireless carrier customers. 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. On August 10, 2004, the plaintiff and the defendant each had four summary judgment motions denied by the court, bringing the
case closer to the trial phase. The suit is in the pre-trial phase and the trial is scheduled to begin on January 31, 2005. 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 level of activity and 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.



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. Unregistered Sales of Equity Securities and Use of Proceeds



|(c) | The following table provides information about purchases of equity securities by us during the quarter ended September 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)
|07/01/2004-07/31/2004 |  | 334,000                             |  | 9.72                        |  | 838,500                                                                      |  | 1,161,500                                                                                                 

---

|(1) | We repurchased 334,000 shares of our common stock during the quarter ended September 30, 2004, pursuant to the repurchase program that we publicly announced on June 14, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(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.
| | -- | --------------



Item 6. Exhibits



| | a) | Exhibits
| | -- | --------



|     |  |                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------
|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)



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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: November 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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