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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended June 30, 2005



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.)



55 Middlesex
Turnpike, Bedford, Massachusetts 01730

(Address of principal executive offices) (Zip Code)



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





(Former name, former address and 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 Rule 12b-2 of the Exchange Act)    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 August 5, 2005, the Company had outstanding 17,644,344 shares of common stock, $.01 par value per share.



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INDEX



|         |  |                                                                                                                                      |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | --
|PART I.  |  | FINANCIAL INFORMATION:                                                                                                               |  |   
|         |  |                                                                                                                                     
|Item 1.  |  | Financial Statements (Unaudited)                                                                                                     |  | 3 
|         |  |                                                                                                                                     
|         |  | 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 |  | 18
|         |  |                                                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                           |  | 36
|         |  |                                                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                                                              |  | 36
|         |  |                                                                                                                                     
|PART II. |  | OTHER INFORMATION:                                                                                                                   |  |   
|         |  |                                                                                                                                     
|Item 1.  |  | Legal Proceedings                                                                                                                    |  | 37
|         |  |                                                                                                                                     
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                          |  | 39
|         |  |                                                                                                                                     
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                  |  | 39
|         |  |                                                                                                                                     
|Item 6.  |  | Exhibits                                                                                                                             |  | 40



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:



| |  |  | Earnings per share;
| | - |  | -------------------



| |  |  | Revenues;
| | - |  | ---------



| |  |  | Continued customer concentration and diversification of revenue;
| | - |  | ----------------------------------------------------------------



| |  |  | Legal expenses related to the Freedom Wireless, Inc. (Freedom Wireless) lawsuit;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Accrued estimated loss from the Freedom Wireless lawsuit;
| | - |  | ---------------------------------------------------------



| |  |  | Expectations regarding future settlements or judgments;
| | - |  | -------------------------------------------------------



| |  |  | Entrance of new competitors in the wireless services market;
| | - |  | ------------------------------------------------------------



| |  |  | Engineering, research and development expenditures;
| | - |  | ---------------------------------------------------



| |  |  | Sales and marketing expenses;
| | - |  | -----------------------------



| |  |  | General and administrative expenses;
| | - |  | ------------------------------------



| |  |  | Interest income;
| | - |  | ----------------



| |  |  | Capital expenditures;
| | - |  | ---------------------



| |  |  | Defined benefit plan contributions;
| | - |  | -----------------------------------



| |  |  | Financing of investments with cash and short-term investments;
| | - |  | --------------------------------------------------------------



| |  |  | Expectations regarding new product offerings and global expansion; and
| | - |  | ----------------------------------------------------------------------



| |  |  | Expectation that the acquisition of PureSight, Inc. and PureSight LTD will be dilutive in the near-term.
| | - |  | --------------------------------------------------------------------------------------------------------



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.



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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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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements (Unaudited)



BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                           |  | June 30, 2005 |         |   | December 31,2004 |  
|                                                                                                                                                                                           |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                  |  | $             | 1,883   |   |                  | $ | 9,467   |  
|Short-term investments                                                                                                                                                                     |  |               | 60,208  |   |                  |   | 68,285  |  
|Accounts receivable, net of allowance of $650 in 2005 and $474 in 2004                                                                                                                     |  |               | 22,229  |   |                  |   | 17,358  |  
|Tax refund receivable                                                                                                                                                                      |  |               | 966     |   |                  |   |        |  
|Deferred income taxes                                                                                                                                                                      |  |               | 120     |   |                  |   | 319     |  
|Prepaid expenses and other assets                                                                                                                                                          |  |               | 3,370   |   |                  |   | 2,907   |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                       |  |               | 88,776  |   |                  |   | 98,336  |  
|Property and equipment:                                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Building, land and leasehold improvements                                                                                                                                                  |  |               | 14,231  |   |                  |   | 14,576  |  
|Telecommunications systems & software                                                                                                                                                      |  |               | 99,202  |   |                  |   | 94,900  |  
|Furniture and fixtures                                                                                                                                                                     |  |               | 918     |   |                  |   | 789     |  
|Systems in development                                                                                                                                                                     |  |               | 8,132   |   |                  |   | 2,837   |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|                                                                                                                                                                                           |  |               | 122,483 |   |                  |   | 113,102 |  
|Less allowance for depreciation and amortization                                                                                                                                           |  |               | 67,974  |   |                  |   | 57,543  |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|                                                                                                                                                                                           |  |               | 54,509  |   |                  |   | 55,559  |  
|Intangible assets, net                                                                                                                                                                     |  |               | 4,578   |   |                  |   | 2,450   |  
|Goodwill                                                                                                                                                                                   |  |               | 9,164   |   |                  |   | 4,753   |  
|Other assets                                                                                                                                                                               |  |               | 9,171   |   |                  |   | 6,913   |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                               |  | $             | 166,198 |   |                  | $ | 168,011 |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                           |  | $             | 1,725   |   |                  | $ | 312     |  
|Accrued expenses                                                                                                                                                                           |  |               | 8,528   |   |                  |   | 13,386  |  
|Accrued estimated loss from litigation                                                                                                                                                     |  |               | 24,000  |   |                  |   |        |  
|Deferred revenue                                                                                                                                                                           |  |               | 3,391   |   |                  |   | 3,753   |  
|Income taxes payable                                                                                                                                                                       |  |               |        |   |                  |   | 1,591   |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                  |  |               | 37,644  |   |                  |   | 19,042  |  
|Non-current liabilities:                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Accrued pension liability                                                                                                                                                                  |  |               | 3,965   |   |                  |   | 3,476   |  
|Deferred income taxes                                                                                                                                                                      |  |               | 1,948   |   |                  |   | 7,046   |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total non-current liabilities                                                                                                                                                              |  |               | 5,913   |   |                  |   | 10,522  |  
|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; 17,642,886 and 17,581,625 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively |  |               | 176     |   |                  |   | 176     |  
|Additional paid-in capital                                                                                                                                                                 |  |               | 104,445 |   |                  |   | 104,070 |  
|Retained earnings                                                                                                                                                                          |  |               | 18,201  |   |                  |   | 34,430  |  
|Accumulated other comprehensive loss                                                                                                                                                       |  |               | (181    | ) |                  |   | (229    | )
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                 |  |               | 122,641 |   |                  |   | 138,447 |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                 |  | $             | 166,198 |   |                  | $ | 168,011 |  
|                                                                                                                                                                                           |  |               |         |   |                  |   |         |  



See accompanying notes.



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BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)



|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|-------------------------------------------- |  | -------------------------- | ------- | ------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ------ | -
|                                             |  | Three months endedJune 30, |         | Six months ended June 30, |     
|                                             |  | 2005                       |         |                           | 2004 |   | 2005   |  |   | 2004    |  
|NET REVENUES                                 |  | $                          | 25,615  |                           |      | $ | 27,650 |  | $ | 51,967  |   |  | $ | 54,895 |  
|                                             |  |                            |         |                          
|EXPENSES:                                    |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Cost of revenues*                            |  |                            | 6,793   |                           |      |   | 6,459  |  |   | 13,470  |   |  |   | 12,837 |  
|Engineering, research and development        |  |                            | 4,306   |                           |      |   | 3,497  |  |   | 9,061   |   |  |   | 7,293  |  
|Sales and marketing                          |  |                            | 2,313   |                           |      |   | 1,667  |  |   | 4,789   |   |  |   | 3,539  |  
|General and administrative                   |  |                            | 2,621   |                           |      |   | 2,125  |  |   | 5,150   |   |  |   | 4,211  |  
|General and administrative  legal charges   |  |                            | 4,319   |                           |      |   | 450    |  |   | 6,529   |   |  |   | 1,600  |  
|Estimated loss from litigation               |  |                            | 24,000  |                           |      |   |       |  |   | 24,000  |   |  |   |       |  
|Depreciation and amortization                |  |                            | 5,204   |                           |      |   | 5,490  |  |   | 10,758  |   |  |   | 10,959 |  
|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Operating income (loss)                      |  |                            | (23,941 | )                         |      |   | 7,962  |  |   | (21,790 | ) |  |   | 14,456 |  
|Interest income                              |  |                            | 408     |                           |      |   | 251    |  |   | 808     |   |  |   | 563    |  
|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Income (loss) before income taxes            |  |                            | (23,533 | )                         |      |   | 8,213  |  |   | (20,982 | ) |  |   | 15,019 |  
|Provision/(benefit) for income taxes         |  |                            | (5,671  | )                         |      |   | 3,211  |  |   | (4,753  | ) |  |   | 5,933  |  
|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Net income (loss) from continuing operations |  |                            | (17,862 | )                         |      |   | 5,002  |  |   | (16,229 | ) |  |   | 9,086  |  
|Net loss from discontinued operations        |  |                            |        |                           |      |   |       |  |   |        |   |  |   | (11    | )
|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Net income (loss)                            |  | $                          | (17,862 | )                         |      | $ | 5,002  |  | $ | (16,229 | ) |  | $ | 9,075  |  
|                                             |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Basic net income (loss) per share:           |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Continuing operations                        |  | $                          | (1.01   | )                         |      | $ | 0.27   |  | $ | (0.92   | ) |  | $ | 0.50   |  
|Net income (loss)                            |  | $                          | (1.01   | )                         |      | $ | 0.27   |  | $ | (0.92   | ) |  | $ | 0.50   |  
|Weighted average common shares outstanding   |  |                            | 17,641  |                           |      |   | 18,295 |  |   | 17,622  |   |  |   | 18,286 |  
|                                             |  |                            |         |                          
|Diluted net income (loss) per share:         |  |                            |         |                           |      |   |        |  |   |         |   |  |   |        |  
|Continuing operations                        |  | $                          | (1.01   | )                         |      | $ | 0.27   |  | $ | (0.92   | ) |  | $ | 0.49   |  
|Net income (loss)                            |  | $                          | (1.01   | )                         |      | $ | 0.27   |  | $ | (0.92   | ) |  | $ | 0.48   |  
|Weighted average common shares outstanding   |  |                            | 17,641  |                           |      |   | 18,735 |  |   | 17,622  |   |  |   | 18,728 |  

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



See accompanying notes.





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BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



|                                                                                                          |  |                           |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                          |  | Six months ended June 30, |        
|                                                                                                          |  | 2005                      |         |   | 2004 |  
|OPERATING ACTIVITIES                                                                                      |  |                           |         |   |      |   |         |  
|Net income (loss) from continuing operations                                                              |  | $                         | (16,229 | ) |      | $ | 9,086   |  
|Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operations: |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                                                             |  |                           | 10,758  |   |      |   | 10,959  |  
|Deferred income taxes                                                                                     |  |                           | (4,899  | ) |      |   | 108     |  
|Accrued estimated loss from litigation                                                                    |  |                           | 24,000  |   |      |   |        |  
|Changes in operating assets and liabilities:                                                              |  |                           |         |   |      |   |         |  
|Accounts receivable, net                                                                                  |  |                           | (4,663  | ) |      |   | (5,373  | )
|Tax refund receivable                                                                                     |  |                           | (966    | ) |      |   |        |  
|Prepaid expenses and other assets                                                                         |  |                           | (739    | ) |      |   | (772    | )
|Accounts payable, accrued expenses and deferred revenue                                                   |  |                           | (3,534  | ) |      |   | (347    | )
|Income taxes payable                                                                                      |  |                           | (1,754  | ) |      |   | 1,181   |  
|Other non-current liabilities                                                                             |  |                           | 489     |   |      |   | 461     |  
|                                                                                                          |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities of continuing operations                                        |  |                           | 2,463   |   |      |   | 15,303  |  
|Loss from discontinued operations                                                                         |  |                           |        |   |      |   | (11     | )
|Net change in operating assets and liabilities of discontinued operations                                 |  |                           |        |   |      |   | (260    | )
|                                                                                                          |  |                           |         |   |      |   |         |  
|Net cash used in operating activities of discontinued operations                                          |  |                           |        |   |      |   | (271    | )
|                                                                                                          |  |                           |         |   |      |   |         |  
|Net cash provided by operations                                                                           |  |                           | 2,463   |   |      |   | 15,032  |  
|                                                                                                          |  |                          
|INVESTING ACTIVITIES                                                                                      |  |                           |         |   |      |   |         |  
|Acquisition of business                                                                                   |  |                           | (6,651  | ) |      |   |        |  
|Payment of earnout of acquired business                                                                   |  |                           | (591    | ) |      |   | (410    | )
|Purchases of short-term investments                                                                       |  |                           | (33,523 | ) |      |   | (31,043 | )
|Sales of short-term investments                                                                           |  |                           | 41,648  |   |      |   | 31,995  |  
|Purchase of long-term investments                                                                         |  |                           | (1,955  | ) |      |   | (1,517  | )
|Purchases of property and equipment                                                                       |  |                           | (9,350  | ) |      |   | (10,039 | )
|                                                                                                          |  |                           |         |   |      |   |         |  
|Net cash used in investing activities                                                                     |  |                           | (10,422 | ) |      |   | (11,014 | )
|                                                                                                          |  |                          
|FINANCING ACTIVITIES                                                                                      |  |                           |         |   |      |   |         |  
|Proceeds from exercise of stock options                                                                   |  |                           | 21      |   |      |   | 375     |  
|Proceeds from issuance of common stock                                                                    |  |                           | 354     |   |      |   | 335     |  
|Repurchase of common stock                                                                                |  |                           |        |   |      |   | (4,935  | )
|                                                                                                          |  |                           |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                                       |  |                           | 375     |   |      |   | (4,225  | )
|                                                                                                          |  |                          
|Decrease in cash and cash equivalents                                                                     |  |                           | (7,584  | ) |      |   | (207    | )
|Cash and cash equivalents at beginning of period                                                          |  |                           | 9,467   |   |      |   | 2,960   |  
|                                                                                                          |  |                           |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                                |  | $                         | 1,883   |   |      | $ | 2,753   |  
|                                                                                                          |  |                           |         |   |      |   |         |  
|                                                                                                          |  |                          
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                        |  |                           |         |   |      |   |         |  
|Cash paid for income taxes                                                                                |  | $                         | 1,789   |   |      | $ | 4,961   |  
|                                                                                                          |  |                           |         |   |      |   |         |  



See accompanying notes.





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##### Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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



The accompanying unaudited financial statements have been prepared on a going concern basis 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. This basis contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. Operating results for the three and six month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December
31, 2005 or any other interim period.



On May 20, 2005, the
jury in the Freedom Wireless patent infringement lawsuit issued a verdict of $128 million against the Company and the other co-defendants, including Cingular Wireless LLC, for past damages through December 31, 2004, an amount which exceeds the
Companys ability to pay. Based on managements assessment of the potential outcomes of the case and in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5) and FASB Interpretation
14, Reasonable Estimation of the Amount of a Loss (FIN 14), the Company has accrued an estimated loss of $24 million with respect to the Freedom Wireless verdict, excluding additional legal charges which are expensed as incurred. However, the
actual loss, if any, may be significantly higher or lower than the amount accrued.



The balance sheet at December 31, 2004 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 consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2004 and Form 8-K filed on June 24, 2005.



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



Principles of Consolidation



The consolidated financial statements include 100% of the Companys accounts and operations and all of its wholly-owned subsidiaries. Upon
consolidation, all intercompany accounts and transactions are eliminated.



Reclassifications



Certain amounts in the accompanying 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 revenues in various ways through its managed services business:



| | 1) | Real-Time Billing - the Company principally earns revenues by processing prepaid wireless minutes or as a percentage of wireless customer revenue, net of any penalties incurred
related to outages on the platform;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 2) | Voyager Billing - the Company earns revenues by generating a postpaid subscribers monthly bill; and
| | -- | ----------------------------------------------------------------------------------------------------



| | 3) | PayExtend - the Company principally earns revenues by processing transactions on behalf of wireless operators subscribers.
| | -- | ---------------------------------------------------------------------------------------------------------------------------



Revenues for each of these solutions are recognized as the services are
provided. Managed services revenues also include amounts for licensing fees, development projects and implementations, which are typically recognized ratably over the remaining life of the contract with the respective wireless operator.



For the Companys licensed systems sales, the Company typically
recognizes revenues from the sale of systems at the time the systems are shipped or delivered to the customer, depending on shipping terms. In the event there are acceptance terms, the Company defers revenue until acceptance has occurred. In
addition, certain software is licensed to distributors, who pay licensing fees to the Company as they sell the software to their customers and the revenue is recognized in the month it is earned.



For multiple element arrangements, the Company determines the fair value of
each element based on the specific objective evidence for that element and allocates total revenue from these arrangements to each element based on its fair value. Installation revenue is deferred until the entire installation is complete. Revenues
from maintenance and support and other services are based on vendor-specific objective evidence of fair value and recognized ratably over the term of the maintenance and support contract period. Vendor-specific objective evidence of fair value of
maintenance and support is based upon the amount charged when the service is sold separately, which is typically the contracts renewal rate. Vendor-specific objective evidence of fair value for installation and other services is based upon
standard pre-established rates.



All revenues are recorded net
of unbillable amounts and amounts that are estimated to be uncollectible based on historical experience. A reserve for doubtful accounts is recorded based on historical experience or specific identification of an event necessitating a reserve.



Cash, Cash Equivalents and Short-Term Investments



The Company considers all highly liquid investments with
maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of institutional money market funds.



The Company accounts for its marketable securities in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain
Instruments in Debt and Equity Securities. The Company has classified all of its short-term investments as available-for-sale, and is thus reported at fair market value with unrealized gains and losses, net of tax, reported as a separate
component of stockholders equity.



Investments that
mature in more than three months but less than 36 months are considered short-term investments because the Company views its available-for-sale portfolio as available for use in its current operations. The Companys short-term investments are
invested in corporate notes, municipal auction rate securities and annuities maturing in less than thirty-six months.



Substantially all of the Companys short-term investments have contractual maturities of twelve months or less.



In connection with the Freedom Wireless verdict discussed in Note 4 to the
Condensed Consolidated Financial Statements, on July 27, 2005, the Company entered into a Funding of Security for Appeal Agreement with Cingular Wireless whereby the Company has agreed to place $41 million in escrow as security for any potential
liability associated with the litigation. This agreement is subject to mutual acceptance of an escrow agent and related escrow terms.



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Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.



Legal Costs



The
Company accrues the costs of settlements, damages and, under certain conditions, costs of defense when such costs are probable and estimable; otherwise, such costs are expensed as incurred. As discussed in Note 4 to the Condensed Consolidated
Financial Statements, the Company expenses legal costs related to the Freedom Wireless lawsuits as incurred due to the lengthy and unpredictable nature of this litigation, which has made it difficult to continue to reasonably estimate legal costs
for the litigation. 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 assurance that the Companys expenses will not exceed its estimate.



Income Taxes



The Companys current and deferred income taxes, and associated valuation allowances, are impacted by events and transactions arising in the normal
course of business as well as in connection with special and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred
income tax assets and the timing of income tax payments. Actual collections and payments may materially differ from these estimates as a result of changes in tax laws as well as unanticipated future transactions impacting related income tax
balances.



The income tax benefit for the six months ended
June 30, 2005 was $4.8 million, compared to an income tax provision of $5.9 million (39.5% effective tax rate) for the six months ended June 30, 2004. The benefit recorded in the current year reflects the Companys assessment of its
ability to realize the tax benefit from the ultimate loss, if any, from the Freedom Wireless litigation.



Comprehensive Income (Loss)



Components of comprehensive income (loss) include net income (loss) and certain transactions that have generally been reported in the condensed
consolidated statements of shareholders equity.



|                                            |      |                            |         |      |                          |   |       |   |  |      |         |   |  |   |       |  
|------------------------------------------- | ---- | -------------------------- | ------- | ---- | ------------------------ | - | ----- | - |  | ---- | ------- | - |  | - | ----- | -
|(in thousands)                              |      | Three months endedJune 30, |         |      | Six months endedJune 30, |  
|                                            | 2005 |                            |         | 2004 |                          |   | 2005  |   |  | 2004 |        
|Net income (loss) as reported               |      | $                          | (17,862 | )    |                          | $ | 5,002 |   |  | $    | (16,229 | ) |  | $ | 9,075 |  
|Securities valuation adjustment, net of tax |      |                            | 98      |      |                          |   | (206  | ) |  |      | 49      |   |  |   | (226  | )
|Foreign currency translation, net of tax    |      |                            | (1      | )    |                          |   |      |   |  |      | (1      | ) |  |   |      |  
|                                            |      |                            |         |      |                          |   |       |   |  |      |         |   |  |   |       |  
|Comprehensive income (loss)                 |      | $                          | (17,765 | )    |                          | $ | 4,796 |   |  | $    | (16,181 | ) |  | $ | 8,849 |  
|                                            |      |                            |         |      |                          |   |       |   |  |      |         |   |  |   |       |  



Concentrations of
Credit Risk



Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short and long-term investments and accounts receivable.



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The Company maintains cash, cash equivalents, short-term investments and long-term investments primarily
with high credit quality financial institutions and monitors the amount of credit exposure to any one financial institution, thereby mitigating credit risk.



The Companys managed services business allows wireless operators throughout the United States to utilize its real-time billing capabilities,
enabling such operators to offer prepaid wireless calling to their subscribers, offer various ways to replenish their accounts and to purchase digital content. Wireless operators also utilize the Companys managed services business to provide
their subscribers with a monthly postpaid wireless bill. In addition, the Company sells licensed systems internationally, most recently in North and South America and Africa, however the Company is in the process of expanding its sales territories
through Europe, Latin America and Asia, among other areas. The Company generally does not require collateral from its customers, although upfront payments for a portion of the total sale are typically required prior to shipment. In addition, certain
software is licensed to distributors, who pay licensing fees to the Company as they sell the software to their customers.



Property and Equipment



Property and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, which range from 3
to 20 years. Systems in development primarily represent internally capitalized labor and purchased hardware and software to be used in the Companys managed services and licensed products business that are not yet placed into service and will
be depreciated and amortized when placed in service, typically over three to five years.



Research and Development and Software Development Costs



Research and development costs are charged to expense as incurred. However, costs incurred for the development of computer software or deployment of
assets for internal use is 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, anticipated future undiscounted net cash flows and changes in hardware and
software technologies.



Amortization of capitalized software
development costs begins when the solution is made available for general release and 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 to assess
the recoverability of these assets in accordance with Statement of Financial Accounting Standards (FAS) 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 might be impaired because of a change in anticipated use or technology, and the undiscounted operating cash flows estimated to be generated by those assets 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 quoted market prices or a discounted cash flow method, whichever is more appropriate under the circumstances
involved.



The Company accounts for goodwill in accordance
with FAS 142 Goodwill and Other Intangible Assets. Under FAS 142, goodwill is not amortized but is subject to annual impairment tests. The Company evaluates goodwill for impairment annually in the fourth quarter or whenever events or
changes in circumstances



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indicate that the carrying amount may not be recoverable. Goodwill is tested for impairment by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.



As a result of the Freedom Wireless lawsuit verdict discussed in Note 4 to
the Condensed Consolidated Financial Statements, the Company performed an asset impairment test for its long-lived assets and goodwill in the quarter ended June 30, 2005 and concluded that no impairment existed.



Stock-Based Compensation



The Company has elected to follow the intrinsic value method in accordance
with 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 accounting method
provided for under FAS No. 123, Accounting for Stock-Based Compensation. 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.



During the first quarter of 2005, the Company accelerated the vesting of certain unvested stock options. These stock options were awarded to employees, officers and directors under the Companys 2000 Stock Option Plan and 2004 Stock
Incentive Option Plan and had exercise prices that were greater than $7.75 per share. Options to purchase 866,331 shares of bcgi Common Stock became exercisable immediately as a result of the vesting acceleration. The aggregate number of
options to purchase shares of bcgiCommon Stock held by directors and executive officers that were accelerated pursuant to this acceleration is 310,496. The exercise prices and number of shares subject to the accelerated options were
unchanged. The acceleration of the vesting of these options did not result in a charge based on generally accepted accounting principles. For pro forma disclosure requirements under FAS 123, the Company recognized an additional $1.8 million of
stock-based compensation for all options whose vesting was accelerated. The Company took this action because it will limit the negative impact on the Companys results from operations beginning in 2006 when FAS 123(R) takes effect for the
Company.



Since the Company accelerated vesting as described
above for the first quarter of 2005, the expense for the six months ended June 30, 2005 is substantially higher than normal levels, and the expense for the three months ended June 30, 2005 is somewhat lower than typical levels. As a result, the
results of applying the fair value method may have a materially different effect on pro forma net income (loss) in future years than the amounts shown below.



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Had compensation expense for the Companys Stock Plans been determined consistent with FAS No. 123,
the pro forma net income (loss) and net income (loss) per share would have been as follows (in thousands, except per-share information):



|                                                                                                                                    |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |      
|----------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | -----
|                                                                                                                                    |  | Three months endedJune 30, |         |   | Six months endedJune 30,
|                                                                                                                                    |  | 2005                       |         |   | 2004                     |   |         | 2005 |  |   | 2004   
|Net income (loss) as reported                                                                                                       |  | $                          | (17,862 | ) |                          | $ | 5,002   |      |  | $ | (16,229 | ) |  | $ | 9,075
|Add: Stock-based employee compensation expense included in reported net income (loss)                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |     
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of tax
benefit |  |                            | 225(759 | ) |                          |   | 566(759 | )    |  |   | 2,620   |   |  |   | 1,189
|                                                                                                                                    |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |      
|Pro forma net income (loss)                                                                                                         |  | $                          | (18,087 | ) |                          | $ | 4,436   |      |  | $ | (18,849 | ) |  | $ | 7,886
|                                                                                                                                    |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |      
|Basic net income (loss) per share:                                                                                                  |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |      
|As reported                                                                                                                         |  | $                          | (1.01   | ) |                          | $ | 0.27    |      |  | $ | (0.92   | ) |  | $ | 0.50 
|Pro forma                                                                                                                           |  | $                          | (1.03   | ) |                          | $ | 0.24    |      |  | $ | (1.07   | ) |  | $ | 0.43 
|Diluted net income (loss) per share:                                                                                                |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |      
|As reported                                                                                                                         |  | $                          | (1.01   | ) |                          | $ | 0.27    |      |  | $ | (0.92   | ) |  | $ | 0.48 
|Pro forma                                                                                                                           |  | $                          | (1.03   | ) |                          | $ | 0.24    |      |  | $ | (1.07   | ) |  | $ | 0.42 



Basic and Diluted
Net Income (Loss) Per Share



Basic earnings (loss) per
share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) 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 are stock options. For purposes of computing diluted earnings (loss) 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. In addition, during loss periods, no stock options are included as their effect would be anti-dilutive. Accordingly, for the three months ended June 30, 2005 and 2004,
options to purchase 3,397,000 and 1,048,000 shares, respectively, of Common Stock have been excluded from the computation. In addition, for the six months ended June 30, 2005 and 2004, options to purchase 3,397,000 and 1,048,000 shares,
respectively, of Common Stock have been excluded from the computation.



The following table sets forth a reconciliation of basic and diluted shares for the three and six months ended June 30 (unaudited and in thousands except for shares):



|                                                    |  |                             |  |                          |  |        |  |       
|--------------------------------------------------- |  | --------------------------- |  | ------------------------ |  | ------ |  | ------
|                                                    |  | Three months ended June 30, |  | Six months endedJune 30,
|                                                    |  | 2005                        |  | 2004                     |  | 2005   |  | 2004  
|Denominator:                                        |  |                             |  |                          |  |        |  |       
|Denominator for basic net income (loss) per share   |  | 17,641                      |  | 18,295                   |  | 17,622 |  | 18,286
|Effect of dilutive employee stock options           |  |                            |  | 440                      |  |       |  | 442   
|                                                    |  |                             |  |                          |  |        |  |       
|Denominator for diluted net income (loss) per share |  | 17,641                      |  | 18,735                   |  | 17,622 |  | 18,728
|                                                    |  |                             |  |                          |  |        |  |       



Recent Accounting
Pronouncements



On December 16, 2004, and as amended on
April 14, 2005, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (Statement No. 123(R)), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement No. 123(R) is similar to the approach described in
Statement No. 123. However, Statement No.123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure will no
longer be an alternative.



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Under Statement No. 123(R), the Securities and Exchange Commission allows companies to implement
Statement No. 123(R) at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. The Company expects to adopt Statement No. 123(R) on January 1, 2006.



As permitted by Statement No.123, the Company currently accounts for
share-based payments to employees using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement No. 123(R)s fair value method will have
a significant impact on the Companys results of operations, although it will have no impact on the Companys overall financial position. The impact of adoption of Statement No. 123(R) cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future. However, had the Company adopted Statement No. 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement No. 123 as described in the
disclosure of pro forma net income (loss) and earnings per share in Note 2 to the Companys Condensed Consolidated Financial Statements. Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.



|3. | Other Assets
|-- | ------------



In 2004 and 2005, the Company exchanged cash totaling $1,500,000 and received secured convertible promissory notes (the Notes) for the same
amount from an early stage entity with whom the Company has a commercial relationship.



The Notes accrued interest at a rate of 15% per annum until April, 2005 and subsequently accrue interest at a rate of 12% per annum. Because of the early-stage nature of the entity, interest income from the notes is
being accounted for as interest payments are received. The Notes, together with accrued interest, are due on July 23, 2007 and are secured by the entitys assets, properties and rights.



The Notes are convertible at any time into the borrowers common stock
or preferred stock, as defined in the agreement.



|4. | Contingencies
|-- | -------------



Legal



Freedom Wireless Patent Infringement Lawsuit



In March 2000, Freedom Wireless, Inc. filed a suit against the Company and a number of its current or former carrier customers (Verizon Wireless, Cingular
Wireless LLC, AT&T Wireless Services, CMT Partners and Western Wireless Corp.). The suit was tried in the United States District Court in Massachusetts and alleged that the defendants infringe two patents held by Freedom Wireless, Inc. and
sought damages as well as injunctive relief. On May 20, 2005, a jury determined that bcgi and certain of the other defendants infringed or are infringing the two Freedom Wireless patents. The jury damages award was in the total amount of $128
million for past damages through December 31, 2004, an amount which exceeds the Companys ability to pay. Of this amount, bcgi and Cingular (which includes AT&T Wireless Services and CMT Partners) are jointly and severally liable for
$127.8 million andbcgi and Western Wireless for $200,000. Interest and damages for infringement by bcgi and Cingular from January 1, 2005 to the date of the judgment may also be awarded. Additionally, the jury found that bcgi
willfully infringed the patents and as a result, the Court may award treble damages and attorneys fees. Any enhanced damages for willfulness would be the responsibility of bcgi.The Court, however, also has discretion to reduce the
amount of the jurys damages award.bcgi intends to file a motion for remittitur to ask the Court to reduce the level of damages awarded.



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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. In 2005, Verizon Wireless, which was a defendant in the case, reached a settlement with Freedom Wireless and, as a result, was removed as a defendant in the case. The Company was not part of the
settlement discussions and the terms of the settlement are not public.



The Court has not issued a final judgment on the suit since there are still matters pending before the Court. Following the issuance of the jury verdict, a non-jury trial for inequitable conduct was held. In this case, which concluded on
July 26, 2005 and is pending before the Court, bcgi argued that the Freedom Wireless patents are unenforceable because Freedom breached its duty of candor and good faith to the Patent and Trademark Office (PTO) by knowingly withholding
material prior art from the PTO. The Court has ordered the plaintiff and defendants to file proposed findings of fact and conclusions of law with the Court no later than August 15, 2005. If the Court rules in favor of bcgi and its
co-defendants in the inequitable conduct trial, the patents held by Freedom Wireless would become unenforceable, a decision that Freedom Wireless, Inc. may choose to appeal. The Company intends to file motions for judgment as a matter of law and a
motion for a new trial or, in the alternative, as noted above, a reduction in the damages awarded by the jury. The Company expects that the Court would rule on each of these matters in addition to determining the final judgment on the case in due
course, sometime after August 15, 2005.



If the Court rules
against bcgi and the co-defendants in the non-jury trial, the Company expects to appeal the Courts decision to the Court of Appeals for the Federal Circuit. The appeal process can take 12-18 months or longer. In the event of an appeal,
the Court may require the defendants to provide collateral or post a bond. The bond could approximate 110% of the final damages amount, which, depending on the final judgment, could exceed bcgis ability to pay. If the Company is unable
to provide adequate collateral or post a sufficient bond, or an injunction is entered and not stayed, or if the Company is unable to get an adverse judgment reversed and is unable to negotiate a commercially acceptable license with Freedom Wireless
to allow bcgi to continue to provide its products and services, then it will not be possible for the Company to provide the prepaid wireless or Real-Time Billing service bureau as currently offered in the United States. In that event, the Company
may not be able to continue its ongoing operations or may need to seek protection under Chapter 11 of the U. S. Bankruptcy Code. If the plaintiff files for an injunction, the Court could rule that the Company may not use the alleged infringing
technology.



In order to mitigate the risk that bcgi
will be unable to post sufficient collateral on its own, the Company entered into an agreement with Cingular Wireless LLC, a co-defendant in the case. This agreement is subject to mutual acceptance of an escrow agent and related escrow terms. Under
the terms of this agreement, bcgi has agreed to place $41 million into escrow for the purpose of using these funds as security in the event that a bond or other security must be posted for more than $41 million. In exchange for placing the
funds into escrow, if a final judgment in the lawsuit is rendered against bcgiand its co-defendants, and the joint and several damages exceed $41 million, Cingular has agreed to post security in the form of an appeal bond or otherwise in an
amount that, when added to bcgis $41 million, is determined by the court to be adequate security to stay the execution of the judgment. Cingular has also agreed to dismiss, without prejudice, the action filed by Cingular against
bcgi in May 2005. Cingular originally filed this action in an effort to enforce Cingulars indemnity rights against bcgi as a result of the Freedom Wireless verdict. This agreement is expected to allow bcgi to proceed with
an appeal and potentially avoid exposure to bankruptcy while the appeal is pending, in the event that a final judgment against bcgi in this lawsuit is rendered for joint and several damages that exceed $41 million. Cingular is not obligated
to provide the security for the payment of any portion of the damages for which Cingular is not jointly and severally liable. The agreement does not alter bcgisobligation to indemnify Cingular.



While 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, in light of the adverse jury verdict, the Company believes it is probable that a loss contingency exists. Although the ultimate amount of such loss, if any, is not
currently known, accounting guidelines under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5) and FASB Interpretation 14, Reasonable Estimation of the Amount of a Loss (FIN



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14), specify that if a loss can be reasonably estimated, it should be recorded.Based on managements assessment of the potential outcomes of the
case and in accordance with FAS 5 and FIN 14, the Company has accrued an estimated loss of $24 million with respect to the Freedom Wireless verdict. However, the actual loss, if any, may be significantly higher or lower than the amount accrued.



Freedom Wireless Patent Infringement Lawsuits Against bcgi,
Nextel Communications and Alltel Corporation



On May 20,
2005, Freedom Wireless filed two separate lawsuits in the U.S. District Court for the District of Massachusetts, the first against bcgi and Nextel Communications, and the second against bcgi and Alltel Corporation. To date, the Company
has not been served. These lawsuits allege that bcgi and each of its named carrier customers infringe the same two patents held by Freedom Wireless, Inc. and seek damages as well as injunctive relief. The Company has an obligation to
indemnify its customers for damages they may incur with respect to any infringement by the Companys technology. The Company intends to contest the lawsuits vigorously and believes that it does not infringe these patents and believes that the
patents are invalid in light of prior art and other reasons.



Cingular Wireless LLC Indemnification Complaint



On May 23, 2005, a complaint was filed by Cingular Wireless LLC seeking judgment in indemnity against bcgi. The complaint seeks judgment for contractual indemnification against bcgi in an amount equal to Cingulars money
damages and other relief as determined by the Court in the Freedom Wireless patent infringement lawsuit. Cingular has agreed to dismiss, without prejudice, this complaint, subject to the completion of the agreement between bcgi and Cingular
to escrow $41 million of bcgis cash.



Class
Action Lawsuit



In June 2005, a putative class action
complaint was filed in the U.S. District Court for the District of Massachusetts, against the Company, the Companys Chief Executive Officer and its Chief Financial Officer on behalf of persons who purchased its common stock between November
15, 2000 and May 20, 2005. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act as well as Rule 10b-5 promulgated thereunder by allegedly failing to disclose adverse facts regarding the Freedom Wireless,
Inc. lawsuit, including that the Company had willfully infringed the Freedom Wireless patents. Within ten days of the appointment of a lead counsel and a lead plaintiff in this case, the parties will submit for the Courts consideration a
proposed schedule for this case, including defendants time to respond to the complaint by motion to dismiss or otherwise. The Company intends to contest the lawsuit vigorously and believes that it and the two executive officers named as
defendants have meritorious defenses to the allegations set forth in the lawsuit.



Indemnification Complaint



On April 28, 2005, a complaint by Aerotel Corporation was filed against Verizon alleging infringement by Verizon Communications, Verizon Wireless and others of a patent on prepaid technology. Verizon has notified the Company that it may be
asked to indemnify them in this case under the Companys Prepaid Wireless Services Agreement for that portion of any liability specific to Verizon Wireless prepaid offered through the use of bcgis service. The complaint does not
specify damages as it relates to Verizon Wireless prepaid. A subpoena for documents and deposition testimony has been served on the Company. The lawsuit is currently in the discovery phase and at this time it is not possible to determine the
potential cause of outcome of this indemnification claim.



Other



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 these 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.



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



With respect to customer agreements, these provisions generally obligate the Company to indemnify the customer against losses, expenses, liabilities and damages that may be awarded against the customer in the event the Companys
systems or services infringe upon a patent or other intellectual property right of a third party. The agreements generally limit the scope of and remedies for such indemnification obligations in certain respects, including but not limited to
geographical limitations and the right to replace or modify an infringing product or service. Certain of the Companys carrier customers are currently seeking to require the Company to indemnify them for losses incurred, or that may be
incurred, in connection with the Freedom Wireless and Aerotel litigation.



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.



|5. | Segment Reporting and Discontinued Operations
|-- | ---------------------------------------------



FAS No. 131, Disclosures about Segments of an Enterprise and Related Information established standards for reporting information about
operating segments in annual financial statements and requires selected information about operating segments in interim financial statements. It also established standards for related disclosures about products and services and geographic areas.
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. The Companys chief operating decision-maker is the Chief Operating Officer. Historically, the Companys reportable operating segments consisted of Billing and Transaction Processing Services, Roaming Services
and Prepaid Systems. The Companys Billing and Transaction Processing Services solutions allowed wireless carriers to access the Companys managed services network and transaction processing platform, enabling such carriers to offer
prepaid wireless calling, replenishment capabilities and postpaid billing and customer care to their subscribers. The Roaming Services solution provided wireless carriers the ability to generate revenues from subscribers who are not covered under
traditional roaming agreements by arranging payment for roaming calls. The Prepaid Systems solution assembled and marketed prepaid systems to international wireless operators. Beginning in 2004, Prepaid Systems was no longer reported as a separate
segment, as it was deemed to be not material, representing less than 10% of consolidated revenues, total assets and operations for all periods presented.



In March 2004, the Company ceased providing its ROAMERplus solution, 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 consolidated financial statements reflect this as a discontinued operation. Revenues for the Roaming Services
segment were $563,000 for the three months ended March 31, 2004.



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In the second quarter of 2005, the Company realigned its operating units to consist of bcgi
Payment, bcgiAccess Management, Real-Time Billing and Voyager Billing. A general manager has been assigned to manage each of these businesses which are classified as operating units. Revenue for each business is recorded and tracked
separately. The Company is currently in the process of determining direct and indirect cost allocations to these businesses and, as such, does not currently possess operating financial results in accordance with the disclosures required by SFAS 131.
The Company anticipates that sufficient reliable and consistent information will be available later in 2005. Until such information is available, the Company cannot disclose the information required by FAS No. 131. Revenues for the Companys
operating units are as follows (unaudited and in thousands):



|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|----------------- |  | --------------------------- | ------ | ------------------ | ---- | - | ----- | - | ------------------ |  | --- | -
|                  |  | Three months ended June 30, |       
|                  |  | 2005                        |        |                    | 2004 |  
|                  |  | Total                       |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Real-Time Billing |  | $                           | 23,348 |                    | 91   | % |       | $ | 25,667             |  | 93  | %
|Other             |  |                             | 2,267  |                    | 9    | % |       |   | 1,983              |  | 7   | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|Total revenues    |  | $                           | 25,615 |                    | 100  | % |       | $ | 27,650             |  | 100 | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|                  | 
|                  |  | Six months ended June 30,   |       
|                  |  | 2005                        |        |                    | 2004 |  
|                  |  | Total                       |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Real-Time Billing |  | $                           | 47,573 |                    | 92   | % |       | $ | 51,070             |  | 93  | %
|Other             |  |                             | 4,394  |                    | 8    | % |       |   | 3,825              |  | 7   | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|Total revenues    |  | $                           | 51,967 |                    | 100  | % |       | $ | 54,895             |  | 100 | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  



|6. | Retirement Plans
|-- | ----------------



The Company offers a defined benefit retirement plan (the Plan) for certain executives. Contributions are based on periodic actuarial
valuations and are charged to the Condensed Consolidated Statements 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 six months ended June 30, 2005 and 2004 are as follows (unaudited and in thousands):



|                                                    |  |                            |     |                          |   |      |  |      |     |  |   |    
|--------------------------------------------------- |  | -------------------------- | --- | ------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                    |  | Three months endedJune 30, |     | Six months endedJune 30,
|                                                    |  | 2005                       |     | 2004                     |   | 2005 |  | 2004
|Components of net periodic benefit costs            |  |                            |     |                          |   |      |  |      |     |  |   |    
|Service cost                                        |  | $                          | 128 |                          | $ | 144  |  | $    | 256 |  | $ | 253
|Interest cost                                       |  |                            | 72  |                          |   | 76   |  |      | 144 |  |   | 132
|Amortization of unrecognized net prior service cost |  |                            | 45  |                          |   | 41   |  |      | 90  |  |   | 76 
|                                                    |  |                            |     |                          |   |      |  |      |     |  |   |    
|Net periodic benefit costs                          |  | $                          | 245 |                          | $ | 261  |  | $    | 490 |  | $ | 461
|                                                    |  |                            |     |                          |   |      |  |      |     |  |   |    





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##### Table of Contents

|7. | Acquisition
|-- | -----------



In June 2005, the Company acquired the assets and certain liabilities of PureSight, Inc. and its Israeli subsidiary, PureSight LTD. (PureSight), a
provider of advanced content recognition solutions for mobile operators, ISPs and enterprises. The Company paid $6.7 million in cash for PureSight, including acquisition costs. Management determined the fair value of the assets and certain
liabilities acquired by considering the anticipated cash flows to be generated from the existing products, the valuation of customer contracts and relationships and non-compete agreements, the estimated life of the technology acquired and other
factors. Identifiable intangible assets of $1.7 million consist of acquired technology, customer contracts and relationships, trademarks and non-compete agreements and are being amortized over four to seven years. The results of operations of
PureSight are included in the Companys Condensed Consolidated Statement of Operations from the date of acquisition. The Company expects the acquisition to be slightly dilutive in the near-term.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Certain Factors That May Affect Future Results



Overview



We develop products and services that enable wireless operators to fully realize the potential of their networks. Our access management, billing, payment and network
solutions help operators rapidly deploy and manage innovative voice and data services for subscribers. Available as licensed products and fully managed services, our solutions power wireless operators and enable mobile virtual network operators
(MVNOs) with market-leading implementations of prepaid wireless, postpaid billing, wireless account funding and m-commerce. We provide our fully managed services and licensed products domestically to U.S. wireless operators.
Internationally, we offer our products to wireless operators on a licensed basis. We sell our products and services to our wireless operator customers through our direct sales force in the United States and through both direct and indirect channels
internationally.



We generate revenues from our Real-Time Billing product as a
managed service principally by processing prepaid wireless minutes or as a percentage of wireless customer revenue. Real-Time Billing services revenues are recorded net of outage penalties that we may incur based on contracted service level
agreements with the wireless operators. We also generate revenues from other transactions processed, including Push to Talk, Short Message Service (SMS) and other data services. Additionally, whether deployed on a managed service basis or licensed
basis, we generate revenues from software licensing, implementations and special development services. These revenues are typically recognized over the term of the contract for managed services customers and at the time of shipment for licensed
sales.



Our Voyager Billing revenues are earned by generating a
subscribers monthly bill.



While there have been no bcgiAccess
Management revenues related to our Mobile Guardian products to date, we expect that we will generate revenues from these products by charging wireless operators on a per subscriber per month basis, or on a one-time subscriber license basis.



For bcgiPayment, we typically generate revenues by charging wireless
operators a transaction fee for the services performed and paying the financial partners a fee for enabling the transaction. This technology can also be purchased on a licensed basis.



Our net revenues decreased 7% to $25.6 million in the second quarter of 2005 compared to $27.7 million in the second quarter of 2004 and
decreased 5% to $52.0 million for the six months ended June 30, 2005 compared to $54.9 million for the six months ended June 30, 2004. Principally as a result of the $24.0 million estimated loss from the Freedom Wireless lawsuit recorded in the
three months ended June 30, 2005, our net loss was $17.9 million in the second quarter of 2005 compared to $5.0 million in net income in the second quarter of 2004 and the $16.2 million net loss for the six months ended June 30, 2005 compared to
$9.1 million in net income for the six months ended June 30, 2004.



On May 20,
2005, a jury in the Freedom Wireless patent infringement lawsuit issued a verdict of $128 million against us and the other co-defendants, including Cingular Wireless LLC, for past damages through December 31, 2004, an amount which exceeds our
ability to pay. Based on managements assessment of the potential outcomes of the case and in accordance with FAS 5 and FIN 14, we have accrued an estimated loss of $24 million with respect to the Freedom Wireless verdict, excluding additional
legal charges which are expensed as incurred. However, the actual loss, if any, may be significantly higher or lower than the amount accrued.



The non-jury trial on inequitable conduct concluded on July 26, 2005 and the Court has ordered the plaintiff and defendants to file proposed findings of fact and
conclusions of law with the Court on August 15, 2005. We intend to file motions for judgment as a matter of law and a motion for a new trial or, in the alternative, a reduction in the damages awarded by the jury. bcgiexpects that the Court
will rule on each of these matters in addition to determining the final judgment on the case in due course, sometime after August 15, 2005. The potential outcomes



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vary greatly and could include any of the following:



| |  |  | If the Court rules in favor of bcgi and our co-defendants in the non-jury trial, the patents held by Freedom Wireless would become unenforceable, a decision that Freedom
Wireless may choose to appeal.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the Court rules against bcgi and the co-defendants in the non-jury trial, the Court could reduce the amount of the $128 million jury verdict based on our expected motion
for a reduction in the damages. However, the Court could also award interest and damages for infringement by bcgi and Cingular from January 1, 2005 to the date of the judgment. Additionally, the jury found that bcgiwillfully infringed
the patents and as a result, the Court may award treble damages and attorneys fees. Any enhanced damages for willfulness would be the responsibility of bcgi. The Court could also enter an injunction against use of the allegedly
infringing technology. The entry of such an injunction could substantially impair bcgis ability to continue to provide our prepaid wireless or Real-Time Billing service bureau as currently offered in the United States.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the Court rules against bcgi and the co-defendants in the non-jury trial, we expect to appeal the Courts decision to the Court of Appeals for the Federal Circuit.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the Court rules against bcgi and the co-defendants in the non-jury trial, the Court may require us to provide collateral or post a bond to stay execution of the
Courts judgment and any injunction that the Court may enter, pending resolution of the appeal. The bond required to stay execution of the money judgment is ordinarily 110% of the final damages, unless otherwise ordered by the Court. Depending
on the amount of the final damages, this could exceed bcgis ability to pay. If we are unable to provide adequate collateral or post a sufficient bond, or an injunction is entered and not stayed, or if bcgi is unable to get an
adverse judgment reversed and is unable to negotiate a commercially acceptable license with Freedom Wireless to allow bcgi to continue to provide our products and services, then it will not be possible for us to provide the prepaid wireless or
Real-Time Billing service as currently offered in the United States. In that event, we may not be able to continue our ongoing operations or may need to seek protections under Chapter 11 of the U.S. Bankruptcy Code.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On July 27, 2005, in order to mitigate the risk that bcgiwill be unable to post sufficient collateral on our own, we entered into a Funding of Security for Appeal Agreement
with Cingular Wireless LLC, a co-defendant in the case. This agreement is subject to mutual acceptance of an escrow agent and related escrow terms. Under the terms of this agreement, we have agreed to place $41 million into escrow for the purpose of
using these funds as security in the event that a bond or other security must be posted for more than $41 million. In exchange for placing the funds into escrow, if a final judgment in the lawsuit is rendered against us and our co-defendants, and
the joint and several damages exceed $41 million, Cingular has agreed to post security in the form of an appeal bond or otherwise in an amount that, when added to our $41 million, is determined by the Court to be adequate security to stay the
execution of the judgment. Cingular has also agreed to dismiss, without prejudice, the action filed by Cingular against us in May 2005. Cingular originally filed this action in an effort to enforce Cingulars indemnity rights against us as a
result of the Freedom Wireless verdict. The agreement is expected to allow us to proceed with an appeal and potentially avoid exposure to bankruptcy while the appeal is pending in the event that a final judgment against us in this lawsuit is
rendered for joint and several damages that exceed $41 million. Cingular is not obligated to provide the security for the payment of any portion of the damages for which Cingular is not jointly and severally liable. The agreement does not alter
bcgisobligation to indemnify Cingular.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The parties may enter into a settlement agreement. However, to date, the parties have not been able to reach a settlement, even through court-ordered mediation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Either the plaintiff or the defendants can file for appeal
within 30 days of the final judgment. The appeal process can take 12-18 months, or longer.



In 2004, Verizon Wireless began to use its own internal prepaid billing platform, and began adding new subscribers and converting existing subscribers from our Real-Time Billing solution to its platform. Conversions
have been ongoing and are expected to continue into early 2006. Additionally, while our Cingular Wireless contract expires in the first half of 2006, Cingular Wireless has substantially reduced its sales efforts for its TDMA prepaid offering, which
is the only prepaid offering that bcgi supports for Cingular Wireless. Thus, we anticipate that we will continue to have fewer gross additions from Cingular Wireless and that all of its current subscribers will stop being hosted on our
Real-Time Billing platform over time.



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We anticipate that earnings per share for the third quarter of 2005 will approximate break-even to a $0.04 loss per
share, including approximately $3.0 to $4.0 million of legal costs, primarily associated with the Freedom Wireless lawsuit. We have not provided guidance for the remainder of 2005 since we cannot anticipate the rate and timing of Verizon
Wireless and Cingular Wireless subscriber departures from our Real-Time Billing platform and therefore, the corresponding rate of revenue decline. In addition, Verizon Wireless may terminate our existing prepaid wireless services
agreement upon 90 days written notice. We plan to continue to focus on our customer and product diversification strategy that includes investment in all of our new and existing products that we are marketing on a global basis. Based on these factors
and other trends, we are estimating that revenues will range from $23.0 to $25.0 million for the third quarter of 2005.



Segment Data

(unaudited and in thousands)



|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|----------------- |  | --------------------------- | ------ | ------------------ | ---- | - | ----- | - | ------------------ |  | --- | -
|                  |  | Three months ended June 30, |       
|                  |  | 2005                        |        |                    | 2004 |  
|                  |  | Total                       |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Real-Time Billing |  | $                           | 23,348 |                    | 91   | % |       | $ | 25,667             |  | 93  | %
|Other             |  |                             | 2,267  |                    | 9    | % |       |   | 1,983              |  | 7   | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|Total revenue     |  | $                           | 25,615 |                    | 100  | % |       | $ | 27,650             |  | 100 | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|                  |  | Six months ended June
30,   |       
|                  |  | 2005                        |        |                    | 2004 |  
|                  |  | Total                       |        | % of TotalRevenues |      |   | Total |   | % of TotalRevenues | 
|Real-Time Billing |  | $                           | 47,573 |                    | 92   | % |       | $ | 51,070             |  | 93  | %
|Other             |  |                             | 4,394  |                    | 8    | % |       |   | 3,825              |  | 7   | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  
|Total revenue     |  | $                           | 51,967 |                    | 100  | % |       | $ | 54,895             |  | 100 | %
|                  |  |                             |        |                    |      |   |       |   |                    |  |     |  



Revenues



Real-Time Billing



Our net revenues from Real-Time Billing decreased by 9% in the second quarter of 2005 compared to the second quarter of 2004. The decrease
in revenues was due primarily to our prepaid subscriber base decreasing by 240,000, bringing our subscribers to 3.8 million at June 30, 2005, along with a decrease in our average billed rate per minute. The decrease in our prepaid subscriber base is
due primarily to the number of subscriber losses from Verizon Wireless and Cingular Wireless exceeding the number of subscriber additions from Nextel Communications and other customers. The Real-Time Billing average billed rate per minute declined
by approximately 14% for the quarter ended June 30, 2005 compared to the same quarter in the previous year. The decline in the average billed rate per minute is due primarily to lower contractual rates and volume discounts for customers who signed
contracts recently and who represent a larger percentage of total Real-Time Billing revenue. Average billed minutes of use per subscriber per month were 116 minutes for the quarter ended June 30, 2005, which was consistent with the same period in
2004.



Our net revenues from Real-Time Billing decreased by 7% in the six month
period ended June 30, 2005 compared to the same period in 2004. The decrease in revenues was due primarily to our average prepaid subscriber base decreasing by 176,000, bringing our average subscribers to 3.8 million for the six month period ended
June 30, 2005, and to the decrease in the average billed rate per minute. The decrease in our average prepaid subscriber base is due primarily to subscriber losses from Verizon Wireless and Cingular Wireless exceeding the number of subscriber
additions from Nextel Communications and other customers. The Real-Time Billing average billed rate per minute declined by approximately 16% for the six months ended June 30, 2005 compared to the same six month



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##### Table of Contents

period in the previous year. The decline in the average billed rate per minute is due primarily to lower contractual
rates for customers who signed contracts more recently and who represent a larger percentage of total Real-Time Billing revenue.



In future quarters, we expect our prepaid subscriber base to further decrease, as we anticipate that Verizon Wireless conversions and subscriber churn from Cingular
Wireless will exceed subscriber growth from other customers.



Other revenues



Other revenues are generated from our other three operating units,
bcgi Payment, bcgi Access Management and Voyager Billing. Our net revenues from these operating units increased by 14% and 15% in the second quarter and first six months of 2005 compared to the same periods in 2004. The increase in
revenues for both the three and six month periods ended June 30, 2005 was due primarily to our efforts to diversify our revenues with new products and customers.



Nextel Communications, Verizon Wireless and Cingular Wireless accounted for 37%, 22% and 16% of total revenues, respectively, in the second
quarter of 2005. In addition, Nextel Communications, Verizon Wireless and Cingular Wireless accounted for 33%, 25% and 18% of total revenues, respectively, in the six month period ended June 30, 2005.



Cost of total revenues



Cost of total revenues primarily include the salaries and benefits of personnel who support our managed services network and our licensed
product offerings, along with costs for maintenance, telecommunications, travel, facilities and other support costs. Cost of total revenue increased to 27% of total revenue in the second quarter of 2005 from 23% in the second quarter of 2004. Cost
of total revenue increased to 26% of total revenue in the six months ended June 30, 2005 from 23% in the same six month period in 2004. The increase in absolute dollars of cost of total revenue in both the three and six month periods resulted
primarily from additional personnel and wages to support our investments in professional services and global licensing.



Operating Data



(unaudited and in thousands)



|                                      |  |                             |        |                    |      |       |   |                    |  |     |   |  | 
|------------------------------------- |  | --------------------------- | ------ | ------------------ | ---- | ----- | - | ------------------ |  | --- | - |  | 
|                                      |  | Three months ended June 30, |       
|                                      |  | 2005                        |        | 2004               |     
|                                      |  | Total                       |        | % of TotalRevenues |      | Total |   | % of TotalRevenues | 
|Total revenues                        |  | $                           | 25,615 |                    | 100% |       | $ | 27,650             |  | 100 | %
|Engineering, research and development |  |                             | 4,306  |                    | 17%  |       |   | 3,497              |  | 13  | %
|Sales and marketing                   |  |                             | 2,313  |                    | 9%   |       |   | 1,667              |  | 6   | %
|General and administrative            |  |                             | 2,621  |                    | 10%  |       |   | 2,125              |  | 8   | %
|General and administrative  legal    |  |                             | 4,319  |                    | 17%  |       |   | 450                |  | 2   | %
|Estimated loss from litigation        |  |                             | 24,000 |                    | 94%  |       |   |                   |  |    |  
|Depreciation and amortization         |  |                             | 5,204  |                    | 20%  |       |   | 5,490              |  | 20  | %
|                                      |  | Six months ended June
30,   |       
|                                      |  | 2005                        |        | 2004               |     
|                                      |  | Total                       |        | % of TotalRevenues |      | Total |   | % of TotalRevenues | 
|Total revenues                        |  | $                           | 51,967 |                    | 100% |       | $ | 54,895             |  | 100 | %
|Engineering, research and development |  |                             | 9,061  |                    | 17%  |       |   | 7,293              |  | 13  | %
|Sales and marketing                   |  |                             | 4,789  |                    | 9%   |       |   | 3,539              |  | 6   | %
|General and administrative            |  |                             | 5,150  |                    | 10%  |       |   | 4,211              |  | 8   | %
|General and administrative  legal    |  |                             | 6,529  |                    | 13%  |       |   | 1,600              |  | 3   | %
|Estimated loss from litigation        |  |                             | 24,000 |                    | 46%  |       |   |                   |  |    |  
|Depreciation and amortization         |  |                             | 10,758 |                    | 21%  |       |   | 10,959             |  | 20  | %



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##### Table of Contents

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 existing and new software. The increase in engineering, research and development expenses for the three month period ended June 30, 2005 compared to the same quarter in
2004 resulted primarily from additional personnel, wages and related costs of approximately $600,000 principally to support the development of bcgi Access Management and bcgi Payment, along with the enhancement of the features and
functionality of our other products.



The increase in engineering, research and
development expenses for the six month period ended June 30, 2005 compared to the same period in 2004 primarily resulted from additional personnel, wages and related costs of approximately $1.5 million principally to support the development of
bcgi Access Management and bcgi Payment, along with the enhancement of the features and functionality of our other products. Engineering, research and development expenses in absolute dollars are expected to increase in the third
quarter of 2005 compared with $4.3 million in the second quarter of 2005 primarily due to a full quarter of expense for the additional personnel from our June 2005 asset acquisition of PureSight, Inc. and PureSight Ltd.



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. Sales and marketing expenses increased in the three month period ended June 30, 2005 compared to the same period in
2004 primarily due to $575,000 in additional expense related to the expansion of our international sales focus.



Sales and marketing expenses increased in the six month period ended June 30, 2005 compared to the same period in 2004 principally due to $1.1 million in additional
expense related to our international focus, including additional personnel for our international sales team and attendance at a major worldwide tradeshow. Sales and marketing expenses in absolute dollars are expected to increase in the third quarter
of 2005 compared with $2.3 million in the second quarter of 2005 as we continue to strengthen our international presence by adding resources to augment our international sales efforts.



General and administrative expenses



General and administrative expenses include salaries and benefits of employees and other expenses that provide our administrative support. General and administrative
expenses increased for the three month period ended June 30, 2005 compared to the same period in 2004, principally due to higher legal costs of approximating $250,000 and expanded regulatory requirements and related costs for public companies
totaling approximately $110,000.



The increase in general and administrative
expenses for the six month period ended June 30, 2005 compared to the same period in 2004 was due to additional wages of approximately $300,000 to support our diversification strategy, higher costs associated with outside legal support of
approximately $275,000 and expanded regulatory requirements and related costs for public companies totaling approximately $200,000. General and administrative expenses in absolute dollars are expected to remain consistent in the third quarter of
2005 compared with $2.6 million in the second quarter of 2005.



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##### Table of Contents

General and administrative expenses  legal charges



General and administrative legal expenses primarily represent legal expenses to defend the
patent infringement suit initiated by Freedom Wireless. The increase in expense for both the three and six month periods ended June 30, 2005 compared to the respective year-earlier periods was due to higher costs associated with the commencement of
the trial on February 28, 2005. We expect to incur approximately $3.0 to $4.0 million in legal expenses in the third quarter of 2005.



Estimated loss from litigation



On May 20, 2005, a jury determined that bcgi and certain of our current or former carrier customer defendants (Cingular Wireless LLC, AT&T Wireless Services,
CMT Partners and Western Wireless Corp.) infringed or are infringing two Freedom Wireless patents. The jury damages award was in the total amount of $128 million for past damages through December 31, 2004, an amount which exceeds bcgis
ability to pay. bcgiand each carrier are jointly and severally liable for specific amounts. While we do not believe that we infringe these patents and believe that the patents are invalid in light of prior art and other reasons, in light of
the adverse jury verdict, we believe it is probable that a loss contingency exists. Although the ultimate amount of such loss, if any, is not currently known, accounting guidelines under Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies (FAS 5) and FASB Interpretation 14 Reasonable Estimation of the Amount of a Loss (FIN 14), specify that if a loss can be reasonably estimated, it should be recorded. Based on managements assessment of
the potential outcomes of the case and in accordance with FAS 5 and FIN 14, we have accrued an estimated loss of $24 million with respect to the Freedom Wireless verdict, excluding additional legal charges which are expensed as incurred. However,
the actual loss, if any, may be significantly higher or lower than the amount accrued.



Depreciation and amortization expense



Depreciation and
amortization expense includes depreciation of telecommunications systems and software, building, furniture and equipment and leasehold improvements. We provide for depreciation using the straight-line method over the estimated useful lives of the
assets, which range from three to twenty years. The decrease in depreciation and amortization expense in absolute dollars for both the three and six month periods ended June 30, 2005 compared to the same period in 2004 was primarily due to certain
capital equipment that became fully depreciated in the first half of 2005.



Interest income



Interest income increased to $408,000 for the
three month period ended June 30, 2005 compared to $251,000 for the three month period ended June 30, 2004 and increased to $808,000 for the six month period ended June 30, 2005 from $563,000 for the six month period ended June 30, 2004. Interest
income was earned primarily from investments, which were purchased using the cash generated from operations, from the sale of our teleservices business in 2000 and from the proceeds from our public offerings. Although our combined cash and
investment positions decreased as of June 30, 2005, higher average interest rates during the periods resulted in increased levels of interest income compared to the previous year. If we ultimately incur a loss on the Freedom Wireless litigation or
pledge a substantial portion of our cash to collateralize an appeal bond, this may substantially reduce our cash and investment balances and therefore reduce future interest income.



Provision for income taxes



The income tax benefit for the six months ended June 30, 2005 was $4.8 million, compared to an income tax provision or $5.9 million (39.5% effective tax rate) for the six
months ended June 30, 2004. The benefit recorded in the current year reflected our assessment of our ability to realize the tax benefit from the ultimate loss, if any, from the Freedom Wireless litigation.



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##### Table of Contents

Acquisitions



In June 2005, we acquired the assets and certain liabilities of PureSight, Inc. and its Israeli subsidiary, PureSight Ltd. (PureSight), a provider of advanced content
recognition solutions for mobile operators, ISPs and enterprises. We paid $6.7 million in cash for PureSight, including acquisition costs. Management determined the fair value of the assets and certain liabilities acquired by considering the
anticipated cash flows to be generated from the existing products, the valuation of customer contracts and relationships and non-compete agreements, the estimated life of the technology acquired and other factors. Identifiable intangible assets of
$1.7 million consist of acquired technology, customer contracts and relationships, trademarks and non-compete agreements and are being amortized over four to seven years. The results of operations of PureSight are included in our Condensed
Consolidated Statement of Operations from the date of acquisition.



Discontinued Operations



In March 2004, we ceased providing
our ROAMERplus solution, effectively discontinuing our Roaming Services segment. This business generated a net loss of $11,000 for the six months ended June 30, 2004.



Liquidity and Capital Resources



As of June 30, 2005, cash, cash equivalents and short-term investments decreased 20% to $62.1 million compared to $77.8 million at December 31, 2004, primarily due to
investing activities. The net cash provided by operations of $2.5 million in the six months ended June 30, 2005 resulted from a $16.2 million net loss, along with adjustments for depreciation and amortization of $10.8 million, increased receivables
of $4.7 million caused by an increase in our days sales outstanding from 63 as of December 31, 2004 to 81 at June 30, 2005 (principally due to a $3.0 million payment that was received in early July 2005) and an increase in accounts payable, accrued
expense, deferred revenue and income taxes payable of $18.7 million. The increase in accounts payable, accrued expenses, deferred revenue and income taxes payable is a result of the $24.0 million estimated loss contingency recorded in the Freedom
Wireless patent infringement lawsuit, partially offset by decreases in income tax, bonus and equipment accruals as of December 31, 2004 that were subsequently paid.



Our investing activities utilized $10.4 million of net cash for the six months ended June 30, 2005. We spent approximately $9.4 million for
the purchase of telecommunication equipment and software to enhance our managed services platform as well as further develop our licensed products. Internally capitalized costs were $1.8 million for the six month period ended June 30, 2005 and were
$1.9 million for the same period in 2004. In addition, we acquired a business for approximately $6.7 million and contributed $1.5 million to fund our defined benefit plan, a contribution which we intend to make every year in our second quarter. We
expect to continue our investment in new and existing products, resulting in capital expenditures of approximately $5.0 to $7.0 million for the third quarter of 2005.



Our financing activities provided cash of $375,000 for the six months ended June 30, 2005 primarily from proceeds from the exercise of stock
options and the issuance of common stock under the Employee Stock Purchase Plan.



On July 27, 2005, we entered into an agreement with Cingular and have agreed to place $41 million of cash into escrow which will be restricted cash in that it would be intended to be used to post a bond or other security to stay the
execution of judgment, in the event that the Freedom Wireless lawsuit contains joint and several liability of more than $41 million. This agreement is subject to mutual acceptance of an escrow agent and related escrow terms.



Subject to the outcome of the Freedom Wireless litigation, we believe that our cash, cash
equivalents and short-term investments will be sufficient to finance our operations for at least the next twelve months and for the foreseeable future thereafter. Any amount of adverse final judgment in the Freedom Wireless litigation would likely
(when paid) adversely impact our liquidity and capital resources. In addition, our liquidity and capital resources would be adversely impacted if we are required to post a bond in excess of our existing assets which could be securitized in



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order to obtain a bond. This bond could include any liability specific to bcgionly, including willful
infringement. If a bond is required to be posted by bcgi which is in excess of our means, we may need to seek protection under Chapter 11 of the U.S. Bankruptcy Code.



We have non-cancelable commitments for equipment, operating lease commitments for office space, many of which are renewable at our option,
as well as various other commitments for telecommunications services. We include in our commitments those agreements under which we are contractually obligated and agreements that are cancelable, but which we do not anticipate canceling. The
following table summarizes our contractual obligations as of June 30, 2005 (in thousands):



|                         |  |       |       |                       |   |           |  |           |       |                  |   |    |  |   |  
|------------------------ |  | ----- | ----- | --------------------- | - | --------- |  | --------- | ----- | ---------------- | - | -- |  | - | -
|                         |  |       |       | Payment due by period
|                         |  | Total |       | within1 year          |   | 2-3 years |  | 4-5 years |       | More than5 years
|Contractual Obligations: |  |       |       |                       |   |           |  |           |       |                  |   |    |  |   |  
|Operating leases         |  | $     | 2,148 |                       | $ | 1,548     |  | $         | 569   |                  | $ | 31 |  | $ | 
|Purchase commitments     |  |       | 7,726 |                       |   | 6,200     |  |           | 1,498 |                  |   | 28 |  |   | 
|                         |  |       |       |                       |   |           |  |           |       |                  |   |    |  |   |  
|Total                    |  | $     | 9,874 |                       | $ | 7,748     |  | $         | 2,067 |                  | $ | 59 |  | $ | 
|                         |  |       |       |                       |   |           |  |           |       |                  |   |    |  |   |  



Off-Balance Sheet Arrangements



During the second quarter of 2005, 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



The discussion and analysis of our financial condition and results of operations is based
upon our 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, 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 consolidated financial statements:



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



| |  |  | Estimated loss from litigation and legal costs
| | - |  | ----------------------------------------------



| |  |  | Research and development and software development costs
| | - |  | -------------------------------------------------------



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



| |  |  | Accounting for income taxes
| | - |  | ---------------------------



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Revenue Recognition and Allowance for Bad Debts



Our revenue recognition policy is critical because revenue is a key component affecting our
operations. In addition, revenue recognition determines the timing of certain expenses, such as commissions and bonuses, although historically expenses that are contingent on revenue recognition are not material. We follow very specific and detailed
guidelines in recognizing revenue; however, certain judgments relating to the elements required for revenue recognition affect the application of our revenue policy. Revenue results are difficult to predict and any shortfall in revenue, changes in
judgments concerning recognition of revenue, changes in uncollectible or bad debt estimates, changes in mix, amount of international sales or delays in recognizing revenue, could cause operating results to vary significantly from quarter to quarter.



We recognize our revenues in accordance with 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. We earn revenues in various ways, depending on
the type of transaction. For our managed services business, we earn revenues in the following ways:



| |  |  | For Real-Time Billing, we earn revenues principally by processing prepaid wireless minutes or as a percentage of wireless customer revenue, net of any penalties incurred related to
outages on our platform.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For Voyager Billing, we earn revenues by generating a postpaid subscribers monthly bill.
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | For PayExtend, we earn revenues by processing transactions on behalf of wireless operators subscribers.
| | - |  | --------------------------------------------------------------------------------------------------------



Each of these revenues is recognized when the service is provided. For license fees, special
projects and implementation services related to our managed services business, revenues are typically recognized ratably over the remaining life of the contract with the wireless operator.



For our licensed systems sales, we typically recognize revenue from the sale of systems at
the time the systems are shipped or delivered to the customer, depending on shipping terms. In the event there are acceptance terms, we defer revenue until acceptance has occurred. In addition, certain software is licensed to distributors, who pay
licensing fees to us as they sell the software to their customers and this revenue is recognized in the month in which it is earned.



For multiple element arrangements, we determine the fair value of each element based on our specific objective evidence for that element and allocate total revenue from
these arrangements to each element based on its fair value. Installation revenue is deferred until the installation is complete. Revenues from maintenance and support and other services are based on vendor-specific objective evidence of fair value
and recognized ratably over the term of the maintenance and support contract period or when the services are performed. Vendor-specific objective evidence of fair value for maintenance and support is based upon the amount charged when the service is
sold separately, which is typically the contracts renewal rate. Vendor-specific objective evidence of fair value for installation and other services is based upon standard pre-established rates.



In addition to recording revenues net of any penalties incurred related to outages on our
managed services platform and estimated amounts that may be disputed, we evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customers inability to meet
their financial obligations (e.g. bankruptcy filings, substantial downgrading of credit scores), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be
collected. In addition, we record reserves based on the length of time the receivables are past due and on historical experience. If circumstances change (e.g., higher than expected defaults or an unexpected material adverse change in a major
customers ability to meet their financial obligations), estimates of amounts recoverable could be adversely affected. We believe that our allowance for billing adjustments and doubtful accounts fairly represents the potential amount of bad
debt we could incur.



Estimated Loss from Litigation and Legal Costs



We accrue for loss contingencies in accordance with Statement of
Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5) and FASB Interpretation 14 Reasonable Estimation of the Amount of a Loss (FIN 14), which specifies that if a loss is probable and can be reasonably estimated,
it should be recorded.



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Furthermore, when some amount within the range appears at the time to be a better estimate than any other amount within
the range, that amount shall be accrued.When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued. There can be no assurance as to whether the actual loss will be
higher or lower than the amount which is accrued.



We accrue the costs of
settlements, damages and, under certain conditions, costs of defense when such costs are probable and estimable; otherwise, such costs are expensed as incurred. As discussed in Note 4 to the Condensed Consolidated Financial Statements, we are
expensing legal costs related to the Freedom Wireless lawsuit as incurred due to the lengthy and unpredictable proceedings which had made it difficult to reasonably estimate legal costs for the lawsuit.



Research and Development and Software Development Costs



Research and development costs are charged to expense as incurred. However, costs incurred
for the development of computer software or deployment of assets for internal use is 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, anticipated future undiscounted
net cash flows and changes in hardware and software technologies.



Internally
capitalized costs increased to $1.2 million for the three month period ended June 30, 2005 compared to $1.1 million for the three month period ended June 30, 2004 and decreased to $1.8 million for the six month period ended June 30, 2005 from $1.9
million for the same period in 2004. Amortization of capitalized software development costs begins when the solution is made available for general release and amortization of internal use costs begins when the related asset is first placed into
service. These costs are amortized on a straight-line basis over a three-year period.



Impairment of Long-Lived and Intangible Assets and Goodwill



We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which result in an
impairment review include the following:



| |  |  | Significant underperformance relative to expected historical or projected future operating results;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Significant negative industry or economic trends.
| | - |  | -------------------------------------------------



When indicators of impairment exist and the carrying value of intangibles and long-lived assets, other than goodwill, may not be recoverable, we compare the projected
undiscounted cash flows from these assets, which are determined considering a number of factors including past operating results, budgets, economic projections, market trends and solution development cycles, to their carrying value. If the carrying
value of the long-lived asset exceeds the estimated undiscounted cash flows, the asset is considered impaired and the carrying value is then compared to the assets fair value. If the carrying value exceeds the fair value, an impairment loss
equal to the excess is recorded immediately in the Statement of Operations. Fair value is determined by either a quoted market price or use of a present value technique, which requires judgments to be made by management regarding estimating future
cash flows, economic life and discount rates, among other assumptions. Different assumptions could yield materially different results.



We account for goodwill in accordance with FAS 142 Goodwill and Other Intangible Assets. Under FAS 142, goodwill is not amortized but is subject to annual
impairment tests. We evaluate goodwill for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested for impairment by comparing the fair
value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that
excess.



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In October 2002, we acquired the assets and certain liabilities of Infotech Solutions Corporation (ISC) and
determined the fair value of the assets acquired and liabilities assumed. The principal asset acquired was completed technology of $1.0 million related to billing software solutions for the wireless marketplace as well as customer contracts of
$200,000. We may be required to pay additional contingent cash consideration based on ISC attaining certain defined annual revenue targets in 2005, which will be accounted for as additional goodwill. At June 30, 2005, we recorded an estimated
contingent cash consideration liability for 2005 of $380,000.



In November
2004, we acquired the assets of Airada Networks, Inc. and Airada Networks Private Limited (Airada) and determined the fair value of the assets acquired and liabilities assumed. The principal asset acquired was completed technology of
$1.7 million related to a payment management software solution for the wireless marketplace as well as customer contracts of $100,000. We may be required to pay additional contingent cash consideration based on Airada attaining certain defined
annual revenue and operational targets through 2007, most of which will be accounted for as additional goodwill.



In June 2005, we acquired the assets and certain liabilities of PureSight and determined the fair value of the assets acquired and liabilities assumed. The principal
assets acquired were completed technology related to advanced content recognition solutions for mobile operators, ISPs and enterprises, non-compete agreements, customer contracts and relationships and trademarks valued at approximately $1.7 million.



Management determined the fair value of the assets acquired by
considering the anticipated cash flows to be generated from the existing products, the valuation of customer relationships, the estimated life of the technology acquired and other assumptions. The valuation of completed technology was primarily
based on future cash flow projections over the estimated economic life adjusted for an incremental obsolescence rate discounted to present value. We estimated that the useful life of the acquired technology is four to seven years.



Significant judgments and estimates are involved in our acquisitions to determine the fair
market value of assets acquired and their useful lives. Different assumptions could yield materially different results.



As a result of the Freedom Wireless lawsuit verdict and related accounting, we performed an asset impairment test for our long-lived assets and goodwill in the quarter
ended June 30, 2005 and concluded that no impairment existed.



Income
Taxes



Our current and deferred income taxes, and associated tax
reserves, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on several
factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual collections and payments may materially differ from these estimates as a result of changes in tax laws as well as
unanticipated future transactions impacting related income tax balances.



The
income tax benefit for the six months ended June 30, 2005 was $4.8 million, compared to an income tax provision of $5.9 million (39.5% effective tax rate) for the six months ended June 30, 2004. The benefit recorded in the current year reflects our
assessment of our ability to realize the tax benefit from the ultimate loss, if any, from the Freedom Wireless litigation.



New Accounting Pronouncements



On December 16, 2004 and as amended on April 14, 2005, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment
(Statement No. 123(R)), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement
of Cash Flows. Generally, the approach in Statement No. 123(R) is similar to the approach described in Statement 123. However, Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative.



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Under Statement No. 123(R), the Securities and Exchange Commission allows companies to implement Statement No. 123(R) at
the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. We expect to adopt Statement No. 123(R) on January 1, 2006.



As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25s intrinsic value method
and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement No. 123(R)s fair value method will have a significant impact on our results of operations, although it will have no
impact on our overall financial position. The impact of adoption of Statement No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement No. 123(R) in
prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income (loss) and earnings per share in Note 2 to our Condensed Consolidated Financial Statements.
Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods after adoption.



Certain Factors That May Affect Future Results



An unfavorable final judgment in the Freedom Wireless lawsuit would have a material adverse impact on our business, including potential asset impairment charges and the possibility of a Chapter 11 bankruptcy filing and would impair our
ability to continue as a going concern.



On May 20, 2005, a jury
determined that bcgi and certain of our current or former carrier customer defendants (Cingular Wireless LLC, AT&T Wireless Services, CMT Partners and Western Wireless Corp.) infringed or are infringing two Freedom Wireless patents. The
jury damages award was in the total amount of $128 million for past damages through December 31, 2004, an amount which exceeds our ability to pay. bcgiand each carrier are jointly and severally liable for specific amounts. The total amount
of damages awarded could be significantly higher if the Court awards interest, damages for infringement by bcgi and Cingular from January 1, 2005 to the date of the judgment, and/or treble damages against bcgi. We have an obligation to
indemnify the other defendants for damages they may incur with respect to any infringement by our technology.



Although we are awaiting the Courts rulings in the non-jury trial on inequitable conduct that concluded on July 26, 2005, and we intend to file motions for judgment as a matter of law and a motion for a new
trial or, in the alternative, a reduction in the damages awarded by the jury, there can be no assurance that we will be successful on any of these motions or that Freedom Wireless will not appeal a decision adverse to them. In addition, if the Court
rules against us and our co-defendants in the non-jury trial, we expect to appeal the Courts decision to the Court of Appeals for the Federal Circuit. However, there can be no assurance that we will receive a favorable outcome from the appeal
process.



If the original jury verdict of $128 million, or a higher amount, is
ultimately upheld, this amount would exceed our ability to pay, and we may need to seek protection under Chapter 11 of the U.S. Bankruptcy Code. Even if we are successful in reducing the amount of such jury award, there can be no assurance that a
reduced award would not still exceed our ability to pay. In addition, any significant delay in the Court issuing a final judgment could impair our business going forward due to ongoing uncertainty and additional legal costs.



At any time during the aforementioned proceedings, we may seek a settlement with Freedom
Wireless and/or a license to use Freedom Wireless patents. Any such settlement or license may carry terms unfavorable to us and may significantly restrict our cash and/or future ability to generate profits.



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In addition, following the initial verdict in the Freedom Wireless lawsuit, Freedom Wireless filed two separate patent
infringement lawsuits against us and Nextel Communications and Alltel Corporation, respectively. Although we are contesting the lawsuits, there can be no assurance of a favorable outcome in these matters, and we are obligated to indemnify Nextel and
Alltel for damages they may incur with respect to any finding of infringement by bcgis technology.



Regardless of the outcome, we will continue to incur significant expenses to defend this lawsuit. We have incurred approximately $23.1 million in legal and other costs as
of June 30, 2005 to defend this lawsuit, and expect to incur approximately $3.0 to $4.0 million in legal expenses in the third quarter 2005. Ongoing legal costs may fluctuate from time to time, depending on the nature of our legal proceedings.



In order to appeal the verdict in the Freedom Wireless lawsuit, we may be
required to provide collateral or post a bond or may be enjoined from conducting our business as currently conducted, either of which could adversely affect and/or restrict our business during the appeal process.



As a condition to the filing of an appeal in the Freedom Wireless lawsuit, the Court may
require the defendants to provide collateral or post a bond. The bond may approximate 110% of the final damages amount, which, depending on the final judgment, could exceed our ability to pay. We may be required to pledge a substantial portion of
our assets to collateralize an appeal bond, which could significantly restrict our ability to operate our business and execute on our strategic plan. In addition, Freedom Wireless may seek to enjoin us from providing our prepaid wireless and
Real-Time Billing in the United States while an appeal is pending. If we are unable to provide adequate collateral or post a sufficient bond, or an injunction is entered and not stayed, then we will not be able to provide the prepaid wireless or
Real-Time Billing service as currently offered in the United States. In that event, we may not be able to continue our ongoing operations or may need to seek protection under Chapter 11 of the U. S. Bankruptcy Code.



If the final judgment in the Freedom Wireless lawsuit exceeds our ability to pay,
execution of judgment is not stayed and Cingular does not post bond for us, this would likely result in our need to seek protection under Chapter 11 of the U.S. Bankruptcy Code.



In July 2005, we entered into an agreement with Cingular Wireless LLC, a co-defendant in the case. Under the terms of this agreement, we
agreed to place $41 million into escrow for the purpose of using these funds as security in the event that a bond or other security must be posted for more than $41 million. This agreement is subject to mutual acceptance of an escrow agent and
related escrow terms. In exchange for placing the funds into escrow, if a final judgment in the lawsuit is rendered against us and our co-defendants, and the joint and several damages exceed $41 million, Cingular has agreed to post security in the
form of an appeal bond or otherwise in an amount that, when added to our $41 million, is determined by the Court to be adequate security to stay the execution of the judgment. This agreement may allow us to proceed with an appeal and to avoid
exposure to bankruptcy while the appeal is pending, in the event that a final judgment against us in this lawsuit is rendered for joint and several damages that exceed $41 million. Cingular is not obligated to provide the security for the payment of
any portion of the damages for which Cingular is not jointly and severally liable. However, in the event that Cingular does not post a bond with us to appeal the case, this could result in our need to seek protection under Chapter 11 of the U.S.
Bankruptcy Code.



The agreement with Cingular Wireless LLC may substantially
reduce bcgis working capital and access to cash.



With the current
uncertainties facing bcgiand the potential for unforeseen changes in our estimates, including but not limited to loss of customers and/or higher than expected legal costs, we may need additional working capital. In such circumstances, we
would not have access to the $41 million placed in escrow as security for an appeal. If we are unable to secure additional capital or finance sufficient assets, we may need to seek protection under Chapter 11 of the U.S. Bankruptcy Code.



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A class action lawsuit has been filed against us, which may result in litigation that is costly to defend and the
outcome of which is uncertain and may harm our business.



In June 2005, a
putative class action complaint was filed in the U.S. District Court for the District of Massachusetts, against us, our Chief Executive Officer and our Chief Financial Officer on behalf of persons who purchased our common stock between November 15,
2000 and May 20, 2005. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act as well as Rule 10b-5 promulgated thereunder by allegedly failing to disclose adverse facts regarding the Freedom Wireless, Inc.
lawsuit, including that we had willfully infringed the Freedom Wireless patents. We intend to contest the lawsuit vigorously and believe that bcgiand the two executive officers named as defendants have meritorious defenses to the allegations
set forth in the lawsuit.



We can provide no assurance as to the outcome of
this complaint. Any conclusion of this matter in a manner adverse to us could have a material adverse affect on our financial position and results of operations. In addition, the costs to us of defending any litigation or other proceeding could be
substantial, even if such litigation or proceedings are resolved in our favor. Furthermore, there can be no assurance that our directors and officers insurance will be sufficient to cover any potential damages from this lawsuit. Such
litigation could also substantially divert the attention of our management and our resources in general. Uncertainties resulting from the initiation and continuation of any litigation or other proceeding could harm our ability to compete in the
marketplace.



As the uncertainty surrounding the status of the Freedom
Wireless lawsuits continues, we face challenges with our potential and existing customers, vendors and employees, all of which could have a material adverse effect on our business.



The status of the Freedom Wireless lawsuit remains unresolved and may remain unresolved for an indefinite period of time. This uncertainty
will likely impact our existing business in the following ways:



| |  |  | Our ability to sell our products and services to new customers may be limited;
| | - |  | ------------------------------------------------------------------------------



| |  |  | Existing customers may not renew their current contracts or could seek to terminate their contracts;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Current employees may seek other employment prior to a final resolution of this matter;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Prospective employees may not accept our employment offers; and
| | - |  | ---------------------------------------------------------------



| |  |  | Current and potential vendors may impose restrictions on us, including higher pricing, advance payments and other terms regarding our ability to obtain their products and services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Verizon Wireless and Cingular Wireless, two of our largest
customers using our Real-Time Billing managed services, are currently also utilizing in-house and/or our competitors prepaid solutions, which will result in the continued loss of existing subscribers and fewer subscriber additions to our
platform.



Verizon Wireless may terminate our existing prepaid wireless
services agreement upon 90 days written notice. Verizon Wireless began converting subscribers from our platform to its internal platform in the fourth quarter of 2004. Conversions have been ongoing and are expected to continue into 2006. In
addition, because Cingular Wireless has substantially reduced marketing efforts for prepaid service on their TDMA network and began offering prepaid service on their GSM network through one of our competitors, we expect that subscribers from
Cingular Wireless TDMA prepaid service that we currently support will churn off of our platform over time. Thus, revenues from Verizon and Cingular will substantially decrease, resulting in a reduction of overall revenue from our Real-Time
Billing business from these two customers.



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



Historically, a significant portion of our revenues in any particular period has been attributable to a limited number of customers in the
wireless telecommunications business. The following table summarizes the percentage of our total revenue received from Nextel Communications, Verizon Wireless and Cingular Wireless for the three months ended June 30, 2005:



|                      |  |    |  
|--------------------- |  | -- | -
|Nextel Communications |  | 37 | %
|Verizon Wireless      |  | 22 | %
|Cingular Wireless     |  | 16 | %



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Most of our customer contracts are not exclusive. Therefore, our wireless operator 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 2005 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 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 our mobile services platform.



Nextel became our largest customer in the first quarter of 2005. We can provide no assurance that Nextel will continue to use our services beyond the term of their contract with us. If we were to lose Nextel as a customer and cannot replace
the revenue, our business would be materially and adversely impacted. Additionally, there are a limited number of U.S. customers available in the marketplace and if we are unable to add new customers, our business would be materially and adversely
impacted.



Our future success depends partly on the global acceptance of our
newer products, including bcgi Access Management, Payment Manager and bcgi Network.



We have recently introducedbcgiAccess Management, Payment Manager and bcgiNetwork product offerings to the marketplace.The acceptance of these new products is critical to our strategy to
diversify and grow our revenue base. Our success in gaining acceptance of these offerings will depend on our ability to integrate these products into existing wireless operator billing platforms. In addition, the success of bcgiAccess
Management will depend on wireless operator and subscriber acceptance of the capabilities of this product.The failure or delay of any of these offerings to be accepted in the marketplace could have a material adverse effect on our business,
financial condition and results of operations.



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. Additionally, we anticipate the change in our
business model will result in more revenues from licensed sales, which tend to be less predictable. Our quarterly operating results may vary significantly depending on a number of factors, including:



| |  |  | Developments in the Freedom Wireless matter;
| | - |  | --------------------------------------------



| |  |  | The lack of acceptance or delayed acceptance of our newest solutions, including bcgiAccess Management and Payment Manager;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Delays in recognizing revenue on any transaction;
| | - |  | -------------------------------------------------



| |  |  | Delays or deferrals of customer shipments and/or implementations of our products;
| | - |  | ---------------------------------------------------------------------------------



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



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



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



| |  |  | The impact and acceptance of existing solutions or the introduction of competing solutions by wireless operators, including those who are currently our customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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| |  |  | The extent of our wireless customers emphasis on promoting prepaid solutions and the timing of related marketing initiatives, including our wireless operators allocation
of marketing resources for initiatives other than prepaid wireless services, such as data services, new technologies, etc.;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The relatively long sales cycles for many of our products;
| | - |  | ----------------------------------------------------------



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



| |  |  | Seasonal trends, particularly in the second and third quarters when wireless operators 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



We expect that our revenues and net income will decline in future quarters, as Verizon and
Cingular generate less revenue. Also, a significant portion of our expenses is fixed. 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. Additionally, due to all of the foregoing factors, it is possible that in some future quarter our results of operations will be below our
expectations and/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.



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



Our business will not be successful if we do not develop and offer more functionality and
features in our solutions than those available in competitive offerings or if we are unable to develop new solutions to offer our wireless customers. Also, there can be no assurance that we will successfully support and enhance our real-time billing
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 Access Management, bcgi Network or bcgi Payment, 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 pricing, 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.



Our international sales and operations subject us to additional risks that can
adversely affect our operating results.



We are expanding our operations
internationally and expect to derive a greater portion of our revenues from customers outside the United States. Additionally, we have recently acquired businesses in India and Israel and opened sales offices in Singapore and the United Kingdom. Our
international operations are subject to a variety of risks, including:



| |  |  | General economic conditions in each country or region;
| | - |  | ------------------------------------------------------



| |  |  | The overlap of different tax regimes;
| | - |  | -------------------------------------



| |  |  | Fluctuations in currency exchange rates and difficulties in transferring funds from certain countries;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | The difficulty of managing an organization operating in various countries;
| | - |  | --------------------------------------------------------------------------



| |  |  | Compliance with a variety of international laws and regulations, including trade restrictions, local labor ordinances and changes in tariff rates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Longer payment cycles and difficulties in collecting accounts receivable;
| | - |  | -------------------------------------------------------------------------



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| |  |  | Import and export licensing requirements;
| | - |  | -----------------------------------------



| |  |  | Political unrest, terrorism and the potential for other hostilities, particularly in areas in which we have facilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduced protection for intellectual property rights in some countries.
| | - |  | ----------------------------------------------------------------------



Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that these or other factors will not adversely affect our business
or operating results.



We entered into a strategic investment agreement with
an early stage entity with which we have a commercial relationship.



In
exchange for cash totaling $1.5 million, we received secured convertible promissory notes for the same amount. The notes are convertible at any time into the borrowers common stock or preferred stock, as defined in the agreement. If the entity
does not execute on its strategic plan, our investment could become impaired and therefore, may not be recovered.



We rely on complex information technology systems and networks to operate our business. If any significant system or network disruption occurs, we will be subject to
financial penalties that could adversely affect 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 breaches, natural disasters, fire, power loss, terrorism, war, telecommunication failure or similar events. We have implemented various measures to guard against these
risks, however, 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 wireless customer contracts. Our Bedford and Woburn, Massachusetts
facilities are redundant and each facility is able to provide all significant processing functions of our network. We still may not be protected from a natural disaster within the greater Boston, Massachusetts area. There may also be system or
network disruptions if new or upgraded business management systems are defective or are not installed properly. 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.



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 that 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.



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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 acquisition opportunities and have acquired companies in the recent past. 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. We may not be able to successfully integrate recent or future acquired companies and personnel. Acquisitions involve numerous risks, including, among other things:



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



| |  |  | Risk that the acquired companys technology infringes on an existing patent;
| | - |  | ----------------------------------------------------------------------------



| |  |  | 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 and continue to invest in new products and features, including expanding internationally. This has created significant demands on our technical, management, operational, development and administrative 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 or that we will be successful in our expansion strategy. 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. Additionally, there can be no assurance that our investments will result in generating revenues within a reasonable time or that they will be sufficient to generate a reasonable return.



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



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significantly greater financial and other resources than we do. In addition, the wireless industry is subject to
consolidation, which could potentially result in the loss of carrier customers and/or subscribers. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our service solutions. We
cannot be certain that we will be able to compete successfully with existing or new competitors. Our failure to maintain and enhance our competitive position would limit our ability to retain and increase our market share, resulting in serious harm
to our business and operating results.



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



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. Our investments are also
subject to interest rate risk and will decrease in value if market interest rates increase. However, since our investments are generally conservative in nature and are of a relatively short duration and some are held to maturity, interest rate risk
is mitigated.



We do not use derivative financial instruments for either
hedging foreign currency exposure risk or speculative trading purposes. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this
item.



Item 4. Controls and Procedures



Management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act) as of June 30, 2005. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that, as of June 30,
2005, our disclosure controls and procedures were



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(1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known
to our CEO and CFO 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 required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act) occurred during the three months ended June 30, 2005 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



Freedom
Wireless Patent Infringement Lawsuit



In March 2000, Freedom Wireless,
Inc. filed a suit against us and a number of our current or former carrier customers (Verizon Wireless, Cingular Wireless LLC, AT&T Wireless Services, CMT Partners and Western Wireless Corp.). The suit was tried in the United States District
Court in Massachusetts and alleged that the defendants infringe two patents held by Freedom Wireless, Inc. and sought damages as well as injunctive relief. On May 20, 2005, a jury determined that bcgi and certain of the other defendants
infringed or are infringing the two Freedom Wireless patents. The jury damages award was in the total amount of $128 million for past damages through December 31, 2004, an amount which exceeds our ability to pay. Of this amount, bcgi and
Cingular which (includes AT&T Wireless Services and CMT Partners) are jointly and severally liable for $127.8 million and bcgiand Western Wireless for $200,000. Interest and damages for infringement by bcgi and Cingular from
January 1, 2005 to the date of the judgment may also be awarded. Additionally, the jury found that bcgi willfully infringed the patents and as a result, the Court may award treble damages and attorneys fees. Any enhanced damages for
willfulness would be the responsibility of bcgi.The Court, however, also has discretion to reduce the amount of the jurys damages award. bcgi intends to file a motion for remittitur to ask the Court to reduce the level of
damages awarded.



We have an obligation to indemnify the other defendants for
damages they may incur with respect to any infringement by our technology. In 2005, Verizon Wireless, which was a defendant in the case, reached a settlement with Freedom Wireless and, as a result, was removed as a defendant in the case. We were not
part of the settlement discussions and the terms of the settlement are not public.



The Court has not yet issued a final judgment on the suit since there are still matters pending before the Court. Following the issuance of the jury verdict, a non-jury trial for inequitable conduct was held. In this case, which concluded
on July 26, 2005 and is pending before the Court, bcgi argued that the Freedom Wireless patents are unenforceable because Freedom breached its duty of candor and good faith to the Patent and Trademark Office (PTO) by knowingly withholding
material prior art from the PTO. The Court has ordered the plaintiff and defendants to file proposed findings of fact and conclusions of law with the Court no later than August 15, 2005. If the Court rules in favor of us and our co-defendants in the
inequitable conduct trial, the patents held by Freedom Wireless would become unenforceable, a decision that Freedom Wireless, Inc. may choose to appeal. We intend to file motions for judgment as a matter of law and a motion for a new trial or, in
the alternative as noted above, a reduction in the damages awarded by the jury. We expect that the Court would rule on each of these matters in addition to determining the final judgment on the case in due course, sometime after August 15, 2005.



If the Court rules against us and our co-defendants in the non-jury trial, we
expect to appeal the Courts decision to the Court of Appeals for the Federal Circuit. The appeal process can take 12-18 months or longer. In the event of an appeal, the Court may require the defendants to provide collateral or post a bond. The
bond could approximate 110% of the final damages amount, which, depending on the final judgment, could exceed our ability to pay. If we are unable to provide adequate collateral or post a sufficient bond, or an injunction is entered and not stayed,
or if we are unable to get an adverse judgment reversed and are unable to negotiate a commercially acceptable license with Freedom Wireless to allow us to continue to provide our products and services, then it will not be possible for us to



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provide the prepaid wireless or Real-Time Billing service as currently offered in the United States. In that event, we
may not be able to continue our ongoing operations or may need to seek protection under Chapter 11 of the U. S. Bankruptcy Code. If the plaintiff files for an injunction, the Court could rule that we may not use the alleged infringing technology.



In order to mitigate the risk that we will be unable to post sufficient
collateral on our own, we entered into an agreement with Cingular Wireless LLC, a co-defendant in the case. This agreement is subject to mutual acceptance of an escrow agent and related escrow terms. Under the terms of this agreement, we have agreed
to place $41 million into escrow for the purpose of using these funds as security in the event that a bond or other security must be posted for more than $41 million. In exchange for placing the funds into escrow, if a final judgment in the lawsuit
is rendered against us and our co-defendants, and the joint and several damages exceed $41 million, Cingular has agreed to post security in the form of an appeal bond or otherwise in an amount that, when added to our $41 million, is determined by
the court to be adequate security to stay the execution of the judgment. Cingular has also agreed to dismiss, without prejudice, the action filed by Cingular against us in May 2005. Cingular originally filed this action in an effort to enforce
Cingulars indemnity rights against us as a result of the Freedom Wireless verdict. This agreement is expected to allow us to proceed with an appeal and potentially avoid exposure to bankruptcy while the appeal is pending, in the event that a
final judgment against us in this lawsuit is rendered for joint and several damages that exceed $41 million. Cingular is not obligated to provide the security for the payment of any portion of the damages for which Cingular is not jointly and
severally liable. The agreement does not alter bcgis obligation to indemnify Cingular.



While we do not believe that we infringe these patents and believe that the patents are invalid in light of prior art and other reasons, in light of the jury verdict we believe it is probable that a loss contingency
exists. Although the ultimate amount of such loss, if any, is not currently known, accounting guidelines under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5) and FASB Interpretation 14, Reasonable
Estimation of the Amount of a Loss (FIN 14), specifies that if a loss is probable and can be reasonably estimated, it should be recorded.Based on managements assessment of the potential outcomes of the case and in accordance with
FAS 5 and FIN 14, we have accrued an estimated loss of $24 million with respect to the Freedom Wireless verdict. However, the actual loss, if any, may be significantly higher or lower than the amount accrued.



Freedom Wireless Patent Infringement Lawsuits Against bcgi, Nextel Communications and
Alltel Corporation



On May 20, 2005, Freedom Wireless filed two separate
lawsuits in the U.S. District Court for the District of Massachusetts, the first against us and Nextel Communications, and the second against us and Alltel Corporation. To date, we have not been served. These lawsuits allege that we and each of our
named carrier customers infringe the same two patents held by Freedom Wireless, Inc. and seek damages as well as injunctive relief. We have an obligation to indemnify our customers for damages they may incur with respect to any infringement by our
technology. We intend to contest the lawsuits vigorously and believe that we do not infringe these patents and believe that the patents are invalid in light of prior art and other reasons.



Cingular Wireless LLC Indemnification Complaint



On May 23, 2005, a complaint was filed by Cingular Wireless LLC seeking judgment in
indemnity against bcgi. The complaint seeks judgment for contractual indemnification against bcgi in an amount equal to Cingulars money damages and other relief as determined by the Court in the Freedom Wireless patent
infringement lawsuit. Cingular has agreed to dismiss, without prejudice, this complaint, subject to the completion of the agreement between bcgi and Cingular to escrow $41 million of bcgis cash.



Class Action Lawsuit



In June 2005, a putative class action complaint was filed in the U.S. District Court for the District of Massachusetts, against us, our
Chief Executive Officer and our Chief Financial Officer on behalf of persons who purchased our common stock between November 15, 2000 and May 20, 2005. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act
as well as Rule 10b-5 promulgated thereunder by allegedly failing to disclose adverse facts regarding the Freedom Wireless, Inc. lawsuit, including that we had willfully infringed the Freedom Wireless patents. Within ten days of the appointment of a
lead counsel and a lead plaintiff in this case, the parties will submit for the Courts consideration a proposed schedule for this case, including defendants time to respond to the complaint by motion to dismiss or otherwise. We intend to
contest the lawsuit vigorously and believe that bcgiand the two executive officers named as defendants have meritorious defenses to the allegations set forth in the lawsuit.



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Indemnification Complaint



On April 28, 2005, a complaint by Aerotel Corporation was filed against Verizon alleging infringement by Verizon Communications, Verizon
Wireless and others of a patent on prepaid technology. Verizon has notified us that we may be asked to indemnify them in this case under our Prepaid Wireless Services Agreement for that portion of any liability specific to Verizon Wireless prepaid
offered through use of our services. A subpoena for documents and deposition testimony has been served to us. A subpoena for documents and deposition testimony has been served on us. The complaint does not specify damages as it relates to Verizon
Wireless prepaid. The lawsuit is currently in the discovery phase and at this time it is not possible to determine the potential course of outcome of this indemnification claim.



Other



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 these 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



In June 2004, 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 our repurchase program. The program expired in June 2005 with a total of
838,500 shares purchased. No shares were repurchased under the repurchase program during the quarter ending June 30, 2005.



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



We held our 2005 Annual Meeting of Shareholders on June 8, 2005. At our Annual meeting, the following actions were taken:



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



|               |  |                        |  |          
|-------------- |  | ---------------------- |  | ---------
|               |  | Number of Shares/Votes
|               |  | For                    |  | Withheld 
|Paul J. Tobin  |  | 15,145,073             |  | 1,299,583
|E.Y. Snowden   |  | 15,315,653             |  | 1,129,003
|Brian E. Boyle |  | 15,038,205             |  | 1,406,451



In addition, Gerald
McGowan, Gerald Segel, Daniel E. Somers, James A. Dwyer, Jr., Paul R. Gudonis and Frederick E. von Mering are continuing directors.



|2. | The shareholders ratified the adoption of our 2005 Stock Incentive Plan by a vote of 6,458,150 shares of Common Stock for, 5,604,703 shares of Common Stock against, and 24,376
shares of Common Stock abstaining.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The shareholders ratified the appointment of Ernst & Young LLP as our registered public accounting firm by a vote of 16,023,363 shares of Common Stock for, 396,465 shares of
Common Stock against and 24,828 shares of Common Stock abstaining.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 5. Other information



(a) On June 8, 2005, our shareholders ratified the adoption of our 2005 Stock Incentive Plan, the full text of which is attached as Exhibit
10.1.



(b) None



Item 6. Exhibits



Exhibits



|      |  |                                                                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | 2005 Stock Incentive Plan                                                                                                                                                     
|      | 
|10.2  |  | Form of Nonstatutory Stock Option Agreement for employees pursuant to the Companys 2005 Stock Incentive Plan                                                                 
|      | 
|10.3  |  | Form of Nonstatutory Stock Option Agreement for Directors pursuant to the Companys 2005 Stock Incentive Plan                                                                 
|      | 
|10.4  |  | Form of Restricted Stock Agreement for Directors pursuant to the Companys 2005 Stock Incentive Plan                                                                          
|      | 
|10.5  |  | Form of Restricted Stock Agreement Granted Under 2005 Stock Incentive Plan                                                                                                    
|      | 
|10.6  |  | Form of Incentive Stock Option Agreement for Executive Officers pursuant to the Companys 2005 Stock Incentive Plan                                                           
|      | 
|10.7  |  | PureSight Asset Purchase Agreement, dated May 20, 2005, between Cellular Express Inc. and bcgi Technologies Ltd., as Buyers, and Puresight, Inc. and PureSight Ltd. as sellers
|      | 
|10.8  |  | Change of Control Agreement between the Company and Thomas M. Erskine, dated May 3, 2005                                                                                      
|      | 
|10.9  |  | Change of Control Agreement between the Company and Ersin Galioglu, dated May 3, 2005                                                                                         
|      | 
|10.10 |  | Change of Control Agreement between the Company and James Anderson, dated May 3, 2005                                                                                         
|      | 
|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: August 8, 2005



Boston Communications Group, Inc.(Registrant)By:

/s/ Karen A. WalkerKaren A. WalkerVice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)




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