1103184--9/30/2009--ULTICOM

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Risks Relating to Investing in Our Common Stock We have incurred substantial expenses for litigation and governmental enforcement action and may continue to have increased exposure to contingent liabilities because of historical improper accounting practices identified by our Audit Committee Investigations and other improper accounting practices, each of which required restatement adjustments to be made in our consolidated financial statements and resulted in our inability to file required periodic reports with the SEC during the period from December 2005 to September 30, 2009. Our directors and officers liability insurance is unlikely to provide coverage for expenses or liability relating to our historical improper option-related accounting practices and, accordingly, significant indemnification liabilities are likely to be uninsured and could have a material adverse effect on our business, financial position, results of operations or cash flows. The Company was a defendant in an SEC enforcement action and the Company and its agents are permanently enjoined from violations of Section 17(a) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A) and (B) and 14(a) of the Exchange Act, and SEC Rules 13a-1, 13a-11, 13a-13 and 14a-9. Our disclosure controls and procedures were determined to be deficient as of January 31, 2009, due to our material weaknesses in our internal control over financial reporting and our inability to timely file periodic reports with the SEC. These material weaknesses result in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. Our stock is quoted on the Pink Sheets, which limits the liquidity of our common stock. Certain of our periodic reports filed with the SEC are inaccurate and cannot be relied upon. Our past failure to file reports on Form 10-K and Form 10-Q in a timely manner will result in our ineligibility to register securities on Form S-3. We are controlled by our majority shareholder, Comverse Technology, Inc., whose interests may not be aligned with the interests of our other shareholders. We paid a special dividend which reduced our cash reserves available to fund future growth or pay unanticipated contingent liabilities. Risks Related to the Communications Industry Adverse conditions in the communications industry have harmed and may continue to harm our business, financial condition and results of operations. Our quarterly revenues and operating results can fluctuate substantially and can be difficult to forecast due to the nature of our business. Consolidation in the communications industry could result in a further increase in our dependence on a small number of customers as well as increased pricing pressures on us. Changes in the communications industry may lead to increased competition and harm our business. Because the market for our products is characterized by rapidly changing technology, our future success depends on our ability to enhance our existing products and the timely and cost-effective development, marketing, and adoption of new products. Risks Related to Our Business We have a limited product portfolio and our primary source of revenue is from our Signalware AR products. We are endeavoring to migrate our largest selling product to new network technologies and protocols; however, even if this development is successful it may not be as profitable. We may incur significant costs related to undetected product defects, errors or operational problems. We depend on a limited number of manufacturers and suppliers, and any failure of those parties to fulfill their obligations may disrupt our product supply. We depend on a limited number of customers, and the loss of any of these customers or a significant order from any of these customers could adversely affect our business. Our business could be adversely affected if we are unable to attract new customers. We make significant investments in sales and marketing and research and development, and the failure for a market to emerge for these new products or customers to accept them could adversely affect our business and the investments may be lost. Failure to attract and retain qualified personnel, including key management, could have an adverse effect on us. If we experience disruptions or systems failures, our ability to conduct our business would be materially harmed. Our international operations involve special challenges that we may not be able to meet, which could adversely affect our financial results. Changes to licensing regulations abroad could adversely affect business, financial condition, results of operations and cash flows. Our international operations subject us to currency exchange risk. We may be unable to protect our intellectual property, which could adversely affect our business, financial condition, results of operations and cash flows, and any infringement or misappropriation of intellectual property rights could result in costly litigation. Others may bring infringement claims against us, which could adversely affect our business, financial condition, results of operations and cash flows. Our investment activities and changes in interest rates could adversely affect our results of operations. We could be required to register as an investment company and become subject to substantial regulation that would interfere with our ability to conduct our business. Our Board of Directors may issue additional shares of stock without shareholder approval that could result in issuance of stock with rights superior to the rights of shareholders of our common stock or make it more difficult to acquire control of us.

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1103184--9/30/2009--ULTICOM_INC