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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

OR

Commission File Number 000-28432

BOSTON COMMUNICATIONS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Indicate by check mark whether 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

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

The approximate aggregate value of the common stock held by non-affiliates of the registrant, computed by reference to the closing sales price of such stock quoted on the NASDAQ National Market on June 30, 2004, was $177,946,324. The number of shares outstanding of the Registrant’s common stock, $.01 par value per share, as of March 11, 2005 was 17,639,150.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2005 Annual Meeting of Stockholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K.

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This Annual 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:

These statements are based on the current beliefs and assumptions of management.

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

A number of important factors could cause actual events or 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”, “Quantitative and Qualitative Disclosures About Market Risk” and those set forth in Items 1 and 3 of Part I of this Annual Report on Form 10-K. The factors 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.

Item 1.    BUSINESS

OVERVIEW

Boston Communications Group, Inc. (“bcgi”) was incorporated in Massachusetts in 1988 and provides innovative products and services to enable advanced voice and data services for wireless operators, including carriers such as Alltel Corporation, Cable and Wireless, Cincinnati Bell Wireless, Cingular Wireless, Dobson Cellular Systems, Inc., Nextel Communications, Telefonica and Verizon Wireless. We are a leading provider of Real-Time billing as well as other products and services to wireless operators and we offer our solutions on both a managed services and/or licensed system basis. These innovative solutions help our wireless operator customers compete effectively by attracting and retaining additional subscriber customers, thereby increasing their ability to drive additional revenue while lowering their operating costs.

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Wireless operators continue to seek ways to fully realize the potential of their networks and investment in next-generation technology to attract and retain subscribers. Subscriber growth in the wireless industry has slowed in recent years as wireless penetration is 50% or higher in the United States and many parts of the world. As a result, wireless operators are focused on the profitable addition of new products and services to retain their existing subscribers and attract new subscribers in different market segments. Industry competition is forcing operators to find ways to reduce operational costs and to cost-effectively target new market segments, most notably the youth population. Additionally, some countries who historically have had limited landline and wireless coverage, are just beginning their rollouts of extensive wireless networks, often starting with the most up to date technological wireless data and voice services. Mobile Virtual Network Operators (MVNO’s), resellers of network capacity who purchase wholesale from a hosting carrier, are also evolving into important wireless providers in many worldwide markets and are frequently looking for wireless services providers like bcgi to help them bring their wireless offerings to new markets.

Wireless data services are growing rapidly worldwide, as carriers purchase next generation technology that enables m-commerce, web-browsing and many other data related services. This increase in wireless data transactions requires prepaid and postpaid billing support as well as access management capabilities.

Our products include bcgi’s Billing, Access Management, Payment and Network Solutions that help operators rapidly deploy and manage innovative voice and data services for their subscribers. Many of these solutions were re-branded in February 2005 to repackage our suite of solutions and enhance our ability to sell one or more of our products to both domestic and international wireless operators.

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The following summarizes our products and the method under which they are marketed:

PRODUCTS AND SERVICES

bcgi BILLING

To grow profitably in the global wireless market, wireless operators will need to distinguish themselves by providing a service portfolio that offers the flexibility, freedom and enhanced services that translate into subscriber satisfaction and loyalty. We believe that bcgi Billing, which includes our Real-Time Billing and Voyager Billing products, is well positioned to offer wireless operators the competitive advantage to grow subscriber counts and increase profitability.

Real-Time Billing

Real-Time Billing enables wireless operators to provide their subscribers, without a contract commitment or term, the ability to make wireless calls on a prepaid basis. Real-Time Billing can be implemented on either a managed services basis using our TotalSource ^TM implementation model or as a licensed system installed within the wireless operator’s infrastructure.

Real-Time Billing combines a flexible business model with intelligent networking architecture based on our proprietary service integration software that enables digital calling features, rating for data services, including Short Message Service (“SMS”), Push-To-Talk (“PTT”) and Multi-media Messaging Services (“MMS”) billing. We combine these features with our transaction processing infrastructure that includes web-based customer care tools, a network of voice resources to play voice messages and open application programming interfaces to integrate with the existing infrastructure of wireless operators, including their billing systems and distribution outlets. Our proprietary software, expertise and our use of recognized vendor technologies, including those of Sun Microsystems, Hewlett Packard, EMC, Oracle, Tekelec and Cisco, enable us to deliver premium, high quality, and competitive solutions.

Some specific features offered under Real-Time Billing include:

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We continue to expand the features and rating capabilities of our Real-Time Billing product to offer additional functionality to our carrier customers and their prepaid subscribers, and we generally release one or two major software upgrades per year. We work closely with operators’ marketing departments to develop sophisticated features and functionality to enable operators to quickly modify the way they market and sell prepaid solutions to remain competitive.

Most of our consolidated revenues are generated from our Real-Time Billing product on our managed services platform. Using our Real-Time Billing managed services, U.S. operators are able to offer prepaid service to subscribers, allowing them to establish an account with an operator by prepaying a specific dollar amount that is credited toward future service. The wireless operator then turns over the management of each call to our state-of-the-art Signaling System 7, or SS7 network, which is connected to our transaction-processing platform that houses information regarding the status of the subscriber’s prepaid account. Once we validate the subscriber, our platform then rates the in-bound or out-bound call in real-time, calculating the minutes remaining in the subscriber’s account based on his or her rate plan. Armed with this information, our system ensures that the subscriber does not exceed his or her balance by alerting the subscriber when his or her balance is getting low and terminates the call in real-time if the subscriber’s balance is depleted. Once the call is completed, the subscriber’s account is updated on a real-time basis by our platform, in accordance with the wireless operator’s instructions. Before each call and prior to the end of each call, our voice network delivers a voice message to the subscriber, informing the subscriber of his or her prepaid account balance. Our real-time monitoring and rating not only eliminates the risk of bad debt and revenue leakage, but also reduces wireless operator customer care costs since the subscriber is able to manage his or her account by being informed of the account balance status through our voice network and Web-based customer care applications.

Real-Time Billing can also be deployed in-house with wireless operators on a licensed basis. A wireless operator can purchase our licensed product to integrate with their network and enable some or all of the same complex series of validation, call control, rating and billing that our managed services platform provides. The licensed system communicates directly with the wireless operator’s network elements and databases.

Voyager Billing

Voyager Billing provides operators full billing and operational support services. Voyager Billing is currently offered as a managed service billing platform in the United States to meet operator demand for a comprehensive billing system that supports pre-paid, postpaid, and converged billing for voice and data services. We have integrated this solution with our product families and have leveraged it with our technological capabilities to enhance our ability to cross-sell multiple cost-effective solutions to new and existing customers. We principally generate revenue for Voyager Billing by charging our customers a per subscriber fee for each monthly bill that is produced. We currently support numerous U.S. regional wireless carriers and are targeting the MVNO market, which often favors billing flexibility and independence from their host-carrier networks.

Voyager Billing enables wireless operators to control every aspect of subscriber management—network provisioning, inter-carrier relations, billing, invoicing, customer care, inventory management and retail operations—within one comprehensive system. Voyager Billing integrates with the carrier’s switch to rate calls and allows wireless operators to generate monthly subscriber invoices. Voyager Billing provides user environments for all levels of wireless operator applications, including an interface for the provisioning of new plans and services for both pre- and postpaid plans and easy-to-use interfaces for customer service

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representatives. Wireless operators are able to run a convergent enterprise using Voyager Billing offering postpaid, prepaid, and hybrid plans from a single interface. This capability improves operational efficiencies and enables wireless operators to migrate subscribers through product offerings as their needs or profiles change.

Voyager Billing provides a total retail management solution, allowing the wireless operator to manage its entire point-of-sale access, including phone number inventory, equipment, accessories and cash drawer. Voyager Billing also offers robust reporting and decision support tools, allowing useful analysis of subscriber usage and trends, enabling wireless operators to better understand subscriber behavior.

The key features of Voyager Billing are as follows:

bcgi ACCESS MANAGEMENT

Our bcgi Access Management product, Mobile Guardian, allows operators to work together with subscribers and enterprises to better manage access to wireless services. Striking the proper balance between the benefits and potential abuses of wireless service is critical among segments that do not require unlimited access to everything the wireless network has to offer. We created Mobile Guardian using our proprietary software and leveraging our real-time subscriber management expertise and existing infrastructure. Mobile Guardian’s flexible architecture can be used by the operator to restrict access to inappropriate content in accordance with industry or government standards and to provide a value-added tool that allows enterprises and consumers to manage individual voice and data usage. Mobile Guardian is being offered as both a managed service in the U.S. using the bcgi TotalSource model and on a licensed basis worldwide. As of December 31, 2004, we had not yet generated revenues from our Access Management solutions. Since Mobile Guardian serves postpaid subscribers, its large addressable market is expected to further diversify our revenue amongst new and existing customers.

In addition to its consumer appeal, Mobile Guardian helps wireless operators target the enterprise market with a highly differentiated solution for businesses that provides significant benefits over those currently derived from third-party, post-bill cost-analysis solutions. Mobile Guardian:

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To help operators better address the wireless needs of families, Mobile Guardian eases the decision-making process of parents who are considering purchasing wireless service for their children by mitigating concerns about misuse and cost management. Mobile Guardian:

This proprietary solution consists of two modules. The first, Mobile Guardian Profile Manager, enables operators to provide their wireless subscribers with a simple method to set usage parameters, calling allowances and access preferences via an easy-to-use, Web-based interface. Mobile Guardian Profile Manager allows the wireless operator to offer wireless access and usage settings directly to consumers, such as parents and enterprise administrators. Using the Mobile Guardian Profile Manager tool, parents and enterprise administrators can instantly modify profile information for voice and data usage. The Mobile Guardian Profile Manager’s hierarchical account structure allows a single administrator to control an unlimited number of accounts. Mobile Guardian Profile Manager operates on top of an enterprise or family’s existing rate plan to give the telecom manager or parent real-time control over how the individual phones on his or her plan are used.

The second module, Mobile Guardian Filter, provides content filtering and categorization of Web and Wireless Application Protocol or WAP-based content through analysis of customer data traffic. Using dynamic identification capabilities, the Mobile Guardian Filter enables operators to flexibly manage subscriber access to content, regardless of content type, origin or delivery method. As a result, operators can responsibly meet the demand for content that may not be appropriate for all subscribers. The Mobile Guardian Filter can be implemented standalone to meet basic filtering requirements, or can eventually be integrated with the Mobile Guardian Profile Manager to allow content filtering based on individual profile information set by a parent or enterprise administrator.

The combined capabilities of Mobile Guardian Profile Manager and Mobile Guardian Filter solves a number of issues that can accelerate the adoption and usage of wireless by families and enterprises.

bcgi PAYMENT

bcgi Payment consists of PayExtend^™ and Payment Manager, both of which offer wireless operators the ability to deploy a choice of convenient recharge options to their subscribers – whether cash, debit or credit card-based—at locations including ATM’s, self-serve kiosks, retail stores, via the internet or directly from subscribers’ handsets using short-dialing codes or voice. We provide bcgi Payment solutions to operators who use our Real-Time Billing solution, as well as to operators who use competing prepaid solutions.

PayExtend^™

PayExtend is our cost-effective, real-time, payment network available to U. S. wireless operators. This product leverages our existing infrastructure to unite wireless operators with multiple financial and content partners by consolidating services through our centralized network as we take financial and operational responsibility for the transactions.

PayExtend currently offers the following payment modules:

ATM Recharge is a managed distribution channel that offers wireless operators an additional recharge footprint by leveraging well-established ATM locations that have been enabled with advanced functionality. The service allows a wireless subscriber to purchase additional wireless prepaid funds in real-time using their bank debit card.

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Payment Agent Service is a managed, end-to-end service that allows subscribers of participating wireless operators to purchase wireless airtime using their credit or debit cards via the channel they find most convenient—via the internet, using a voice response unit, or through customer service agents.

The risks of maintaining and monitoring prepaid card inventory require considerable operator resources to avoid the costs of shrinkage and lost sales. Channel Manager is a specialized point-of-sale solution developed for operators who wish to sell prepaid wireless service through wireless channels such as their own company stores and authorized wireless agents. Using the internet to perform wireless account activations and recharges, Channel Manager streamlines the process, reduces risk and provides powerful reporting and security features to deliver a seamless prepaid recharge experience for subscribers and operators alike.

Mobile commerce offers wireless operators an excellent opportunity to generate incremental revenue and increase average revenue per user. However, offering a competitive mobile commerce program introduces new complexities and challenges for the wireless operator. bcgi Mobile Commerce Storefront provides a complete mobile commerce service that offers wireless operators a cost-effective and easy to manage solution to introduce competitive mobile commerce services. As a bundled solution, Mobile Commerce Storefront handles all aspects of managing a mobile commerce program, including content provisioning and delivery, billing and settlement.

Payment Manager

Payment Manager is available worldwide as a licensed platform to help operators cost effectively enable and manage multiple funding touch points and drive the type of funding activity that is most beneficial to their business. A single platform that supports the unique payment needs of wireless operators, Payment Manager allows operators to create multiple payment channels and manage those channels from a single web-based user interface. With support for real-time payment processing, multi-level settlement capabilities, sophisticated payment loyalty functionality and fraud prevention tools, Payment Manager can be integrated into any operator network to improve operational efficiency and lower costs of accepting customer payments.

Payment Manager helps wireless operators:

bcgi NETWORK

bcgi Network products enable the integration of Real-Time Billing, Mobile Guardian or third-party rating and charging systems to voice and data networks. By effectively shielding the billing and business logic from network complexity and exposing a single interface for integration, we provide one of the most efficient and cost-effective method for wireless operators to introduce new services and applications. bcgi Network consists of IN Session Control and Data Gateway which were launched as products in February 2005.

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IN Session Control

IN Session Control provides full, real-time control of voice transactions for home and roaming, and is pre-integrated to work with our Real-Time Billing and Access Management applications. IN Session control is also designed for integration to other existing real-time billing systems and third-party applications. IN Session Control is designed to meet industry standards and deliver on the promise of intelligent networking. Using GSM/CAMEL, WIN/IS-826, and also ISUP interfaces, bcgi’s session control capabilities allow us to flexibly deploy in any network.

Data Gateway

The successful integration of MMS, streaming video and other data services is vital to increasing operator return on investment from next-generation networks. Data Gateway enables billing for data services by providing real-time subscriber validation, subscriber access controls and network interfaces to support our products and third-party applications. Data Gateway simplifies the launch of new data services by shielding the applications and services such as Mobile Guardian and Real-Time Billing from the network elements, precluding the need for specific GPRS, EDGE, 1xRTT and 1xEV-DO knowledge.

bcgi PROFESSIONAL SERVICES

Both bcgi TotalSource and licensed sales are complemented by our Professional Services organization. bcgi Professional Services is focused on addressing wireless operators’ most complex challenges. Customers benefit from our industry-leading expertise and proven ability to implement business-transforming products and managed services. We engage wireless operators in strategic partnerships to efficiently deliver customized solutions. By leveraging all of our products and technical strengths to design creative solutions we can directly address customers’ needs. Our Professional Services teams help accelerate the implementation process by efficiently addressing each customer’s unique challenges. Our consultants combine expertise and proven technology to deliver the right solution on time. Additionally, our training programs transfer necessary knowledge and competencies to ensure effective adoption and operation of our products.

IMPLEMENTING OUR PRODUCTS

Wireless operators can purchase our products either on a managed services basis (bcgi TotalSource) or on a licensed basis. Our bcgi TotalSource model is an end-to-end outsourced solution that enables U.S. wireless operators to get our products to market quickly without large capital investments and with inherent expertise. With bcgi TotalSource, wireless operators can deploy new solutions by leveraging our expertise as a leading provider of outsourced real-time subscriber management solutions. In a typical managed services relationship, we take responsibility for all aspects of our solutions’ performance including; project implementation, ongoing operation and upgrades to the wireless operator’s application.

bcgi TotalSource includes:

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We also offer our products and services on a licensed system basis worldwide. In a licensed sale, a wireless operator licenses certain bcgi proprietary software and, in some cases, purchases complementary third-party hardware and software, all to be deployed within the operator’s network. The software and components are fully integrated by the customer within the customer’s environment and operated by their network personnel. In 2005, we expect to expand our focus on international sales of our licensed products, adding personnel and costs to support technical operations as well as sales and marketing efforts, which includes marketing our licensed product through direct and indirect sales channels.

Licensed sales typically include:

SALES AND MARKETING

Our sales strategy focuses on establishing and maintaining long-term relationships with our customers. Our business development professionals and their support teams are assigned to groups of wireless operators, including global, national and regional operators assigned by region. A consultative sales process supported by bcgi Professional Services is utilized to understand and define customer needs and to determine how our solutions can address their needs. Each business development professional capitalizes on his or her in-depth knowledge of the operators and our suite of solutions to cross-sell these solutions to current and prospective customers. Our sales cycle for managed services sales is typically six to twelve months, but can often be longer. For licensed sales, our sales cycle is typically three to six months.

Our direct sales strategy is complemented by a marketing program that includes participation in industry trade shows and conferences, speaking engagements, advertising and public relations. Because our target customers are wireless operators, MVNOs and resellers, we seek to gain broad industry recognition through carefully selected events and activities specific to the wireless industry. We also have relationships with industry partners through whom we generate indirect licensed sales. In addition, we are expanding our efforts globally in 2005 through additional personnel who will focus on direct and indirect strategies to increase our licensed sales worldwide.

ENGINEERING, RESEARCH AND DEVELOPMENT

We have developed proprietary software and interfaces to wireless operators’ existing infrastructure, enabling us to perform real-time event management and subscriber management functions associated with our prepaid, postpaid, access management, payment and other solutions. These software applications and interfaces include:

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We believe that one of our key competitive advantages is our proprietary software. Our future success will depend in large part on our ability to continue to enhance existing solutions and develop new solutions in response to changing market, customer and technological requirements of the wireless industry. An important factor in the future success of our mobile services platform will be our ability to provide, at competitive prices, more functionality and features than those available in other competitive offerings.

We have protected various aspects of our intellectual property with a portfolio of patent applications filed with the U.S. Patent Office and internationally, one of which has been approved and others which are currently pending.

We spent $20.7 million in 2004, $17.6 million in 2003, and $12.0 million in 2002 on engineering, research and development, including capitalized software costs. We expect to continue to devote significant resources to our engineering, research and development efforts in 2005 and future years.

CUSTOMERS

We currently provide one or more of our products to international and large U.S. wireless operators, including Alltel Corporation, Cable and Wireless, Cincinnati Bell Wireless, Cingular Wireless, Dobson Cellular Systems, Inc., Nextel Communications, Telefonica and Verizon Wireless. We also service MVNOs, who are well positioned to profitably attract and serve targeted segments. As resellers of network capacity who purchase wholesale services from a hosting carrier, MVNOs require specific types of wireless expertise that we offer. Our technology and expertise directly address the challenges faced by MVNOs, including real-time usage rating and billing, account activation and suspension, the rapid introduction of value-added services, real-time account replenishment, fraud prevention, customer care and self-care. In addition, we provide our products to many mid-size and small regional wireless operators throughout the United States, allowing them to offer cost-effective, comprehensive postpaid and prepaid services with a wide array of competitive features, including multiple recharge channels and nationwide roaming capabilities. Our products and services have been implemented throughout the world, including the United States, Africa, Central America, Latin America, the Caribbean and Central Asia. Currently, the majority of our revenue is generated from our U.S. managed services Real-Time Billing product by charging wireless operators recurring fees.

Historically, a significant portion of our total revenues in any particular period has been attributed to a limited number of customers. Net revenues attributable to our ten largest customers accounted for approximately 92% of our total revenues in 2004 and 91% of our total revenues in 2003. Verizon Wireless accounted for 43% of total revenues in 2004 and 52% of total revenues in 2003. Cingular Wireless accounted for 22% of total revenues in 2004 and 24% of total revenues in 2003. Nextel Communications accounted for 14% of total revenues in 2004. 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 platform to its platform. Although we do not have a specific migration schedule, we expect that Verizon Wireless will complete its conversions by

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the third quarter of 2005. 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.

We are seeking to mitigate the impact of the expected loss of revenues from our two largest customers by focusing on diversifying our revenues, as we enable growth from other existing customers and target new and current customers with our expanded product offerings. In 2004, revenues from customers other than Verizon and Cingular grew 51% over 2003. Additionally, we expect recently introduced products to generate new revenue streams in the future. For example, in 2004, we introduced Mobile Guardian, a unique offering that provides Web-based tools for parents and enterprises seeking to better manage the postpaid wireless usage and content of their children or employees. This solution has generated significant interest from both existing and prospective wireless operators. In addition, Nextel further expanded its youth-oriented, pay-as-you-go service, branded as BOOST Mobile, into additional major markets during 2004 using our Real-Time Billing and Payment solutions. Nextel represented 22% of our total revenues for the three months ended December 31, 2004, up from 14% for the three months ended September 30, 2004. Our international sales have historically averaged about 5% of our total revenues. However, we expect revenues from international sales to increase in the future as we focus our sales efforts in this area.

COMPETITION

The market for providing solutions to wireless operators is highly competitive and subject to rapid change. A number of independent companies currently offer one or more of the solutions we provide. In addition, many wireless operators, including Verizon Wireless, are providing, or can provide, the products and services we offer in-house, primarily in the billing area and often utilizing a competitor’s technology. Demand for our services could be affected by trends in the wireless industry, including greater consolidation, technological changes and/or other developments. These developments can make it easier or more cost-effective for wireless operators to provide certain services themselves and could make it more difficult for us to offer a cost-effective alternative to a wireless operator’s in-house capabilities. In addition, we anticipate the entrance of new competitors in the wireless services market in the future, particularly competing with our bcgi Access Management products. Along with the in-house capabilities of the wireless operators themselves, the following is a list of key competitors in the wireless billing markets:

We believe that the principal competitive factors in the market for providing solutions to wireless operators include the ability to identify and respond to wireless operator needs, timeliness, quality and breadth of product and service offerings, price and technical expertise. We believe we compete effectively in all these areas and our most important competitive advantage is our proprietary software. We also believe that our competitive advantages in the wireless services industry include our ability to easily integrate with all switch types, wireless system types (GSM, TDMA, CDMA, 2.5G, 3G, etc.) and billing systems. This integration is critical since industry consolidation has resulted in carriers operating multiple switch types and billing systems across their footprints, requiring prepaid solutions to integrate with all technologies in order to offer nationwide programs. Our other competitive advantages include:

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GOVERNMENT REGULATION

The Federal Communications Commission, under the terms of the Communications Act of 1934, as amended, including the Telecommunications Act of 1996, regulates interstate communications and the use of radio spectrum, including entry, exit, rates and terms of operation. Presently, we do not operate any facilities utilizing radio spectrum and we do not have any facilities-based services involving interstate communications. Consequently, we are not required to and do not hold any licenses or other authorizations issued by the Federal Communications Commission for interstate operations.

Our wireless operator customers are regulated at both the federal and state levels. Proposals to intensify or reduce government regulations 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 and results of operations.

EMPLOYEES

As of December 31, 2004, we had a total of 400 full-time and part-time employees. Of these employees, 302 served in engineering, technical operations and support and software development, 46 served in sales, business development, marketing, product management and client relations, and 52 served in administration and management. None of our employees are represented by a labor union. We believe that our employee relations are good.

BACKLOG

As of December 31, 2004, there was no backlog of firm orders compared to $930,000 as of December 31, 2003. We include in backlog only those orders for which we have received completed purchase orders and for which delivery has been specified within 12 months. Most orders are subject to cancellation by the customer. Because of the possibility of customer changes in delivery schedules, cancellation of orders and potential delays in product shipments, our backlog as of any particular date may not be representative of actual sales for any succeeding period.

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AVAILABLE INFORMATION

We maintain an internet website at www.bcgi.net. The contents of our website are not part of this annual report on Form 10-K, and our internet address is included in this document as an inactive textual reference only. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and each amendment to these reports as soon as reasonably practical after we file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Each such report is available via a direct link through our website to our filings on the Securities and Exchange Commission EDGAR system or directly from the SEC’s website, www.sec.gov.

Item 2.    PROPERTIES

We own the facility at our principal location in Bedford, Massachusetts. Our Bedford location currently houses our data and network operations center, as well as our corporate headquarters, engineering and software development, sales and marketing, and administrative personnel. We lease space at our locations in Woburn, Massachusetts, Westbrook, Maine and Hyderabad, India. Our Woburn, Massachusetts facility currently serves as our redundant data center site.

The Westbrook facility houses our support functions for our Voyager Billing solution, including software development and technical support. Our Hyderabad facility hosts certain software development functions. We also have 31 other smaller leased facilities throughout the United States that house certain equipment for our network. We believe that our existing sites will accommodate our short-term anticipated growth and data center space needs and that suitable additional space is available if needed. Additionally, in February 2005 the lease for a portion of our Woburn facility was extended until February 2009 for our redundant data center.

The following list comprises our significant leased facilities:

Item 3.    LEGAL PROCEEDINGS

In March 2000, Freedom Wireless, Inc. filed a suit against us and a number of our wireless carrier customers. The suit is being tried in the United States District Court in Massachusetts and alleges that the defendants infringe two patents held by Freedom Wireless, Inc. and seeks damages as well as injunctive relief. If there were a ruling that we infringed the Freedom Wireless patents, it could significantly restrict our ability to conduct business. In addition, we have an obligation to indemnify the other defendants for damages they may incur with respect to any infringement by our technology. The trial began on February 28, 2005 and is expected to last for approximately eight weeks. In 2005,Verizon Wireless, who was a defendant in the case, reached a settlement with Freedom Wireless and is therefore no longer a defendant in the case. We were not part of the settlement discussions and the terms of the settlement are not public. 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 the fourth quarter of 2000, the third quarter of 2001 and the first quarter of 2002, we recorded special charges of $2.6 million, $3.6 million and $3.3 million, respectively, principally to accrue for legal expenses estimated by our outside legal counsel to be incurred in the defense of the patent infringement suit brought by Freedom Wireless. However, due to the lengthy and unpredictable proceedings, which had made it difficult to reasonably estimate legal costs in the Freedom Wireless suit, commencing in the third quarter of 2002, we began accounting for costs related to this case as incurred. As a result, for the years ended December 31, 2003 and 2004, we recorded charges of $4.0 and $3.0 million, respectively, for legal expenses related to the lawsuit.

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We expect to incur approximately $1.5 to $1.8 million in legal expenses in the first quarter of 2005 and, on average, $1.0 million per quarter thereafter, until the Freedom Wireless matter is resolved. However, this cost will likely continue to vary from quarter to quarter, depending on the timing of proceedings. There can be no assurance that costs to defend the Freedom Wireless suit will not exceed our estimate.

We are not presently able to estimate the potential losses, if any, related to the Freedom Wireless lawsuit. Freedom Wireless is seeking damages in excess of $250 million from us and the other remaining co-defendants, who bcgi has agreed to indemnify. If Freedom Wireless prevails in this case and is awarded the amount of damages which they are seeking from us and the other co-defendants, this amount would exceed our ability to pay.

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 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders, through solicitation of proxies or otherwise, during the three months ended December 31, 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and their ages and positions as of February 28, 2005 are as follows:

Mr. Tobin has over 25 years experience in the telecommunications and wireless industry. Mr. Tobin is one of our founders and has served as our Chairman since 1988. Mr. Tobin also held the position of President from February 1990 until February 1996, and from April 1997 to February 1998. Prior to his tenure with us, Mr. Tobin served as President of Cellular One Boston/Worcester and Portsmouth, NH, and Regional Marketing Manager for Satellite Business Systems (a joint venture of IBM, Comsat and Aetna). Mr. Tobin began his career as a Securities Analyst at Chase Manhattan Bank after receiving his undergraduate degree in Economics from Stonehill College and his M.B.A. from Northeastern University.

Mr. Snowden joined us as President and Chief Executive Officer in February 1998. Prior to that, he served as President and Chief Operating Officer of American Personal Communications, L.P. d/b/a Sprint Spectrum (“APC/Sprint Spectrum”), a wireless carrier, where he oversaw the successful launch of the nation’s first Personal Communications Services (“PCS”) network. Before joining APC/Sprint Spectrum in 1994, Mr. Snowden served as an Area Vice President at Pacific Telesis Group, a telecommunications provider, where he played an integral role in Pacific Bell’s entry into the PCS market through the development of the business plan for Pacific Bell Mobile Services. Previously, he served as Chief Executive Officer of Universal Optical Company, a manufacturer and marketer of designer eyewear. Mr. Snowden spent his early career as a Corporate

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Strategy Consultant and Manager with the Boston Consulting Group, a consulting firm. Mr. Snowden currently serves on the CTIA board of directors and the CTIA Wireless Foundation board. He also acts as director and vice-chairman of the board for the Massachusetts Telecommunications Council, a director of Tatara Systems, Inc., and as a Trustee of the Tower School in Marblehead, Mass. Mr. Snowden holds a bachelor’s degree in mathematical sciences from Stanford University and a master’s degree in business administration from Harvard Business School.

Ms. Walker, our Chief Financial Officer and Vice President of Finance and Administration, has been with us since 1993. She joined us as Corporate Controller in 1993 and she became Vice President of Finance and Administration in August 1998. In April 1999, she was promoted to the position of CFO. As CFO, Ms. Walker is responsible for overseeing finance, accounting, human resources, investor relations and facilities. She also played an integral part in guiding us through our IPO and follow-on offering. Prior to joining us, Ms. Walker spent over six years at Ernst & Young, LLP, a public accounting firm, where she earned her C.P.A. and was a Manager in E&Y’s Entrepreneurial Services Group. Ms. Walker holds a B.S. degree in Accounting from Boston College.

Mr. Wessman has over 30 years of experience in the telecommunications industry. He began his career with us in April 1995, managing all product implementations, customer care initiatives and quality assurance operations. In February of 1997, Mr. Wessman was promoted to Vice President of Implementation and Account Management, where he was responsible for Prepaid Wireless Services implementations and Prepaid Account Management. In February 2000, he was promoted to Chief Technology Officer, expanding his role to include the management of all technical resources at bcgi. Prior to joining us, Mr. Wessman spent 24 years with NYNEX Corporation (now Verizon). At NYNEX, he held various positions primarily in Information Services where he managed the development of billing systems and became Director of Quality Assurance, responsible for managing system testing, quality assurance and customer billing support. He has been a member of the QuEST Forum since 1999 and served on its Board of Directors in 2000. QuEST is the Telecommunication Industry’s quality organization and responsible for the creation and maintenance of quality standards (TL9000). Mr. Wessman holds undergraduate and M.B.A. degrees from Northeastern University.

Mr. von Mering has been involved with the telecommunications and wireless industries for nearly 20 years. Currently, Mr. von Mering holds the position of Vice President, Corporate Development, and is responsible for developing new business strategies and plans that leverage our competitive position within the wireless industry. Previously, Mr. von Mering was our first Chief Financial Officer until 1999, helping us execute our initial public offering in 1996. Before joining bcgi, Mr. von Mering was Regional Vice President and General Manager for the paging division of Metromedia. Prior to Metromedia, Mr. von Mering held various positions at Coopers & Lybrand a public accounting firm, where he earned his C.P.A. Mr. von Mering was appointed to the Board of Directors of MicroFinancial, Inc. (NYSE:MFI) in 2004 and serves as its Audit Committee Chairman. Mr. von Mering has an undergraduate degree in accounting from Boston College and an M.B.A. from Babson College.

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PART II

Market Information for Common Stock

Our Common Stock is traded on the NASDAQ National Market, under the symbol BCGI. The following table sets forth the high and low sales prices for our Common Stock for each full quarterly period within fiscal years 2004 and 2003.

Holders

At March 8, 2005 there were approximately 83 holders of record of our Common Stock.

Dividends

We have never declared or paid a cash dividend on our Common Stock. We currently intend to retain all of our earnings to finance future growth and, accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future.

Stock Repurchase Plan

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 the repurchase program. The program will expire at the earliest occurrence of any of the following events:

We repurchased 838,500 shares under the repurchase program in 2004. No shares were repurchased during the quarter ended December 31, 2004.

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Item 6.    SELECTED FINANCIAL DATA

The following tables should be read in conjunction with our Consolidated Financial Statements and the notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report (in thousands, except per share data):

In March 2004, we ceased providing our ROAMERplus solution, effectively discontinuing our Roaming Services segment. Accordingly, the operating results of the Roaming Services segment have been segregated as discontinued operations in the Consolidated Balance Sheets and Consolidated Statements of Income.

Results for the year ended December 31, 2004 include a charge for general and administrative legal expenses of $3.0 million, primarily for the Freedom Wireless suit.

Results for the year ended December 31, 2003 include a charge for general and administrative legal expenses of $4.0 million, primarily for the Freedom Wireless suit.

Results for the year ended December 31, 2002 include a charge for general and administrative legal expenses of $4.3 million, primarily for the Freedom Wireless lawsuit.

Results for the year ended December 31, 2001 include a special charge of $538,000 for accruals, inventory write-downs and severance resulting from the discontinuance of our voice mail product, a charge for general and administrative legal expenses of $3.6 million to accrue for estimated legal expenses, primarily for the Freedom Wireless lawsuit and a special charge of $894,000, principally for the permanent impairment of a cost-based investment.

Results for the year ended December 31, 2000 include an impairment of long-lived assets charge of $1.1 million for a write-down of assets no longer used to support our business, a charge for general and administrative legal expenses of $2.6 million to accrue for estimated legal expenses for the Freedom Wireless lawsuit and additional depreciation of $1.7 million resulting from write-offs of certain retired equipment.

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CONSOLIDATED RESULTS OF OPERATIONS

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 MVNO’s 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 both direct and indirect channels internationally.

We generate revenues from Real-Time Billing as a managed service principally by charging operators for each minute of use processed through our platform. We record Real-Time Billing services revenues 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 SMS, PTT 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 monthly subscriber’s bill.

While there were no bcgi Access Management revenues in 2004, we expect that we will generate revenues from this product by charging wireless operators as a percentage of their revenues or on a monthly per subscriber or account basis. For bcgi Payment, we typically generate revenue by charging wireless operators a transaction fee for the services performed and paying the financial partners a fee for enabling the transaction. bcgi Network is expected to generate revenues on a managed services basis by charging wireless operators a fee for each transaction processed or as a percentage of revenue.

Licensed sale revenues currently comprise about 5% of revenue and are generally recognized when the system is shipped, with installation and maintenance recorded as the services are performed.

Our total revenues increased 8% to $107.9 million in 2004 compared to $99.8 million in 2003. In 2003, total revenues increased 54% from $64.6 million in 2002. Our operating income of $26.4 million in 2004 is an increase of 6% over $24.8 million in 2003. Operating income in 2003 increased $21.1 million from operating income of $3.7 million in 2002.

We anticipate that earnings per share for the first quarter of 2005 will decrease from the fourth quarter of 2004, due to lower revenues and increased cost of revenues, sales and marketing costs and legal costs to support 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 departure 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.

In March 2004, we ceased providing our ROAMERplus solution, effectively discontinuing our Roaming Services segment.

During the quarter ended September 30, 2004 we began a phased shut down of our Tulsa operation, which housed much of the operations that support our prepaid systems business and began to integrate the prepaid

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systems business into our Massachusetts locations. The expenses we have incurred to close this facility are reflected in our operating results. As a result, beginning with the fourth quarter of 2004, we no longer reported the Prepaid Systems business as a separate segment.

Revenues

Our total revenues increased 8% to $107.9 million in 2004 compared to $99.8 million in 2003 and $64.6 million in 2002. In 2003, total revenues increased by 54% over 2002. The revenue increase in 2004 was due primarily to additional revenue from Nextel Communications, partially offset by lower revenues from Verizon Wireless. The increase was also attributable to an increase in the average billed minutes of use per subscriber per month to 113 for 2004 compared to 111 in 2003. These increases were partially offset by an 11% decrease in our average billed rate per minute. Our U.S. subscriber base remained consistent with 3.77 million subscribers as of December 31, 2003 and 2004. The revenue increase in 2003 compared to 2002 was due primarily to additional revenues from Verizon, Cingular and Nextel. The increase was also attributable to an increased subscriber base of 3.7 million in 2003 compared to 2.9 million in 2002 along with an increase in the average billed minutes of use per subscriber per month to an average of 111 for 2003 compared to 96 in 2002. These increases were partially offset by a 17% decrease in our average billed rate per minute in 2003 compared to 2002. We expect the number of subscribers and corresponding revenues to decrease in 2005 due to the subscriber reductions from Verizon Wireless and Cingular Wireless.

Gross margin

Gross margin increased to 76% of revenues in 2004 from 75% in 2003 and 70% in 2002. The improvement in 2004 and 2003 was primarily due to increased revenues as well as our predominantly fixed cost infrastructure. Our gross margin is expected to decrease to about 71% to 73% in the first quarter of 2005 due to lower revenues, along with additional costs for resources to support our licensed sale business and international expansion.

Operating Data

Engineering, research and development expenses

Engineering, research and development (“ER&D”) expenses primarily include the salaries and benefits for software development and engineering personnel associated with the development, implementation and maintenance of existing and new services. The increase in ER&D expenses in absolute dollars and as a percentage of revenue in 2004 compared to 2003 resulted from additional personnel and the corresponding wage increase of $1.8 million principally to support the development of bcgi Access Management, along with the enhancement of the features and functionality of our existing and other new products. This increase was partially offset by an approximate $400,000 decrease in bonuses earned by employees relating to our 2004 financial performance compared to 2003.

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The increase in ER&D expenses in absolute dollars in 2003 compared to 2002 resulted from additional personnel and the corresponding wage increase of approximately $2.4 million to support the development of bcgi Access Management and the Voyager Billing product acquired in October 2002, along with the enhancement of the features and functionality for our existing products. Additionally, the increase was a result of approximately $800,000 in additional bonuses earned by employees relating to our 2003 financial performance compared to 2002. ER&D expenses in absolute dollars are expected to remain consistent in the first quarter of 2005 compared with the $4.1 million incurred in the fourth quarter of 2004.

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 in 2004 increased in absolute dollars over 2003 due to higher commissions of approximately $200,000, resulting from higher revenues along with increased trade show costs of approximately $300,000 and increased promotional costs of approximately $150,000 to support Mobile Guardian and other diversification efforts. These increases were partially offset by decreases of approximately $200,000 for bonuses earned relating to our 2004 financial performance compared to 2003.

Sales and marketing expenses increased in 2003 as compared to 2002 due to additional wages of approximately $700,000 reflecting our investment in new products and our revenue diversification strategy as well as the full year of expenses from the ISC acquisition. In addition, the increase was due to higher bonuses (approximately $300,000) earned by employees relating to our 2003 financial performance compared to 2002, increased wages of approximately $300,000 supporting our investment in the bcgi Payment business and increased commissions of approximately $200,000 due to higher revenues. Sales and marketing expenses of $1.6 million in the fourth quarter of 2004 are expected to increase by more than $1.0 million in the first quarter of 2005. The increase reflects certain first quarter only events including the investment in our rebranding effort and our participation in two major tradeshows, as well as our long-term focus on expanding our product offerings on a global scale.

General and administrative expenses

General and administrative (“G&A”) expenses include salaries and benefits of employees and other expenses that provide our administrative support. The increase in G&A expenses in absolute dollars in 2004 compared to 2003 was due to higher costs associated with expanded regulatory requirements and related costs for public companies totaling approximately $500,000, which was partially offset by decreases of approximately $400,000 for bonuses earned by employees relating to our 2004 financial performance compared to 2003.

The increase in G&A expenses in absolute dollars in 2003 compared to 2002 was due to additional bonuses of $600,000 relative to our 2003 financial performance compared to 2002, higher costs associated with new regulatory requirements for public companies of $300,000, a full year of expenses (about $300,000) from our ISC acquisition and approximately $400,000 in wages for additional personnel to support our growth. G&A expenses in absolute dollars are expected to remain consistent in the first quarter of 2005 compared with $2.2 million from the fourth quarter of 2004.

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. We expect to incur approximately $1.5 to $1.8 million in legal expenses in the first quarter of 2005 as a result of the commencement of the trial, and, on average, $1.0 million per quarter thereafter, until the Freedom Wireless matter is resolved. However, this cost will likely continue to vary from quarter to quarter, depending on the timing of proceedings. There can be no assurance that costs to defend the Freedom Wireless suit will not exceed our estimate. If Freedom Wireless prevails in this case, the amount of damages could be substantial and our business, financial condition and results of operations would be materially adversely affected.

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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 2004 increase in depreciation and amortization expense as compared to 2003 was attributable to additional telecommunication equipment and software to enhance our managed services platform as well as further develop our licensed products. The increase in depreciation and amortization expense in absolute dollars in 2003 compared to 2002 was due to more capital deployed to support growth and continued enhancements in our managed services business and, to a lesser extent, due to a full year of depreciation expense related to the purchase of our Bedford, Massachusetts facility and a full year of amortization of intangible assets from the ISC acquisition. Depreciation expense is expected to increase slightly in the first quarter of 2005 as compared to $5.5 million in the fourth quarter of 2004.

Interest income

Interest income remained consistent at $1.2 million in 2004 compared to $1.2 million in 2003 and decreased from $1.6 million in 2002. 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 increased in 2004 and 2003, lower average interest rates during the periods resulted in decreased levels of interest income compared to the previous years.

Provision for income taxes

The effective income tax rate for the year ended December 31, 2004 and 2003 was 38% compared to 40% for the year ended December 31, 2002. The income tax rate was 38% in 2004 primarily due to the recognition of certain state investment tax credits in the fourth quarter of 2004. The income tax rate decreased in 2003 due to the utilization of state net operating loss carryforwards that had not been valued.

Acquisitions

In October 2002, we completed the acquisition of ISC, a privately-held provider of billing software solutions for the wireless marketplace, providing us with an outsourced postpaid billing service for wireless operators. We paid $3.5 million in cash to acquire substantially all of the assets and certain liabilities of ISC. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill. 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 factors. Identifiable intangible assets consist of acquired technology and customer contracts and are being amortized over five years. We accrued $590,000 at December 31, 2004 for contingent consideration payable to ISC based on qualified revenues earned in 2004 under the terms of the acquisition agreement. This compares to contingent consideration of $410,000 accrued at December 31, 2003 and paid in 2004. Both of these accruals were recorded as increases to goodwill. 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. The results of operations of ISC are included in our consolidated statements of operations from the date of acquisition.

In November 2004, we acquired the assets of Airada, a privately-held provider of payment management software solutions for the wireless marketplace. We paid $1.3 million in cash for Airada. 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 factors. Identifiable intangible assets consist of acquired technology and customer contracts and are being

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amortized over five years. We may be required to pay additional contingent cash consideration based on attaining certain defined annual revenue and operational targets through 2007, most of which will be accounted for as additional goodwill. The results of operations of Airada are included in our consolidated statement of operations from the date of acquisition.

Selected Quarterly Operating Results

The following table sets forth certain unaudited quarterly results of our operations for the eight quarters in the two-year period ended December 31, 2004, including such amounts expressed as a percentage of total revenues. This quarterly information is unaudited, prepared on the same basis as the audited Consolidated Financial Statements and, in the opinion of our management, reflects all necessary adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the information for the periods presented. The quarterly operating results are not necessarily indicative of future results of operations, which you should read in conjunction with the audited Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K.

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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

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. 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

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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: 1) For Real Time Billing, we earn revenues principally by processing prepaid wireless minutes, net of any penalties incurred related to outages on our platform. 2) For bcgi Payment, we earn revenues by processing transactions on behalf of wireless operators’ subscribers. 3) For Voyager Billing, we earn revenues by generating a postpaid subscriber’s monthly bill. 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 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. For our licensed systems business, 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. 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 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 collectability 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.

Legal Costs

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 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, Software Development Costs and Costs Capitalized for Internal Use

Research and development costs are charged to expense as incurred. However, costs incurred for the development of computer software or for the deployment of assets for internal use are capitalized. The direct labor and payroll-related costs of development of computer software, primarily for coding and testing of software, are capitalized in accordance with the American Institute of Certified Public Accountants’ Statement of

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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. We make judgments regarding the specific time that can be capitalized based upon the type of project and type of work being performed. The capitalized costs are subject to an ongoing assessment of recoverability based on management’s judgment, which contemplates the anticipated future undiscounted net cash flows and changes in hardware and software technologies.

Internally capitalized costs totaled $3.6 million for the year ended December 31, 2004 and $3.8 million for the year ended December 31, 2003. 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:

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 Income. 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.

For impairment tests of goodwill, we utilize the enterprise-wide approach, which is based on the aggregate market value of our common stock, to determine the fair value of our reporting segment and compare that to our consolidated net book value to determine if an impairment loss exists.

In October 2002, we acquired the assets and certain liabilities of 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.

In November 2004, we acquired the assets of 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.

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 five years. Significant judgments and estimates are involved in determining the fair market value of assets acquired and their useful lives. Different assumptions could yield materially different results.

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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.

New Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 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 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005.

Statement 123(R) permits public companies to adopt the new requirements using one of two methods:

We plan to adopt Statement 123 using the modified-prospective method.

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 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 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 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 and earnings per share in Note 2 to our consolidated financial statements. Statement 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. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $129,000, $3.5 million, and $623,000 in 2004, 2003 and 2002, respectively.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments increased 17% to $77.8 million compared to $66.5 million at December 31, 2003, primarily due to cash generated by operations. The net cash provided by operations of $42.0 million resulted from $17.2 million in net income, along with adjustments for depreciation and amortization of $22.3 million and deferred income taxes of $1.0 million.

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Our investing activities utilized $28.3 million of net cash for the year ended December 31, 2004. We spent approximately $19.0 million for the purchase of telecommunication equipment and software to enhance our managed services platform as well as further develop our licensed products and, to a lesser extent, for the renovation of our Bedford, MA corporate headquarters. In addition, we purchased $4.8 million in short-term investments, net of sales, $2.7 million in purchases of long-term investments and we acquired a business for approximately $1.3 million. We expect our capital expenditures to be approximately $15.0 to $17.0 million for the full year 2005. We expect to contribute approximately $1.5 million to fund our defined benefit plan assets in the second quarter of 2005, and we intend to continue to make such contributions for the foreseeable future. We intend to finance such investments from our short-term investments.

Our financing activities used cash of $6.9 million during 2004 primarily for the repurchase of $8.2 million of common stock, partially offset by proceeds from the exercise of stock options and the corresponding issuance of common stock.

Subject to the outcome of the Freedom Wireless lawsuit, we believe that our cash and short-term investments will be sufficient to finance our operations for at least the next twelve months and for the foreseeable future thereafter.

We have non-cancelable operating lease commitments for office space and equipment, many of which are renewable at our option as well as various other commitments for equipment and telecommunications services under which we are contractually obligated beyond the current period. The following table summarizes our contractual obligations as of December 31, 2004 (in thousands):