THE COMPANY

Ulticom, Inc. ("Ulticom" and together with its subsidiary, the "Company") is a provider of service enabling signaling software for fixed, mobile, and Internet communications. The Company's Signalware family of products are used by equipment manufacturers, application developers and communication service providers to deploy revenue generating infrastructure and enhanced services within the mobility, messaging, payment, and location markets. Signalware products are also embedded in a range of packet softswitching products to interoperate or converge voice and data networks and facilitate services such as voice over IP ("VoIP"), hosted IP telephony, and virtual private networks.

The Company was founded in December 1974 and completed an initial public offering of its common stock in April 2000. Its common stock is listed on the NASDAQ National Market System under the symbol "ULCM". The Company is a subsidiary of Comverse Technology, Inc. ("CTI"), which held approximately 69% of its outstanding common stock as of January 31, 2005. The Company's principal executive offices are located at 1020 Briggs Road, Mount Laurel, New Jersey 08054, and its telephone number is (856) 787-2700.

The Company's Internet address is www.ulticom.com. The information contained on the Company's website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. The Company makes available, free of charge, on its Internet website, its annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company has electronically filed such material with, or furnished it to, the United States Securities and Exchange Commission.

THE COMPANY'S PRODUCTS

BACKGROUND

Traditionally, voice networks were based on a technology called "circuit switching." In circuit switched networks, a dedicated line or circuit is established for each telephone call and maintained for the duration of the call. At the conclusion of a circuit switched call, the dedicated line or circuit is disconnected.

Separating the voice and signaling portions of a call improves network utilization, reduces call setup times and provides transaction capabilities for enhanced services. The signaling infrastructure processes, in real time, the information needed to set up, connect, route, terminate and bill a call, while also providing a foundation to develop and offer value-added services. The signaling portion of a switching network that controls each call is based on a globally accepted set of standards and protocols called signaling system #7 ("SS7"). SS7 provides the speed and reliability required for processing complex call control information.

While SS7 was initially created to support signaling in a fixed network, it also has become an essential element for connecting calls and delivering services in mobile networks. In addition to providing the signaling link between fixed and mobile networks, SS7 efficiently allows mobile service providers to register and authenticate subscribers as they move between mobile cell areas. SS7 signaling also is used as the foundation for enhanced database services such as prepaid calling and voice and text messaging. SS7 is designed to be robust, flexible, and scalable, enabling service providers to offer new services quickly and reliably.

While circuit switching has offered dependable, high quality voice communication; a newer technology called "packet switching" is inherently more efficient and cost effective than circuit switching. In packet switched networks, the voice or data transmission is formatted into a series of shorter digital messages called "packets". These packets of voice or data information travel over a shared line or circuit. The cost advantage in the initial deployment, combined with significant ongoing operational savings, has led both incumbent and new service providers to build packet networks to handle voice and data traffic.

Because SS7 is the globally accepted signaling standard protocol, it has become the critical element needed to connect and interoperate packet networks with the existing circuit network infrastructure. Fixed, mobile, and Internet service providers worldwide have implemented SS7 as an important component to converge voice and data communications through signaling gateways that interwork SS7 signaling and packet switching protocols.

SIGNALWARE

Ulticom's Signalware product family provides the SS7 connectivity required to offer value-added services. Signalware is embedded within fixed, mobile and Internet service provider networks to interconnect and interoperate voice, data, and video communication systems. In addition, Signalware plays a key role in the convergence of disparate networks by providing a means to bridge circuit and packet technology. Signalware offers many of the features that are crucial to the connectivity of communication networks and the rapid delivery of revenue generating services, including:

o open systems - running applications on multiple software and hardware platforms;

o fault resiliency - insures the high availability requirements of fixed and mobile communication services in circuit and packet based networks with no single point of failure;

o high performance - processing calls and transactions at very high rates;

o standards conformance - complying to industry-accepted standards including IETF, ANSI, ITU, ETSI, TTC, NTT, and MII;

o scalability - increasing computing and link capacity to match varying application requirements; and

o network interoperability - providing an open development environment, which enables users to develop an application once and deploy globally, maximizing their return on investment.

Signalware supports a range of applications across multiple networks. In fixed networks, Signalware has been deployed as part of services such as voice messaging, calling name, 800 number, and calling card services. Signalware enables mobile infrastructure applications such as global roaming and emergency-911, and enhanced services such as text messaging and prepaid calling. The Company's products are being used to enable new mobile data services such as ones that enable Global System for Mobile Communications ("GSM") subscribers to roam into wireless local area networks ("WLAN") "Hot Spots" and seamlessly and securely access network based services from their own trusted service provider. Signalware also is used to enable VoIP in fixed, mobile, and cable service provider networks.

Signalware works with multiple SS7 networks, supports a wide variety of SS7 protocol elements, and enables analog or digital fixed and mobile transmissions. It provides the functionality needed for call set-up/termination and call routing/billing. Signalware products also include features that enable the transition from SS7 signaling to emerging packet signaling standards as defined by the Internet Engineering Task Force ("IETF"). These new standards include Signaling Transport ("SIGTRAN"), which enables the transmission of SS7 signals over IP networks, and Session Initiation Protocol ("SIP"), which enables interactive communications sessions in an IP network. New solutions include a Signalware SIGTRAN Gateway for enabling circuit-packet network interoperability and Signalware SIP for developing next generation services for all IP networks.

Signalware solutions run on a range of hardware platforms and operating systems, including Sun Solaris, SuSE, MontaVista, and Red Hat Linux. These solutions can be used in single or multiple computing configurations for fault resiliency and reliability.

PRODUCTS

Signalware includes interface boards to provide the physical connection to a signaling network. Signalware boards are configured to support a wide range of hardware platforms and network links. The bundling of Signalware interface boards and software allows the Company to control product performance, capacity, and compliance with standards.

New customers begin development of applications and services by purchasing the appropriate Signalware development kit. A typical development kit includes a development software license, an interface board, cables, one-year development support plan, training, and documentation. The annual development support plan provides access to customer help-desk services, service packs, and scheduled updates of the software. After the initial year, the maintenance plan must be renewed for a fee in order to continue to receive support and software updates.

When the application is ready for deployment in a communication service provider's network, the customer typically purchases one or more interface boards per server to stage the application for deployment. On a per installation basis, the customer also purchases a deployment license and an annual software deployment maintenance plan, which typically renews annually for the life of the installation. The annual software deployment maintenance plan provides access to technical support staff to troubleshoot and fix any software issues.

SERVICES

The Company believes that customer support, training, and professional services are integral to building and maintaining strong customer relationships. Customer support is offered as part of the maintenance agreements.

Customer Support. The Company provides comprehensive technical support to help customers develop and deploy new services using Signalware. Customer support representatives interface with customers' technical staff by answering questions, resolving problems, and providing assistance. Services are available 24 hours a day, 7 days a week. Customer support is managed through corporate headquarters in Mount Laurel, New Jersey with remote service locations to provide extended geographic and time zone coverage.

Training Services. The Company offers customers a comprehensive training program including courses covering topics such as Application Development and Operations and Support. Courses are scheduled throughout the year. Customized and/or on-site training programs also are provided for an additional fee to meet the specific needs of customers. The Company also offers computer-based training in an effort to provide added flexibility and convenience to customers.

Professional Services. The Company offers fee-based consulting and development services to create customer-specific enhancements to its products and assist with deployment of its products in service provider networks. An experienced engineering staff provides such services. This service assists customers by accelerating their time-to-market, and also hastens the point in the development cycle when the Company begins to receive recurring deployment license and board revenues.

MARKETS, SALES AND MARKETING

The Company's sales organization operates from the United States, Europe, and Asia. Account teams comprised of account managers and sales engineers work closely with product management and development organizations to provide customers with a consultative sales approach. The consultative approach facilitates the sale of development kits to enable customers to immediately begin building prototypes of their products.

The Company actively strives to enhance market awareness and acceptance of the Company and its products. The Company identifies market opportunities in cooperation with customers and develops and enhances products to seize those opportunities in a timely fashion. Based on market considerations, the Company may port software products to additional operating systems, develop new features and functionality, and engage in new strategic alliances and partnerships.

The Company's market strategy includes enhancing brand awareness for its products through its website, promotional literature, direct marketing to current and prospective customers, advertising, continued participation in industry relevant trade shows and conferences, and a public relations program that includes public demonstrations of products and prototypes. Representatives of the Company also are called upon to address industry symposia and conferences, are quoted in industry publications, and may from time to time author articles about developments in communications technology.

Products are sold primarily to network equipment manufacturers and application developers, who include the Company's products within their products and sell them as an integrated solution to service providers. Service providers will install the solution in their communication networks and offer the service enabled by such solution to their subscribers. Since the Company and its customers have a mutual interest in developing solutions that are widely accepted by subscribers and profitable to service providers, the Company works closely with customers to support their development efforts and produce solutions that are unique, reliable, scalable, and cost effective.

The Company engages in joint promotion, sales efforts, training, testing, design, integration, and installation with Sun Microsystems, Inc. ("Sun Microsystems") and other information systems providers who use Sun Microsystems' components. The Company also engages in joint-marketing activities with International Business Machines Corporation ("IBM") and Intel Corp.

The Company's products are currently used by more than 55 customers and are deployed by more than 300 service providers in more than 100 countries. The Company markets its products and services primarily through a direct sales organization and through distributors. The Company has entered into distribution agreements with Beijing Teamsun Technology Co., Mantica Solutions, S.L., and Macnica Networks Company that have resulted in deployments of the Company's products in mobile and Internet services in China, Spain, and Japan, respectively. Customers include network equipment manufacturers, such as Alcatel and Siemens AG ("Siemens"); application developers, such as Comverse, Inc. ("Comverse") and Sonus Networks, Inc. ("Sonus"); and service providers, such as MCI, Inc., Orange Personal Communications Services Limited, and Reliance Infocomm Limited.

The Company currently derives a significant portion of its total sales from customers outside of the United States. Financial information regarding the Company's operations in these areas is presented in Note 12 to the Consolidated Financial Statements included in Item 15 of this report on Form 10-K. International transactions involve particular risks, including political decisions affecting tariffs and trade conditions, rapid and unforeseen changes in economic conditions in individual countries, turbulence in foreign currency and credit markets, and increased costs resulting from lack of proximity to the customer.

For fiscal year 2002, which ended January 31, 2003, Siemens, LM Ericsson, and Comverse accounted for 23%, 19%, and 11%, respectively, of the Company's sales. For fiscal year 2003, which ended January 31, 2004, Siemens, Sonus, and Comverse accounted for 26%, 11%, and 11%, respectively, of the Company's sales. For fiscal year 2004, which ended January 31, 2005, Siemens, Alcatel, and Comverse accounted for 41%, 17%, and 10%, respectively, of the Company's sales.

The Company actively participates in industry activities to define the technology to facilitate the convergence of telecommunication networks with the Internet. For example, as a member of the IETF, Ulticom has worked to develop SIGTRAN to enable communication service providers to cost effectively and to easily implement cost effective services that span existing circuit switched networks and packet networks using IP. In addition, the Company participates in the standards activities of the Third Generation Partnership Project ("3GPP"), which works with various standards bodies to produce globally acceptable technical specifications for the evolution to a packet-based 3G broadband mobile infrastructure.

RESEARCH AND DEVELOPMENT

The Company continues to enhance the features and performance of existing products and introduce new products. The Company believes that its future success depends on a number of factors, which include the Company's ability to:

o identify and respond to emerging technological trends in its target markets;

o develop and maintain competitive solutions that meet customers' changing needs; and

o enhance existing products by adding features and functionality that differentiate the Company's products from those of its competitors.

As a result, the Company has made and intends to continue to make investments in research and development. Research and development resources are allocated in response to market research and customer demands for additional features and products. The development strategy involves rolling out initial releases of products and adding features over time. The Company continuously incorporates customer feedback into the product development process. While it is expected that new products will continue to be developed internally, the Company may, based on timing and cost considerations, acquire or license technologies, products, or applications from third parties.

The Company's research and development expenses were approximately $10.1 million, $9.5 million, and $10.6 million for the years ended January 31, 2003, 2004, and 2005, respectively. Research and development activities are located in the United States and France. As of January 31, 2005, there were approximately 100 employees engaged in research and development activities. The Company believes that recruiting and retaining highly skilled engineering personnel is essential to its success.

INTELLECTUAL PROPERTY RIGHTS

The Company has accumulated a significant amount of proprietary know-how and expertise over the years in developing network signaling software and SS7, SIGTRAN, and SIP protocol technologies for communication services. The Company's continued success is dependent, in part, upon its ability to protect proprietary rights to the technologies used in its products. If the Company is not adequately protected, competitors could use the intellectual property that it has developed to enhance competing products and services, which could harm the Company's business. To safeguard its proprietary technology, the Company relies on a combination of technical innovation, trade secret, copyright, patent and trademark laws, restricted licensing arrangements and non-disclosure agreements; each of which affords only limited protection. The Company conducts periodic reviews of new areas of technology with patent counsel as part of its patent program.

The Company licenses software from third parties that is incorporated into certain versions of Signalware.

Due to the value of intellectual property rights, the Company generally does not make its proprietary software source code available to customers. Exceptions to this principle are only made in limited circumstances where adequate control mechanisms are in place to protect the Company's intellectual property rights.

The Company attempts to avoid infringing upon known third-party proprietary rights in its product development efforts. The Company does not, however, regularly conduct comprehensive patent searches to determine whether the technology used in its products infringes patents held by third parties.

The Company has granted Comverse, an affiliate, a perpetual, royalty-free, non-exclusive license to use and operate software products for incorporation into any of Comverse's products. This software is maintained by Comverse at no cost to the Company.

In January 2000, an affiliate, Comverse Patent Holding, Inc. ("CPH") and Lucent Technologies GRL Corp. ("Lucent") entered into a non-exclusive cross-licensing arrangement covering current and certain future patents issued to CPH and its affiliates, including the Company, and a portfolio of current and certain future patents in the area of telecommunications technology issued to Lucent and its affiliates. The Company is entitled to utilize the licensed patent rights, and is obligated to provide licenses under any patents it may hold, pursuant to a royalty-free license agreement with CPH.

COMPETITION

The global market for network signaling software is intensely competitive. The Company expects competition to persist, intensify, and increase in the future; especially with the convergence of voice and data networks.

The Company's primary competition comes from internal development organizations within equipment manufactures and application developers who seek, in a build-versus-buy decision, to develop substitutes for the Company's products. The Company also competes with a number of United States and international suppliers that vary in size, scope, and breadth of the products and services offered.

Competitors include a number of companies ranging from SS7 software solution providers, such as Flextronics Software Systems and TietoEnator Corporation, to vendors of communication and network infrastructure equipment, such as Continuous Computing Corporation and Hewlett-Packard Company. The Company believes it competes principally on the basis of:

o product performance and functionality;

o product quality and reliability;

o customer service and support; and

o price.

The Company believes its success will depend, primarily, on its ability to provide technologically advanced and cost effective signaling solutions adhering to evolving network solution architectures such as 3GPP and IP Multimedia Subsystem (IMS). Furthermore, it is likely that as competition intensifies and pricing pressure continues within its customers markets, the Company may have to reduce prices or offer product sales incentive programs.

MANUFACTURING

The Company's Signalware products typically have two components: software and interface boards. Software is duplicated in house and provided to customers via several medium, primarily CD-ROM. Each software shipment is configured to provide the specific operating system version and features requested by the customer. Each order is tracked by purchase order number and documented according to internal quality standards.

During 2002, the Company was certified in compliance with TL 9000; a set of common quality system requirements and measurements designed specifically for the telecommunications industry for the design, development, production, delivery, installation, and maintenance of products and services. TL 9000 encompasses International Standard Organization ("ISO") 9001:2000 and additional requirements specific to the telecommunications industry. The Company is currently in compliance and is periodically audited to ensure continued compliance with TL 9000 standards.

Subcontractors, who are ISO certified, perform assembly of the Company's printed circuit interface boards. Periodic audits of the Company's subcontractors are performed to ensure adherence to quality standards. Subcontractors are responsible for purchasing, inspecting, installing, and assembling components of interface boards. Completed assemblies are burned-in, inspected, tested, and packaged in the Company's facility according to TL 9000 and other industry standards. All inspection, test, repair, revision, and shipping information is tracked by product type and serial number and maintained in the Company's tracking database.

The Company works closely with interface board component suppliers to monitor component changes and availability. However, there are no long-term supply agreements with these suppliers to ensure uninterrupted supply of components. Under certain circumstances, the Company may place blanket orders to ensure availability of discontinued components. In the event of a reduction or an interruption in the supply of components, a significant amount of time could be required to qualify alternate suppliers and to receive an adequate supply of replacement components.

The Company does not have any long-term agreements with any of its manufacturers, some of whom are small, privately held companies. In the event that these manufacturers experience financial, operational, or quality assurance difficulties; the Company's business could be adversely affected unless and until an alternate manufacturer could be found. There is no assurance that an alternate manufacturer will be able to meet the Company's requirements or that existing or alternate sources for interface boards will continue to be available at favorable prices.

EMPLOYEES

As of January 31, 2005, the Company had approximately 235 employees. The Company's employees are not covered by any collective bargaining agreement and the Company considers its relationship with its employees to be good. Employees of the Company's subsidiary are subject to French labor laws that contain requirements regarding termination, severance payments, and other obligations that are significantly greater than those in the United States.