ACE*COMM Corporation (NASDAQ:ACEC), a global provider of value-added services and advanced operations support systems (OSS) solutions, has reported financial results for the quarter ended September 30, 2006, the first quarter of its 2007 fiscal year. The Company reported revenues of $3.0 million for the quarter, which compares to $6.7 million for the comparable quarter of fiscal year 2006. Net loss for the quarter was $2.7 million, or $0.16 per share, compared to a net profit of $99 thousand, or $0.01 per share, for same quarter of the prior year.

“Consistent with our preliminary review, first quarter results were clearly affected by some of our customers and prospects who delayed or postponed large projects,” said George T. Jimenez, CEO of ACE*COMM. “While we continue to see the relevant use and value of our traditional products within these customer groups, and anticipate that the second half of the fiscal year will show significant improvement over the first half, we are still faced with uncertainty into the timing of these larger transactions. This dependence on large orders has been one of the continuing challenges of our traditional business model – a situation that we believe will be mitigated as we reposition into the recurring revenue model of a value-added services approach.”

Added Mr. Jimenez: “We continue to make progress on our market penetration efforts around Parent Patrol™, the first of our Patrol suite of value-added services. Most significantly, we signed a contract with VeriSign that will make our Patrol suite available to VeriSign’s service provider customers in a managed services arrangement. With more that 250 mobile service provider customers and over 600 million accessible mobile subscribers1 globally, we believe that VeriSign has the infrastructure and sales organization to help drive the market penetration for these products more quickly.”

“During the quarter, we continued our market research efforts to substantiate the benefits of our Parent Patrol™ suite of value-added services,” concluded Mr. Jimenez. “We commissioned independent survey specialists, ITracks, to poll 1,000 U.S. parents on their attitudes on youth mobile issues. Seventy five percent of the parents polled felt service providers should offer parental controls options for wireless teens, and 59 percent indicated they would provide a cell phone to a child under the age of 12 if their cell phone provider offered easy-to-use parental control capabilities. We were also pleased to be identified as leaders in the parental controls space by third party research firm, iGR.”

The Company reiterated its guidance for the second quarter of fiscal 2007, announced on October 10, 2006, which called for revenue to be in the range of $4.0 million to $5.0 million.

Annual Shareholder’s Meeting
The Company has scheduled its Annual Shareholder’s Meeting for Friday, December 1, 10:00 AM, Eastern Standard Time, at Corporate Headquarters, Gaithersburg, MD.

Earnings Call
ACE*COMM will host an earnings teleconference call this evening, Thursday, October 26, 2006 at 5:30 pm, Eastern Standard Time, to discuss the first quarter results. To participate, please call 866-837-9780. When prompted, enter the ACE*COMM reservation number 986238. Internet users can hear a simultaneous live Webcast of the teleconference at http://acecomm.com or http://www.fulldisclosure.com. A taped replay of the call will be made available from the ACE*COMM Corporate Web Site after 8:30 pm, on Thursday, October 26, 2006.

About ACE*COMM
ACE*COMM is a global provider of network business intelligence and advanced operations support systems (OSS) solutions for telecom service providers and enterprises. ACE*COMM’s solutions are applicable to a range of legacy through next-generation networks that include wired, wireless, voice, data, multimedia, and Internet communications networks. These solutions provide the analytical tools required to extract knowledge from operating networks—knowledge customers use for asset recovery and revenue assurance, cost reduction, improved operational efficiency, acceleration of time-to-market for new services, and more effective customer care.

For over 20 years, ACE*COMM technology has been effectively deployed for more than 300 customers, spanning over 4000 installations in 70 countries worldwide. ACE*COMM-installed products are currently enabling the success of customers and partners such as Alcatel, AT&T, Cisco, General Dynamics, IBM, Level 3 Communications, Marconi, Motorola, Northrop Grumman, Siemens, and Unisys. Headquartered in the Washington, DC area, ACE*COMM has corporate offices in Australia, Canada, China, and the UK. ACE*COMM is an ISO 9001 compliant company. For more information, visit www.acecomm.com.

ACE*COMM, NetPlus, the ACE*COMM logo, and N*VISION are registered trademarks, and Convergent Mediation and Parent Patrol are trademarks of ACE*COMM Corporation.

ACE*COMM CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share amounts)

September 30, 2006
June 30,
2006

Assets

Current assets:
Cash and cash equivalents $ 699 $ 946
Accounts receivable, net 9,768 10,981
Inventories, net 799 838
Deferred contract costs 85 18
Prepaid expenses and other 616 571
Total current assets 11,967 13,354
Property and equipment, net 736 787
Goodwill 386 522
Acquired intangibles, net 897 1,041
Other non-current assets 598 657
Total assets $ 14,584 $ 16,361

Liabilities and Stockholders’ Equity

Current liabilities:
Borrowings $ 2,483 $ 2,970
Accounts payable 949 1,114
Accrued expenses 1,568 1,661
Accrued compensation 946 885
Deferred revenue 3,265 3,617
Total current liabilities 9,211 10,247
Long-term notes payable 12 17
Total liabilities 9,223 10,264

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding
– –
Common stock, $.01 par value, 45,000,000 shares authorized, 18,654,083 and 17,788,032 shares issued and outstanding
187 178
Additional paid-in capital 37,225 35,257
Other accumulated comprehensive loss (59) (91)
Accumulated deficit (31,992) (29,247)
Total stockholders’ equity 5,361 6,097

Total liabilities and stockholders’ equity $ 14,584 $ 16,361

ACE*COMM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

For the three months ended
September 30,
2006 2005
(Unaudited) (Unaudited)

Revenue
Licenses and hardware $ 458 $ 3,455
Services 2,564 3,230
Total revenue 3,022 6,685

Cost of licenses and hardware revenue 303 1,070
Cost of services revenue 1,773 1,612
Total cost of revenue 2,076 2,682

Gross profit 946 4,003

Selling, general, and administrative 2,832 2,817
Research and development 780 1,037
Income (loss) from operations (2,666) 149

Interest expense 79 51
Income (loss) before income taxes (2,745) 98
Income tax (benefits) expense – (1)

Net income (loss) $ (2,745) $ 99

Basic net income (loss) per share $ (0.16) $ 0.01

Diluted net income (loss) per share $ (0.16) $ 0.01

Shares used in computing net income (loss) per share:
Basic 17,441 16,741

Diluted 17,441 17,160