UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2004                  
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 000-31511

@Road, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) |  | 94-3209170(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- |  | ----------------------------------------------

47071 Bayside Parkway
Fremont, CA 94538(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: 510-668-1638

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

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

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 requirements for the
past 90 days. Yes ý    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. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act
Rule 12b-2). Yes ý    No o

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $286,024,748 as of June 30, 2004,
based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.

There
were 54,846,967 shares of the registrant's Common Stock issued and outstanding as of February 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive proxy statement to be filed in connection with the registrant's 2005 annual meeting of
stockholders.



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TABLE OF CONTENTS

|PART I   |  |                                                                                                                              |  |   
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --
|Item 1.  |  | Business                                                                                                                     |  | 2 
|Item 2.  |  | Properties                                                                                                                   |  | 15
|Item 3.  |  | Legal Proceedings                                                                                                            |  | 15
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                          |  | 15
|PART II  |  |                                                                                                                              |  |   
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                                                        |  | 16
|Item 6.  |  | Selected Financial Data                                                                                                      |  | 17
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                        |  | 18
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                   |  | 44
|Item 8.  |  | Financial Statements and Supplementary Data                                                                                  |  | 45
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                         |  | 45
|Item 9A. |  | Controls and Procedures                                                                                                      |  | 45
|Item 9B. |  | Other Information                                                                                                            |  | 47
|PART IV  |  |                                                                                                                              |  |   
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                                   |  | 49
|         |  | Report of Independent Registered Public Accounting Firm                                                                      |  | 53
|         |  | Consolidated Balance SheetsDecember 31, 2004 and 2003                                                                       |  | 54
|         |  | Consolidated Statements of OperationsYears ended December 31, 2004, 2003 and 2002                                           |  | 55
|         |  | Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)Years ended December 31, 2004, 2003 and 2002 |  | 56
|         |  | Consolidated Statements of Cash FlowsYears ended December 31, 2004, 2003 and 2002                                           |  | 57
|         |  | Notes to Consolidated Financial Statements                                                                                   |  | 58

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Except for the historical information contained in this Report, the matters discussed in this Report are forward-looking statements involving risks and uncertainties that could cause
actual results to differ materially from those in such forward-looking statements. Potential risks and uncertainties include, but are not limited to, fluctuations in quarterly results, customer
acceptance of our products and services, our ability to adapt to rapid technological change, our dependence on wireless networks, network infrastructure and positioning systems owned and controlled by
others and general economic and political conditions. Further information regarding these and other risks is included in this Report and in our other filings with the Securities and Exchange
Commission ("SEC").

Our
primary Internet address iswww.road.com. We make our periodic SEC reports (Forms 10-Q and Forms 10-K) and
current reports (Forms 8-K) available free of charge through our website as soon as reasonably practicable after they are filed electronically with the SEC. We may from time to time
provide important disclosures to investors by posting them in the investor relations section of our website, as allowed by SEC rules.

PART I

Item 1.Business

Overview

We are a leading provider of mobile resource management solutions, a rapidly growing category of business productivity solutions that enable the effective
management of mobile resources. We market and sell our solutions to a broad range of customers in the United States and Canada that vary in size, geographic location and industry. For the year ended
December 31, 2004, total revenues increased to $75.2 million.

On
February 18, 2005, we acquired all of the outstanding shares of Vidus Limited ("Vidus"), a provider of dynamic field service automation solutions located in Ipswich, United
Kingdom. The acquisition is intended to allow us to integrate technology for dynamic scheduling, dispatching, routing and appointment booking of mobile workers, and we intend to expand our business to
Europe and other international markets.

In
exchange for all of the outstanding shares of Vidus capital stock, we issued approximately 5.5 million shares of our common stock valued at $38.2 million and newly
created interest-bearing redeemable preferred stock in the face amount of approximately $10.2 million, extinguished for cash existing debt of approximately $4.6 million and issued
approximately 146,000 vested options with a fair value of $532,000. Under the terms of the stock option grants, each option has been classified as a non-qualified stock option, is fully
vested, has an exercise price ranging from $0.67 to $2.00 per share and generally has a one-year term. In addition, we extinguished for cash other existing debt of approximately $926,000.
The purchase price also included estimated direct transaction costs of $1.3 million.

The @Road Solution

Our mobile resource management ("MRM") solutions allow customers to improve productivity by enabling the effective management of the activities of their mobile
workers, assets, goods and services. In addition, our solutions are designed to enable customers to increase the utility of their mobile resources and decrease their costs of operations by
facilitating business processes, such as event confirmation, signature verification, forms processing, project management and timekeeping while their workers are in the field. Our solutions also
provide location, reporting, dispatch, messaging, and other management services and are designed to be easy to implement and use. Our customers can manage their mobile workers in several ways,
including by logging onto our website, receiving their data directly into their existing software applications, using any telephone to access our speech-to-text voice portal or
requesting information from our data centers using application programming interfaces.

2

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The
foundation of our solutions is our LocationSmart technology platform that combines wireless communications, Global Positioning System ("GPS") technology, hosted software applications
and Internet technologies. The information technology infrastructure and network application software used in our LocationSmart technology platform reside on servers located in data centers in
Virginia and California and our network operations center in California. Because we host our solutions, our customers do not need to make a substantial investment in acquiring and supporting capital
equipment, such as software and data networking equipment, to use our solutions. The LocationSmart technology platform is depicted in Figure 1.

GRAPHIC

Figure 1

Our service delivery architecture is designed to serve a growing number of users with increasing data transmission volumes without compromising performance,
delivery times or data accuracy. Because key technology components of our solutions can be expanded to accommodate additional users, as in the case of wireless networks or the Internet, or are
designed to accommodate a practically unlimited number of users, as in the case of GPS, we believe that we can support a significantly expanding customer base.

We
believe that customers use an anticipated or expected return on investment as a primary selection criterion when evaluating MRM solutions. We believe that the benefits of our
solutions that drive a rapid return on investment for our customers include the following:



3

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In
addition, we offer multi-year subscription contracts and hardware purchase plans that allow our customers to pay us on a monthly basis and minimize upfront cash
commitments. We believe a monthly payment subscription model further accelerates a customer's return on investment in our solutions.



We believe that leaders in the MRM market are evaluated on a number of criteria, including size, technology leadership, financial strength, strength of customer
base, strategic relationships with wireless carriers and management experience. We believe that based on these criteria, we are a leader in the MRM market. Our objective is to enhance our leadership
position in the MRM market. Key elements of our strategy are:



4

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We
continually evaluate opportunities to accelerate our growth and broaden our market share in the United States and abroad.



Our current family of MRM solutions includes GeoManager, GeoManager PE, @Road PathwayiLM, @Road Pathway PE and
@Road PorticoiLM. In addition, we offer solutions comprised of bundled services that are designed to meet the needs of customers in a variety of
vertical markets, including telecommunications, field service, construction, facilities/waste management, freight and passenger transportation, courier/delivery, distribution, cable/broadband and
utilities. Taken together, our solutions are designed to meet the needs of customers of all sizes in our target vertical markets.

Our
solutions provide current and historical data relating to a customer's mobile resources in a variety of formats, including activity reports, maps and completed business forms. We
provide these formats in a standard configuration, and customers can configure certain elements and views to help achieve compliance with their internal business rules. Customers can choose to submit
queries through our applications to create reports and views on demand or they can have reports delivered on a pre-scheduled basis. Customers can also download reports to manipulate and
store data as desired. Mobile resource data is typically stored by us for 30 to 45 days, but is stored for longer periods for customers that purchase our extended data storage service.

We
commence implementation of our solutions with the deployment of a device to each of the customer's mobile resources. We call each mobile resource with such a device a "subscriber."
Our services operate with two device types:



5

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These
devices send and receive a variety of information from time to time and on demand. Such data include location, velocity, time and operational diagnostics. These data are
transmitted to our data centers using wireless networks and the Internet. If a wireless connection to a device is not available, then the device will store up to five days of captured data and seek to
transmit the data when a wireless connection is available.

The
following table describes our current family of MRM solutions, including suites that we specifically developed for target vertical industries, selected features of our solutions and
devices that operate with these solutions:

|Solution         |  | Description                                                                                                                                                                                                                                                                                                                                            |  | Selected Features and Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | @Road-Supported
Devices
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|
|                 |  |                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                        
|GeoManager       |  | Flagship service designed to provide comprehensive mobile resource management for customers in all of our markets. These services may be delivered on a hosted basis using a web browser on demand, continuously streamed to customer applications or by
providing connections to other applications with application programming interfaces ("APIs"). |  |     Reportinga set of configurable activity and maintenance reports and tools
    Exception Servicesalerts and reports identifying incidents where mobile workers meet or exceed customer-defined business rules
    MobileFormsbusiness transactions, signature capture and document workflow in the field using a ruggedized personal digital assistant
    DirectDatacontinuous transmission of @Road data directly to customer databases or applications
    Mappingautomatic geo-coding of location data and configurable map views of mobile workers and assets |  | GRAPHIC GRAPHIC GRAPHIC
|                 |  |                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                        
|GeoManager PE    |  | Provides customers much of the same functionality as the GeoManager solution. Runs a java application on a location-enabled wireless telephone.                                                                                                                                                                                                        |  |     TimeConnectautomates the recording of mobile workers' daily activities and provides reporting tools
    Configurable Update Ratecustomers can vary the frequency of @Road data transmissions to meet business needs                                                                                                                                                                                                                                                                                                                                                     |  | GRAPHIC                
|                 |  |                                                                                                                                                                                                                                                                                                                                                        |  |     Field Landmarkingsubscribers can use mobile telephones to generate location-specific icons for use with Mapping, Reporting and other features
    Mapping                                                                                                                                                                                                                                                                                                                                                                                                                |  |                        
|                 |  |                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                        
|@Road PathwayiLM |  | Mid-level MRM solution that delivers metrics to measure mobile workforce performance and manage compliance with business rules.                                                                                                                                                                                                                        |  |     Activity Reportsdetailed reporting of individual mobile workers and groups
    Pinglocate workers in the field on demand using any web browser
    Mapping                                                                                                                                                                                                                                                                                                                                                                                                             |  | GRAPHIC                
|                 |  |                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                        

6

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|Solution                                |  | Description                                                                                                                                         |  | Selected Features and Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | @Road-Supported
Devices
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|
|                                        |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        
|@Road Pathway PE                        |  | Provides the same functionality as the @Road PathwayiLM solution using a location-enabled mobile telephone.                                         |  |     TimeConnect
    Configurable Update Rate
    Auto-launchautomatically starts the @Road application software when the mobile telephone is powered on
    Activity Reports
    Ping
    Mapping                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | GRAPHIC                
|                                        |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        
|@Road PorticoiLM                        |  | Provides customers a cost-effective, entry-level MRM solution.                                                                                      |  |     Activity Reports
    Mapping                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | GRAPHIC                
|                                        |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        
|@Road Telco, Cable, and Utilities Suite |  | A specified set of @Road MRM services and devices specially designed for customers in the telecommunications, cable and utilities vertical markets. |  |     Two-Way Communicationsprovides text messaging and automated forms for workers in the field
    Vehicle Diagnosticsusing J1708 and OBD-II standards, monitors vehicle diagnostics and wirelessly transmits diagnostic data to @Road data centers
    @Road FieldServicesprovides detailed on demand and historical reporting of mobile worker activity using metrics tailored to the target vertical markets
    @Road Mobile HotSpotan optional feature enabling mobile workers to wirelessly connect their computing devices to the Internet and customer applications using 802.11 wireless technology
    DirectData
    Mapping |  | GRAPHIC GRAPHIC GRAPHIC
|                                        |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        

7

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|Solution                                    |  | Description                                                                                                                                 |  | Selected Features and Options                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | @Road-Supported
Devices
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------
|
|                                            |  |                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        
|@Road Transportation and Distribution Suite |  | A specified set of @Road MRM services and devices specially designed for customers in the transportation and distribution vertical markets. |  |     Route Complianceprovides reports to help monitor route progress and which compare planned routes with actual routes traveled
    Vehicle Diagnostics
    Speed Radarprovides reports comparing posted speed limits with the actual speed traveled
    Driver Logs and State Mileage Reportselectronically record hours of service, duty status and state mileage information for mobile workers
    @Road Mobile HotSpot
    DirectData
    Mapping |  | GRAPHIC GRAPHIC GRAPHIC
|                                            |  |                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        
|@Road Facilities Management Suite           |  | A specified set of @Road MRM services and devices specially designed for customers in the facilities management vertical market.            |  |     Route Compliance
    Electronic Cover Sheetprovides daily barcoded route sheets based on automated analysis of facilities, mobile worker schedules and other variables
    Barcode Wandautomatic data capture and reporting of barcoded information scanned in the field
    Two-Way Communications
    Vehicle Diagnostics
    DirectData
    Mapping                                                                                               |  | GRAPHIC GRAPHIC GRAPHIC
|                                            |  |                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        

8

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We believe the following features and benefits of our solutions provide a variety of competitive advantages over other solutions:



9

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We market and sell our solutions to a broad range of customers in the United States and Canada that vary in size, geographic location and industry. The number of
mobile resources enabled with our solutions has grown from 135 as of December 31, 1998 to approximately 133,000 as of December 31, 2004. We categorize a customer in a small-, medium- or
large-sized customer group by reference to the total number of subscribers to our services for that customer. Small-sized customers have less than 30

10

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subscribers,
medium-sized customers have 31 to 1,000 subscribers and large-sized customers have more than 1,000 subscribers. Currently we have customers in the following industries:

  Telecommunications

  Courier/Delivery  Field Service

  Distribution  Construction

  Security  Facilities/Waste Management

  Cable/Broadband  Freight and Passenger Transportation

  Utilities


In
2004 and 2003, one customer, Verizon Communications, represented 17% of total revenues. No other customer comprised 10% or more of total revenues. In 2002, no single customer or group
of related customers comprised 10% or more of total revenues.



We concentrate our research and development activities on services and device engineering. Our U.S. research and development activities are supplemented by
resources and personnel at our subsidiary in India. To enhance our existing solutions and to introduce new solutions to our existing and potential customers, we focus on the following key areas:



We
spent $6.2 million, $5.4 million and $5.9 million on research and development activities in 2004, 2003 and 2002, respectively. As of December 31, 2004, we
had 84 employees in research and development.



Our technology efforts focus on creating new solutions and enhancing the reliability, availability and features of our solutions while maintaining a scalable and
cost effective architecture. Our proprietary technologies are designed to work with technologies from other companies, including our competitors. In addition, although our solutions utilize Global
Positioning System technology, our solutions have been designed to work with other location technologies. We expect to continue to

11

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develop
additional proprietary technology where feasible and to purchase or license technology where cost-effective. Our technology efforts focus on the following areas:





We will continue to establish relationships with third parties for the purpose of accelerating the adoption of our solutions. We believe that establishing
strategic relationships will facilitate our technological leadership and provide early access to emerging technologies and new customers. Some of our existing relationships include:



12

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Our sales and marketing objective is to achieve broad market penetration through vertical marketing and targeted sales activities. We currently market and sell
our solutions through a number of sales channels, including the following:



Our
marketing department is engaged in a wide variety of activities, such as awareness and lead generation programs and product management. Generally, these activities include public
relations, seminars, direct mail, trade shows, and co-marketing and co-branding with alliances.

We
spent $12.3 million, $11.4 million and $10.7 million on sales and marketing activities in 2004, 2003 and 2002, respectively. As of December 31, 2004, our
sales and marketing team consisted of 103 employees.

13

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We face strong competition for our solutions, and this competition is expected to increase in the future. We compete primarily on the basis of functionality, ease
of use, quality, price, service availability and
corporate financial strength. As the demand by businesses for mobile resource management solutions increases, the quality, functionality and breadth of competing products and services will likely
improve and new competitors will likely enter our market. In addition, the widespread adoption of industry standards may make it easier for new market entrants or existing competitors to improve their
existing products and services, to offer some or all of the products and services we offer or may offer in the future, or to offer new products and services that we do not offer. We also do not know
to what extent network infrastructure developers and wireless network operators will seek to provide integrated wireless communications, Global Positioning System, software applications, transaction
processing, and Internet solutions, including access devices developed internally or through captive suppliers.

If
we are unable to compete successfully, our business may suffer and our sales cycles could lengthen, resulting in a loss of market share or revenues. We face competition from a number
of different business productivity solutions, including:



Many
of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies
have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers
more attractive terms than we can.



We rely on a combination of patent, trade secret, trademark and copyright laws, nondisclosure agreements and other contractual restrictions to protect our
proprietary technology. As of December 31, 2004, we possessed 14 patents, which we believe cover our GPS chipset technology and some of the methods and structures for distributing information
over a network as well as applications of those methods, and @Road has over 30 additional patents pending in jurisdictions throughout the world. Although we have applied for patent protection
primarily in the United States, we have filed and intend to continue to file patent applications in other countries where there is a strategic, technological or business justification.

As
part of our confidentiality procedures, we generally enter into nondisclosure agreements with our employees, consultants, distributors and corporate alliances and limit access to and
distribution of our software, documentation and other proprietary information. In the event that a third party breaches the confidentiality provisions or other obligations in one or more of our
agreements or misappropriates or infringes our intellectual property or the intellectual property licensed to us by third parties, our business could be seriously harmed. Third parties may
independently discover or invent competing technologies or reverse engineer our trade secrets, software or other technology. Furthermore, laws in some foreign countries may not protect our proprietary
rights to the same extent as the laws of the United States. Therefore, the measures we take to protect our proprietary rights may not be adequate.

14

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Third
parties may claim that our current or future products or services infringe their proprietary rights or assert other claims against us. As the number of entrants into our market
increases, the possibility of an intellectual property or other claim against us grows. Any intellectual property or other claim, with or without merit, would be time-consuming and
expensive to litigate or settle and could divert management attention from focusing on our core business. As a result of such a dispute, we may have to pay damages, incur substantial legal fees,
develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would
increase our expenses and could decrease the functionality of our solutions, which would make our solutions less attractive to our current or potential customers. We have agreed in some of our
agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties.



As of December 31, 2004, we had 432 employees, 350 of whom were located in the U.S. and 82 of whom were located in Chennai, India. Our future success is
substantially dependent on the performance of our executive and senior management and key technical personnel, and on our continuing ability to find and retain highly qualified technical and
managerial personnel. We believe relationships with our employees are good.

Item 2.Properties

We have offices in Fremont, California and Chennai, India.

|Location       |  | Ownership |  | Square
Feet |  | Primary Use                                                                                                 |  | Lease
Expiration
|-------------- |  | --------- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----------------
|Fremont, CA    |  | Leased    |  | 103,000     |  | Corporate headquarters, customer service, engineering from January 2005                                     |  | 5/16/2010       
|Fremont, CA    |  | Leased    |  | 54,000      |  | Corporate headquarters, customer service, engineering through January 2005                                  |  | 1/31/2005       
|Fremont, CA    |  | Leased    |  | 30,000      |  | Engineering, research and development, data center (6,000 square feet subleased on a month-to-month basis.) |  | 12/31/2005      
|Chennai, India |  | Leased    |  | 4,100       |  | Research and development, customer service                                                                  |  | 11/16/2005      
|Chennai, India |  | Leased    |  | 2,500       |  | Research and development, customer service                                                                  |  | 12/31/2006      
|Chennai, India |  | Leased    |  | 2,700       |  | Research and development, customer service                                                                  |  | 5/1/2007        

While
we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to lease or acquire additional or alternative space to accommodate any future
growth.

For
a discussion of the accounting treatment of our leased properties, see "Note 10Commitments and Contingencies" of the notes to our consolidated financial
statements, included elsewhere in this Report.

Item 3.Legal Proceedings

From time to time, we are subject to claims in legal proceedings arising in the normal course of our business. We do not believe that we are party to any pending
legal action that could reasonably be expected to have a material adverse effect on our business, financial condition, or operating results.

Item 4.Submission of Matters to a Vote of Security Holders

None.

15

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PART II

Item 5.Market for Registrant's Common Equity and Related Stockholder Matters

Price Range of Common Stock

Our common stock has been listed for quotation on the Nasdaq National Market under the symbol "ARDI" since our initial public offering on September 28,
2000. The following table shows the high and low sales prices of our common stock as reported by the Nasdaq National Market for the period indicated.

High

LowQuarter ended March 31, 2003

6.76

4.34Quarter ended June 30, 2003

11.73

6.00Quarter ended September 30, 2003

15.10

10.93Quarter ended December 31, 2003

15.15

10.98Quarter ended March 31, 2004

16.82

10.58Quarter ended June 30, 2004

13.55

7.05Quarter ended September 30, 2004

7.55

3.10Quarter ended December 31, 2004

6.91

4.01Quarter ended March 31, 2005 (through February 28, 2005)

6.65

4.35


At
December 31, 2004, there were approximately 110 holders of record of our common stock, although we believe that there is a significantly larger number of beneficial owners of
our common stock.

The
market price of our common stock has been and may continue to be subject to wide fluctuations in response to a number of events and factors, such as quarterly variations in our
operating results, announcements of technological innovations or new products or services or customers by us or our competitors, changes in financial estimates and recommendations by securities
analysts, the operating and stock performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many high technology companies that have often been unrelated or disproportionate to
the operating performance of those companies. These fluctuations, as well as general political, economic and market conditions, may adversely affect the market price for our common stock.

Dividend Policy

We have never paid cash dividends on our common stock. We currently intend to retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate declaring any cash dividends in the foreseeable future.

16

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Item 6.Selected Financial Data

The selected consolidated financial data set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the consolidated financial statements, the related notes and other information contained in this Report.

|                                                        |                                                                             | Years Ended December 31,          |      
|------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------- | -----
|
|
|Consolidated Statements of Operations Data:             |                                                                             |                                   |      
|Revenues:                                               |                                                                             |                                   |      
|                                                        | Services                                                                    |                                   | $    
|                                                        | Product                                                                     |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total revenues                    |      
|                                                        |                                                                             |                                   |      
|Costs and expenses:                                     |                                                                             |                                   |      
|                                                        | Cost of service revenue (excluding intangibles amortization included below) |                                   |      
|                                                        | Cost of product revenue                                                     |                                   |      
|                                                        | Intangibles amortization                                                    |                                   |      
|                                                        | Sales and marketing                                                         |                                   |      
|                                                        | Research and development                                                    |                                   |      
|                                                        | General and administrative                                                  |                                   |      
|                                                        | Restructuring charges                                                       |                                   |      
|                                                        | Terminated acquisition costs                                                |                                   |      
|                                                        | Stock compensation                                                          |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total costs and expenses          |      
|                                                        |                                                                             |                                   |      
|Income (loss) from operations                           |                                                                             |                                   | 7,693
|                                                        |                                                                             |                                   |      
|Other income (expense), net:                            |                                                                             |                                   |      
|                                                        | Interest income                                                             |                                   |      
|                                                        | Interest expense                                                            |                                   |      
|                                                        | Investment impairment charge                                                |                                   |      
|                                                        | Other (expense) income, net                                                 |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total other income (expense), net |      
|                                                        |                                                                             |                                   |      
|Net income (loss)                                       |                                                                             | $                                 | 9,221
|                                                        |                                                                             |                                   |      
|Net income (loss) per share:                            |                                                                             |                                   |      
|                                                        | Basic                                                                       |                                   | $    
|                                                        |                                                                             |                                   |      
|                                                        | Diluted                                                                     |                                   | $    
|                                                        |                                                                             |                                   |      
|Shares used in calculating net income (loss) per share: |                                                                             |                                   |      
|                                                        | Basic                                                                       |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        | Diluted                                                                     |                                   |      
|                                                        |                                                                             |                                   |      

17

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|                              |       | Years Ended December 31,
|----------------------------- | ----- | ------------------------
|
|
|Detail of stock compensation: |       |                         
|Cost of service revenue       |       | $                       
|Cost of product revenue       |       |                         
|Sales and marketing           |       |                         
|Research and development      |       |                         
|General and administrative    |       |                         
|                              |       |                         
|                              | Total |                         
|                              |       |                         

|                                                     |  | As of December 31,
|---------------------------------------------------- |  | ------------------
|
|
|Consolidated Balance Sheet Data:                     |  |                   
|Cash and cash equivalents                            |  | $                 
|Restricted and non-restricted short-term investments |  |                   
|Working capital                                      |  |                   
|Total assets                                         |  |                   
|Total stockholders' equity                           |  |                   

|                                                     |  | Years Ended December 31, |         
|---------------------------------------------------- |  | ------------------------ | --------
|
|
|Consolidated Cash Flow Data:                         |  |                          |         
|Operating activities                                 |  | $                        | 11,216  
|Investing activities                                 |  |                          | (104,053
|Financing activities                                 |  |                          | 3,662   
|Net (decrease) increase in cash and cash equivalents |  |                          | (89,175 

Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Report. This
Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those in such forward-looking statements as a result of many factors,
including those discussed in "Risk Factors," "Business" and elsewhere in this Report.

Overview

We are a leading provider of mobile resource management solutions, a rapidly growing category of business productivity solutions that enable the effective
management of mobile resources. Our MRM solutions allow customers to improve productivity by enabling the effective management of the activities of their mobile workers, assets, goods and services. In
addition, our solutions are designed to enable customers to increase the utility of their mobile resources and decrease their costs of operations by facilitating business processes, such as event
confirmation, signature verification, forms processing, project management and timekeeping while their workers are in the field. Our solutions also provide location, reporting, dispatch, messaging,
and other management services and are designed to be easy to implement and use. Our customers can manage their mobile workers in several ways, including by logging onto our website, receiving their
data directly into their existing software applications, using any telephone to access our speech-to-text voice portal or requesting information from our data centers using application programming
interfaces.

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From July 1996 through June 1998, our operations consisted primarily of various start-up activities relating to our current business, including development of
Global Positioning System technologies, recruiting personnel and raising capital. We did not recognize any revenues prior to June 1998, and our expenses consisted of research and development,
sales and marketing and general and administrative expenses. In 1998, we expanded our strategy and redirected our focus to provide location-relevant and time-sensitive information
solutions to companies managing mobile resources. In the second half of 1998, we introduced the first version of a solution that is now called GeoManager, which is a solution that leverages existing
infrastructure, including the Global Positioning System, wireless networks and the Internet along with integrated transaction processing and software applications, to enable companies to efficiently
manage their mobile resources. Subsequent to the introduction of GeoManager, we have introduced a number of new solutions, such as:



In
addition, we have developed and packaged a specified set of @Road products and services for three of our target vertical markets. These application suites are designed to provide
industry-appropriate products and services in a single solution. We currently offer the following solution suites:



Our
solutions provide current and historical data relating to a customer's mobile resources in a variety of formats, including activity reports, maps and completed business forms. We
provide these formats in a standard configuration, and customers can configure certain elements and views themselves to help achieve compliance with their internal business rules. Customers can choose
to submit queries through our applications to create reports and views on demand or they can have reports delivered on a pre-scheduled basis. Customers can also download reports to
manipulate and store data as desired. Mobile resource data is typically stored by us for 30 to 45 days, but is stored for longer periods for customers that purchase our extended data storage
service.

We
commence implementation of our solutions with the deployment of a device to each of the customer's mobile resources. We call each mobile resource with such a device a "subscriber."
Our services operate with two device types:



19

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These
device types send and receive a variety of information from time to time and on demand. Such data include location, velocity, time and operational diagnostics. These data are
transmitted to our data centers using wireless networks and the Internet. If a wireless connection to a device is not available, then the device will store up to five days of captured data and seek to
transmit the data when a wireless connection is available.

Since
1998, we have derived substantially all of our revenues from the sale of our services and the associated product hardware. Our service revenue is comprised of monthly fees. Our
customers contract to receive our services for terms of one, two or three years and can purchase enhanced service features for additional fees. Upon the completion of the initial term of a customer's
contract, the customer's service continues on a month-to-month basis. As more customers use our services, the impact on our service revenue is compounded. Our product revenue consists of sales of the
Internet Location Manager, Internet Data Terminal, ruggedized personal digital assistant and other products.

To
date, we have not sold our solutions outside the United States and Canada; however, we intend to expand our solution offerings to additional countries in the future. In 2004 and 2003,
one customer, Verizon Communications, represented 17% of total revenues. No other customer or group of related customers comprised 10% or more of total revenues in 2004 and 2003. In 2002, no single
customer or group of related customers comprised 10% or more of total revenues.

Since
inception we have invested substantially in research and development, marketing, the building of our sales channels and our overall infrastructure. We anticipate that such
investments may increase in the future. We incurred losses in each quarter from inception through the quarter ending June 30, 2003, and may incur net losses in the future. At
December 31, 2004, we had an accumulated deficit of $107 million. Our limited operating history makes it difficult to forecast future operating results. We may not sustain or increase
profitability on a quarterly or annual basis.

In
the third quarter of 2002, AT&T Wireless announced that it expected to cease operating its Cellular Digital Packet Data ("CDPD") network by June 30, 2004. On March 11,
2004, we received notice that AT&T Wireless would continue to operate its CDPD network for "certain valuable partners," including us, until at least September 30, 2004. The letter also stated
that this extension of CDPD network availability extended across all AT&T Wireless geographic locations. On May 28, 2004, we received notice that AT&T Wireless extended availability of its CDPD
network to June 30, 2005. In October 2004, AT&T Wireless was acquired by Cingular Wireless and is now a direct wholly owned subsidiary of Cingular Wireless.

We
are in discussions with AT&T Wireless to minimize any disruption to the delivery of our services to our customers. We have notified customers comprising substantially all of the
subscribers whose service would be affected by the proposed termination of the AT&T Wireless CDPD network. At December 31, 2004, less than one quarter of our total subscribers utilize the AT&T
Wireless CDPD network. The majority of those subscribers have yet to complete their negotiations with us for migration to an alternate network. We estimate that as of June 30, 2005,
approximately 2,500 of those subscribers will be in their initial contract periods with us.

In
its Report on Form 10-K filed with the SEC on March 27, 2003, Verizon Wireless disclosed that it expects to cease operating its CDPD network at the end of
2005. We are in discussions with Verizon Wireless to minimize any disruption to the delivery of our services to our customers. We have notified customers comprising substantially all of the
subscribers whose service would be affected by the proposed termination of the Verizon Wireless CDPD network. At December 31, 2004, less than one quarter of our total subscribers utilize the
Verizon Wireless CDPD network. Less than half of those subscribers, or approximately 10% of our total subscribers, have yet to complete their negotiations with us for migration to an alternate
network. We estimate that as of December 31, 2005, approximately 5,000 of those subscribers will be in their initial contract periods with us.

20

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To
use an alternate network, existingiLM hardware devices would have to be replaced by subscribers currently using an iLM with a CDPD network. While we do
not anticipate losses on the sale of these replacement hardware devices, if we are unable to migrate our customers
in a timely fashion, we may offer price concessions. If we were to offer such concessions, they could have a material adverse impact on our financial results.

On
February 18, 2005, we acquired all of the outstanding shares of Vidus Limited, a provider of dynamic field service automation solutions located in Ipswich, United Kingdom. The
acquisition is intended to allow us to integrate technology for dynamic scheduling, dispatching, routing, and appointment booking of mobile workers, and we intend to expand our business to Europe and
other international markets.

In
exchange for all of the outstanding shares of Vidus capital stock, we issued approximately 5.5 million shares of our common stock valued at $38.2 million and newly
created interest-bearing redeemable preferred stock in the face amount of approximately $10.2 million, extinguished for cash existing debt of approximately $4.6 million and issued
approximately 146,000 vested options with a fair value of $532,000. In addition, we extinguished for cash existing debt of approximately $926,000. Under the terms of the stock option grants, each
option has been classified as a non-qualified stock option, is fully vested, has an exercise price ranging from $0.67 to $2.00 per share and generally has a one-year term. The
purchase price also included estimated direct transaction costs of $1.3 million.

Critical Accounting Policies, Judgments and Estimates



The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from
these estimates.

An
accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate
is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the
consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial
statements. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included
elsewhere in this Report.



In accordance with applicable accounting standards, including SOP No. 97-2,Software Revenue
Recognition, as amended, we recognize revenue when earned. Specifically, we recognize revenue when the price is fixed and determinable, upon persuasive evidence of an
agreement, when we have fulfilled our obligations under any such agreement and upon a determination that collection is probable.

Through
December 31, 2004, our services have been available only by using our proprietary hardware devices or a location- or wireless application protocol-enabled mobile
telephone. Accordingly, through December 31, 2004, service revenue, which is comprised of monthly fees, was recognized ratably over the minimum service contract period, which commenced
(a) upon installation where

21

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customers
have installed our proprietary hardware devices in mobile worker vehicles or (b) upon the creation of subscription licenses and a customer account on our website where customers have
elected to use our services with a location-enabled mobile telephone.

Our
product revenue primarily consists of sales of the Internet Location Manager, Internet Data Terminal and a ruggedized personal digital assistant. We defer product revenue at
installation and recognize it ratably over the minimum service contract period, which generally is two or three years. Renewal rates for our services are not considered priced at a bargain in
comparison to the initial sales price of an associated product (as described in Staff Accounting Bulletin No. 104,Revenue Recognition). Changes
to the pricing of our products and services in the future could result in the recognition of product revenue over periods that extend beyond the minimum service contract period.

Historically,
the selling prices of our proprietary hardware devices have often been at or below our costs. Product costs not in excess of related contractual product revenue are
deferred at the time of shipment and amortized ratably over the minimum service contract period. Where the selling prices of our proprietary hardware devices are below our costs, we expense the
difference to cost of product revenue at the time of shipment of the related products.



Historically, we have had a significant number of small- to medium-sized companies utilizing our solutions. These customers are involved in diverse businesses.
Our payment arrangements with customers generally provide 30-day payment terms. At the time that customers contract with us for our solutions, we assess their creditworthiness.

The
nature of our relationship with customers is inherently long-term and we have extended and may extend payment terms on an exception basis. We regularly review our
customers' ability to satisfy their payment obligations and provide an allowance for doubtful accounts for all specific receivables that we believe are not collectible. When these conditions arise, we
suspend recognition of revenue until collection becomes probable or cash is collected. Beyond these specific customer accounts, we record an allowance based on the size and age of all receivable
balances against which we have not established a specific allowance. These allowances are based on our experience in collecting such accounts.

Although
we believe that we can make reliable estimates for doubtful accounts, the size and diversity of our customer base, as well as overall economic conditions, may affect our ability
to accurately estimate revenue and bad debt expense. Actual results may differ from those estimates.



We have substantial deferred tax assets that relate to prior period losses, primarily in the United States. We evaluate these deferred tax assets in each tax
jurisdiction by estimating the likelihood of generating future profits to realize these assets. In most cases, we have assumed that we will not be able to generate sufficient future taxable income to
realize these assets and have recorded valuation reserves to reduce the net asset values to zero. If these estimates and assumptions change in the future, we may be able to reverse the valuation
allowances in future periods should we generate taxable income and our assumptions regarding the generation of future taxable income change. At December 31, 2004, we had approximately
$43.2 million of valuation allowances related to our net deferred tax assets.

22

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Results of Operations for the Years Ending December 31, 2004, 2003 and 2002

The following table sets forth, for the periods indicated, selected statements of operations data as a percentage of our total revenue:

|                                  |                                                                             | Years Ended December 31, |     
|--------------------------------- | --------------------------------------------------------------------------- | ------------------------ | ----
|
|Revenues:                         |                                                                             |                          |     
|                                  | Service                                                                     |                          | 78.2
|                                  | Product                                                                     |                          | 21.8
|                                  |                                                                             |                          |     
|                                  |                                                                             | Total revenues           |     
|                                  |                                                                             |                          |     
|Costs and expenses:               |                                                                             |                          |     
|                                  | Cost of service revenue (excluding intangibles amortization included below) |                          | 22.0
|                                  | Cost of product revenue                                                     |                          | 24.3
|                                  | Intangibles amortization                                                    |                          |    
|                                  | Sales and marketing                                                         |                          | 16.4
|                                  | Research and development                                                    |                          | 8.2 
|                                  | General and administrative                                                  |                          | 16.0
|                                  | Terminated acquisition costs                                                |                          | 2.8 
|                                  | Stock compensation                                                          |                          |    
|                                  |                                                                             |                          |     
|                                  |                                                                             | Total costs and expenses |     
|                                  |                                                                             |                          |     
|Income (loss) from operations     |                                                                             | 10.3                     |     
|Total other income (expense), net |                                                                             | 2.0                      |     
|                                  |                                                                             |                          |     
|Net income (loss)                 |                                                                             | 12.3                     | %   
|                                  |                                                                             |                          |     

|                                                               |                        | Years Ended December 31, |       
|-------------------------------------------------------------- | ---------------------- | ------------------------ | ------
|
|
|Total revenues                                                 |                        | $                        | 75,234
|Total cost of revenues (excluding amortization included below) |                        |                          | 34,825
|Intangibles amortization                                       |                        |                          | 28    
|Stock compensationcost of revenues                            |                        |                          |      
|                                                               |                        |                          |       
|                                                               | Total cost of revenues |                          |       
|                                                               |                        |                          |       
|Total gross margin                                             |                        |                          | 40,381
|Total gross margin percentage                                  |                        |                          | 54    



Total revenues increased to $75.2 million in 2004 from $63.4 million and $44.4 million in 2003 and 2002, respectively, as a direct result of
the growth in our installed base of subscribers. The number of our subscribers totaled approximately 133,000, 125,000 and 90,000 at December 31, 2004, 2003 and 2002, respectively.



Total cost of revenues decreased to $34.9 million in 2004 from $36.0 million in 2003. The decrease is attributed to a reduction in the provision for
inventory valuation of $1.2 million, a reduction in other cost of products of $692,000, associated with lower product returns, a decrease in the amortization of

23

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intangibles
of $427,000 and a decrease in direct service delivery expenses of $243,000. These decreases were offset in part by an increase in employee-related expenses of $1.0 million,
associated with higher average headcount during the year and an increase in deferred cost of revenues recognized of $805,000, consistent with growth in our installed base of subscribers. Total cost of
revenues increased to $36.0 million in 2003 from $32.3 million in 2002. The increase in total cost of revenues resulted from an increase of $2.0 million in direct service delivery
expenses, an increase in deferred cost of revenues recognized of $728,000, consistent with growth in our installed base of subscribers, an increase in employee-related costs of $1.1 million,
associated with a higher average headcount during the year, an increase in product repair and refurbishment costs of $731,000 and an increase in provisions for inventory valuation of $311,000. These
costs were offset in part by a reduction in the amortization of intangibles of $1.2 million and a reduction in depreciation expense of $637,000 as certain assets became fully depreciated.
Direct expenses generally increase at a rate proportional to the growth in our subscribers. Personnel costs and depreciation expense generally increase at a rate slower than the growth rate of our
subscribers. As a result, we expect that the growth in total revenues will be greater than the growth in total cost of revenues as we continue to add subscribers.



During the year ended December 31, 2004 total gross margins improved to 54% from 43% and 27% in 2003 and 2002, respectively. The increase in total gross
margins is reflective of the fact that our total
cost of revenues includes fixed indirect expenses that generally increase at a rate slower than the growth in our installed base of subscribers, combined with the impact of intangibles and fixed
assets becoming fully amortized.

|                                                                |                               | Years Ended December 31, |       
|--------------------------------------------------------------- | ----------------------------- | ------------------------ | ------
|
|
|Service revenue                                                 |                               | $                        | 58,828
|Cost of service revenue (excluding amortization included below) |                               |                          | 16,515
|Intangibles amortization                                        |                               |                          | 28    
|Stock compensationcost of service revenue                      |                               |                          |      
|                                                                |                               |                          |       
|                                                                | Total cost of service revenue |                          |       
|                                                                |                               |                          |       
|Service gross margin                                            |                               | $                        | 42,285
|Service gross margin percentage                                 |                               |                          | 72    



Service revenue increased to $58.8 million in 2004 from $49.6 million and $33.7 million in 2003 and 2002, respectively, as a direct result of
the growth in our installed base of subscribers to our services. The number of subscribers using our services totaled approximately 133,000, 125,000 and 90,000 at December 31, 2004, 2003 and
2002, respectively. In addition to subscriber growth, our service revenue is affected by a number of factors, including the rate at which service features or add-ons are adopted and the
pricing associated with the size and term of customer contracts. Given the fixed nature of our arrangements with our customers and ratable revenue recognition, the impact on revenues of changes in
current prices for products and services is tempered because revenues from new pricing are layered on top of revenues from existing subscribers. Average monthly revenue per subscriber was
approximately $37.73 for 2004, down from $38.19 in 2003. Of the decrease, approximately $0.67 was the result of price changes associated with the types of services and size and term of contracts for
new subscribers as those new revenues were layered on top of revenues from existing subscribers. The decrease was partially offset by an increase of approximately $0.21 that was related to adoption of

24

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additional
service capabilities and features by subscribers. Average monthly revenue per subscriber was approximately $38.19 for 2003, up from $36.02 in 2002. Of the increase, approximately $0.76 was
related to adoption of additional service capabilities and features by subscribers. The remaining increase of approximately $1.41 was the result of price changes associated with the types of services
and size and term of contracts for new subscribers as those new revenues were layered on top of revenues from existing subscribers.

Underlying
price changes is a trend related to the variety of wireless protocols we now offer customers, including General Packet Radio Services, Code Division Multiple Access 1XRTT and
the Integrated Digital Enhanced Network. We describe those arrangements in which customers contract directly with wireless carriers for the wireless airtime component of our solution as "unbundled".
Conversely, we describe arrangements in which we contract directly with customers for the wireless airtime portion as "bundled". The nature of our relationship with the wireless carriers dictates
whether we will be entering into a bundled or unbundled arrangement with the customer. Selection of the appropriate protocol is related primarily to optimal wireless coverage for a specific customer
area of operation. Additionally, we are generally indifferent as to whether bundled or unbundled arrangement results with a new customer because we have priced our solutions such that a similar
contribution to gross profits results from either arrangement. We have observed an increase in the proportion of new subscribers being added on an unbundled basis. We expect that this trend will
continue through the next 12 to 18 months.



Cost of service revenue consists of expenses related to the delivery and support of our services. Direct expenses are comprised of costs associated with
connecting our services to wireless networks and the Internet and royalty and subscription fees paid to others. Support and other delivery costs include such expenses as employee salaries and related
expenses and depreciation of our data centers. Cost of service revenue increased to $16.5 million in 2004 from $15.7 million in 2003. The increase is attributed to an increase in
employee-related expenses of $1.0 million, associated with higher average headcount during the year, offset in part by a decrease in direct service delivery expenses of $243,000. Cost of
service revenue increased to $15.7 million in 2003 from $13.5 million in 2002. The increase in cost of service revenue resulted from an increase of $2.0 million in direct service
delivery expenses, consistent with growth in our installed base of subscribers, and an increase in employee-related costs of $744,000, associated with a higher average headcount during the year. These
costs were partially offset by a reduction in depreciation expense of $637,000 as certain assets became fully depreciated. Direct expenses generally increase at a rate proportional to the growth in
subscribers using our services. Personnel costs and depreciation expense generally increase at a rate slower than the growth rate of subscribers to our services. As a result, we expect that the growth
in service revenue will be greater than the growth in cost of service revenue as we add subscribers.



During the year ended December 31, 2004 service gross margins improved to 72% from 67% and 55% in 2003 and 2002, respectively, as a result of increased
service revenue associated with growth in our installed base of subscribers and a smaller increase in the total cost of service revenue, including intangibles amortization. The average number of
subscribers to our services increased 20% in 2004 over

25

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2003
and 39% in 2003 over 2002. Cost of service revenue includes fixed indirect expenses and, therefore, generally increases at rates slower than the growth in our installed base of subscribers.

|                                           |                               | Years Ended December 31, |       
|------------------------------------------ | ----------------------------- | ------------------------ | ------
|
|
|Product revenue                            |                               | $                        | 16,406
|Cost of product revenue                    |                               |                          | 18,310
|Stock compensationcost of product revenue |                               |                          |      
|                                           |                               |                          |       
|                                           | Total cost of product revenue |                          |       
|                                           |                               |                          |       
|Product gross deficit                      |                               | $                        | (1,904
|Product gross deficit percentage           |                               |                          | (12   



Product revenue increased 19% and 28% over each prior year in 2004 and 2003, respectively. This growth is consistent with the growth in our installed base of
subscribers whose services are enabled by deployment of an Internet Location Manager.

As
new subscribers are added to our installed base, the amount of both deferred revenue and deferred costs recognized ratably over the minimum service contract period increases. This
effect is tempered by subscribers whose solution is deployed through the use of a location or wireless application protocol-enabled mobile telephone installed with our software application because we
do not sell these devices and therefore do not recognize any revenues or costs for such sales. A similar tempering effect occurs upon completion of the initial term of a customer's contract because
recognition of deferred product revenue is complete. Those customers may then renew their agreements for future services without the purchase of new hardware and, therefore, we would generally expect
that product revenue should grow more slowly than service revenue. Because the migration of existing customers who utilize CDPD networks requires replacement of their existing hardware, product
revenue may increase accordingly. Given these factors, we anticipate that product revenue will grow in future periods, but more slowly than the expected growth of service revenue.



Cost of product revenue consists of the cost of the Internet Location Manager, Internet Data Terminal, ruggedized personal digital assistant and related parts;
costs associated with the final assembly, testing, provisioning, delivery and installation of our products; and other costs such as provisions for inventory and repair costs. Product costs not in
excess of related product revenue are deferred at the time of shipment and amortized ratably over the minimum service contract period. Where the selling prices of our products are below our costs, we
expense the difference at the time of shipment of the related products. Generally, we expect the selling prices of our products to be approximately equal to or exceed the product costs in future
periods. The impact of selling products below our cost on future cash flow from operations is expected to be minimal. As new subscribers are added to our installed base, the amount of both deferred
revenue and deferred costs recognized ratably increases. Upon completion of the initial term of a customer's contract, recognition of both deferred product revenue and product cost is complete.
Customers may then renew their agreements for future services without the purchase of new hardware and, therefore, we anticipate that product revenue and cost of product revenue will grow more slowly
than service revenue.

Cost
of product revenue decreased to $18.3 million in 2004 from $19.8 million in 2003. The decrease in cost of product revenue of $1.5 million was primarily
attributable to a reduction in the

26

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provision
for inventory valuation of $1.2 million, and a decrease in product repair and refurbishment costs of $692,000, associated with lower product returns. These decreases were offset in
part by an increase in deferred product cost recognized of $805,000, associated with higher product revenue. Cost of product revenue rose to $19.8 million in 2003 from $16.9 million in
2002. The increase in cost of product revenue of $2.9 million was primarily attributable to an increase in product repair and refurbishment costs of $731,000, an increase in deferred product
cost recognized during the period of $728,000, an increase in employee-related costs of $355,000, and an increase in provisions for inventory valuation of $311,000.



Product gross deficit improved to (12)% in 2004 from (43)% in 2003 and from (59)% in 2002. Increases in product revenue from deferrals associated with the growth
in our installed base of subscribers were greater than the related increases in product costs from deferrals. While we expect the selling prices of our products to be approximately equal to or to
exceed product costs in future periods, after considering other costs, such as those described in "Cost of Product Revenue" above, we do not expect to generate significant product gross margin during
the next twelve months.



Sales and marketing expenses consist of employee salaries, sales commissions, and marketing and promotional expenses. Sales and marketing expenses increased to
$12.3 million in 2004 from $11.4 million in 2003. The increase resulted from higher employee-related costs of $1.3 million, associated with higher average headcount during the
year, and an increase in travel expenses of $238,000, partially offset by decreases in sales commission of $420,000 and promotional expenses of $324,000. Sales and marketing headcount increased to 103
at December 31, 2004 from 86 at December 31, 2003. We expect that sales and marketing expenses will increase as we expand our sales and marketing efforts, including, but not limited to,
modest headcount growth and promotional expenses related to new product and service offerings.

Sales
and marketing expenses increased to $11.4 million in 2003 from $10.7 million in 2002. The increase resulted from higher employee-related costs of $1.1 million,
associated with higher average headcount during 2003, offset by decreases in depreciation of $221,000 as certain assets became fully depreciated and decreases in travel expenses of $204,000. Sales and
marketing headcount decreased to 86 at December 31, 2003 from 88 at December 31, 2002.



Research and development expenses consist of employee salaries and expenses related to development personnel and consultants, as well as expenses associated with
software and hardware development. Research and development expenses increased to $6.2 million in 2004 from $5.4 million in 2003. The increase was primarily attributed to an increase in
employee-related costs of $454,000, associated with an increase in the average headcount during the year, and increases in external development expenses
of $387,000. Headcount increased to 84 at December 31, 2004 from 56 at December 31, 2003, with the majority of this increase occurring in India. We anticipate that research and
development expenses will increase in future periods as we develop and introduce new products and services, including modest increases in consultant and employee-related expenses associated with those
introductions.

Research
and development expenses decreased to $5.4 million in 2003 from $5.9 million in 2002. The reduction in expense is attributed to decreases in depreciation of
$257,000 as certain assets became fully depreciated during the year, decreases in indirect allocated costs of $158,000 and decreases in

27

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employee-related
costs of $113,000, associated with a decrease in the average headcount. Headcount decreased to 56 at December 31, 2003 from 59 at December 31, 2002.

In
accordance with American Institute of Certified Public Accountants Statement of Position 98-1,Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use("SOP 98-1"), we capitalize qualifying computer software costs that are incurred during the application development stage and
amortize them over the software's estimated useful life. Consistent with the requirements of SOP 98-1, we did not capitalize any research and development costs in 2004, 2003 or
2002.



General and administrative expenses consist of employee salaries and related expenses for executive and administrative costs, accounting and professional fees,
recruiting costs and provisions for doubtful accounts. General and administrative expenses increased to $12.0 million in 2004 from $9.2 million in 2003. The increase primarily resulted
from our Sarbanes-Oxley compliance costs of $2.2 million consisting of consulting fees, temporary employee-related expenses and accounting and audit fees, an increase in our employee-related
costs of $1.2 million associated with an increase in the average headcount and increased recruiting fees of $292,000. These increases were offset in part by a decrease in the provision for
doubtful accounts of $597,000, which resulted from improved collection activity and receivables management, and lower franchise and minimum state taxes of $278,000. We expect that general and
administrative expenses will decrease slightly in future periods due to the completion of our initial Sarbanes-Oxley compliance efforts.

General
and administrative expenses increased to $9.2 million in 2003 from $8.6 million in 2002. The increase resulted from higher employee-related expenses of $433,000
related to growth in average headcount during the year, increases in franchise and minimum state taxes of $362,000, increases in professional fees of $242,000 and a rise in general operating expenses
such as insurance and bank fees of $173,000. These increases were consistent with our anticipated expenditures associated with our
growth and were offset in part by a decrease in the provision for doubtful accounts of $588,000, due to improved collection activity and receivables management.

Provisions
for doubtful accounts decreased to $(724,000) in 2004 from $(127,000) in 2003 and from $461,000 in 2002, due to improved collection activity and receivables management. We
expect that provisions for doubtful accounts may increase because of the non-recurring nature of favorable adjustments that occurred during 2004 and 2003; however, we do not expect that
these provisions will return to the levels reported in 2002.

General
and administrative headcount totaled 81, 53 and 47 at December 31, 2004, 2003, and 2002, respectively.



On April 12, 2004, we entered into a Combination Agreement with MDSI Mobile Data Solutions, Inc. ("MDSI") providing for the acquisition of MDSI. On
July 27, 2004, the parties mutually agreed to terminate the Combination Agreement. As a result, for the year ended December 31, 2004, we expensed approximately $2.1 million of
acquisition-related costs.



Intangibles amortization relates to the intangible assets purchased from Differential Corrections, Inc. in April 2000 and
ConnectBusiness.com, Inc. in September 2002. The costs were amortized over their estimated useful lives of three and two years, respectively. As of December 31, 2004 these
intangibles were fully amortized.

28

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Deferred stock compensation related to the granting of stock options to employees and consultants was approximately $0 and $4,000 as of December 31, 2004
and 2003, respectively. Stock compensation expense decreased to $4,000 in 2004 from $467,000 in 2003 and $1.1 million in 2002, and primarily represents the amortization of deferred stock
compensation over the vesting periods of related options granted in 2000 and 1999. As of December 31, 2004 our deferred stock compensation was fully amortized.



Interest income is composed primarily of interest earned on cash, cash equivalents and short-term investments. Interest income increased to
approximately $1.5 million in 2004 from $686,000 in 2003, but decreased to $686,000 in 2003 from $964,000 in 2002. The increase in 2004 is the result of larger invested balances and higher
rates of return. The decrease in 2003 is the result of lower average invested balances and lower rates of return.



Interest expense is composed primarily of interest expense related to the financing of directors and officers insurance costs. Interest expense decreased to $0 in
2004 from $11,000 in 2003, and decreased to $11,000 in 2003 from $15,000 in 2002.



At December 31, 2004, we held approximately 43,000 shares of preferred stock in Cellport Systems, Inc., with an original cost of $1.0 million
which represented less than one percent ownership in Cellport Systems, Inc. We accounted for this investment using the cost method. During 2002, we determined that the investment had
experienced a decline in value that was other than temporary. Accordingly, we expensed $1.0 million in 2002.



In 2004, 2003 and 2002, other (expense) income consisted primarily of immaterial net foreign currency exchange losses and gains related to our subsidiary in
India.



Through 2002, we incurred net losses for federal and state tax purposes, and except for only minimum state and franchise taxes recorded within general and
administrative expenses, we have not recognized any tax provision or benefit. Net income earned during 2004 and 2003 was offset by the utilization of prior years' net operating loss carryforwards;
therefore, no income tax expense was provided.



Net income increased to $9.2 million in 2004 from $1.7 million in 2003. Total revenues increased to $75.2 million in 2004 from
$63.4 million in 2003, while operating costs increased at a slower rate to $67.5 million in 2004 from $62.4 million in 2003. Specifically, cost of service revenue, sales and
marketing expenses, research and development expenses, and general and administrative expenses grew modestly, while amortization of intangibles and cost of product revenue declined. Generally, we
expect that our revenues will grow at a faster rate than our operating expenses.

29

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Net income (loss) increased to $1.7 million in 2003 from $(14.2) million in 2002. Total revenues increased to $63.4 million in 2003 from $44.4 million in 2002, while
operating costs increased at a slower rate to $62.4 million in 2003 from $58.5 million in 2002. Specifically, cost of revenue, sales and marketing expenses, and general and
administrative expenses grew modestly, while amortization of intangibles and research and development expenses declined.



We conduct operations primarily within the U.S. where inflation during 2004, 2003 and 2002 has been low and has not materially impacted our operating results.
Foreign currency exchange losses resulting from transactions with our wholly-owned subsidiary in India, which began business in 1999, were not material during 2004, 2003 and 2002 and were expensed as
incurred within other (expense) income, net.

Quarterly Results of Operations

The
following table presents certain unaudited consolidated statement of operations data for our eight most recent fiscal quarters. The information for each of these quarters is
unaudited and has been prepared on the same basis as our audited consolidated financial statements appearing elsewhere in this Report. In the opinion of our management, all necessary adjustments,
consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related
notes included elsewhere or incorporated by reference in this Report. We believe that results of operations for interim periods should not be relied upon as any indication of the results to be
expected or achieved in any future period or any fiscal year as a whole.

|                                            |                              | Quarters Ended                    |      
|------------------------------------------- | ---------------------------- | --------------------------------- | -----
|
|
|Consolidated Statements of Operations Data: |                              |                                   |      
|Revenues:                                   |                              |                                   |      
|                                            | Services                     |                                   | $    
|                                            | Product                      |                                   |      
|                                            |                              |                                   |      
|                                            |                              | Total revenues                    |      
|                                            |                              |                                   |      
|Costs and expenses:                         |                              |                                   |      
|                                            | Cost of service revenue      |                                   |      
|                                            | Cost of product revenue      |                                   |      
|                                            | Intangibles amortization     |                                   |      
|                                            | Sales and marketing          |                                   |      
|                                            | Research and development     |                                   |      
|                                            | General and administrative   |                                   |      
|                                            | Terminated acquisition costs |                                   |      
|                                            | Stock compensation           |                                   |      
|                                            |                              |                                   |      
|                                            |                              | Total costs and expenses          |      
|                                            |                              |                                   |      
|Income (loss) from operations               |                              |                                   | 1,583
|                                            |                              |                                   |      
|Other income (expense), net:                |                              |                                   |      
|                                            | Interest income              |                                   |      
|                                            | Interest expense             |                                   |      
|                                            | Other income (expense), net  |                                   |      
|                                            |                              |                                   |      
|                                            |                              | Total other income (expense), net |      
|                                            |                              |                                   |      
|Net income (loss)                           |                              | $                                 | 2,115
|                                            |                              |                                   |      

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Liquidity and Capital Resources

As of December 31, 2004, we had $14.5 million of cash and cash equivalents, $103.2 million of short-term investments and working
capital of $119.4 million.

We
have generated annual cash provided by operating activities in amounts greater than net income in 2004 and 2003. In 2002, we used less cash than our net loss. These results were
driven mainly by non-cash charges to earnings. Non-cash charges to earnings included the write-off of deferred acquisition costs, depreciation and amortization,
investment impairment charge, amortization of deferred stock compensation and the provision for inventory valuation. In 2003, operating cash flows were also positively impacted by the net cash amounts
provided by year-over-year changes in working capital assets and liabilities. We believe we will continue to generate cash from operations.

The
net cash flows used in investing activities in 2004, 2003 and 2002 were due primarily to the movement of cash between cash and investments and the purchase of property and equipment.
Purchases of property and equipment, totaled $2.7 million, $1.5 million and $755,000 in 2004, 2003 and 2002, respectively. Purchases of property and equipment related mainly to purchases
of computer
equipment and software to support our growth in operations, infrastructure and headcount. Our capital expenditures have been consistent with our anticipated needs in operations, infrastructure and
personnel. We currently do not have any material commitments for capital expenditures, although we anticipate increases in capital expenditures and lease commitments with our expected growth in
operations and infrastructure over the next twelve months. We also may establish additional operations as we expand globally.

The
net cash flows provided by financing activities in 2004, 2003 and 2002 were due primarily to proceeds from sale of our common stock. Proceeds from the sale of our common stock
totaled $3.6 million, $57.9 million and $2.4 million in 2004, 2003 and 2002, respectively. Proceeds from the sale of our common stock in 2004 and 2002 primarily relate to the
exercise of stock options and purchases under our employee stock purchase plan. Proceeds from the sale of our common stock in 2003 primarily relate to the proceeds from our secondary offering of
$51.9 million. Our future cash flows from stock options are difficult to project as such amounts are a function of our stock price, the number of options outstanding and decisions by the
holders to exercise stock options. In general, we expect proceeds from stock option exercises to increase during periods in which our stock price has increased relative to historical levels.

We
believe that existing cash, cash equivalents and investments, together with any cash generated from operations, will be sufficient to fund our operating activities, capital
expenditures and other obligations for the foreseeable future. However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising
additional capital when required in sufficient amounts and on terms acceptable to us, our business could suffer.

Commitments and Contingencies

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of all payments. We have presented
below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our
consolidated financial position, results of

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operations
and cash flows. The following table summarizes our fixed contractual obligations and commitments (in thousands):

Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 YearsOperating lease commitments

$
6,177

$
1,342

$
3,250

$
1,585

$
Inventory purchase commitments


5,388


5,388








Other purchase obligations


1,385


1,385








$
12,950

$
8,115

$
3,250

$
1,585

$



Other
long-term liabilities in our consolidated balance sheet as of December 31, 2004 include a deferred rent liability of $1,000. The payments related to this amount
are included in operating lease commitments above.

Operating
lease commitments include minimum rental payments under our non-cancelable operating leases for office facilities, as well as limited office equipment that we
utilize under lease arrangements. The amounts presented are consistent with contractual terms and are not expected to differ significantly unless a substantial change in our headcount needs requires
us to exit an office facility early or expand our occupied space.

Inventory
purchase commitments include minimum payments under non-cancelable commitments for goods that were entered into through our ordinary course of business.

Other
purchase obligation amounts include minimum purchase commitments for marketing, computer equipment, software applications, engineering development services and other goods and
services that were entered into through our ordinary course of business. These contractual arrangements contain significant performance requirements. Given the significance of the performance
requirements, actual payments could differ significantly from these estimates.

In
relation to our acquisition of Vidus, we issued approximately 5.5 million shares of our common stock valued at $38.2 million, newly created interest-bearing redeemable
preferred stock in face amount of approximately $10.2 million and approximately 146,000 vested options with a fair value of $532,000, and extinguished for cash debt of approximately
$4.6 million. Additionally, we utilized cash to extinguish debt of approximately $926,000, reimbursed Vidus and certain of its shareholders for acquisition related transaction costs incurred of
approximately $1.2 million and we have incurred estimated direct transaction costs of $1.3 million.

Impact of Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
2004),Share-Based Payments("SFAS 123R"), that addresses the accounting for share-based payment transactions in which an enterprise receives
employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the
issuance of such equity instruments.

The
statement eliminates the ability to account for share-based compensation transactions using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion
No. 25,Accounting for Stock Issued to Employees, and generally requires that such transactions be accounted for using a
fair-value-based method and recognized as expenses in the consolidated statement of operations. The statement requires companies to assess the most appropriate model to calculate the value
of the options. We currently use the Black-Scholes option pricing model to value options and are

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assessing
which model we may use upon adoption of such standard. The use of an alternative model to value options may result in a different fair value than the use of the Black-Scholes option pricing
model.

There
are a number of other requirements under the new standard that will result in differing accounting treatment than that currently required. These differences include, but are not
limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase plan.

We
will also be required to determine the transition method to be used at date of adoption. The allowed transition methods include modified prospective and modified retroactive adoption
alternatives. Under the modified retroactive method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. This method would record
compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The modified prospective method requires that compensation expense be recorded for
all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R. The effective date of the new standard for public companies is currently for the
interim period beginning after June 15, 2005. As such, we will adopt the statement in our interim reporting period ended September 30, 2005.

Upon
adoption, this statement will have a significant impact on our consolidated statement of operations as we will be required to expense the fair value of our stock option grants and
stock purchases under our employee stock purchase plan rather than disclose the impact on our consolidated net income (loss) within our footnotes, as is our current practice.

In
November 2004, the FASB issued SFAS No. 151,Inventory Costs, an amendment of ARB No. 43, Chapter 4("SFAS 151"). SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs and wasted materials (spoilage) are required to be
recognized as current period charges. The provisions of SFAS 151 are effective for fiscal years beginning after July 1, 2005. We are currently evaluating the effect that the adoption of
SFAS 151 will have on our consolidated statement of operations and financial condition, but do not expect it to have a material impact.

In
December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29, Accounting
for Nonmonetary Transactions("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29,Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of
the exchange. The effective date of this standard is for fiscal periods beginning after June 15, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on
our consolidated statement of operations and financial condition, but do not expect it to have a material impact.

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Risk Factors

In addition to the other information contained in this Report, the following factors should be carefully considered in evaluating our business and prospects. The
risks and uncertainties described below are intended to be ones that are specific to us or our industry and that we deem material, but they are not the only ones that we face.

On February 18, 2005, we acquired Vidus Limited ("Vidus"). The combined company may not realize expected benefits because of integration and other challenges.

If the combined company fails to meet the challenges involved in integrating their operations and products successfully or otherwise fails to realize any of the
anticipated benefits of the acquisition, then the results of operations of the combined company could be seriously harmed. Realizing the benefits of the acquisition, if any, will depend in part on the
successful integration of technology, operations and personnel. The integration of the companies is a complex, time-consuming and expensive process that could significantly disrupt the
business of the combined company.

The
combined company may not successfully integrate the operations of @Road and Vidus in a timely manner, or at all, and the combined company may not realize the anticipated benefits of
the acquisition to the extent, or in the timeframe, anticipated. The anticipated benefits of the acquisition are based on projections and assumptions, including successful integration, not actual
experience. In addition to the integration risks discussed above, the combined company's ability to realize those benefits could be adversely effected by practical or legal constraints on its ability
to combine operations.

@Road and Vidus each expect to incur significant costs associated with the acquisition of Vidus.

In connection with the acquisition of Vidus, we estimate that we will incur direct costs of approximately $889,000 in addition to the $393,000 which we have
already incurred through December 31, 2004. We reimbursed Vidus and certain Vidus shareholders upon the completion of the acquisition for the direct transaction costs incurred of approximately
$1.2 million, which will be recognized as an expense in 2005. There can be no assurance that the combined company will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the acquisition and the integration of the two companies.

Under
the purchase method of accounting, the combined company will allocate the total estimated purchase price of $55.7 million to Vidus' tangible assets, purchased technology and
other intangible assets and liabilities assumed of Vidus based on their fair values as of the date of completion of the acquisition, and record the excess of the purchase price over those fair values
as goodwill. The combined company will incur amortization expense over the useful lives of amortizable intangible assets acquired in connection with the acquisition. In addition, to the extent the
value of goodwill becomes impaired, the combined company may be required to incur material charges relating to the impairment of that asset. Any potential impairment charge could have a material
impact on the combined company's results of operations and could have a material adverse effect on the market value of the common stock of the combined company following completion of the acquisition.

If, pursuant to its announcements, AT&T Wireless ceases to operate its Cellular Digital Packet Data network in June 2005, we may be unable to migrate some of our
customers to an alternate wireless network and our financial results could be adversely affected.

Beginning March 31, 2003, AT&T Wireless discontinued new sales of its CDPD service. AT&T Wireless has also indicated that it expects to cease operating its
CDPD network by June 30, 2005. As of December 31, 2004, less than one quarter of our total subscribers utilize the AT&T Wireless CDPD network ("AT&T Subscribers"). We are working with
the AT&T Subscribers to migrate them to an alternate wireless protocol. If the AT&T Wireless CDPD network is terminated, the AT&T Subscribers

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who
have not switched to an alternate wireless protocol would have to use another CDPD network, if available, or, if no other CDPD network is available, the AT&T Subscribers would be unable to utilize
our services. While we believe that we have the capability to transition all of the AT&T Subscribers to another protocol if all of the AT&T Subscribers choose to transition to another protocol, there
can be no assurance that we will be able to migrate all such subscribers by June 30, 2005. Any resulting decrease in the total number of subscribers of our services, even if for only a brief
period, could have a material adverse effect on our financial results. If a large percentage of the AT&T Subscribers choose not to migrate to an alternate wireless protocol or other CDPD network, if
available, or seek to terminate their @Road services, such loss of customers would have a material adverse impact on our financial results. In October 2004, AT&T Wireless was acquired by Cingular
Wireless and is now a direct wholly owned subsidiary of Cingular Wireless.

If, pursuant to its announcement, Verizon Wireless ceases to operate its Cellular Digital Packet Data network by the end of 2005, we may be unable to migrate some of our
customers to an alternate wireless network and our financial results could be adversely affected.

Verizon Wireless has indicated that it expects to cease operating its CDPD network by the end of 2005. As of December 31, 2004, less than one quarter of
our total subscribers utilize the Verizon Wireless CDPD network ("Verizon Subscribers"). We are working with the Verizon Subscribers to migrate them to an alternate wireless protocol. If the Verizon
Wireless CDPD network is terminated, the Verizon Subscribers who have not switched to an alternate wireless protocol would have to use another CDPD network, if available, or, if no other CDPD network
is available, Verizon Subscribers would be unable to utilize our services. While we believe that we have the capability to transition all of the Verizon Subscribers to another protocol if all of the
Verizon Subscribers choose to transition to another protocol, there can be no assurance that we will be able to migrate all such subscribers by December 31, 2005. Any resulting decrease in the
total number of subscribers of our services, even if for only a brief period, could have a material adverse effect on our financial results. If a large percentage of the Verizon Subscribers choose not
to migrate to an alternate wireless protocol or other CDPD network, if available, or seek to terminate their @Road services, such loss of customers would have a material adverse impact on our
financial results.

Any material weakness or significant deficiency identified in our internal controls could have an adverse effect on our business.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their internal control structure and procedures over financial
reporting. In addition, our independent accountants must report on management's evaluation as well as evaluate our internal control structure and procedures. Due to the ongoing evaluation and testing
of our internal controls, there can be no assurance that there may not be significant deficiencies or material weaknesses that would be required to be reported in the future. In addition, we expect
the evaluation process and any required remediation, if applicable, to increase our accounting, legal and other costs, and may divert management resources from other business objectives and concerns.

Our stock price is volatile, which may cause you to lose money and could lead to costly litigation against us that could divert our resources.

From time to time, stock markets experience dramatic price and volume fluctuations, particularly for shares of technology companies. These fluctuations can be
unrelated to the operating performance of these companies. Broad market fluctuations may reduce the market price of our common stock and cause you to lose some or all of your investment. These
fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive nature and growth

35

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rate
of our business and the mobile resource management market, the market price of our common stock may rise and fall in response to:



When
the market price of a company's stock drops significantly, stockholders often institute securities class action lawsuits against that company. A lawsuit against us could cause us to
incur substantial costs and could divert the time and attention of our management and other resources from our business.

If wireless carriers or their roaming alliances cease to operate or maintain some or all of their Cellular Digital Packet Data networks, we may lose customers and our revenues
could decrease.

Certain CDPD carriers have entered into agreements with other carriers to enable subscribers to use the wireless networks of other carriers in multi-carrier CDPD
coverage areas. This functionality is called roaming, and wireless carriers who enter into these agreements are called roaming alliances. Certain roaming alliances of AT&T Wireless have terminated
their CDPD networks, resulting in areas of non-coverage within this multi-carrier coverage area. In addition, we believe that certain CDPD carriers are limiting the support and maintenance
of portions of their wireless networks, which can result in lower quality and availability of CDPD service for some of our customers and a decrease in customer satisfaction for those customers. If
such degradation of CDPD networks continues, we may lose customers and our revenues would decrease.

We face competition from internal development teams of potential customers and from existing and potential competitors, and if we fail to compete effectively, our ability to
acquire new customers could decrease, our revenues would decline and our business would suffer.

The market for mobile resource management services is competitive and is expected to become even more competitive in the future. If we do not compete effectively,
competition could harm our business and limit our ability to acquire new customers and grow revenues, which in turn could result in a loss of our market share and decline in revenues. We believe that
our solutions face competition from a number of business productivity solutions, including:



In
addition, we believe that our solutions face competition from manufacturing companies that seek to enter the mobile resource management market, such as Trimble Navigation.

36

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We
may also face competition from our current and potential alliances, such as wireless carriers, that may develop their own solutions, develop solutions with captive and other suppliers
or support the marketing of solutions of other competitors.

We
also face numerous challenges associated with overcoming the following competitive factors:



As we seek to serve larger customers, we face competition from businesses with greater financial resources, and we may be unable to compete effectively with these businesses.

The existing market is competitive. Competition is particularly vigorous for larger customers, which is a customer segment we have worked to serve. We expect
competition to increase further as companies develop new products and/or modify their existing products to compete directly with ours. In addition, competitors may reduce prices to customers and seek
to obtain our customers through cost-cutting and other measures. To the extent these companies compete effectively with us, our business could be adversely affected by extended sales
cycles, fewer sales, and lower prices, revenue and margins.

If wireless communications providers on which we depend for services decide to abandon or do not continue to expand their wireless networks, we may lose customers and our
revenues could decrease.

Currently, our solutions function on General Packet Radio Services networks, Code Division Multiple Access 1xRTT networks, Integrated Digital Enhanced Networks
and Cellular Digital Packet Data networks. These protocols cover only portions of the United States and Canada. If wireless communications providers abandon these protocols, such as the anticipated
termination of CDPD networks, in favor of other types of wireless technology, we may not be able to provide services to our customers. In addition, if cellular carriers do not expand their coverage
areas, we will be unable to meet the needs of customers who may wish to use our services outside the current cellular coverage area.

Our quarterly operating results are subject to fluctuations, and our stock price may decline if we do not meet the expectations of investors and analysts.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter due to a number of factors, many of
which are outside our control. These factors include, but are not limited to:



37

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Our
expense levels are based, in part, on our expectation of future revenues. Additionally, a substantial portion of our expenses is relatively fixed. As a result, any shortfall in
revenues relative to our expectations could cause significant changes in our operating results from quarter to quarter. We believe period-to-period comparisons of our revenue
levels and operating results are not meaningful. You should not rely on our quarterly revenues and operating results to predict our future performance. Our operating results have been, and in some
future quarter our operating results may be, below the expectations of public market analysts and investors and, as a result, the price of our common stock may fall.

Our success depends upon our ability to develop new solutions and enhance our existing solutions. If we cannot deliver the features and functionality our customers demand, we
will be unable to retain or attract new customers.

If we are unable to develop new solutions, are unable to enhance and improve our solutions successfully in a timely manner, or fail to position and/or price our
solutions to meet market demand, we may not attract new customers and existing customers may not expand their use of our solutions, and our business and operating results will be adversely affected.
If our enhancements to existing solutions do not deliver the functionality that our customer base demands, our customers may choose not to renew their agreements with us when they reach the end of
their initial contract periods, and our business and operating results will be adversely affected. If we cannot effectively deploy, maintain and enhance our solutions, our revenues may decrease, we
may not be able to recover our costs and our competitive position may be harmed.

If one or more of the agreements we have with wireless communications providers is terminated and as a result we are unable to offer our solutions to customers within a
wireless communications provider's coverage area, we may be unable to deliver our solutions, we may lose customers, and our revenues could decrease.

Our existing agreements with wireless communications providers may in some cases be terminated immediately upon the occurrence of certain conditions or with prior
written notice. In connection with ceasing operation of their CDPD networks, AT&T Wireless (which is now a direct wholly owned subsidiary of Cingular Wireless) and Verizon Wireless may seek to
terminate or not to renew their contracts for CDPD service with us. If one or more of our wireless communications providers decides to terminate or not to renew its contract with us, we may incur
additional costs relating to obtaining alternate coverage from another wireless communications provider outside of its primary coverage area, or we may be unable to replace the coverage at all,
causing a complete loss of services to our customers in that coverage area.

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We have a history of losses, have only recently become profitable and may not sustain or increase profitability in the future.

We have only recently become profitable and may not sustain or increase profitability in the future. As of December 31, 2004, we had an accumulated deficit
of approximately $107 million. To sustain profitability we will need to generate significant revenues to offset our cost of revenues and our sales and marketing, research and development and
general and administrative expenses. We may not achieve or sustain our revenue or profit goals and may incur losses in the future. To facilitate the sale of our solutions, we have sold and may sell
our hardware below our costs. As a result, we have experienced, and may continue to experience, negative gross margins on the sale of our hardware. Changes such as increases in our pricing for
solutions or the pricing of competing solutions may harm our ability to increase sales of our solutions to new and existing customers. If we are not able to expand our customer base and increase our
revenue from new and existing customers, we may be unprofitable.

We depend on a limited number of third parties to manufacture and supply certain components of our solutions.

We rely on a limited number of sole suppliers for certain components of our solutions. We do not have long-term agreements with these suppliers. If these parties
do not perform their obligations, or if they cease to supply the components needed for our solutions, we may be unable to find other suppliers and
our business would be seriously harmed. We cannot be sure that alternative sources for these components will be available when needed, or if available, that these components will be available on
commercially reasonable terms. These sole suppliers are Motorola, which supplies microcontrollers for use in our Internet Location Manager, and Micronet, which supplies our Internet Data Terminal.

Although
we believe that we have sufficient quantities of microcontrollers and Internet Data Terminals to last the next twelve months, if our agreements with these or other suppliers and
manufacturers are terminated or expire, if we are unable to obtain sufficient quantities of these products or components critical for our solutions, if the quality of these products or components is
inadequate, or if the terms for supply of these products or components become commercially unreasonable, our search for additional or alternate suppliers and manufacturers could result in significant
delays, added expense and our inability to maintain or expand our customer base. Any of these events could require us to take unforeseen actions or devote additional resources to provide our products
and services and could harm our ability to compete effectively.

A disruption of our services due to accidental or intentional security breaches may harm our reputation, cause a loss of revenues and increase our expenses.

Unauthorized access, computer viruses and other accidental or intentional actions could disrupt our information systems or communications networks. We expect to
incur significant costs to protect against the threat of security breaches and to alleviate problems caused by any breaches. Currently, the wireless transmission of our customers' proprietary
information is not protected by encryption technology. If a third party were to misappropriate our customers' proprietary information, we could be subject to claims, litigation or other potential
liabilities that could seriously harm our revenues and result in the loss of customers.

System or network failures could reduce our sales, increase costs or result in liability claims.

Any disruption to our services, information systems or communications networks or those of third parties could result in the inability of our customers to receive
our services for an indeterminate period of time. Our operations depend upon our ability to maintain and protect our computer systems at data centers located in Ashburn, Virginia and Redwood City,
California, and our network operations center

39

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in
Fremont, California. The facilities in California are in or near earthquake fault zones. Our services may not function properly if our systems fail, or if there is an interruption in the supply of
power, or if there is an earthquake, fire, flood or other natural disaster, or an act of war or terrorism. Within each of our data centers, we have fully redundant systems; however, in the event of a
system or network failure, the process of shifting access to customer data from one data center to the other would be performed manually, and could result in a further disruption to our services. Any
disruption to our services could cause us to lose customers or revenue, or face litigation, customer service or repair work that would involve substantial costs and could distract management from
operating our business.

We may establish alliances or acquire technologies or companies in the future, which could result in the dilution of our stockholders and disruption of our business, which
could reduce our revenues or increase our costs.

We are continually evaluating business alliances and external investments in technologies related to our business. Acquisitions of companies, divisions of
companies, businesses or products and strategic alliances entail numerous risks, any of which could materially harm our business in several ways, including:



Some
or all of these problems may result from current or future alliances, acquisitions or investments. Furthermore, we may not realize any value from these alliances, acquisitions or
investments.

Our success and ability to compete depends upon our ability to secure and protect patents, trademarks and other proprietary rights.

Our success depends on our ability to protect our proprietary rights to the technologies used to implement and operate our services in the United States and in
foreign countries. In the event that a third party breaches the confidentiality provisions or other obligations in one or more of our agreements or misappropriates or infringes our intellectual
property rights or the intellectual property rights licensed to us by third parties, our business could be seriously harmed. To protect our proprietary rights, we rely on a combination of trade
secrets, confidentiality and other contractual provisions and agreements, and patent, copyright and trademark laws, which afford us only limited protection. Third parties may independently discover or
invent competing technologies or reverse engineer our trade secrets, software or other technology. Furthermore, laws in some foreign countries may not protect our proprietary rights to the same extent
as the laws of the United States. Therefore, the measures we take to protect our proprietary rights may not be adequate.

Claims that we infringe third-party proprietary rights could result in significant expenses or restrictions on our ability to provide our solutions.

Third parties may claim that our current or future solutions infringe their proprietary rights or assert other claims against us. As the number of entrants into
our market increases, the possibility of an intellectual property or other claim against us grows. Any intellectual property or other claim, with or without merit, would be time-consuming
and expensive to litigate or settle and could divert

40

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management
attention from focusing on our core business. As a result of such a dispute, we may have to pay damages, incur substantial legal fees, develop costly non-infringing technology,
if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase our expenses and could decrease the functionality of
our solutions, which would make our solutions less attractive to our current or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties
for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties.

If our customers do not have access to sufficient capacity on reliable wireless networks, we may be unable to deliver our services, our customer satisfaction could decline and
our revenues could decrease.

Our ability to grow and maintain profitability depends on the ability of wireless carriers to provide sufficient network capacity, reliability and security to our
customers. Even where wireless carriers provide coverage to entire metropolitan areas, there are occasional lapses in coverage, for example due to tunnels blocking the transmission of data to and from
wireless modems used with our solutions. These effects could make our services less reliable and less useful, and customer satisfaction could suffer.

We depend on Global Positioning System technology owned and controlled by others. If we do not have continued access to GPS technology or satellites, we will be unable to
deliver our solutions and revenues will decrease.

Our solutions rely on signals from Global Positioning System satellites built and maintained by the U.S. Department of Defense. GPS satellites and their ground
support systems are subject to electronic and mechanical failures and sabotage. If one or more satellites malfunction, there could be a substantial delay before they are repaired or replaced, if at
all, and our products and services may cease to function and customer satisfaction would suffer.

In
addition, the U.S. government could decide not to continue to operate and maintain GPS satellites over a long period of time or to charge for the use of the Global Positioning System.
Furthermore, because of ever-increasing commercial applications of the Global Positioning System and international political unrest, U.S. government agencies may become increasingly
involved in the administration or the regulation of the use of GPS signals in the future. If factors such as the foregoing affect the Global Positioning System, for example by affecting the
availability, quality, accuracy or pricing of GPS technology, our business will suffer.

Defects or errors in our solutions could result in the cancellation of or delays in the implementation of our solutions, which would damage our reputation and harm our
financial condition.

We must develop our solutions quickly to keep pace with the rapidly changing MRM market. Solutions that address this market are likely to contain undetected
errors or defects, especially when first introduced or when new versions are introduced. We may be forced to delay commercial release of new solutions or updated versions of existing solutions until
such errors or defects are corrected, and in some cases, we may need to implement enhancements to correct errors that were not detected until after deployment of our solutions. Even after testing and
release, our solutions may not be free from errors or defects, which could result in the cancellation or disruption of our services or dissatisfaction of customers. Such customer dissatisfaction would
damage our reputation and result in lost revenues, diverted development resources, and increased service and warranty costs.

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The reporting of inaccurate location-relevant information could cause the loss of customers and expose us to legal liability.

The accurate reporting of location-relevant information is critical to our customers' businesses. If we fail to accurately report location-relevant information,
we could lose customers, our reputation and ability to attract new customers could be harmed, and we could be exposed to legal liability. We may not have insurance adequate to cover losses we may
incur as a result of these inaccuracies.

Our success depends on our ability to maintain and expand our sales channels.

To increase our market awareness, customer base and revenues, we need to expand our direct and indirect sales operations. There is strong competition for
qualified sales personnel, and we may not be able to attract or retain sufficient new sales personnel to expand our operations. New sales personnel require training and it takes time for them to
achieve full productivity, if at all. In addition, we believe that our success is dependent on the expansion of our indirect distribution channels, including our relationships with wireless carriers
and independent sales agents. These sales channel alliances require training in selling our solutions and it will take time for these alliances to achieve productivity, if at all. We may not be able
to establish relationships with additional distributors on a timely basis, or at all. Our independent sales agents, many of which are not engaged with us on an exclusive basis, may not devote adequate
resources to promoting and selling our solutions.

We depend on recruiting and retaining qualified personnel and our inability to do so may result in a loss in sales, impair our ability to effectively manage our operations or
impair our ability to develop and support our solutions.

Because of the technical nature of our solutions and the market in which we compete, our success depends on the continued services of our current executive
officers and our ability to attract and retain qualified personnel with expertise in wireless communications, Global Positioning Systems, hosted software applications, transaction processing and the
Internet. Competitors and others have recruited our employees in the past and may attempt to do so in the future. In addition, new employees generally require substantial training, which requires
significant resources and management attention. Even if we invest significant resources to recruit, train and retain qualified personnel, there can be no assurances that we will be successful in our
efforts.

From time to time, we are or may be subject to litigation that could result in significant costs to us.

From time to time, we are or may be subject to litigation in the ordinary course of business relating to any number or type of claims, including claims for
damages related to errors and malfunctions of our products and services or their deployment. A securities, product liability or other claim could seriously harm our business because of the costs of
defending the lawsuit, diversion of employees' time and attention, and potential damage to our reputation. Some of our agreements with customers, suppliers and other third parties contain provisions
designed to limit exposure to potential claims. Limitation of liability provisions contained in our agreements may not be enforceable under the laws of some jurisdictions. As a result, we could be
required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims. Although we carry general liability and directors and officers insurance, our
insurance may not cover potential claims or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

Government regulations and standards could subject us to increased regulation, increase our costs of operations or reduce our opportunities to earn revenue.

In addition to regulations applicable to businesses in general, we may also be subject to direct regulation by U.S. governmental agencies, including the Federal
Communications Commission,

42

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Department
of Defense, Department of Commerce or the State Department. These regulations may impose licensing requirements, privacy safeguards relating to certain subscriber information, or safety
standards, for example with respect to human exposure to electromagnetic radiation and signal leakage. A number of legislative and regulatory proposals under consideration by federal, state,
provincial, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, wireless communications and GPS technology, including
on-line content, user privacy, taxation, access charges and liability for third-party activities. Additionally, it is uncertain how existing laws governing issues such as taxation on the
use of wireless networks, intellectual property, libel, user privacy and property ownership will be applied to our solutions. The adoption of new laws or the application of existing laws may expose us
to significant liabilities and additional operational requirements, which could decrease the demand for our solutions and increase our cost of doing business. Wireless communications providers who
supply us with airtime are subject to regulation by the Federal Communications Commission, and regulations that affect them could also increase our costs or limit the provision of our solutions.

Fluctuations in the value of foreign currencies could result in decreased revenues, increased product costs and operating expenses.

We have customers, suppliers and manufacturers that are located outside the United States. Some transactions relating to supply and development agreements may be
conducted in currencies other than the U.S. dollar, and fluctuations in the value of foreign currencies relative to the U.S. dollar could cause us to incur currency exchange costs. In addition, some
of our transactions denominated in U.S. dollars may be subject to currency exchange rate risk. We cannot predict the effect of exchange rate fluctuations on our future operating results. Should there
be a sustained increase in average exchange rates for the local currencies in these countries, our suppliers and manufacturers may request a price increase at the end of the contract period.

Geopolitical, economic and military conditions, including terrorist attacks and other acts of war, may materially and adversely affect the markets on which our common stock
trades, the markets in which we operate, our operations and our profitability.

Terrorist attacks and other acts of war, and any response to them, may lead to armed hostilities and such developments would likely cause instability in financial
markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations which are located in the United States and India, as well as those of our customers. Furthermore,
severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our solutions. These developments could have
a material adverse effect on our business and the trading price of our common stock.

As of February 28, 2005, a limited number of stockholders own approximately 33% of our stock and may act, or prevent certain types of corporate actions, to the detriment
of other stockholders.

Our directors, officers and greater than 5% stockholders own, as of February 28, 2005, approximately 33% of our outstanding common stock. Accordingly,
these stockholders may, if they act together, exercise significant influence over all matters requiring stockholder approval, including the election of a majority of the directors and the
determination of significant corporate actions. This concentration could also have the effect of delaying or preventing a change in control that could otherwise be beneficial to our stockholders.

43

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Our certificate of incorporation and bylaws and state law contain provisions that could discourage a takeover.

We have adopted a certificate of incorporation and bylaws, which in addition to state law, may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include the following:



We
have adopted a certificate of incorporation that permits our board to issue shares of preferred stock without stockholder approval, which means that our board could issue shares with
special voting rights or other provisions that could deter a takeover. In addition to delaying or preventing an acquisition, the issuance of a substantial number of shares of preferred stock could
adversely affect the price of our common stock and dilute existing stockholders.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We are exposed to the impact of interest rate changes and changes in the market values of our marketable securities. We have not used derivative financial
instruments in our investment portfolio. We invest our excess cash in debt instruments of high-quality corporate issuers and the U.S. government or its agencies. Our investment policy limits the
amount of credit exposure to any one issuer and limits our investments to maturity dates of less than one year. We are averse to principal
loss and seek to preserve our invested funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high credit quality securities and by positioning our
portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or
resale markets to provide portfolio liquidity.

Cash,
cash equivalents and marketable securities in both fixed and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their
fair market value adversely impacted due to rising interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future
interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in
interest rates.

The
table below presents the carrying value and related weighted average interest rates for our cash, cash equivalents and marketable securities. The carrying values approximate fair
values as of December 31, 2004 and December 31, 2003. As of December 31, 2004, marketable securities consisted of $14.5 million with original maturity dates of 90 days or
less and $103.2 million with original maturity dates of greater than 90 days. As of December 31, 2003, marketable securities consisted of

44

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$103.7 million
with original maturity dates of 90 days or less and $2.0 million with original maturity dates of greater than 90 days.

|Cash, cash equivalents and marketable securities       |  | Carrying
value at
December 31,
2004
(in thousands) |         | Average
rate of
return at
December 31,
2004
(annualized) |     | Carrying
value at
December 31,
2003
(in thousands) |   | Average
rate of
return at
December 31,
2003
(annualized) | 
|------------------------------------------------------ |  | -------------------------------------------------- | ------- | -------------------------------------------------------- | --- | -------------------------------------------------- | - | -------------------------------------------------------- | 
|Cash and cash equivalentsvariable rate                |  | $                                                  | 3,022   |                                                          | 1.3 | %                                                  | $ | 3,506                                                    | 
|Money market fundsvariable rate                       |  |                                                    | 951     |                                                          | 2.0 | %                                                  |   | 100,163                                                  | 
|Cash and cash equivalentsfixed rate                   |  |                                                    | 10,521  |                                                          | 2.3 | %                                                  |   |                                                         | 
|                                                       |  |                                                    |         |                                                          |     |                                                    |   |                                                          | 
|Total cash and cash equivalents                        |  |                                                    | 14,494  |                                                          | 2.1 | %                                                  |   | 103,669                                                  | 
|Marketable securitiesfixed rate                       |  |                                                    | 103,222 |                                                          | 2.0 | %                                                  |   | 2,000                                                    | 
|                                                       |  |                                                    |         |                                                          |     |                                                    |   |                                                          | 
|Total cash, cash equivalents and marketable securities |  | $                                                  | 117,716 |                                                          | 2.0 | %                                                  | $ | 105,669                                                  | 
|                                                       |  |                                                    |         |                                                          |     |                                                    |   |                                                          | 

Foreign Currency Exchange

We transact business primarily in U.S. dollars. We are subject, however, to adverse movements in foreign currency exchange rates in those countries where we
conduct business. To date, the effect of fluctuations in foreign currency exchange rates on expenses has not been material. Operating expenses incurred by our subsidiary in India are denominated in
Indian rupees. This subsidiary was formed in November 1999 to perform research and development activities. This subsidiary now also provides customer support services. We hold fixed-price
agreements denominated in U.S. dollars with certain of our foreign-based suppliers: Orient Semiconductor Electronics, in Taiwan, which manufactures the Internet Location Manager; Sierra Wireless, in
Canada, which provides the modem for some versions of the Internet Location Manager; Taiwan Semiconductor Manufacturing Company, in Taiwan, which manufactures our Global Positioning System digital
receiver chips; and Micronet, in Israel, which supplies our Internet Data Terminal. Should there be a sustained increase in average exchange rates for
the local currency in any of the foregoing countries, our suppliers may request increased pricing on any new agreements. If this were to occur for all of these currencies and with each of these
suppliers, a 10 percent increase in average exchange rates could increase our product costs by approximately 2 percent.

We
do not use derivative financial instruments for speculative trading purposes, nor do we currently hedge any foreign currency exposure to offset the effects of changes in foreign
exchange rates. Similarly, we do not use financial instruments to hedge operating expenses of our subsidiary in India.

Item 8.Financial Statements and Supplementary Data

See Part IV, Item 15 of this Report.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.Controls and Procedures

DISCLOSURE CONTROLS

Within 90 days prior to the date of this Report, we carried out an evaluation, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that

45

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evaluation,
our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual
report.

A
disclosure control system, no matter how well conceived and implemented, can provide only reasonable assurance that the objectives of such control system are satisfied. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the company have been detected.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the U.S. However, all internal control systems, no matter how well conceived
and implemented, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal ControlIntegrated
Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

Our
management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in its report which is included herein.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Stockholders and Board of Directors of @Road, Inc.:

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that @Road, Inc. and its subsidiary (collectively
the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and

46

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operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the
criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and
for the year ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements.

/s/DELOITTE & TOUCHE LLP

San
Jose, California
March 14, 2005

Item 9B.Other Information

Section 1Registrant's Business and Operations.

Item 1.01.    Entry into a Material Definitive Agreement.

Effective March 14, 2005, the Company has entered into agreements with its Chief Financial Officer and Chief Marketing Officer which provide that in the
event of an involuntary termination within:



47

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A
copy of the form agreement is attached as Exhibit 10.51 and is incorporated herein by reference. The Company has previously entered into similar agreements with its Chief
Operating Officer, Chief Technology Officer, and Chief Sales Officer.

48

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PART III

Information required by Part III is omitted from this Report because we will file a definitive proxy statement within 120 days after the end
of our fiscal year pursuant to Regulation 14A (the "Proxy Statement") for our 2005 annual meeting of stockholders and the information included in the Proxy Statement is incorporated herein by
reference.

PART IV

Item 15.Exhibits and Financial Statement Schedules

The
following Consolidated Financial Statements of @Road, Inc. and its subsidiary are filed as part of this Report on Form 10-K:

|                                                                                                                             |                                                         | Page
|---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                                                      |                                                         | 53  
|Consolidated Balance SheetsDecember 31, 2004 and 2003                                                                       |                                                         | 54  
|Consolidated Statements of OperationsYears ended December 31, 2004, 2003 and 2002                                           |                                                         | 55  
|Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)Years ended December 31, 2004, 2003 and 2002 |                                                         | 56  
|Consolidated Statements of Cash FlowsYears ended December 31, 2004, 2003 and 2002                                           |                                                         | 57  
|Notes to Consolidated Financial Statements                                                                                   |                                                         | 58  
|                                                                                                                             | 2.    Consolidated Financial Statement Schedules        |     
|
|                                                                                                                             | Report of Independent Registered Public Accounting Firm |     
|                                                                                                                             | Schedule IIValuation and Qualifying Accounts           |     

Schedules
not listed above have been omitted because the matter or conditions are not present or the information required to be set forth therein is included in the Consolidated
Financial Statements.



|2.1 |  | Acquisition Agreement dated as of December 15, 2004 by and among Registrant, Vidus Limited and NV Partners III-BT LP. (Incorporated herein by reference to our Report on Form 8-K filed on December 21,
2004.)                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.4 |  | Amended and Restated Bylaws of the Registrant, as amended. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                
|3.5 |  | Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                      
|3.6 |  | Certificate of Designations, Rights and Preferences of Series A-1 and Series A-2 Redeemable Preferred Stock and Series B-1 and Series B-2 Redeemable Preferred Stock. (Incorporated herein by reference to our Report on Form 8-K
filed on February 22, 2005.)
|    |  |                                                                                                                                                                                                                                                               

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|4.1    |  | Specimen Stock Certificate. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                              
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | CDPD Value Added Reseller Agreement between the Registrant and AT&T Wireless Data, Inc. dated September 30, 1997. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                                        
|10.2  |  | Form of Wireless Network Services Agreement and Form of Purchase Agreement for Goods. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                    
|10.7  |  | Joint Marketing Agreement between the Registrant and Cellco Partnership dated June 25, 1999 and Amendment No. 1 dated October 12, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File
No. 333-41372) initially filed on July 13, 2000.)                                                                  
|10.8   |  | Sublease Agreement between the Registrant and Sterling Software (Western), Inc. dated August 24, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                                                   
|10.9   |  | Industrial Space Lease between Renco Equities IV as landlord and SEEQ Technology Inc. as tenant, First Addendum to Lease, each dated January 13, 1995, and First Amendment to Lease dated April 18, 1995. (Incorporated herein by
reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)
|10.10  |  | Sublease Agreement between the Registrant and LSI Logic Corporation dated January 25, 2000 and Consent to Sublease between LSI Logic Corporation and Renco Equities IV dated February 8, 2000. (Incorporated herein by reference to our
registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)           
|10.11  |  | Agreement between the Registrant and Elnet Technologies Ltd. dated November 16, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                                                                    
|10.12  |  | 1996 Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                                  
|10.13  |  | 2000 Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                                  
|10.14  |  | 2000 Employee Stock Purchase Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                       
|10.15  |  | 2000 Directors' Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                       
|10.16  |  | Form of Indemnification Agreement. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                       
|10.19  |  | Amended and Restated Rights Agreement between the Registrant and certain investors dated June 27, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                                                  
|10.20 |  | CDPD Data National Service Agreement between the Registrant and GTE Wireless Incorporated dated May 5, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                              

50

---



|10.21  |  | Joint Marketing Agreement between the Registrant and GTE Wireless Service Corporation dated May 5, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                            
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23  |  | Strategic Agreement between the Registrant and Hitachi Software Engineering Co., Ltd. dated July 21, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                          
|10.24  |  | Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated August 3, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                                     
|10.25  |  | First Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated March 8, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 30, 2001.)                                                                                                                
|10.27 |  | Cellular Digital Packet Data Reseller Agreement between the Registrant and TELUS Mobility dated January 19, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                
|10.28 |  | Co-Marketing Agreement between the Registrant and Nextel Partners Operating Corp. dated March 14, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                          
|10.29 |  | Co-Marketing Agreement between the Registrant and Nextel Financing Company dated December 15, 2000. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                              
|10.30 |  | Cellular Digital Packet Data Reseller Agreement between the Registrant and Ameritech Mobile Communications LLC dated January 10, 2002. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                           
|10.31 |  | Service Agreement between the Registrant and ALLTEL Communications Inc. dated May 17, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                                      
|10.32 |  | Integrator Agreement between the Registrant and Symbol Technologies, Inc. dated July 31, 2001, as amended by Amendment to Agreement with Integrator between the Registrant and Symbol Technologies, Inc. dated December 28, 2001.
(Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)
|10.35  |  | Agreement between the Registrant and Elnet Technologies Ltd. dated November 17, 2002. (Incorporated herein by reference to our Report on Form 10-K/A filed on July 29, 2003.)                                                                                                                                           
|10.37 |  | Reseller Agreement between the Registrant and AT&T Wireless dated February 24, 2003. (Incorporated herein by reference to our Report on Form 10-K/A filed on July 29, 2003.)                                                                                                                                            
|10.39  |  | First Amendment to Sublease between the Registrant and Athena Semiconductor, Inc., dated March 14, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)                                                                                                                         
|10.40  |  | Second Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated December 31, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)                                                                                                           
|10.41  |  | Agreement between the Registrant and Elnet Technologies Ltd., dated December 10, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                         

51

---



|10.42 |  | Sublease between the Registrant and VA Software Corporation, dated June 8, 2004. (Incorporated herein by reference to our Report on Form 10-Q filed on August 9, 2004.)                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.43 |  | Consent to Sublease Agreement between the Registrant, VA Software Corporation and Renco Investment Company, dated June 9, 2004. (Incorporated herein by reference to our Report on Form 10-Q filed on August 9, 2004.)
|10.44 |  | Deed of Warranty and Indemnity in relation to Vidus Limited dated December 15, 2004. (Incoporated herein by reference to our Report on Form 8-K filed on December 21, 2004.)                                          
|10.45 |  | Loan and Security Agreement between Registrant and Vidus Limited dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                      
|10.46 |  | Guaranty between Registrant and NV Partners III-BT LP dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                                 
|10.47 |  | Subordination Agreement between Registrant and NV Partners III-BT LP dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                  
|10.48 |  | Employment Agreement dated as of December 15, 2004 between Registrant and Martin Knestrick. (Incorporated herein by reference to our Report on Form 8-K filed on February 22, 2005.)                                  
|10.49 |  | 2005 Stock Option Plan. (Incorporated herein by reference to our Report on Form 8-K filed on February 22, 2005.)                                                                                                      
|10.50 |  | Agreement between the Registrant and Elnet Technologies Ltd., dated April 28, 2004.                                                                                                                                   
|10.51 |  | Form of Change in Control Agreement between the Registrant and its executive officers.                                                                                                                                
|21.1  |  | List of Subsidiaries. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                             
|23.1  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                             
|24.1  |  | Power of Attorney (see page 76).                                                                                                                                                                                      
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.                                                                                                                                                    
|31.2  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.                                                                                                                                                    
|32.1  |  | Certification pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer.                                                                                                                                          
|32.2  |  | Certification pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer.                                                                                                                                          

---

52

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Stockholders and Board of Directors of @Road, Inc.:

We
have audited the accompanying consolidated balance sheets of @Road, Inc. and its subsidiary (collectively the "Company") as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United
States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over
financial reporting as of December 31, 2004, based on the criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the
Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/DELOITTE & TOUCHE LLP

San
Jose, California
March 14, 2005

53

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@ROAD, INC.  CONSOLIDATED BALANCE SHEETS  (In thousands, except per share data)

|                                        |                                                                                                                              | December 31,                               |         
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------
|
|ASSETS                                  |                                                                                                                              |                                            |         
|Current assets:                         |                                                                                                                              |                                            |         
|                                        | Cash and cash equivalents                                                                                                    |                                            | $       
|                                        | Short-term investments                                                                                                       |                                            |         
|                                        | Accounts receivable (net of allowances of $1,066 and $1,421)                                                                 |                                            |         
|                                        | Inventories                                                                                                                  |                                            |         
|                                        | Deferred product costs                                                                                                       |                                            |         
|                                        | Prepaid expenses and other                                                                                                   |                                            |         
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total current assets                       |         
|                                        | Property and equipment, net                                                                                                  |                                            |         
|                                        | Deferred product costs                                                                                                       |                                            |         
|                                        | Intangible assets, net                                                                                                       |                                            |         
|                                        | Other assets                                                                                                                 |                                            |         
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total assets                               |         
|                                        |                                                                                                                              |                                            |         
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                                              |                                            |         
|Current liabilities:                    |                                                                                                                              |                                            |         
|                                        | Accounts payable                                                                                                             |                                            | $       
|                                        | Accrued liabilities                                                                                                          |                                            |         
|                                        | Deferred revenue and customer deposits                                                                                       |                                            |         
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total current liabilities                  |         
|Deferred revenue                        |                                                                                                                              |                                            | 4,830   
|Other long-term liabilities             |                                                                                                                              |                                            | 2       
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total liabilities                          |         
|Commitments and contingencies (Note 10) |                                                                                                                              |                                            |         
|Stockholders' equity:                   |                                                                                                                              |                                            |         
|                                        | Preferred stock, $0.0001 par value, 10,000 shares authorized, shares issued and outstanding: none in 2004 and 2003           |                                            |         
|                                        | Common stock, $0.0001 par value, 250,000 shares authorized, shares issued and outstanding: 54,805 in 2004 and 53,700 in 2003 |                                            |         
|Deferred stock compensation             |                                                                                                                              |                                            |        
|Notes receivable from stockholders      |                                                                                                                              |                                            |        
|Accumulated other comprehensive loss    |                                                                                                                              |                                            | (179    
|Accumulated deficit                     |                                                                                                                              |                                            | (107,001
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total stockholders' equity                 |         
|                                        |                                                                                                                              |                                            |         
|                                        |                                                                                                                              | Total liabilities and stockholders' equity |         
|                                        |                                                                                                                              |                                            |         

See
notes to consolidated financial statements.

54

---





@ROAD, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share data)

|                                                        |                                                                             | Years Ended December 31,          |      
|------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------- | -----
|
|Revenues:                                               |                                                                             |                                   |      
|                                                        | Service                                                                     |                                   | $    
|                                                        | Product                                                                     |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total revenues                    |      
|                                                        |                                                                             |                                   |      
|Costs and expenses:                                     |                                                                             |                                   |      
|                                                        | Cost of service revenue (excluding intangibles amortization included below) |                                   |      
|                                                        | Cost of product revenue                                                     |                                   |      
|                                                        | Intangibles amortization                                                    |                                   |      
|                                                        | Sales and marketing                                                         |                                   |      
|                                                        | Research and development                                                    |                                   |      
|                                                        | General and administrative                                                  |                                   |      
|                                                        | Terminated acquisition costs                                                |                                   |      
|                                                        | Stock compensation(*)                                                       |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total costs and expenses          |      
|                                                        |                                                                             |                                   |      
|Income (loss) from operations                           |                                                                             |                                   | 7,693
|                                                        |                                                                             |                                   |      
|Other income (expense), net:                            |                                                                             |                                   |      
|                                                        | Interest income                                                             |                                   |      
|                                                        | Interest expense                                                            |                                   |      
|                                                        | Investment impairment charge                                                |                                   |      
|                                                        | Other (expense) income, net                                                 |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total other income (expense), net |      
|                                                        |                                                                             |                                   |      
|Net income (loss)                                       |                                                                             | $                                 | 9,221
|                                                        |                                                                             |                                   |      
|Net income (loss) per share:                            |                                                                             |                                   |      
|                                                        | Basic                                                                       |                                   | $    
|                                                        |                                                                             |                                   |      
|                                                        | Diluted                                                                     |                                   | $    
|                                                        |                                                                             |                                   |      
|Shares used in calculating net income (loss) per share: |                                                                             |                                   |      
|                                                        | Basic                                                                       |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        | Diluted                                                                     |                                   |      
|                                                        |                                                                             |                                   |      
|(*) Stock compensation:                                 |                                                                             |                                   |      
|                                                        | Cost of service revenue                                                     |                                   | $    
|                                                        | Cost of product revenue                                                     |                                   |      
|                                                        | Sales and marketing                                                         |                                   |      
|                                                        | Research and development                                                    |                                   |      
|                                                        | General and administrative                                                  |                                   |      
|                                                        |                                                                             |                                   |      
|                                                        |                                                                             | Total                             |      
|                                                        |                                                                             |                                   |      

See
notes to consolidated financial statements.

55

---





@ROAD, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  AND COMPREHENSIVE INCOME (LOSS)  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  (In thousands)

|                                                                             |  | Common Stock |   |   |         | Notes
Receivable
from
Stockholders |   | Accumulated
Other
Comprehensive
Loss |   |   |        |   |   |      |  
|---------------------------------------------------------------------------- |  | ------------ | - | - | ------- | ---------------------------------- | - | ------------------------------------ | - | - | ------ | - | - | ---- | -
|
|
|BALANCES, January 1,
2002                                                    |  | 46,500       |   | $ | 169,148 |                                    | $ | (2,342                               | ) | $ | (2,748 | ) | $ |     |  
|Net loss                                                                     |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|Shares issued under employee stock purchase plan                             |  | 553          |   |   | 1,098   |                                    |   |                                      |   |   |        |   |   |      |  
|Exercise of stock options                                                    |  | 788          |   |   | 1,276   |                                    |   |                                      |   |   |        |   |   |      |  
|Collection of notes receivable from stockholders                             |  |              |   |   |         |                                    |   |                                      |   |   | 554    |   |   |      |  
|Repurchase of common stock through cancellation of notes receivable          |  | (94          | ) |   | (126    | )                                  |   |                                      |   |   | 126    |   |   |      |  
|Deferred stock compensation                                                  |  |              |   |   | 15      |                                    |   | (15                                  | ) |   |        |   |   |      |  
|Reversal of deferred stock compensation due to employee terminations         |  |              |   |   | (801    | )                                  |   | 801                                  |   |   |        |   |   |      |  
|Amortization of deferred stock compensation                                  |  |              |   |   |         |                                    |   | 1,065                                |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|BALANCES, December 31, 2002                                                  |  | 47,747       |   |   | 170,610 |                                    |   | (491                                 | ) |   | (2,068 | ) |   |     |  
|Net income                                                                   |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|Common stock issued through secondary public offering, net of issuance costs |  | 4,000        |   |   | 51,889  |                                    |   |                                      |   |   |        |   |   |      |  
|Shares issued under employee stock purchase plan                             |  | 563          |   |   | 1,484   |                                    |   |                                      |   |   |        |   |   |      |  
|Exercise of stock options                                                    |  | 1,390        |   |   | 4,478   |                                    |   |                                      |   |   |        |   |   |      |  
|Collection of notes receivable from stockholders                             |  |              |   |   |         |                                    |   |                                      |   |   | 1,981  |   |   |      |  
|Deferred stock compensation                                                  |  |              |   |   | 5       |                                    |   | (5                                   | ) |   |        |   |   |      |  
|Reversal of deferred stock compensation due to employee terminations         |  |              |   |   | (25     | )                                  |   | 25                                   |   |   |        |   |   |      |  
|Amortization of deferred stock compensation                                  |  |              |   |   |         |                                    |   | 467                                  |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|BALANCES, December 31, 2003                                                  |  | 53,700       |   |   | 228,441 |                                    |   | (4                                   | ) |   | (87    | ) |   |     |  
|Net income                                                                   |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|Unrealized (loss) on short-term investments                                  |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   | (179 | )
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|Comprehensive income                                                         |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|Shares issued under employee stock purchase plan                             |  | 464          |   |   | 2,135   |                                    |   |                                      |   |   |        |   |   |      |  
|Exercise of stock options                                                    |  | 641          |   |   | 1,440   |                                    |   |                                      |   |   |        |   |   |      |  
|Collection of notes receivable from stockholders                             |  |              |   |   |         |                                    |   |                                      |   |   | 87     |   |   |      |  
|Amortization of deferred stock compensation                                  |  |              |   |   |         |                                    |   | 4                                    |   |   |        |   |   |      |  
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  
|BALANCES, December 31,
2004                                                  |  | 54,805       |   | $ | 232,016 |                                    | $ |                                     |   | $ |       |   | $ | (179 | )
|                                                                             |  |              |   |   |         |                                    |   |                                      |   |   |        |   |   |      |  

See notes to consolidated financial statements.

56

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@ROAD, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)

|                                                     |                                                                                                    | Years Ended December 31,                    |                                       
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------
|
|Cash flows from operating activities:                |                                                                                                    |                                             |                                       
|                                                     | Net income (loss)                                                                                  |                                             | $                                     
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                             |                                       
|                                                     |                                                                                                    | Write-off of deferred acquisition costs     |                                       
|                                                     |                                                                                                    | Depreciation and amortization               |                                       
|                                                     |                                                                                                    | Loss on disposal of property and equipment  |                                       
|                                                     |                                                                                                    | Investment impairment charge                |                                       
|                                                     |                                                                                                    | Amortization of deferred stock compensation |                                       
|                                                     |                                                                                                    | Provision for inventory valuation           |                                       
|                                                     |                                                                                                    | (Reduction) provision for doubtful accounts |                                       
|                                                     |                                                                                                    | Change in assets and liabilities:           |                                       
|                                                     |                                                                                                    |                                             | Accounts receivable                   
|                                                     |                                                                                                    |                                             | Inventories                           
|                                                     |                                                                                                    |                                             | Deferred product costs                
|                                                     |                                                                                                    |                                             | Prepaid expenses and other            
|                                                     |                                                                                                    |                                             | Accounts payable                      
|                                                     |                                                                                                    |                                             | Accrued and other liabilities         
|                                                     |                                                                                                    |                                             | Deferred revenue and customer deposits
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|Cash flows from investing activities:                |                                                                                                    |                                             |                                       
|                                                     | Purchase of property and equipment                                                                 |                                             |                                       
|                                                     | Proceeds from sale of property and equipment                                                       |                                             |                                       
|                                                     | Purchases of short-term investments                                                                |                                             |                                       
|                                                     | Proceeds from maturities of short-term investments                                                 |                                             |                                       
|                                                     | Purchase of restricted short-term investments                                                      |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|Cash flows from financing activities:                |                                                                                                    |                                             |                                       
|                                                     | Proceeds from sale of common stock                                                                 |                                             |                                       
|                                                     | Proceeds from payments on note receivable issued to stockholders                                   |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|Net (decrease) increase in cash and cash equivalents |                                                                                                    |                                             | (89,175                               
|Cash and cash equivalents:                           |                                                                                                    |                                             |                                       
|                                                     | Beginning of year                                                                                  |                                             |                                       
|                                                     |                                                                                                    |                                             |                                       
|                                                     | End of year                                                                                        |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|Supplemental disclosure of cash flow information:    |                                                                                                    |                                             |                                       
|                                                     | Cash paid for interest expense                                                                     |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|                                                     | Cash paid for income taxes                                                                         |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|Non-cash investing and financing activities:         |                                                                                                    |                                             |                                       
|                                                     | Deferred stock compensation                                                                        |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|                                                     | Reversal of deferred stock compensation                                                            |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|                                                     | Unrealized loss on short-term investments, net of tax effects                                      |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       
|                                                     | Repurchase of common stock through cancellation of notes receivable                                |                                             | $                                     
|                                                     |                                                                                                    |                                             |                                       

See notes to consolidated financial statements.

57

---





@ROAD, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Note 1.    Organization and Summary of Significant Accounting Policies



@Road, Inc. commenced operations on July 1, 1996 and is a leading provider of mobile resource management (MRM) services through the use of the
proprietary global positioning system (GPS) and wireless technologies.



The consolidated financial statements include @Road, Inc. and its wholly-owned subsidiary (collectively, the "Company"). Intercompany accounts and transactions
are eliminated upon consolidation.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including
those related to provisions for doubtful accounts, legal and other contingencies, income taxes and intangible assets. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.



The Company considers all highly liquid debt instruments purchased with a remaining maturity at purchase of 90 days or less to be cash equivalents.



Investments represent highly liquid debt instruments purchased with a remaining maturity date at purchase of greater than 90 days and are stated at fair
value. The differences between amortized cost (cost adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value representing
unrealized holding gains or losses, are recorded separately as accumulated other comprehensive income (loss) within stockholders' equity, net of related estimated tax provisions or benefits.
Additionally, the Company assesses whether an other-than-temporary impairment loss on its investments has occurred due to declines in fair value or other market conditions. The
Company did not consider any declines in fair value to be other than temporary. While the Company's intent is to hold debt securities to maturity or reset date, they are classified as
available-for-sale because the sale of such securities may be required prior to maturity or reset. Any gains and losses on the sale of debt securities are determined on a
specific identification basis.



Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash equivalents, short-term
investments and accounts receivable. The Company's cash equivalents and short-term investments consist of checking and savings accounts, money market accounts and highly liquid debt
instruments with three financial institutions. The Company sells its

58

---



products
and services primarily to companies in the United States. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs
ongoing evaluations of its customers' financial condition. The Company maintains an allowance for doubtful accounts receivable based upon its historical experience. Unexpected or significant future
changes in trends could result in a material impact to future statements of operations or cash flows. The provision for doubtful accounts is recorded as a charge to operating expense, while the
provision for sales returns is recognized as a reduction of revenues.

At
December 31, 2004, SBC Services, Waste Management and Verizon Communications comprised 20%, 19% and 11% of outstanding accounts receivable, respectively. At December 31,
2003, Verizon Communications comprised 25% of outstanding accounts receivable.



Inventories consist of raw materials, work in process and finished goods, and are stated at the lower of cost (average cost) or market.



Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of approximately three to five
years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.



Intangible assets, which represent purchased technology, are stated at cost and amortized using the straight-line method over estimated useful lives
of two to three years. (See Note 5).

At
December 31, 2004, the Company held approximately 43,000 shares of preferred stock in Cellport Systems, Inc., with an original purchase price of $1,035,000 and which
represented less than one percent ownership in Cellport Systems, Inc. The Company accounts for this investment using the cost method. During the quarter ended June 30, 2002, it was
determined that the investment had experienced a decline in value that was other than temporary. Accordingly, $1,035,000 was expensed in 2002.



The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than
its carrying amount.



The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net operating loss carry forwards and other tax credits measured by applying
currently enacted tax laws. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.



Revenue is recognized when earned in accordance with applicable accounting standards, including American Institute of Certified Public Accountants Statement of
Position No. 97-2,Software Revenue

59

---



Recognition, as amended. Specifically, the Company recognizes revenue when the price is fixed and determinable, upon persuasive evidence of an agreement, when it has fulfilled
its obligations under any such agreement and upon a determination that collection is probable. The Company earns revenues under service contracts, which generally provide service over periods from two
to three years, and from related products sold to customers (for which title passes on delivery). Through December 31, 2004, its services have been available only by using the Company's
proprietary hardware device or a location- or wireless application protocol-enabled mobile telephone. Accordingly, service revenue, which is comprised of monthly fees, is recognized ratably over the
minimum service contract period, which commences (a) upon installation where customers have installed the proprietary hardware device in mobile worker vehicles or (b) upon the creation
of subscription licenses and a customer account on the Company's website where customers have elected to use services with a location-enabled mobile telephone.

The
Company does not sell location- or wireless application protocol-enabled mobile telephones and, therefore, recognizes no product or upfront revenues related to subscribers utilizing
such telephones. For products sold, the Company defers product revenue at installation and recognizes it ratably over the minimum service contract period. Product costs (not in excess of the related
deferred product revenue) are also deferred and amortized over such period. Customer payments received prior to installation are recorded as customer deposits.



All advertising costs are expensed as incurred. Advertising costs, which are included in sales and marketing expenses, were approximately $370,000, $301,000 and
$252,000 in 2004, 2003 and 2002, respectively. Advertising costs consist primarily of ad campaigns, catalog brochures, promotional items and trade show expenses.



Research and development expenses are charged to operations as incurred. Such expenses include product development costs and costs related to the Company's
internally developed software systems, which have not met the capitalization criteria of Statement of Position 98-1,Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use(SOP 98-1). During 2004, 2003 and 2002 no research and development costs were capitalized in accordance with SOP
98-1.



The functional currency of the Company's foreign subsidiary is the U.S. dollar. Accordingly, all monetary assets and liabilities are translated at the current
exchange rate at the end of the year, non-monetary assets and liabilities are translated at historical rates and revenues and expenses are translated at average exchange rates in effect
during the period. Transaction gains and losses have not been significant to date.



The Company accounts for stock-based employee compensation issued under compensatory plans using the intrinsic value method, which calculates compensation expense
based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the option exercise price.

Accounting
principles generally accepted in the United States require companies who choose to account for stock option grants using the intrinsic value method to also determine the fair
value of option grants using an option pricing model, such as the Black-Scholes model, and to disclose the impact of fair value accounting in a note to the financial statements.

60

---



In
December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148,Accounting for
Stock-Based Compensation Transition and Disclosure, an Amendment of SFAS No. 123(SFAS 148). The Company did not elect to voluntarily change to the fair value
based method of accounting for stock based employee compensation and record such amounts as charges to operating expense. The impact of recognizing the fair value of option grants and stock grants
under the Company's employee stock purchase plan as an expense under SFAS 148 would have substantially reduced the Company's operating results, as follows (in thousands, except per share
amounts):

Years Ended December 31,2004

2003

2002Net income (loss) as reported

$
9,221

$
1,662

$
(14,237
)Add: stock-based employee compensation expense included in reported net income (loss), net of tax effect


4


462


1,025Less: stock-based employee compensation expense determined under fair value based method, net of tax effect


(7,451
)

(9,422
)

(8,705
)Pro forma net income (loss)

$
1,774

$
(7,298
)
$
(21,917
)Basic net income (loss) per share:As reported

$
0.17

$
0.03

$
(0.31
)Pro forma

$
0.03

$
(0.15
)
$
(0.48
)Diluted net income (loss) per share:As reported

$
0.16

$
0.03

$
(0.31
)Pro forma

$
0.03

$
(0.15
)
$
(0.48
)


The
weighted average fair value of options granted in the years ended December 31, 2004, 2003 and 2002, were $3.79, $7.31 and $4.59, respectively. The Company calculated the fair
value of each option award on the date of grant using the Black-Scholes option pricing model. The Company's calculations are based on a single option valuation approach and forfeitures are recognized
as they occur. The following weighted average assumptions were used for each respective period:

Years Ended December 31,2004

2003

2002Stock Option Plans:Risk free interest rate


3.41
%

2.91
%

3.56
%Expected volatility


106
%

114
%

124
%Expected life (in years)


5


5


5Expected dividend

$
0.00

$
0.00

$
0.00Employee Stock Purchase Plan:Risk free interest rate


1.32
%

1.14
%

1.61
%Expected volatility


78
%

92
%

124
%Expected life (in years)


0.5


0.5


0.5Expected dividend

$
0.00

$
0.00

$
0.00


The
Company accounts for stock-based arrangements issued to non-employees using the fair value based method, which calculates compensation expense based on the fair value of
the stock option granted using the Black-Scholes option pricing model at the date of grant, or over the period of performance, as appropriate. (See Note 8).

61

---





The Company participates in a dynamic high-technology industry and believes that changes in any of the following areas could have a material adverse
effect on its future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products and
services or price reductions on current products and services; changes in the overall demand for products and services offered by the Company; market acceptance of the Company's products and services;
development of sales channels; changes in third-party manufacturers; changes in key suppliers; changes in availability of wireless data networks; changes in certain strategic relationships or customer
relationships; litigation or claims against the Company based on intellectual property, product, regulatory or other factors; risks associated with necessary components; and the Company's ability to
attract and retain employees necessary to support its growth.

Motorola
is the sole supplier of microcontrollers used in the Company's products. The Company expects to rely on Motorola as a source for these components for the next several years.



SFAS No. 130,Reporting Comprehensive Income, requires that an enterprise report, by major components and
as a single total, the change in its net assets during the period from non-owner sources. At December 31, 2004, accumulated other comprehensive loss was composed of unrealized
losses of $179,000 on short-term investments. At December 31, 2003 accumulated other comprehensive loss was zero.



In 2004, 2003 and 2002, the Company operated in a single reportable segment. The Company will evaluate additional segment disclosure requirements as it expands
its operations or experience changes in its business. The Company had no significant revenues from customers outside of the United States in 2004, 2003 and 2002, and had no significant
long-lived assets deployed outside the United States at December 31, 2004 and 2003.



In 2004 and 2003, Verizon Communications, represented 17% of total revenues. No other customers comprised 10% or more of total revenues. In 2002, no single
customer or group of related customers comprised 10% or more of total revenues.



In December 2004, the FASB issued SFAS No. 123 (revised 2004),Share-Based Payments(SFAS 123R), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or
liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments.

The
statement eliminates the ability to account for share-based compensation transactions using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion
No. 25,Accounting for Stock Issued to Employees, and generally requires that such transactions be accounted for using a fair value based method
and recognized as expenses in the consolidated statement of operations. The statement requires companies to assess the most appropriate model to calculate the value of the options. The Company
currently uses the Black-Scholes option pricing model to value options and is assessing which model it may use upon adoption of such standard. The use of an

62

---



alternative
model to value options may result in a different fair value than the use of the Black-Scholes option pricing model.

There
are a number of other requirements under the new standard that will result in differing accounting treatment than that currently required. These differences include, but are not
limited to, the accounting for the tax benefit on employee stock options and for stock issued under the Company's employee stock purchase plan.

The
Company will also be required to determine the transition method to be used at date of adoption. The allowed transition methods include modified prospective and modified retroactive
adoption alternatives. Under the modified retroactive method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. This method would record
compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The modified prospective method requires that compensation expense be recorded for
all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R. The effective date of the new standard for public companies is for interim
periods beginning after June 15, 2005. As such, the Company will adopt the statement in its interim reporting period ended September 30, 2005.

Upon
adoption, this statement will have a significant impact on the Company's consolidated statement of operations as the Company will be required to expense the fair value of its stock
option grants and stock purchases under its employee stock purchase plan rather than disclose the impact on its consolidated net income (loss) within its footnotes, as is its current practice.

In
November 2004, the FASB issued SFAS No. 151,Inventory Costs, an amendment of ARB No. 43, Chapter 4(SFAS 151). SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges. The provisions of SFAS 151 are effective for fiscal years beginning after July 1, 2005. The Company is currently evaluating the effect that the
adoption of SFAS 151 will have on its consolidated statement of operations and financial condition, but the Company does not expect it to have a material impact.

In
December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29, Accounting
for Nonmonetary Transactions(SFAS 153). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29,Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of
the exchange. The effective date of this standard is for fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 153 will
have on its consolidated statement of operations and financial condition, but the Company does not expect it to have a material impact.



Certain reclassifications have been made to the 2003 and 2002 financial statement presentation to conform to the 2004 presentation. These reclassifications had no
effect on net income (loss) or stockholders' equity.

63

---



Note 2.    Short-Term Investments

Short-term investments included the following available-for-sale securities at December 31, 2004 (in thousands):

Amortized
Cost

Unrealized
Gains

Unrealized
(Losses)

Estimated
Fair ValueU.S. Government debt securities

$
51,782

$


$
(124
)
$
51,658Municipal debt securities


31,354


2


(4
)

31,352Corporate debt securities


20,265





(53
)

20,212Total

$
103,401

$
2

$
(181
)
$
103,222


At
December 31, 2003, short-term investments consisted of a certificate of deposit with a fair value which approximated cost. The certificate of deposit matured in
June 2004. All investments in an unrealized loss position have been in that position for less than 12 months.

Note 3.    Inventories

Inventories consist of (in thousands):

December 31,2004

2003Raw materials

$
1,025

$
1,294Work in process


746


177Finished goods


1,822


954$
3,593

$
2,425


Note 4.    Property and Equipment

Property and equipment consist of (in thousands):

December 31,2004

2003Computers and software

$
13,196

$
11,120Manufacturing and office equipment


352


296Furniture and fixtures


494


422Leasehold improvements


307


105Total


14,349


11,943Accumulated depreciation and amortization


(10,681
)

(9,645
)Property and equipment, net

$
3,668

$
2,298


Note 5.    Intangible Assets

SFAS No. 142,Goodwill and Other Intangible Assets,requires purchased intangible assets other than
goodwill to be amortized over their expected useful lives unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the respective assets, generally two to three years.

64

---



Intangible
assets were as follows (in thousands):

As of December 31, 2004

As of December 31, 2003Carrying
Amount

Accumulated
Amortization

Net
Balance

Carrying
Amount

Accumulated
Amortization

Net
BalancePurchased technology

$
5,052

$
(5,052
)
$


$
5,052

$
(5,024
)
$
28


Amortization
of purchased technology was $28,000, $455,000 and $1,670,000 for 2004, 2003 and 2002, respectively. Purchased technology was fully amortized at December 31, 2004.

Note 6.    Accrued Liabilities

Accrued liabilities consist of (in thousands):

December 31,2004

2003Accrued compensation and related benefits

$
2,855

$
2,437Accrued installation charges


396


505Other accrued expenses


2,278


2,523Total

$
5,529

$
5,465


Note 7.    Line of Credit

The Company had a non-collateralized line of credit agreement for $100,000 that expired on December 31, 2004. There were no borrowings against
the line of credit at December 31, 2003.

Note 8.    Stockholders' Equity



The Company has authorized an undesignated class of preferred stock of 10,000,000 shares. The preferred stock may be issued from time to time in one or more
series. The Board of Directors is
authorized to determine or alter the rights, preferences, privileges and restrictions of such preferred stock. No shares were outstanding at December 31, 2004 or 2003.



The Company's Certificate of Incorporation, as amended, authorizes it to issue 250,000,000 shares of common stock. A portion of the shares outstanding was subject
to repurchase over a four-year period from the earlier of the issuance date or employee hire date, as applicable. At December 31, 2004 and 2003 there were approximately 0 and 44,000
shares subject to repurchase rights, respectively.

At
December 31, 2004, the Company had reserved approximately 12,204,000 shares of common stock available for future issuance under its stock option plans, including approximately
8,416,000 shares related to outstanding stock options. In addition, the Company had reserved approximately 1,202,000 shares of common stock available for future issuance under the employee stock
purchase plan.

On
August 25, 2003, the Company completed the sale of 4,000,000 shares of common stock in an underwritten secondary public offering at a per share price of $14.00. Offering
proceeds to the Company, net of the underwriting discount and aggregate expenses of approximately $4,111,000, was approximately $51,889,000. In conjunction with the secondary public offering,
stockholders sold an additional 2,500,000 shares of the Company's common stock. The Company did not receive any proceeds from the sale of common stock held by the stockholders.

65

---





The Company has an employee stock purchase plan for all eligible employees. Under the plan, shares of its common stock may be purchased over an offering period
with a maximum duration of two years at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last day of the six-month purchase period.
Employees may purchase up to 2,700 shares having a value not exceeding 20% of their gross compensation during an offering period. During the years ended December 31, 2004, 2003 and 2002,
employees purchased approximately 464,000, 563,000 and 553,000 shares at average prices of $4.60, $2.63 and $1.98 per share, respectively. At December 31, 2004, approximately 1,202,000 shares
of common stock were reserved for future issuance. Our employee
stock purchase plan contains a provision that automatically increases, on each January 1, the number of shares reserved for issuance under the employee stock purchase plan by the lesser of
900,000 or two percent of the total shares outstanding on the last day of the preceding year.



The Company has equity incentive plans for directors, officers and employees. Stock options granted under these plans generally vest 25% one year from the date of
grant and the remainder vest at a rate of 2.08% per month thereafter. Grants to existing employees generally vest 25% per year on the anniversary of the grant. Non-employee directors upon
becoming a director receive an initial grant of 40,000 shares vesting over 4 years and annual grants of 10,000 shares vesting over one year. Options generally expire 10 years from the
date of grant. Our equity incentive plans contain a provision that automatically increases through 2010, on each January 1, the number of shares reserved for issuance under these plans by the
lesser of 2,500,000 shares or four percent of the total shares outstanding on the last day of the preceding year.

The
following table summarizes activity under our equity incentive plans for the years ended December 31, 2004, 2003 and 2002 (shares in thousands):

2004

2003

2002Number of
Shares

Weighted
Average
Exercise
Price

Number of
Shares

Weighted
Average
Exercise
Price

Number of
Shares

Weighted
Average
Exercise
PriceOutstanding at beginning of period

7,415

$
5.29

7,869

$
4.04

6,864

$
3.24Granted

2,541


4.83

1,889


8.93

2,542


5.41Exercised

(641
)

2.25

(1,390
)

3.22

(788
)

1.64Canceled

(899
)

6.70

(953
)

5.19

(749
)

3.94Outstanding at end of period

8,416

$
5.23

7,415

$
5.29

7,869

$
4.04Options exercisable at end of period

3,790

$
4.61

3,253

$
3.86

3,006

$
3.53


Stock
compensation related to options granted to employees of $4,000, $462,000 and $1,025,000 was amortized to expense in 2004, 2003 and 2002, respectively. At December 31, 2004
and 2003, the Company had $0 and $4,000 in deferred compensation related to employee options, respectively. Stock compensation related to the granting of options and purchase rights to employees
having a fair value greater than the related exercise price during 2000 and 1999.

The
Company recorded deferred stock compensation of approximately $5,000 and $15,000 as the change in fair value of non-statutory common stock options granted to
non-employees in 2003 and 2002, respectively. Stock compensation expense of $5,000, and $40,000 was recognized as a result of issuing these options in 2003 and 2002, respectively. As of
December 31, 2004, the options were fully vested. In 2002, the Company issued non-statutory common stock options to non-employees to purchase approximately 3,000 shares
of common stock. Options granted to non-employees to purchase

66

---



approximately
0 and 63,000 shares of common stock were outstanding at December 31, 2004 and 2003, respectively.

Additional
information regarding options outstanding as of December 31, 2004 is as follows (shares in thousands):

|  |               |  | Options Outstanding |  | Options Exercisable
|- | ------------- |  | ------------------- |  | -------------------
|
|$ | 0.07 - 1.63   |  | 923                 |  | 5.46               
|  | 1.97 - 2.00   |  | 899                 |  | 6.63               
|  | 2.07 - 3.47   |  | 1,216               |  | 9.31               
|  | 3.52 - 3.69   |  | 863                 |  | 8.15               
|  | 3.85 - 5.04   |  | 1,428               |  | 8.06               
|  | 5.05 - 6.40   |  | 1,022               |  | 7.99               
|  | 6.44 - 9.90   |  | 849                 |  | 7.20               
|  | 10.00 - 13.25 |  | 852                 |  | 7.48               
|  | 13.29 - 13.49 |  | 352                 |  | 8.90               
|  | 14.58 - 14.58 |  | 12                  |  | 8.79               
|  |               |  |                     |  |                    
|  |               |  | 8,416               |  | 7.70               
|  |               |  |                     |  |                    



A number of officers and other employees were granted full recourse notes that were secured by common stock and generally were due five years from the issue
dates. The stock sold in connection with certain of these notes and other stock sales for cash was subject to repurchase by the Company at the original issuance price; this right generally lapsed over
a four-year period subject to continued employment. The notes receivable from employees have been fully paid off as of December 31, 2004.

Note 9.    Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the
period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares, composed of unvested restricted common stock and incremental common shares issuable upon the exercise of stock options, are included in diluted net income
per share (using the treasury stock method) to the extent such shares are dilutive. The following table sets forth the

67

---



computation
of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

Years Ended December 31,2004

2003

2002Net income (loss) (numerator)

$
9,221

$
1,662

$
(14,237
)Shares (denominator):BasicWeighted average common shares outstanding


54,299


50,140


47,047Weighted average common shares outstanding subject to repurchase


(3
)

(162
)

(913
)Shares used in computation


54,296


49,978


46,134DilutedDilution impact from option equivalent shares


3,134


3,932


Dilution impact from employee stock purchase plan


2


210


Add back weighted average common shares subject to repurchase


3


162


Shares used in computation


57,435


54,282


46,134Net income (loss) per shareBasic

$
0.17

$
0.03

$
(0.31
)Diluted

$
0.16

$
0.03

$
(0.31
)


For
the periods presented, the Company had securities outstanding which could potentially dilute basic income (loss) per share in the future, but which were excluded from the computation
of diluted net income (loss) per share in the periods presented, as their effect would have been antidilutive due to either the Company being in a net loss position or shares being subject to
repurchase by the Company on outstanding options with exercise prices greater than the average fair market value for the respective periods presented. Such outstanding securities consist of the
following (shares in thousands):

Years Ended December 31,2004

2003

2002Shares of common stock subject to repurchase








385Outstanding options


1,820


751


7,869Weighted average exercise price of options and stock purchase rights

$
10.89

$
10.79

$
4.04


Note 10.    Commitments and Contingencies



On June 9, 2004, the Company entered into a sublease for its future principal administrative and technical offices from January 2005 through
May 2010, occupying 103,000 square feet in Fremont, California. The Company periodically evaluates the adequacy of existing facilities and additional facilities in new cities and believes that
suitable additional space will be available in the future on

68

---



commercially
reasonable terms as needed. Future minimum rental payments under non-cancelable operating leases are as follows (in thousands):

Operating
LeasesYear Ending December 31,2005

$
1,3422006


1,0972007


1,0762008


1,0772009


1,109Thereafter:


476Total minimum lease payments

$
6,177


The
Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense was approximately
$1,727,000, $1,415,000 and $1,312,000 (net of sublease income of approximately $43,000, $48,000 and $72,000) for 2004, 2003 and 2002, respectively.



At December 31, 2004, the Company had noncancelable inventory purchase commitments totaling approximately $5,388,000 and other purchase obligations
totaling approximately $1,385,000.



In the third quarter of 2002, AT&T Wireless announced that it expected to cease operating its Cellular Digital Packet Data (CDPD) network by June 30, 2004.
On March 11, 2004, the Company received notice that AT&T Wireless would continue to operate its CDPD network for "certain valuable partners," including @Road, until at least
September 30, 2004. The letter also stated that this extension of CDPD network availability extended across all AT&T Wireless geographic locations. On May 28, 2004, the Company received
notice that AT&T Wireless extended availability of its CDPD network to June 30, 2005.

The
Company is in discussions with AT&T Wireless to minimize any disruption to the delivery of its services to @Road customers. The Company has notified customers comprising
substantially all of the subscribers whose service would be affected by the proposed termination of the AT&T Wireless CDPD network. At December 31, 2004, less than one quarter of the Company's
total subscribers utilize the AT&T Wireless CDPD network. The majority of those subscribers have yet to complete their negotiations with @Road for migration to an alternate network. The Company
estimates that as of June 30, 2005, approximately 2,500 of these subscribers will be in their initial contract periods with the Company.

In
its Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2003, Verizon Wireless disclosed that it expects to cease operating
its CDPD network at the end of 2005. The Company is in discussions with Verizon Wireless to minimize any disruption to the delivery of its services to @Road customers. The Company has notified
customers comprising substantially all of the subscribers whose service would be affected by the proposed termination of the Verizon Wireless CDPD network. At December 31, 2004, less than one
quarter of the Company's total subscribers utilize the Verizon Wireless CDPD network. Less than half of those subscribers, or approximately 10% of the Company's total subscribers, have yet to complete
their negotiations with @Road for migration to an alternate network. The Company estimates that as of December 31, 2005, approximately 5,000 of these subscribers will be in their initial
contract periods with the Company.

69

---



To
use an alternate network, existing hardware devices would have to be replaced for subscribers currently using a CDPD network. While the Company does not anticipate losses on the sale
of these replacement hardware devices, if it is unable to migrate these customers in a timely fashion, the Company may offer price concessions. If the Company were to offer such concessions, they
could have a material adverse impact on the Company's financial results.



The Company is party to legal proceedings in the ordinary course of business. Based on evaluation of these matters, the Company believes that these matters will
not have a material effect on its results of operations or financial position.



The Company from time to time enters into certain types of agreements that contingently require it to indemnify parties against third party claims. These
agreements primarily relate to: (i) certain agreements with the Company's officers, directors and employees and third parties, under which the Company may be required to indemnify such persons
for liabilities arising out of their duties to the Company and (ii) certain agreements under which the Company indemnifies customers and alliances for claims such as those arising from
intellectual property infringement, personal injury, or non-performance under the agreement. Such indemnification provisions are accounted for in accordance with SFAS No. 5. To
date, the Company has not incurred any costs related to any claims under such indemnification provisions.

The
terms of such obligations vary. Because the amount of the obligation in these types of agreements often are not explicitly stated, the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated to make any payments for these obligations, and no liabilities have been recorded for these obligations on the
Company's balance sheet as of December 31, 2004.

In
general, the Company provides its customers a 12-month limited warranty that the hardware furnished under the agreement will be free from defects in materials and
workmanship and will substantially conform to the specifications for such hardware. The Company's policy is to expense such costs as incurred. To date, the Company has incurred minimal costs related
to this limited warranty obligation.

Note 11.    Terminated Acquisition Costs

On April 12, 2004, the Company entered into a Combination agreement with MDSI Mobile Data Solutions, Inc. (MDSI) providing for the acquisition of MDSI. On
July 27, 2004, the parties mutually agreed to terminate the Combination Agreement. As a result, for the year ended December 31, 2004, the Company expensed approximately $2,138,000
of acquisition-related costs.

Note 12.    Income Taxes

Only minimum state income and franchise taxes were provided for any of the years presented due to the Company's history of net operating losses.

70

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The
Company's effective tax rate differs from the expected benefit at the federal statutory tax rate for the years ended December 31 as follows:

2004

2003

2002Federal statutory rate

35.0
%
35.0
%
(35.0
)%State taxes, net of federal benefit

0.70

21.30

(6.14
)Non-deductible stock compensation charges

(1.46
)
(50.11
)
2.61Research and development credits

(1.86
)
(16.24
)
(2.72
)Other

(0.26
)
2.07

(1.04
)Valuation allowance

(32.12
)
7.98

42.29Effective tax rate


%

%

%


Net
deferred tax assets at December 31 consist of (in thousands):

2004

2003Net operating loss carry forwards

$
35,251

$
36,141Credit carry forwards


4,577


3,719Accruals and reserves recognized in different periods


3,410


3,780Total gross deferred tax assets before valuation allowance


43,238


43,640Valuation reserve


(43,238
)

(43,640
)Net deferred tax asset

$


$



At
December 31, 2004, the Company had federal and state net operating loss (NOL) carry forwards of approximately $93,630,000 and $47,691,000, respectively. The federal NOL carry
forwards expire through 2023, while the state NOL carry forwards expire through 2013. The Company evaluates its deferred tax assets in each tax jurisdiction by estimating the likelihood of generating
future profits to realize these assets. In most cases, the Company has assumed that it will not be able to generate sufficient future taxable income to realize these assets and have recorded valuation
reserves to reduce the net asset values to zero.

At
December 31, 2004 approximately $4,152,000 of valuation allowance for deferred tax assets relating to net operating loss carry forwards is attributed to employee stock option
deductions, the benefit from which will be allocated to equity rather than current earnings when realized.

At
December 31, 2004, the Company also has federal and state research credits of approximately $2,395,000 and $2,069,000, respectively. The federal tax credit carry forward
expires through 2023. The state tax credit carry forward has no expiration.

Current
federal and California tax law includes provisions limiting the annual use of net operating loss and credit carry forwards in the event of certain defined changes in stock
ownership. The Company's capitalization described herein may have resulted in such a change. Accordingly, the annual use of the Company's net operating loss and credit carry forwards would be limited
according to these provisions. Management has not yet determined the extent of such limitation. Such limitation may result in the loss of carry forward benefits due to their expiration.

Note 13.    Related Party Transactions

The Company has entered into indemnification agreements with each of its directors, executive officers and certain other officers. These agreements require the
Company to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with the Company.

71

---



The
Company purchased approximately $2,285,000 and $1,892,000, of inventory from a stockholder in 2003 and 2002, respectively. During 2003, the stockholder sold all the shares of the
Company's common stock it previously owned.

Note 14.    401(k) Saving and Retirement Plan

The Company sponsors a 401(k) Saving and Retirement Plan (the Plan) for all employees who meet certain eligibility requirements. Participants may contribute, on a
pre-tax basis, between 1 percent and 15 percent of their annual compensation, but not to exceed a maximum contribution amount pursuant to Section 401(k) of the
Internal Revenue Code. The Company is not required to contribute, nor has it contributed, to the Plan for any of the years presented.

Note 15.    Quarterly Financial Data (unaudited) (in thousands except per share amounts)

|                                                 |         | Quarter Ended
|------------------------------------------------ | ------- | -------------
|
|Consolidated Statements of Operations Data:      |         |              
|Total revenues                                   |         | $            
|Income from operations                           |         |              
|Net income                                       |         | $            
|                                                 |         |              
|Net income per share:                            |         |              
|                                                 | Basic   |              
|                                                 |         |              
|                                                 | Diluted |              
|                                                 |         |              
|Shares used in calculating net income per share: |         |              
|                                                 | Basic   |              
|                                                 |         |              
|                                                 | Diluted |              
|                                                 |         |              

|                                                        |         | Quarter Ended |       
|------------------------------------------------------- | ------- | ------------- | ------
|
|Consolidated Statements of Operations Data:             |         |               |       
|Total revenues                                          |         | $             | 17,237
|Income (loss) from operations                           |         |               | 1,859 
|Net income (loss)                                       |         | $             | 2,097 
|                                                        |         |               |       
|Net income (loss) per share:                            |         |               |       
|                                                        | Basic   |               | $     
|                                                        |         |               |       
|                                                        | Diluted |               | $     
|                                                        |         |               |       
|Shares used in calculating net income (loss) per share: |         |               |       
|                                                        | Basic   |               |       
|                                                        |         |               |       
|                                                        | Diluted |               |       
|                                                        |         |               |       

Note 16.    Subsequent Event

On February 18, 2005, the Company acquired all of the outstanding shares of Vidus Limited, a provider of dynamic field service automation solutions located
in Ipswich, United Kingdom. The acquisition is intended to allow the Company to integrate technology for dynamic scheduling, dispatching, routing, and appointment booking of mobile workers and the
Company intends to expand its business to Europe and other international markets.

72

---



In
exchange for all of the outstanding shares of Vidus capital stock, the Company issued approximately 5,454,000 shares of its common stock valued at $38,177,000 and newly created
interest-bearing redeemable preferred stock in face amount of approximately $10,200,000, extinguished for cash existing debt of approximately $4,561,000 and issued approximately 146,000 vested options
with a fair value of $532,000. Under the terms of the stock option grants, each option has been classified as a non-qualified stock option, is fully vested, has an exercise price ranging from $0.67 to
$2.00 per share and generally has a one-year term. The purchase price also included estimated direct transaction costs of $1,282,000. In addition, the Company extinguished for cash existing debt of
approximately $926,000.

The
total consideration is subject to an adjustment in one year if the average closing price of the Company's common stock for any ten consecutive trading days does not meet a market
price per share of $7.00. The fair value of the Company's common stock was derived from this market price per share of $7.00. The fair value of the stock options was determined using the Black-Scholes
option pricing model with the following assumptions: no dividend yield, expected volatility of 94%, expected life of one year and a risk-free interest rate of 2.86%. The acquisition was accounted for
under the purchase method of accounting. The results of operations of Vidus Limited will be included in the Company's Consolidated Statement of Operations from February 19, 2005.

The
Company is currently in the process of finalizing the financial accounts of Vidus Limited to be in compliance with accounting principles generally accepted in the United States of
America. Thus, the allocation of the purchase price is not currently determinable.

73

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Stockholders and Board of Directors of @Road, Inc.:

We
have audited the consolidated balance sheets of @Road, Inc. and its subsidiary (collectively the "Company") as of December 31, 2004 and 2003, and for each of the three years in
the period ended December 31, 2004, management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, and the effectiveness
of the Company's internal control over financial reporting as of December 31, 2004, and have issued our report thereon dated March 14, 2005; such reports are included elsewhere in this
Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15(a)(2). This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/DELOITTE & TOUCHE LLP

San
Jose, California
March 14, 2005

74

---





SCHEDULE II

@ROAD, INC.  VALUATION AND QUALIFYING ACCOUNTS  FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  (In thousands)

|                                                |  | Balance at
Beginning
of Year |        | Additions
and
Charges to
Expenses |   | Write-off
and
Deductions |   | Balance at
End of
Year
|----------------------------------------------- |  | ---------------------------- | ------ | --------------------------------- | - | ------------------------ | - | ----------------------
|Year Ended December 31, 2004                    |  |                              |        |                                   |   |                          |   |                       
|Accounts receivable doubtful accounts allowance |  | $                            | 1,421  |                                   | $ | (724                     | ) | $                     
|Deferred tax valuation allowance                |  |                              | 43,640 |                                   |   |                         |   |                       
|                                                |  |                              |        |                                   |   |                          |   |                       
|Year Ended December 31, 2003                    |  |                              |        |                                   |   |                          |   |                       
|Accounts receivable doubtful accounts allowance |  | $                            | 1,900  |                                   | $ | (127                     | ) | $                     
|Deferred tax valuation allowance                |  |                              | 41,946 |                                   |   |                         |   |                       
|                                                |  |                              |        |                                   |   |                          |   |                       
|Year Ended December 31, 2002                    |  |                              |        |                                   |   |                          |   |                       
|Accounts receivable doubtful accounts allowance |  | $                            | 3,633  |                                   | $ | 461                      |   | $                     
|Deferred tax valuation allowance                |  |                              | 34,739 |                                   |   |                         |   |                       
|                                                |  |                              |        |                                   |   |                          |   |                       

75

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | @ROAD, INC.
| |  | -----------
| |  | By:        

Date:
March 15, 2005

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Krish Panu and Michael Johnson, jointly and severally,
his attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this
Report below.

|Signature                             |  | Title                                                                                                                      |  | Date          
|------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------------
|                                      |  |                                                                                                                            |  |               
|/s/KRISH PANUKrish Panu               |  | Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)                    |  | March 15, 2005
|/s/MICHAEL JOHNSONMichael Johnson     |  | Senior Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 15, 2005
|/s/KRIS CHELLAMKris Chellam           |  | Director                                                                                                                   |  | March 15, 2005
|/s/CHARLES E. LEVINECharles E. Levine |  | Director                                                                                                                   |  | March 15, 2005
|/s/T. PETER THOMAST. Peter Thomas     |  | Director                                                                                                                   |  | March 15, 2005
|/s/JAMES DAVISJames Davis             |  | Director                                                                                                                   |  | March 15, 2005

76

---



EXHIBIT INDEX

|2.1   |  | Acquisition Agreement dated as of December 15, 2004 by and among Registrant, Vidus Limited and NV Partners III-BT LP. (Incorporated herein by reference to our Report on Form 8-K filed on December 21,
2004.)                                                                                                                               
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.4   |  | Amended and Restated Bylaws of the Registrant, as amended. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                               
|3.5   |  | Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                     
|3.6   |  | Certificate of Designations, Rights and Preferences of Series A-1 and Series A-2 Redeemable Preferred Stock and Series B-1 and Series B-2 Redeemable Preferred Stock. (Incorporated herein by reference to our Report on Form 8-K
filed on February 22, 2005.)                                                                               
|4.1   |  | Specimen Stock Certificate. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                              
|10.1 |  | CDPD Value Added Reseller Agreement between the Registrant and AT&T Wireless Data, Inc. dated September 30, 1997. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                                        
|10.2 |  | Form of Wireless Network Services Agreement and Form of Purchase Agreement for Goods. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                    
|10.7 |  | Joint Marketing Agreement between the Registrant and Cellco Partnership dated June 25, 1999 and Amendment No. 1 dated October 12, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File
No. 333-41372) initially filed on July 13, 2000.)                                                                  
|10.8  |  | Sublease Agreement between the Registrant and Sterling Software (Western), Inc. dated August 24, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                                                   
|10.9  |  | Industrial Space Lease between Renco Equities IV as landlord and SEEQ Technology Inc. as tenant, First Addendum to Lease, each dated January 13, 1995, and First Amendment to Lease dated April 18, 1995. (Incorporated herein by
reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)
|10.10 |  | Sublease Agreement between the Registrant and LSI Logic Corporation dated January 25, 2000 and Consent to Sublease between LSI Logic Corporation and Renco Equities IV dated February 8, 2000. (Incorporated herein by reference to our
registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)           
|10.11 |  | Agreement between the Registrant and Elnet Technologies Ltd. dated November 16, 1999. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                                                                    
|10.12 |  | 1996 Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                                  
|10.13 |  | 2000 Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                                  
|10.14 |  | 2000 Employee Stock Purchase Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                              

---



|10.15  |  | 2000 Directors' Stock Option Plan. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                  
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16  |  | Form of Indemnification Agreement. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                                                                                                                  
|10.19  |  | Amended and Restated Rights Agreement between the Registrant and certain investors dated June 27, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                             
|10.20 |  | CDPD Data National Service Agreement between the Registrant and GTE Wireless Incorporated dated May 5, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                        
|10.21  |  | Joint Marketing Agreement between the Registrant and GTE Wireless Service Corporation dated May 5, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                            
|10.23  |  | Strategic Agreement between the Registrant and Hitachi Software Engineering Co., Ltd. dated July 21, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on
July 13, 2000.)                                                                          
|10.24  |  | Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated August 3, 2000. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13,
2000.)                                                                                     
|10.25  |  | First Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated March 8, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 30, 2001.)                                                                                                                
|10.27 |  | Cellular Digital Packet Data Reseller Agreement between the Registrant and TELUS Mobility dated January 19, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                
|10.28 |  | Co-Marketing Agreement between the Registrant and Nextel Partners Operating Corp. dated March 14, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                          
|10.29 |  | Co-Marketing Agreement between the Registrant and Nextel Financing Company dated December 15, 2000. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                              
|10.30 |  | Cellular Digital Packet Data Reseller Agreement between the Registrant and Ameritech Mobile Communications LLC dated January 10, 2002. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                           
|10.31 |  | Service Agreement between the Registrant and ALLTEL Communications Inc. dated May 17, 2001. (Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)                                                                                                                                      
|10.32 |  | Integrator Agreement between the Registrant and Symbol Technologies, Inc. dated July 31, 2001, as amended by Amendment to Agreement with Integrator between the Registrant and Symbol Technologies, Inc. dated December 28, 2001.
(Incorporated herein by reference to our Report on Form 10-K filed on March 28, 2002.)
|10.35  |  | Agreement between the Registrant and Elnet Technologies Ltd. dated November 17, 2002. (Incorporated herein by reference to our Report on Form 10-K/A filed on July 29, 2003.)                                                                                                                                           
|10.37 |  | Reseller Agreement between the Registrant and AT&T Wireless dated February 24, 2003. (Incorporated herein by reference to our Report on Form 10-K/A filed on July 29, 2003.)                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                         

---



|10.39 |  | First Amendment to Sublease between the Registrant and Athena Semiconductor, Inc., dated March 14, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)                       
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.40 |  | Second Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated December 31, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)         
|10.41 |  | Agreement between the Registrant and Elnet Technologies Ltd., dated December 10, 2003. (Incorporated herein by reference to our Report on Form 10-K filed on March 12, 2004.)                                         
|10.42 |  | Sublease between the Registrant and VA Software Corporation, dated June 8, 2004. (Incorporated herein by reference to our Report on Form 10-Q filed on August 9, 2004.)                                               
|10.43 |  | Consent to Sublease Agreement between the Registrant, VA Software Corporation and Renco Investment Company, dated June 9, 2004. (Incorporated herein by reference to our Report on Form 10-Q filed on August 9, 2004.)
|10.44 |  | Deed of Warranty and Indemnity in relation to Vidus Limited dated December 15, 2004. (Incoporated herein by reference to our Report on Form 8-K filed on December 21, 2004.)                                          
|10.45 |  | Loan and Security Agreement between Registrant and Vidus Limited dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                      
|10.46 |  | Guaranty between Registrant and NV Partners III-BT LP dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                                 
|10.47 |  | Subordination Agreement between Registrant and NV Partners III-BT LP dated January 12, 2005. (Incorporated herein by reference to our Report on Form 8-K filed on January 18, 2005.)                                  
|10.48 |  | Employment Agreement dated as of December 15, 2004 between Registrant and Martin Knestrick. (Incorporated herein by reference to our Report on Form 8-K filed on February 22, 2005.)                                  
|10.49 |  | 2005 Stock Option Plan. (Incorporated herein by reference to our Report on Form 8-K filed on February 22, 2005.)                                                                                                      
|10.50 |  | Agreement between the Registrant and Elnet Technologies Ltd., dated April 28, 2004.                                                                                                                                   
|10.51 |  | Form of Change in Control Agreement between the Registrant and its executive officers.                                                                                                                                
|21.1  |  | List of Subsidiaries. (Incorporated herein by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed on July 13, 2000.)                                                             
|23.1  |  | Consent of Independent Registered Public Accountant.                                                                                                                                                                  
|24.1  |  | Power of Attorney (see page 76).                                                                                                                                                                                      
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.                                                                                                                                                    
|31.2  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.                                                                                                                                                    
|32.1  |  | Certification pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer.                                                                                                                                          
|32.2  |  | Certification pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer.                                                                                                                                          

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