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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950133-06-000637.txt : 20060929
<SEC-HEADER>0000950133-06-000637.hdr.sgml : 20060929
<ACCEPTANCE-DATETIME>20060213170646
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950133-06-000637
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20060213

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ACE COMM CORP
		CENTRAL INDEX KEY:			0001017526
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
		IRS NUMBER:				521283030
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		704 QUINCE ORCHARD RD
		CITY:			GAITHERBURG
		STATE:			MD
		ZIP:			20878
		BUSINESS PHONE:		3012589850

	MAIL ADDRESS:	
		STREET 1:		704 QUINCE ORCHARD ROAD
		CITY:			GAITHERSBERG
		STATE:			MD
		ZIP:			20878
</SEC-HEADER>
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<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 24pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Hogan
&#038; Hartson</B></FONT></DIV>
<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>l.l.p.</B></FONT>
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>COLUMBIA SQUARE<BR>
555 THIRTEENTH STREET, NW<BR>
WASHINGTON, DC 20004-1109<BR>
TEL. (202)&nbsp;637-5600<BR>
FAX (202)&nbsp;637-5910<BR>
WWW.HHLAW.COM</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">February&nbsp;13, 2006
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>BY HAND DELIVERY AND EDGAR</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
450 5th Street, NW<BR>
Mail Stop 4-6<BR>
Washington, DC 20549

</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Re:</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>ACE*COMM Corporation<BR>
Form&nbsp;10-K for the fiscal year ended 6/30/05<BR>
Filed August&nbsp;31, 2005<BR>
Form&nbsp;10-Q for the quarter ended 9/30/05<BR>
Filed November&nbsp;14, 2005<BR>
File No.&nbsp;000-21059</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dear Mr.&nbsp;Krikorian:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On behalf of ACE*COMM Corporation (&#147;ACE*COMM&#148;), set forth below are ACE*COMM&#146;s responses to
the Staff&#146;s comment letter dated February&nbsp;10, 2006 to ACE*COMM&#146;s response letter dated February&nbsp;6,
2006 relating to your accounting comments on ACE*COMM&#146;s financial statements in the above filings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACE*COMM&#146;s responses to the Staff&#146;s comments are set forth below beneath the text of the
corresponding comment from the comment letter.<U> </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Form&nbsp;10-K for the Fiscal Year Ended June&nbsp;30, 2005</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Financial Statements</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Notes to Consolidated Financial Statements</U>
</DIV>

<DIV align="center" style="font-size: 7pt; margin-top: 18pt"><B>WASHINGTON, DC<BR>
BALTIMORE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BEIJING&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BERLIN&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BOULDER&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BRUSSELS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BUDAPEST&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CARACAS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
COLORADO
SPRINGS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DENVER&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GENEVA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HONG
KONG&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LONDON <BR>
LOS ANGELES&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MIAMI&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MOSCOW&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEW YORK&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NORTHERN VIRGINIA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PARIS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHANGHAI&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOKYO&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WARSAW</B>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Hogan &#038; Hartson L.L.P.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief <BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;13, 2006<BR>
Page 2
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Note 7 &#150; Merger and Acquisitions, page 11</U>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">4. <I>We note your response to prior comment number 4. Clarify your statement that the
amendment related &#147;Primarily to the estimated value of certain specific contracts existing
on the date of acquisition and changes in that estimated value </I><U><I>post acquisition</I></U><I>&#148;.
Explain why the estimated value has changed (i.e., original assumptions were incorrect or
events occurred subsequent to acquisition that changed those assumptions). In this regard,
demonstrate to us how you can clearly and directly link the adjustment on an objective basis
to the estimated fair value of the contracts post acquisition. Indicate why the &#147;post
acquisition&#148; decline in value is not the result of an impairment subsequent to acquisition
that should be recorded in accordance with SFAS 144. In addition, tell us and clearly
disclose how you will account for the earn-out. See paragraph </I><I>51(f)</I><I> of SFAS 141.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Response: </B>ACE*COMM&#146;s negotiation of the purchase price paid for 2helix was derived from a formula
that calculated the purchase price by multiplying the sum of the prior year&#146;s revenue plus the
forecasted revenue for the first year after acquisition by a multiplier. As part of ACE*COMM&#146;s due
diligence on 2helix, it estimated forecasted revenues from significant customers. However, within
three weeks of consummating the acquisition, ACE*COMM learned that it had relied on erroneous
information related to the revenues and subsequent cash flows expected to be derived from two major
2helix customers, directly impacting the fair value assigned to 2helix.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Discussions were immediately commenced with the selling shareholders to amend the deal to give
effect to this change in value, culminating in the formal amendment signed in October&nbsp;2005. Because
the reduction in revenue from the two customers is directly linked to the purchase price reduction
in the formula, ACE*COMM believes it is appropriate to adjust the purchase price as the conditions
that gave rise to the amendment existed at the acquisition date. To account for the amendment
through the income statement post acquisition implies that the events involving these contracts
occurred post acquisition, which is not believed to be the case.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchase price adjustment was reflected in the same manner as the original purchase price
allocation. The revenue forecasted from the two customers was adjusted and a revised contract
value was determined. The excess of reduction in purchase price over the reduction in contract
value of $1.2&nbsp;million was allocated to goodwill in the same manner as the original allocation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As part of the change in purchase price, a higher earn-out and escrow were established. The
earn-out was extended to two years and the revenue target was increased to $11.0&nbsp;million with
partial payment beginning at 75% achievement $8.25&nbsp;million. At the time of the amendment (and
today), seven months into the two-year period, ACE*COMM assessed
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Hogan &#038; Hartson L.L.P.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief <BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;13, 2006<BR>
Page 3
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">that payment under the earn-out was not determinable beyond a reasonable doubt as set forth in
paragraph 26 of Statement 141.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because the reduction in purchase price is directly linked to the original purchase price and the
reduction in purchase price exceeded the reduction in contract value, ACE*COMM properly recorded
the amendment as a reduction in purchase price and not an impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Should the earn-out become determinable beyond a reasonable doubt, the additional consideration
then payable will need to be recorded. ACE*COMM also has considered the implication of EITF 95-8 on
the acquisition of 2helix and plans to account for this additional consideration, if any, as an
adjustment to purchase price based upon the relevant facts and circumstances. ACE*COMM notes that
one of the factors considered is the earn-out is not contingent upon the continued employment of
the selling shareholders. The Company will expand its disclosure on the accounting for the
earn-out in future filings.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your attention to this response is greatly appreciated. Should you have any questions
concerning the above response please do not hesitate to call me at (202)&nbsp;637-5736 or Frank A.
Bacelli at (202)&nbsp;637-8769.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Respectfully submitted,<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">/s/ Steven M. Kaufman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Steven M. Kaufman&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Enclosures
</DIV>


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">cc:</TD>
    <TD>&nbsp;</TD>
    <TD>Steven R. Delmar<BR>
Frank A. Bacelli</TD>
</TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


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