UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ACE*COMM CORPORATION

Registrant’s telephone number, including area code: (301) 721-3000

Securities registered pursuant to Section 12(b) of the Act: NONE

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

Common Stock
$.01 par value
(Title of class)

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 requirement for the past 90 days.
YESþ                     NO o

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. o

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

As of December 31, 2003, the aggregate market value of the Common Stock held by non-affiliates of the registrant [(i.e. persons who are not directors, officers or affiliated therewith)] was approximately $26,727,101 million (10,777,057 shares of Common Stock at a closing price on the Nasdaq National Market of $2.48 on such date). Outstanding as of December 31, 2003 were 13,719,191 shares of Common Stock.

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ACE*COMM CORPORATION
TABLE OF CONTENTS

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INTRODUCTION

ACE*COMM Corporation, incorporated in Maryland in 1983, and its wholly owned subsidiaries, Solutions ACE*COMM Corporation, incorporated in Quebec in 1996, ACE*COMM Solutions UK Limited, incorporated in the United Kingdom in 2003 and ACE*COMM Solutions Australia Pty Limited, incorporated in Australia in 2004, and i3 Mobile acquired in December 2003 are referred to in this document collectively as ACE*COMM, unless otherwise noted or the context indicates otherwise.

ACE*COMM’s fiscal year ends on June 30. Unless otherwise noted, all references to years in this document are assumed to be fiscal years. The consolidated financial statements include the accounts of ACE*COMM and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

FORWARD LOOKING STATEMENTS

This annual report on Form 10-K and the information incorporated by reference in it include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forwarding-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. These forward-looking statements relate to future events or the future financial performance of ACE*COMM (as defined below), some or all of which may involve risk and uncertainty. ACE*COMM often introduces a forward-looking statement by such words as “anticipate,” “plan,” “projects,” “continuing,” “ongoing,” “expects,” “management (or ACE*COMM) believes,” or “intend.” Investors should not place undue reliance on these forward-looking statements, which involve estimates, assumptions, risks and uncertainties that could cause actual results to vary materially from those expressed in this Report or from those indicated by one or more forward-looking statements. The forward-looking statements speak only as of the date on which they were made, and ACE*COMM undertakes no obligation to update any of the forward-looking statements. In evaluating forward-looking statements, the risks and uncertainties investors should specifically consider include, but are not limited to, demand levels in the relevant markets for ACE*COMM’s products, the ability of ACE*COMM’s customers to make timely payment for purchases of its products and services, the risk of additional losses on accounts receivable, success in marketing ACE*COMM’s products and services internationally, the effectiveness of cost containment strategies, as well as the various factors identified in this annual report on Form 10-K which could cause actual results to differ materially from those indicated by such forward-looking statements, including the matters set forth in “Business — Backlog”, “Business – Proprietary Rights and Licenses”, “Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors Affecting Future Operating Results”. Investors should not place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date in which they are made, and ACE*COMM undertakes no obligation to update any forward-looking statements.

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PART I

ITEM 1. BUSINESS

General

We are a provider of advanced operations support systems (OSS) solutions for telecommunications (“telecom”) service providers and enterprises. Our solutions are applicable to a range of networks, from legacy through next-generation, that include wired, wireless ,voice, data, multi-media, and Internet communications. These products and services include the analytical tools required for customers to extract information from their own operating networks - - information customers can use for revenue assurance, to reduce costs, to accelerate time-to-market for new services, and to provide more effective customer care. As a result of the acquisition in February 2004 of certain assets of Intasys, we now also offer interoperable wireless customer care and billing and electronic payment solutions for operators in both developed and emerging markets around the world. We market the Intasys customer care and billing solutions and the ACE*COMM line of Convergent Mediation™ product lines to telecommunications carriers and Internet communications service providers, and the ACE*COMM NetPlus^® Enterprise Operations Support System (or NetPlus^® EOSS) and other products primarily to large enterprises.

We believe that as telecommunications carriers and service providers focus on improving their financial position, enhancing profitability, increasing operational efficiencies, and adding new services to increase revenues, they will require more use of the network and infrastructure and generate more usage data for billing and accounting functions. Wireless operators are launching new data networks in which content plays a major role. Data traffic is growing, and we believe products designed to enable network users to make use of the data they generate will becoming increasingly useful. OSS solutions, such as our customer care, billing, and mediation systems, can be increasingly important for operators. In the enterprise sector, an increased focus on telecom cost management has created opportunities for telemanagement solutions such as the ACE*COMM NetPlus® line of products.

Over the past few years, the decline in the telecommunications and Internet communications industries has caused a significant reduction in spending by service providers in these industries. This has resulted in a significant reduction in our revenues, from U.S., Canadian, and European customers in particular. We responded to this industry decline in demand by reducing its overhead and other costs, and conserving cash resources. In 2004, we perceived the first increase in demand from service providers in over three years. Demand from enterprise users is still being adversely affected by industry conditions, and we cannot predict when the demand from this sector will have the long-awaited improvement that we still expect to occur. Our management believes that if and when the long anticipated upturn in the telecom industry does occur, it will provide significant opportunities for companies in the OSS market space, particularly in North America, and that OSS solutions will become important to the telecom recovery as they are used to increase revenue, reduce operating expenses, conserve capital, and promote customer stability.

Over the past year, we saw potential in the telecommunications market to acquire additional technologies to complement our core solutions, build our product and service offerings and give us greater access to potential new markets. A first step in this growth strategy was the completion of the acquisition in December 2004 of the cash and other assets of i3 Mobile, Inc., a mobile communications services firm that had ceased operation. Completion of this first transaction gave us the liquidity need to broaden our product offerings and expanding our geographic presence through acquisition and consolidation.

The next step in our growth strategy was to add key customer care and billing capabilities to our OSS solutions product line. This was achieved through the acquisition of certain assets of Intasys of Montreal, Canada. Management believes that this acquisition strengthens our position in the wireless mobile market sector. Intasys had been providing OSS products and services to the communications industry for more than 10 years, accumulating a base of 35 implementations in five countries.

These OSS products are comprised of billing, customer care, and electronic bill presentment and payment solutions that were specifically designed for the Tier-2 and Tier-3 wireless network service provider. They integrate all of the operational functions required to effectively manage wireless communications operations, including rating and discounting, billing, customer care, stock management, payments, and reporting. They have been deployed around the

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world in both developed and developing countries, and offer comprehensive wireless billing and customer care capabilities in a small but sophisticated package that is easy to install and operate. The Intasys solutions for wireless carriers are complementary to our existing convergent mediation offerings, and provide potential for growth in both the wireline and wireless markets. In addition to offering the Intasys product line as a complement to our existing line of products, we plan to integrate the subscriber-centric technologies into our other products to create a more complete OSS solution that targets Tier 2 and Tier 3 telecommunications service providers worldwide.

We have been focusing over the last four years on non-domestic customers, and have experienced an increase in revenue from outside of North America, although the increase has not been sufficient to offset the decline in revenues from the North American market. In fiscal year 2004, 56% of our revenues were derived from outside of North America. During the past fiscal year we added new customers and expanded to new geographical areas. In the carrier and service provider marketplace we secured the following new business:

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a broadband data mediation project for VSNL - a leading Indian carrier with growing broadband service offerings;

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a project to provide a complete customer care, billing, and mediation solution to the Bahamas Telecommunications Company – a mobile carrier with a new, next-generation GSM network - in partnership with Sentori Inc;

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a network data collection project for Kunming Tel in Kunming City - the capital city and largest metropolitan area in Yunnan Province; and

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a country-wide mediation project with Giza Systems for Telecom Egypt.

The Giza Systems project spans all of Egypt, includes data collection hardware, software and services for over 400 network elements, and could result in revenues in the millions of US dollars over its lifespan. Management believes this to be the largest mediation contract awarded in the telecom sector in the past two years.

In the enterprise arena, despite continuing poor demand, we expanded our vertical market capabilities with a NetPlus® EOSS installation contract for the Chicago Board of Trade to manage elements of the Chicago exchange’s voice digital and analog telecommunications network. We added new government agency customers, including the State of Nevada Department of Information Technology; the Federal Aviation Administration (FAA), and Fairfax County in Virginia, which purchased our NetPlus® solutions products.

Products and Services

     Solutions for telecommunications carriers and Internet service providers

We offer a robust and award-winning suite of OSS solutions backed by significant technological expertise. For voice, data, fixed and mobile networks, we provide an interoperable suite of offerings that can help customers lower their operating costs, expedite time-to-market for new services, assure revenues, provide optimized billing, and improve performance metrics. These include:

     Convergent Mediation™

For telecommunications and Internet service providers worldwide, we offer product-based solutions for the collection, management, and distribution of network usage data. These solutions enable service providers to collect, manage, and process call data from a wide range of sources, including next-generation and other data networks, wireless and radio networks, and traditional voice switches.

     IP Mediation

Our mediation software plays a key role in IP networks. It accepts data from various network elements (e.g., softswitches, media servers, signaling gateways, service development platforms), and transforms it into industry-standard billing data structures that can be used by virtually any billing system, including a service provider’s legacy voice billing system.

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     Billing Mediation

As part of our line of Convergent Mediation™ solutions, our billing mediation products encompass a full range of functions and technologies from capture and collection, through to data management and presentation. These solutions provide complete OSS vendor independence by creating a layer of abstraction between the network elements and the billing system.

     Revenue Assurance

Real-time and near real-time data analysis capabilities enable immediate detection, notification, and correction of identified problems. This provides customers with the capability of generating a reliable and immediate audit trail. The rapid data analysis also enables our customers to perform service pricing and costing, and provides other revenue assurance benefits related to data repair and correction, inter-carrier accounting and performance management.

     Performance Management

Performance management with our solutions includes both the technical functioning of the network and its commercial performance, provides key information on the level of revenue generated, how it is generated, how much is lost to leaks, and the value added (or lost) through partner agreements.

     Churn-risk Management

The ACE*COMM N*Score product enables service providers to rank their customers according to a user-specified scoring system. N*Score cross-references known customer turnover-risk (churn) factors against customers’ actual usage patterns and uses that information to identify and rank high-risk customers. The information generated by N*Score gives service providers and other customers more information about the risk of losing particular customers, permitting them to correct customer services or others issues before their client decides to terminate service.

     Data Collection

Our data collection solutions support usage-sensitive billing with flexible, configurable, efficient, and reliable collection from virtually any type of network element. They include several inter-related technologies that can be used together or as stand-alone installations, depending on a customer’s network and data collection needs.

     Rating

N*Rate is the rating module for our Convergent Mediation™ solutions. It applies either a cost or a price to each record being processed, based on rate/cost tables. Rating can be by origin, destination or other parameters, and can enable functions such as wholesale billing, while costing enables functions such as least-cost-routing analysis or intercarrier invoice reconciliation and validation.

     Wireless / Subscriber Billing

Our billing solution, JBill, is specifically designed to meet the billing and customer care business needs of the fast-growing wireless Tier 2 and Tier 3 network operator and service provider markets. JBill integrates all the billing and accounting functions required to effectively manage wireless communications operations.

     Electronic Bill Payment & Presentment (EBPP)

Our EBPP solution, ViewBill, is a comprehensive multilevel product for managing billing accounts. It can improve interactive self-care by managing complex corporate bills, as well as dealers and resellers. ViewBill provides service providers direct control over a full range of account-related tasks to perform functions that might otherwise go through a call center, retail outlet or other distribution channel.

     Provisioning Gateway

Our Provisioning Gateway (APG) is a service activation gateway that activates and manages subscribers and their services on a network. APG supports multiple service providers sharing one network, and interfaces can be adapted or created for any type of network element.

     IP Centrex and billing system

Our TREX*COMM® collection solution creates an IP Centrex and billing system by processing data from soft switches.

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     Geographic markets

We market and sell OSS solutions into the geographic regions described below.

     Canada & U.S.

Our corporate headquarters are located in Gaithersburg, Maryland, close to the District of Columbia, and we operate a development office in Montreal, Canada. North American customers include Level 3 Communications, Birch Telecom, Nextel, and TelCove.

     Latin America

We have maintained a strong presence in Latin America for more than ten years and have completed hundreds of installations throughout the region. Through partner relationships, support offices in Mexico, Guatemala, and Colombia provide customers with local support in their native language. Our customers include Telmex, IUSACELL, CODETEL, and Telefonica Moviles Mexico.

     Europe

We have established a European customer-base through OEM relationships with industry leading equipment manufacturers such as Siemens AG, Alcatel, and Marconi. We are working with Northrop Grumman (formerly TRW Inc.) and British Telecom (BT) to provide the call event-processing component of the UK’s Airwave mmO2 Public Safety Radio Communications project. Most recently, we have added a development and support office in Edinburgh, Scotland, as a result of our acquisition of Intasys.

     Middle East and Africa

Since 1995, we have maintained a presence in the Middle East and Africa through regional partnerships with companies like Giza Systems Engineering, Fujitsu Siemens, MOSECO Jordan, and ACT. Our systems are installed in various locations in Morocco, Egypt, Qatar, Kuwait, Saudi Arabia, and the Palestinian Territories.

     Asia Pacific

With over ten years of experience in the region, we have developed a base of customer and partner relationships in Asia-Pacific. We are extending our initial focus on the traditional switching sector to address the needs of complex IP and next-generation mediation technologies, as well as mobile customer care and billing technologies. Our systems are installed in Australia, China, Singapore, the Philippines, Japan, Australia, Taiwan, Indonesia, Malaysia, Korea, and Bhutan. ACE*COMM maintains an office in Shanghai with a staff focused on business development activities in China. Most recently, we have added a sales, support, and development office in Bundall, Australia, through our Intasys acquisition, to focus on sales and customer maintenance for the Asia-Pacific region.

     Solutions for large enterprises

We offer network telecommunications management (telemanagement) products and services to large enterprises, which include government agencies, military organizations, educational institutions and “Fortune 1000” size organizations. Our principal product for these customers is the NetPlus^® Enterprise Operations Support System (EOSS). It can be used on multi-vendor/multi-protocol voice, data, and video networks, and is scalable to accommodate numerous network sizes and locations. NetPlus^® enables enterprises to improve service and control costs by managing various aspects of their networks, including alarm and fault resolution, cabling and facilities management, convergent billing, charge back billing, cost control and recovery of lost data. NetPlus^® also provides enterprise customers with the ability to automate maintenance of their networks by providing automated work orders and trouble tickets, and to manage their inventory and switching equipment configuration.

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Our newest version of the product, NetPlus^® 6 EOSS, features a platform based on the n-tiered Java 2 Enterprise Edition (J2EE) architecture, which is an architecture that represents the combined expertise of a collaborative industry effort and has wide industry support from key middleware vendors. This version represents an improvement in flexibility, extensibility, and mobility over present-day systems. The new version’s browser-based interface is expected to eliminate the need for time-consuming client installation and upgrades, and includes a configurable Workflow Engine that enables information technology (IT) departments to further automate labor and paper-intensive processes for improved network operating efficiency and data accuracy.

     Target market segments

ACE*COMM markets and sells NetPlus^® into the following vertical markets:

     Federal government agencies and military installations

We design large scale, secure, high-availability network management systems for Federal government agencies at installations in the U.S. and abroad.

     State and local governments

ACE*COMM’s NetPlus^® EOSS provides state governments with the platform required to monitor and manage all aspects of their networks, enabling them to automate telecommunications functions, control costs and appropriately allocate those costs among state agencies.

     Financial services

     ACE*COMM’s NetPlus^® EOSS offers our financial services customers a fully integrated network communications management system that covers the many software and services needs of today’s financial services institutions for fault, configuration, accounting, performance, and security management.

     Airports and transportation

Airports and other public transportation authorities must address the communications service needs of their tenants. ACE*COMM’s NetPlus^® utilizes a centralized database that provides our customers comprehensive network monitoring, carrier bill reconciliation, and subscriber billing that are fast, accurate, and automatic.

     Educational institutions

Colleges and universities face challenges when addressing the diverse communications needs of a large academic organization. ACE*COMM’s NetPlus^® provides educational institutions with the tools necessary to effectively manage network performance while customizing services and information provided to individual departments and organizations.

     Public utilities

     The recent changes in the regulatory environment have forced public utilities to focus on cost management and to be more competitive with other suppliers. Public utilities now have a requirement to reduce overall network communications management costs and improve service levels to customers. ACE*COMM’s NetPlus^® provides these tools, including traffic engineering and analysis tools for ACD trunks.

     Large enterprises (Fortune 1000)

The business of enterprise network communications management continues to evolve rapidly. Not only has the technology advanced, but the scope of this set of management functions has also expanded. As a result, today’s large enterprise network and IT managers face many complex challenges in defining the role of network communications and

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IT management, and in establishing systems that work together to realize their full potential. NetPlus^® provides these organizations with the ability to manage communications and IT systems from an enterprise-wide OSS.

Core capabilities

ACE*COMM’s NetPlus® has the capability to resolve problems associated with technology convergence, implementing new types of network services, managing mergers and acquisitions, and the increasing demand for more equitable and accurate methods for chargeback of IT and communications.

Our network communications management products provide enterprise customers with the following range of capabilities:

     Fault management

A software product that allows network managers on a near real-time basis to detect faults, determine their origins and perform fault correction.

     Configuration management

A software product that provides subscriber, connectivity, and equipment administration functions to track and report information on a network-wide basis.

     Accounting management

System functions that collect, store, process, rate and verify billing and accounting data.

     Performance management

System functions that aggregate and analyze network performance, call data and configuration data to provide network managers an overall performance model of their network and operations.

     Security management

A multi-level, layered system that provides security functions at various levels within the network, including those within the operating system and database.

     Directory management

An application that provides personnel, departmental and classified directory listings in organizational or alphabetical formats.

     Product Backplane^TM

A software system that essentially provides the common backbone to all NetPlus^® applications. Product Backplane™ is based on an Oracle^® database, client/server distributed processing, Web-based User Interface (WUI), and Graphical User Interface (GUI) presentation, which operates for a single module or multiple functional system and allows users to implement only the modules they need.

     Network management applications

Infrastructure software that provides high-performance, low-cost, small-footprint applications for managing network element performance.

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     Workflow engine

A task-based management and advanced work order processing tool with business rule and process definition for improved productivity and data accuracy.

     Invoice Management

NetPlus® offers detail, summary, and historical reports for all account transactions and saves invoice, payment and charge information for transfer to a general ledger system.

     Flex-eBill™ Invoicing

An applications that allows for the specifying of different invoice configurations and arrangements for different customers. It provides a simple interface for customizing the look of invoices and creating carrier-grade graphic invoices.

     SLA Engine

A flexible Service Level Agreement (SLA) Engine used to define, monitor, and enforce specific models and policies for service levels between the enterprise, its telecommunications service providers, and its customers.

     Automated Switch/Server Interface (ASI)

Automated switch and server provisioning is provided through the NetPlus® Automated Switch/Server Interface (ASI). ASI updates network device records as work orders are processed by “talking” to the device and configuring it according to the work order request.

     Cost Management

A suite of functions aimed at controlling costs, which includes automatic validation and reconciliation of communications vendor billing, the virtual elimination of lost billing data, the elimination of recovery expenses from bad or missing data, and the optimization of usage of bandwidth and facilities.

     Professional Services and Support

Our services are generally delivered in conjunction with our network management products. Our professional service team assists customers in implementing its products, educates users, and provides maintenance and technical support. Implementation services include identification of technical requirements, solution design, product testing, and installation and integration. Our systems integration partners often provide additional expertise on international contracts and orders. We provide comprehensive educational courses to its customers, alliance partners, and employees so they can acquire the knowledge and skills necessary to deploy, use and maintain our solutions. ACE*COMM also offers train-the-trainer programs that enable its customers to conduct their own internal end-user training. Our maintenance and technical support services include help desk support, problem resolution, software maintenance and scheduled software upgrades. We provide technical support for its products from its Gaithersburg, Maryland headquarters and utilizes the Web, telephone, electronic mail and, if necessary, on-site assistance to respond to and resolve our customers’ technical questions. International customers are supported either directly by ACE*COMM or by third-party vendors trained by ACE*COMM.

We believe that a high level of customer support is critical to our continuing success in developing relationships with end users and its strategic partners.

Quality

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ACE*COMM maintains an ISO 9001 standard Quality Management Program to monitor the quality of its products and has an internal Quality Management Committee to set quality objectives for ACE*COMM and a Quality Assurance Department to implement and monitor compliance with the applicable procedures.

Sales and Marketing

We market and sell product–based network communications and data management solutions directly through our sales force. ACE*COMM concentrates its sales efforts on a range of service providers, from small start-ups to large established communication providers that offer voice and data services, including Internet-based services. We complement our direct sales with indirect sales through our strategic alliances with operators, original equipment manufacturers (OEMs), and resellers. These alliance partners give our direct sales force a global reach and provide significant leads and referrals. We believe that alliances with companies that are well known in the industry lend credibility and help to gain additional market acceptance for ACE*COMM products.

We also team with or serve as the prime contractor on larger opportunities that require fully integrated solutions from more than one provider. All forms of sales generally require the efforts of an ACE*COMM sales representative. During 2004, we increased our sales personnel and geographic coverage by hiring additional sales personnel and through the acquisition of Intasys customers and sales personnel.

Over the past two years, we have derived greater than one half of its revenues from products delivered or services performed outside of the United States consistent with our focus on sales opportunities outside of North America. Products delivered or services performed outside of the United States represented approximately 59 percent, 56 percent and 45 percent of total revenues in fiscal years 2004, 2003, and 2002, respectively. See Note 15 of the Notes to Financial Statements for a summary of our revenue by geographic area.

Revenue for a given period typically reflects products delivered or services performed during the period with respect to relatively large financial commitments from a small number of customers. During 2004, we had 12 major customers, which we define as customers generating $250,000 or more in revenues during the period; and together the major customers represented approximately 64% of total revenues. Giza/Telecom Egypt Project represented approximately 20% of total revenues, Siemens AG represented approximately 8% of our total revenues, and Northrop Grumman contributed approximately 6% of total revenues. During 2003, we had 12 major customers representing 76% of total revenues. Siemens AG represented approximately 20% of our total revenues and Northrop Grumman contributed 10% of total revenues earned during 2003. During 2002, we had 20 major customers representing 86% of total revenues. The average revenues earned per major customer were $0.7 million in 2004, $0.9 million in 2003 and $0.8 million in 2002.

The sales process for new contracts or orders generally requires a significant investment of time and money and takes from several months to several years. This process involves senior executives, sales representatives and support personnel, and typically requires presentations, demonstrations, field trials, and lengthy negotiations. We spend significant time consulting with strategic partners and end users to adapt our products to meet end user requirements and to determine their evolving requirements for updates and enhancements.

Strategic Alliances

To assist in developing, marketing, and distributing its products effectively and as part of our marketing efforts, we have established strategic alliances with several large organizations: telecommunication and Internet equipment manufacturers, computer equipment manufacturers, telecom systems integrators, and other organizations. Each alliance is designed to accomplish one or more of the following: develop products designed to meet the needs of the alliance partner or its customers, establish a joint marketing relationship to include our products in systems sold by the partner, create a reseller channel for our products, or jointly provide customer support to end users. These strategic alliances enable us to leverage relationships within the industry to enhance our market development.

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Each alliance typically involves a formal agreement between ACE*COMM and a strategic alliance partner, pursuant to which the parties agree that ACE*COMM will develop and sell products for use by the partner, or by its customers who are in such cases the end users of our products. Each agreement specifies the terms of the alliance, which may include off-the-shelf products and/or parameters for product development and product specifications, product pricing, the terms of intellectual property ownership, and the responsibilities of each partner for system integration, proposal drafting, sales and marketing. Once the products are developed, the strategic alliance partner will issue specific orders to us from time to time to purchase products, subject to the terms of the overall agreement. The products are generally purchased and paid for by the partner for resale to its customers directly or as part of a larger system installation. Sales to a strategic alliance partner may vary from period to period, depending on the timing of orders, which in turn may depend on a number of factors, including the completion of our product development, the partner’s marketing and sales efforts to its customers, the timing of orders from the partner’s customers, and various internal financial, strategic and other factors specific to a partner or any of its customers. Accordingly, sales to a partner in one period are not necessarily predictive of sales to the partner in future periods.

We classify our alliances into OEM and Reseller/SI (systems integrator) categories. The following is a list of our current significant strategic alliances:

     OEM

Strategic alliance partners in this category encompass original equipment manufacturers that embed our technologies into their solutions for end-users.

     Compagnie Financiere Alcatel (Alcatel) – Our Convergent Mediation™ solutions collect usage information from specific Alcatel switches owned and operated by carriers, providing the billing information carriers need. In 2003, ACE*COMM became an Alcatel ‘Connected Partner’ for the provision of mediation technology to enable usage-sensitive billing for service providers who operate X.25, frame relay, ATM, and VoIP networks.

     Cisco Systems, Inc. – we have developed the Cisco Billing and Measurement Server, or BAMS, based on its Convergent Mediation™ products. BAMS is a software application platform designed to co-exist within the framework of the Cisco products VSC3000, SC2200, and other applications where the VSC core software application is utilized.

     Zhone Technologies, Inc. (formerly Gluon Networks, Inc). – We provide our Convergent Mediation™ technology for embedding into Zhone’s CLX local switching solution for telecom service providers.

     Marconi Corporation, PLC – We provide Convergent Mediation^TM solutions that work in conjunction with Marconi’s ServiceOn Management^® suite of products.

     Motorola, Inc. – We provide Convergent Mediation™ solutions, integrated into the Mobile Data Gateway switch, that collect and format call detail records for electronic transmission to a billing center.

     Resellers & Systems Integrators

Strategic alliance partners in this category encompass leading hardware and software vendors or integrators who are resellers for our products.

     General Dynamics Corporation – As a General Dynamics subcontractor for network management products, we install and support NetPlus^® at multiple military facilities.

     Giza Systems – We provide our mediation and OSS solutions to Giza’s customers such as Telecom Egypt. Giza Systems is a leading integrator in the Middle East region representing world leaders in areas such as: networking, telecommunications, telemedicine, and video conferencing.

     Huawei Technologies - We provide our solutions to Huawei to address customers’ OSS requirements. Huawei Technologies is a Chinese high-tech enterprise which specializes in research and development (R&D), production and

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marketing of communications equipment, providing customized network solutions for telecom carriers in optical, fixed, mobile and data communications networks.

     MOSECO Jordan – Our alliance agreement with MOSECO Jordan covers sales and support activities to address the operations support systems requirements of the Middle East region’s communications service providers.

     NetSource America Inc. – we have signed NetSource as a reseller to offer NetPlus^® as part of its suite of software solutions and outsourced services focused on managing communications and IT infrastructures to large enterprises in the Midwest.

     Northrop Grumman Corporation (formerly TRW, Inc). – We provide subcontract services for its Convergent Mediation™ platform to Northrop Grumman for the real-time usage data management, warehousing and analysis requirements of a digital radio service in the United Kingdom.

     Science Applications International Corporation, or SAIC – We provide mediation expertise to SAIC’s broad consulting experience to supply comprehensive mediation solutions to large carriers – particularly in the wireless sector.

     Siemens AG – We sell our Enterprise telemanagement operations support and Convergent Mediation™ solutions outside the United States through Siemens AG, who serves as a prime contractor.

     Unisys Corporation – We have an arrangement with Unisys to collectively design and deploy NetPlus^® as part of an overall Unisys offering to state government customers.

     Zoom Networks - We provide Convergent Mediation™ solutions for bundling into comprehensive offerings for Zoom’s customers, who are primarily in the Chinese wireless and next-generation networks market sectors.

     ZTE Corporation - We provide our solutions to ZTE to address customers’ OSS requirements. ZTE Corporation is China’s largest listed telecommunications equipment provider specializing in offering customized network solutions for telecom carriers worldwide.

     Technology Partners

Alliances in this category encompass leading hardware or software vendors whose products may either be integrated with ACE*COMM solutions to provide additional value to our customers, or for whom We provide a third party solution to enhance and extend the functionality of their products to address customer requirements.

     Avaya - We are a DeveloperConnection (DevConnect) Program member. Our NetPlus® EOSS communications management system is interoperable with Avaya’s platforms.

     Business Objects - ACE*COMM solutions work with Business Objects. Business Objects solutions transform corporate data into a valuable resource that employees, partners, and customer can access, report, and share. The result is enhanced productivity and improved decision-making capabilities.

     Computer Associates - ACE*COMM solutions work with CleverPath Forest & Trees (formerly known as Forest & Trees) — a rapid and visual application development environment for creating dynamic, web-based business intelligence applications.

     Halcyon - ACE*COMM solutions work with the Halcyon Sun Management Center. The Sun Management Center agent comes directly from Sun Microsystems, and is a superior agent for monitoring and managing Sun hardware, from the Ultra-5 to the Sun Fire 15K.

     Nortel Networks - We are a Nortel Networks Developer Program member. The Nortel Networks Developer program is designed to meet the needs of Nortel Networks customers worldwide by creating relationships with innovative companies whose products and solutions complement Nortel Networks communications platforms.

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Oracle ® - We are an Oracle® Partner Program (OPP) member and provides proprietary solutions for integration with Oracle ® software.

Remedy - We are a Remedy Alliance Advantage partner and provides third-party solutions that can be integrated with Remedy products to enhance and extend their capabilities.

Sun Microsystems - We are a Sun Microsystems iForce Partner. Sun’s iForce Initiative brings together Sun and its best of breed partners worldwide to deliver proven solutions that reduce cost and time to market.

Veritas - ACE*COMM solutions work with Veritas’ Data Protection and High Availability products.

Vertel - ACE*COMM solutions work with Vertel’s M*Ware(TM) development platform. M*Ware is a standards-based product specialized to enable rapid development of multi-protocol network applications.

      Industry Affiliations:

We seek to stay at the forefront of rapidly evolving technologies, and to better serve our customers by participating in the collective efforts of influential industry associations and forums, and the markets they support. Our industry affiliations include:

     ACUTA - the Association for Telecommunications Professionals in Higher Education, is an international non-profit educational association serving colleges and universities. ACUTA’s Corporate Affiliate members represent all categories of telecommunications vendors who serve the college/university market.

     AeA- (formerly the American Electronics Association), the nation’s largest high-tech trade association, is the accepted voice of the U.S. high-tech industry that offers solutions for improving members competitiveness and bottom-line results by offering management development programs, executive networking, public policy leadership and other valuable services.

     AFCEA — we are a corporate associate member of the Armed Forces Communications and Electronics Association (AFCEA). AFCEA is a non-profit international association that serves as a bridge between government requirements and industry capabilities, representing the top government, industry, and military professionals in the fields of information technology, communications, and intelligence.

     GSA - is a centralized federal procurement and property management agency created by Congress to improve government efficiency and help federal agencies better serve the public. It acquires, on behalf of federal agencies, office space, equipment, telecommunications, information technology, supplies, and services.

     INAAU - The International Alliance of Avaya Users’ mission is the user group for customers of Avaya, Inc. products and services. ACE*COMM influences product, service, and policy direction for the benefit of the membership, and shares value-added global business communications solutions with the membership through open communications forums.

     IPDR.org - is an open consortium of leading service providers, equipment vendors, system integrators, and billing and mediation vendors collaborating to facilitate the exchange of usage and control data between network and hosting elements and operations and business support systems by deployment of IPDR standards.

     ISO - The International Organization for Standardization (ISO) is a worldwide federation of national standards bodies from some 130 countries whose mission is to promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services, and to developing cooperation in the spheres of intellectual, scientific, technological and economic activity.

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     Just-US - is an independent, not-for-profit association of Siemens Enterprise Networks Users established to assist telecommunications and data networking professionals navigate the maze of new technologies through access to a user’s network of experience and influence.

     NASTD - the Association for Telecommunications Professionals in State Government, is a member-driven organization whose purpose is to advance and promote the effective use of telecommunications technology and services to improve the operation of state government.

      SIP Center - is a portal for the commercial development of SIP software. The Session Initiation Protocol (SIP) is a signaling protocol used for establishing sessions in an IP network.

     TIA - is a full-service national trade organization with membership of 900 large and small companies that provide communications and information technology products, materials, systems, distribution services and professional services in the United States and around the world.

     USTA - is the premier trade association representing service providers and suppliers for the telecom industry. USTA’s 1,200 member companies offer a wide range of services, including local exchange, long distance, wireless, Internet and cable television service.

Backlog

We define backlog as signed contracts or purchase orders for delivery of our products generally within the next year. Our backlog at June 30, 2004, 2003, and 2002 equaled approximately $12.1 million, $4.3 million and $4.9 million, respectively. We have experienced fluctuations in our backlog at various times. We anticipate that $9.3 million of the backlog at June 30, 2004, will be shipped during fiscal 2005. Although we believe that our entire backlog consists of firm orders, our backlog as of any particular date may not be indicative of actual revenue for any future period because of the possibility of customer changes in delivery schedules and delays inherent in the delivery of complex systems. Backlog, as defined, does not include contracts that require the further issuance of purchase orders.

Our contracts are large and technically complicated and require a significant commitment of management and financial resources from its customers. The development of a contract is typically a lengthy process because it must address a customer’s specific technical requirements and often requires internal approvals that involve substantial lead-time. Accordingly, we may experience significant variations in revenue from quarter to quarter, as a result of delays in contract signing or contract order deliveries. In addition, contracts that involve software deliveries may involve customization of the product to specific customer requirements, which can delay final delivery of the order. No assurance can be given that current backlog will necessarily lead to revenue in any specific future period.

Competition

Competition in the markets for ACE*COMM products is driven by rapidly changing technologies, evolving industry standards, frequent product introductions and enhancements, and rapid changes in customer requirements. To maintain and improve our competitive position, we must continue to develop and introduce value-added, timely and cost-effective new products, features and services that keep pace with technological developments and emerging industry standards. In addition, we must consistently address the increasingly sophisticated needs of our customers. We expect continued intense competition in the telecommunications, Internet service provider and enterprise network markets.

We believe that the principal competitive factors in these markets include: product performance that meets customer expectations, specialized project management capabilities, in-house technical expertise, compliance with industry quality standards, in-house customer support, product features that include adaptability, scalability and flexibility, the ability to integrate with other products, adjustable functionality and ease-of-use, product reputation, responsiveness to customer needs, and timeliness of implementation. To remain competitive, we will have to respond promptly and effectively to the challenges of each technological change within our industry, as well as to our competitors’ innovations.

In the telecommunications and Internet service provider markets, our current and prospective competitors include:

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large service providers who develop full-system products internally, tailored to their particular specifications,

•

other companies, such as Comptel Corporation and Narus, Inc., that can provide data collection, mediation components, and data storage capabilities,

•		vendors that supply more inclusive products, such as Intec, and EDB Telesciences,
•		telecommunications equipment manufacturers that provide network products, such as Lucent Technologies, Inc., and Ericsson,

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companies that provide OSS software applications for carriers, such as MetaSolv Software, Inc.,

•

companies that supply product components, such as Ericcson-Hewlett-Packard and Fujitsu,

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companies that provide billing and customer care applications, such as Amdocs Limited, Convergys, Martin-Dawes, UshaComm and Portal Software, Inc., and

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companies that develop custom solutions, such as EDS Inc. and Computer Sciences Corporation.

ACE*COMM generally ranks its competition in the overall mediation market into the following three segments: single system mediation that is IP-focused, complex mediation that is circuit-switched and packet-capable, and complex mediation with other OSS functionality. Regarding the first of the three market segments, “single system mediation that is IP-focused”, we believe our products demonstrate distinct advantages to the single-system, IP-focused service provider, as our products can expand to fulfill wider system needs. Regarding the second of the three segments, “complex mediation that is circuit-switched and packet-capable”, we believe our advantages are derived from our considerable experience in and ability to handle multiple protocol system deployments. We believe it stands up well against other vendors in the third, “complex mediation with other OSS functionality” segment. The competing vendors in this segment are those with close ties to large switch or OSS vendors. We believe that we match these competitors feature-for-feature, and also offer switch/OSS vendor independence.

In terms of the Intasys customer care and billing products, we believe its competitive advantage is derived from its “bundled” approach which requires very little systems integration, its provisioning and serial tracking capabilities, its longstanding relationship with Vodafone UK, and its focus on mobile technologies.

In the enterprise network market, our current and prospective competitors include:

•

companies that provide products for telephony networks, such as Paetec Communications, Inc., Peregrine Systems, Inc., Stonehouse Technologies, Inc., and Veramark Technologies, Inc.,

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companies that provide products for data networks, such as Remedy Corp. and Computer Associates International, Inc., and

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system integrators such as Accenture, Cap Gemini Ernst & Young and KPMG.

Our NetPlus^® EOSS, like all OSS solutions, can be considered high-priced when compared to conventional element and network management systems. However, we believe that pricing can be misleading since an effective OSS has the potential to radically improve IT effectiveness and efficiency. We believe that the competitive advantages of the NetPlus^® solution lie in its ability to improve IT operations, achieve significant cost savings by identifying excessive usage patterns or incorrect billing; provide a bridge between older PBX based voice equipment and newer VoIP based systems, and provide a significant amount of customization support to enable NetPlus^® to interface to existing management and network infrastructure. We also provide highly integrated capabilities across the FCAPS (fault, configuration, accounting, performance, and security management) functionality mapping, but does so from an

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enterprise perspective. Consequently, we believe that NetPlus^® defines what is essentially a new market: Enterprise OSS.

We believe that our ability to compete in our markets depends in part on a number of competitive factors outside our control, including the ability of others to develop technology that is competitive with our products, the price at which competitors offer comparable products and services, the extent of competitors’ responsiveness to customer needs, and the ability of our competitors to hire, retain and motivate key personnel. We compete with a number of companies that have substantially greater financial, technical, sales and marketing capabilities in addition to other resources, as well as greater name recognition. As a result, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than us. There can be no assurance that our current or potential competitors will not develop products comparable or superior to those developed by us, or adapt more quickly than we do to new technologies, evolving industry trends or changing customer requirements.

Research and Product Development

Our research and development efforts are focused on developing new products to meet the growing needs of our customers and on improving existing products by incorporating new features and technologies. However, we believe that the timely development of new products and enhancements is essential to maintaining our competitive position in the marketplace. In our research and development efforts we work closely with customers, end users and leading technology vendors, in tailoring new features that are subsequently incorporated into future versions of products available to all customers. We continually review opportunities to license technologies from third parties when appropriate based on timing and cost considerations. Research and development expenses were $1.2 million, $0.3 million, and $0.8 million in 2004, 2003, and 2002, respectively. As a percent of revenues, research and development expenses were approximately 9% in 2004, 3% in 2003, and 4% in 2002. In addition, we acquired in process research and development projects from Intasys in fiscal 2004 valued at approximately $1.2 million.

Proprietary Rights and Licenses

We currently hold a patent on our N*USAGE^® technology and also rely on a combination of copyright, trademark, contract and trade secret laws and statutory and/or common law to maintain our proprietary rights to our other products. We believe that patent protection is effective for some product technologies, but because of the rapid pace of technological change in the telecommunication and software industries, patent protection for other products is a less significant factor in our success than the knowledge, ability and experience of our employees, the frequency of product enhancements and the timeliness and quality of support services provided by us.

We generally enter into confidentiality agreements with our employees, consultants, customers and potential customers and limits access to, and distribution of, our proprietary information. Use of our software products is usually restricted to specified locations and is subject to terms and conditions prohibiting unauthorized reproduction or transfer of the software products. We also seek to protect our software, including the source code, as a trade secret and as copyrighted work.

We cannot guarantee that the steps taken to protect our proprietary rights will be adequate to deter misappropriation of our intellectual property, and we may not be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. If third parties infringe upon or misappropriate our copyrights, trademarks, trade secrets or other proprietary information, we could be seriously harmed. In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, other parties may assert infringement claims against us or claim that we have violated their intellectual property rights. Claims against us, either successful or unsuccessful, could result in significant legal and other costs that may be a distraction to management. We have primarily focused on intellectual property protection within the United States but have expanded that scope to selected international markets. Protection of intellectual property outside the United States will sometimes require additional filings with local patent, trademark, or copyright offices, as well as the implementation of contractual or license terms different from those used in the United States. Protection of intellectual property in many foreign countries is weaker and less reliable than in the United States. If our business expands into foreign countries, costs and risks associated with protecting our intellectual property abroad will increase.

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Employees

At June 30, 2004, ACE*COMM employed 142 full and part-time employees. None of our employees are represented by a labor union. We have experienced no work stoppages and believe that our employee relations are good.

Risk Factors Affecting Future Operating Results

A significant portion of our revenue comes from large financial commitments by a small number of customers, including both telecommunications carriers and large enterprises. We expect to continue to depend on a limited number of customers in any given period for a significant portion of our revenue and, in turn, to be dependent on their continuing success and positive financial results and condition. These large customers may result from one-time competitive procurements or from repeat purchases from distributors, OEMs or other strategic partners. We may not prevail in one or more of the procurements, and our distributors may increase or suspend purchases of our products and services at any time. If we fail to continue to receive orders from such customers, or if any one or more of these customers suffers a downturn, our financial results will suffer.

Unless economic conditions improve, our results of operations may not return to prior levels

The current economic environment remains volatile. If the current uncertainty and negativity in the economic climate in the U.S. and the rest of the world continues, our customers — and our business and financial results — will continue to be adversely affected.

The adverse conditions in the telecommunications industry are materially and adversely affecting us

Our business and financial results are highly dependent on the telecommunications industry and the capital spending of our customers. Over the past three or four years capital spending by telecommunication companies has been at reduced levels and may continue to be at such levels or even decrease further. Various commentators have attributed the decrease in spending to the decline in the telecommunications industry in particular and economic conditions in general. Telecommunications products and services are increasingly becoming commodities that cannot easily be distinguished with intense competition in the development of new technology or other features and increasing competition from smaller but rapidly developing alternative carriers. The reduction of spending by companies in the telecommunication industries has caused, and may continue to cause, a significant reduction in our revenues. Although we recently noted an increase in demand from certain types of customers, other areas of our business have experienced continued weakness in demand and unwillingness of customers to spend significant sums on procuring new software on OSS solutions products or services.

Continuing market consolidation may reduce the number of potential customers for our products

The North American communications industry has experienced significant consolidation. In the future, there may be fewer potential customers requiring operations support systems and related services, increasing the level of competition in the industry. In addition, larger, consolidated communication companies have strengthened their purchasing power, which could create a decline in our pricing structure and a decrease of the margins we can realize. These larger consolidated companies are also striving to streamline their operations by combining different communications systems and the related operations support systems into one system, reducing the number of vendors needed. The continuing industry consolidation may cause us to lose more customers, which would have a material adverse effect on our business, financial condition and results of operations.

Unless we continue to maintain existing strategic alliances and develop new ones, our sales will suffer

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Our results could suffer further if we are unable to maintain existing and develop additional strategic alliances with leading companies that provide telecommunications services or that manufacture and market network equipment. If we are not able to maintain or develop these strategic alliances, we will not be able to expand our distribution channels and provide additional exposure for our product offerings. These relationships can take significant periods of time and work to develop, and may require the development of additional products or features or the offering of support services we do not presently offer. Failure to maintain particular relationships may limit our access to certain countries or geographic areas unless and until we are able to enter into new relationships with companies that can offer improved access.

Many of our telecommunications customers involve credit risks for us

Many of our customers present potential credit risks, and we are dependent on a small number of major customers. The majority of our customers are in the telecommunication services industry and government sector, or are in the early stages of development when financial resources may be limited. Five customers represented 57% of our gross trade receivables balance as of June 30, 2004, with one international customer representing 24% of our gross trade receivables balance as of June 30, 2004. Because we depend on a small number of major customers, and many of our customers present potential credit risks for different reasons, our results of operations could be adversely affected by non-payment or slow-payment of receivables. We have also experienced significant losses for doubtful accounts. For a more detailed discussion of doubtful accounts please read the section labeled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Bad Debts.”

Our products must be continuously updated to work with changing technology and demand for our products could be impacted by any competitors introducing more advanced technology

Our OSS solutions must be compatible with and add value to our customer’s existing systems and networks, and that compatibility and value-add must be maintained as these systems and networks change over time. To maintain and improve demand for our products, we must continue to develop and introduce value-added, timely and cost-effective new products, features and services that keep pace with technological developments and emerging industry standards. Any failure to do this will limit the market into which we can sell our products and services. Further, customers are always looking for the most advanced technology available, within certain price ranges. To the extent that competitors can offer more advanced technology within a given price range our sales would be adversely affected.

We are increasingly subject to the risks and costs of international sales, and failure to manage these risks would have an adverse effect on us

A substantial portion of our revenues are derived from international sales and are therefore subject to the risks of conducting business overseas, including the general economic conditions in each country, the overlap of different tax structures, the difficulty in managing resources in various countries, changes in regulatory requirements, compliance with a variety of foreign laws and regulations, and longer payment cycles. ACE*COMM derived approximately $8.1 million, or about 59% of our total revenue, from customers outside of the United States for fiscal year 2004. To the extent that we have increased our international revenue sources over the last three years, the impact of the risks related to international sales could have an increasing larger effect on our financial condition as a whole.

Failure to manage risks of potential acquisitions would have an adverse effect on us

We intend to investigate and pursue potential business combinations as one of the ways of growing our business during a difficult period. However, acquisitions must be conducted very carefully or there can be adverse consequences. In particular, failure to identify risks of potential acquisition targets or inability to correctly evaluate costs of combining business or technologies could cost us significant resources, dilution to our stockholders or loss of valuable time.

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Failure to estimate accurately the resources necessary to complete fixed-price contracts would have an adverse effect on our bottom line

Our failure to accurately estimate the resources required for a project or a failure to complete contractual obligations in a manner consistent with the projected plan may result in lower than expected project margins or project losses, which would negatively impact operating results. Our sales are typically formalized in agreements that include customization of the underlying software and services. These agreements require projections related to allocation of employees and other resources. Additionally, we may fix the price of an arrangement before the final requirements are finalized. On occasion, we have and may be required in the future to commit unanticipated additional resources to complete projects, and the estimated fixed price may not include this unanticipated increase of resources. If our original projections are not met, project losses may occur that would have a negative impact on our operating results.

Inability to forecast revenue accurately may result in costs that are out of line with revenues, leading either to additional losses or downsizing that may not have been necessary

We may not be able to accurately forecast the timing of our revenue recognition due to the difficulty of anticipating compliance with the accounting requirements for revenue recognition and to the fact that we historically have generated a disproportionate amount of our operating revenues toward the end of each quarter. Our operating results historically have varied from fiscal period to fiscal period. Accordingly, our financial results in any particular fiscal period are not necessarily indicative of results for future periods.

ITEM 2. PROPERTIES

ACE*COMM leases space at four principal office locations: Gaithersburg, Maryland; Montreal, Canada; Edinburgh, Scotland; and Queensland, Australia. We believe that our facilities are adequate for our current needs and that suitable additional space will be available as required. The Gaithersburg office is our corporate headquarters and is used for product assembly, software and engineering development, professional services and support, sales, and administration. The following sets forth information concerning our significant facilities:

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders during the fourth quarter of 2004.

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PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS

Common Stock Prices

Our common stock is traded on the Nasdaq Small-Cap Market under the symbol “ACEC”.

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The following table sets forth for the periods indicated the highest and lowest bid prices at the 4:00 close for the shares of common stock reported on the Nasdaq Small-Cap Market.

As of December 31, 2003 the market price of ACE*COMM common stock was $2.48.

Common Stockholders

As of September 7, 2004 there were 13,768,380 common shares outstanding and held by 127 shareholders of record.

Dividends

We have never declared or paid cash dividends on the Common Stock. ACE*COMM currently intends to retain earnings, if any, to finance the growth and development of our business and does not anticipate paying cash dividends in the foreseeable future. The future payment of cash dividends, if any, is within the discretion of the Board of Directors and will depend on the future earnings, capital requirements, financial condition and future prospects of ACE*COMM and such other factors, as the Board of Directors may deem relevant. Under the term of our line of credit, ACE*COMM cannot pay or declare dividends without the approval of our bank.

Equity Compensation Plan Information

The following table shows information about the securities authorized for issuance under our equity compensation plans as of June 30, 2004:

Item 6. SELECTED FINANCIAL DATA

The selected financial data presented below for each of our fiscal years in the five-year period ended June 30, 2004 and as of June 30, 2004, 2003, 2002, 2001, and 2000 are derived from the audited financial statements of ACE*COMM.

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