**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              Quarterlyreport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe quarterly period ended April 30, 2005**

**or**

**o**                                 Transitionreport pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe transition period from                 to                 **

**Commissionfile number: 000-27871**

**GoRemote Internet Communications, Inc.**

(Exact Name of Registrantas Specified in Its Charter)
| **Delaware**                                                     | **77-0368092**                             |
|------------------------------------------------------------------|--------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) | (I.R.S.  Employer Identification No.) |
| **1421 McCarthy Blvd.,  Milpitas, California**                   | **95035**                                  |
| (Address of Principal Executive Offices)                         | (Zip Code)                                 |

 

**408-955-1920**

(Registrant’s TelephoneNumber, Including Area Code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes  x    No  o

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

Thenumber of shares of the registrant’s common stock outstanding as of May 31,2005 was 41,630,983 shares.

 

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**GoRemote InternetCommunications, Inc.INDEX**
| **PART I**           |
|---------------------------|
| **FINANCIAL INFORMATION** |
| Item 1.                   | Financial  Statements: |   |   |
|                      | Unaudited  Condensed Consolidated Balance Sheets as of April 30, 2005 and  October 31, 2004       |   | 3 |
|                      | Unaudited Condensed  Consolidated Statements of Operations for the Three and Six Months Ended  April 30, 2005 and 2004 |   | 4 |
|                      | Unaudited Condensed  Consolidated Statements of Cash Flows for the Six Months Ended  April 30, 2005 and 2004 |   | 5 |
|                      | Notes to Unaudited Condensed  Consolidated Financial Statements |   | 6 |
| Item 2.                   | Management’s Discussion  and Analysis of Financial Condition and Results of Operations |   | 16 |
| Item 3.                   | Quantitative and  Qualitative Disclosures About Market Risk |   | 37 |
| Item 4.                   | Controls and Procedures |   | 37 |
| **PART II**          |
| **OTHER INFORMATION**     |
| Item 1.                   | Legal Proceedings |   | 39 |
| Item 2.                   | Changes in Securities and  Use of Proceeds |   | 40 |
| Item 3.                   | Defaults Upon Senior  Securities |   | 40 |
| Item 4.                   | Submission of Matters to  a Vote of Security Holders |   | 40 |
| Item 5.                   | Other Information |   | 40 |
| Item 6.                   | Exhibits |   | 41 |
| SIGNATURE                 |   | 42 |

 

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**PART I.**   FINANCIAL INFORMATION

**ITEM 1.**   FINANCIALSTATEMENTS

**GoRemote Internet Communications, Inc.Condensed ConsolidatedBalance Sheets(in thousands, except per share amounts)**
| ** **                                                                                                                                                                                                                                             | ** ** | **April 30,  2005** | ** ** | **October 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                             | ** ** | **(unaudited)**          | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                                                                                             |       |                     |       |                       |       |
| ***Current  assets:***                                                                                                                                                                                                                                 |       |                     |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                                                                             |       | $                        | 4,346      |                       | $          | 2,407 |   |
| Short-term investments                                                                                                                                                                                                                                 |       | 15,418                   |       | 15,614                     |       |
| Accounts receivable, net  of allowances of $214 and $211 at April 30, 2005 and October 31, 2004,  respectively                                                                                                                     |       | 5,881                    |       | 7,243                      |       |
| Inventory                                                                                                                                                                                                                                              |       | 104                      |       | 119                        |       |
| Deferred installation  costs                                                                                                                                                                                                                           |       | 2,260                    |       | 1,425                      |       |
| Prepaid expenses and  other current assets                                                                                                                                                                                                             |       | 914                      |       | 725                        |       |
| Total current assets                                                                                                                                                                                                                                   |       | 28,923                   |       | 27,533                     |       |
| Property and equipment,  net                                                                                                                                                                                                                           |       | 1,709                    |       | 1,694                      |       |
| Goodwill                                                                                                                                                                                                                                               |       | 21,612                   |       | 21,612                     |       |
| Intangible assets, net                                                                                                                                                                                                                                 |       | 3,394                    |       | 3,876                      |       |
| Deferred installation  costs, less current portion                                                                                                                                                                                                     |       | 935                      |       | 740                        |       |
| Other assets                                                                                                                                                                                                                                           |       | 365                      |       | 442                        |       |
| Total assets                                                                                                                                                                                                                                           |       | $                        | 56,938     |                       | $          | 55,897 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                         |       |                     |       |                       |       |
| ***Current  liabilities:***                                                                                                                                                                                                                            |       |                     |       |                       |       |
| Accounts payable                                                                                                                                                                                                                                       |       | $                        | 6,025      |                       | $          | 6,571 |   |
| Restructuring accrual                                                                                                                                                                                                                                  |       | 172                      |       | 434                        |       |
| Accrued compensation and  benefits                                                                                                                                                                                                                     |       | 1,306                    |       | 1,061                      |       |
| Current portion of  deferred revenue                                                                                                                                                                                                                   |       | 4,578                    |       | 2,741                      |       |
| Other current  liabilities                                                                                                                                                                                                                             |       | 1,536                    |       | 1,407                      |       |
| Total current  liabilities                                                                                                                                                                                                                             |       | 13,617                   |       | 12,214                     |       |
| Deferred revenue, less  current portion                                                                                                                                                                                                                |       | 1,393                    |       | 1,305                      |       |
| Restructuring accrual,  less current portion                                                                                                                                                                                                           |       | 327                      |       | 416                        |       |
| Total liabilities                                                                                                                                                                                                                                      |       | 15,337                   |       | 13,935                     |       |
| Stockholders’ equity:                                                                                                                                                                                                                             |       |                     |       |                       |       |
| Series A redeemable  convertible preferred stock, $0.001 par value:  12,801 shares authorized at April 30, 2005 and October 31, 2004:  no shares issued and outstanding                                                  |       | —                   |       | —                     |       |
| Preferred stock, 5,000  shares authorized at April 30, 2005 and October 31, 2004: no shares  issued and outstanding                                                                                                                |       | —                   |       | —                     |       |
| Common stock, $0.001 par  value; 100,000 shares authorized at April 30, 2005 and October 31, 2004:  41,629 and 41,159 shares issued and outstanding at April 30, 2005  and October 31, 2004, respectively |       | 42                       |       | 41                         |       |
| Additional paid-in  capital                                                                                                                                                                                                                            |       | 213,768                  |       | 213,244                    |       |
| Deferred stock-based  compensation                                                                                                                                                                                                                     |       | (76                      | )          | (201                       | )          |
| Accumulated deficit                                                                                                                                                                                                                                    |       | (172,133                 | )          | (171,122                   | )          |
| Total stockholders’  equity                                                                                                                                                                                                                       |       | 41,601                   |       | 41,962                     |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                        |       | $                        | 56,938     |                       | $          | 55,897 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements

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**GoRemote InternetCommunications, Inc.Condensed Consolidated Statements of Operations(in thousands, except per share amounts)(unaudited)**
| ** **                                                   | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                         | ** ** | **2004**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                     |       | $                                                | 12,030     |                                           | $          | 12,882 |   | $ | 24,006 |   | $ | 24,800 |   |
| Costs and expenses:                                          |       |                                             |       |                                           |       |   |   |   |   |
| Cost of revenues                                             |       | 4,614                                            |       | 5,310                                          |       | 9,626 |   | 10,019 |   |
| Network and operations                                       |       | 2,290                                            |       | 2,316                                          |       | 4,449 |   | 4,027 |   |
| Research and development                                     |       | 515                                              |       | 1,193                                          |       | 1,098 |   | 2,061 |   |
| Sales and marketing                                          |       | 3,058                                            |       | 4,734                                          |       | 6,167 |   | 9,492 |   |
| General and administrative                                   |       | 1,484                                            |       | 1,648                                          |       | 3,079 |   | 3,009 |   |
| Amortization of intangible assets                            |       | 238                                              |       | 400                                            |       | 482 |   | 666 |   |
| Amortization of stock-based compensation(1)                  |       | 27                                               |       | 89                                             |       | 84 |   | 149 |   |
| Restructuring charge                                         |       | —                                           |       | 60                                             |       |   |   |   |   |
| Total costs and expenses                                     |       | 12,226                                           |       | 15,690                                         |       | 25,045 |   | 29,423 |   |
| Operating loss                                               |       | (196                                             | )          | (2,808                                         | )          | (1,039 | ) | (4,623 | ) |
| Interest income  and other, net                              |       | 23                                               |       | 57                                             |       | 78 |   | 51 |   |
| Loss before  income taxes                                    |       | (173                                             | )          | (2,751                                         | )          | (961 | ) | (4,572 | ) |
| Provision for  income taxes                                  |       | 19                                               |       | 34                                             |       | 50 |   | 56 |   |
| Net loss                                                     |       | $                                                | (192       | )                                              | $          | (2,785 | ) | $ | (1,011 | ) | $ | (4,628 | ) |
| Basic and diluted  net loss per share                        |       | $                                                | (0.00      | )                                              | $          | (0.07 | ) | $ | (0.02 | ) | $ | (0.12 | ) |
| Shares used to  compute basic and diluted net loss per share |       | 41,609                                           |       | 40,285                                         |       | 41,465 |   | 37,380 |   |

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(1)          Amortizationof stock-based compensation consists of:
| Network and  operations                         |   | $ | 14     |   | $      | 26 |   | $  | 35     |   | $ | 43  |   |
|-------------------------------------------------|--------|---|--------|--------|--------|----|--------|----|--------|--------|---|-----|--------|
| Research and  development                       |   | 2 |   | 19     |   | 6  |   | 32 |   |
| Sales and  marketing                            |   | 8 |   | 36     |   | 34 |   | 61 |   |
| General and  administrative                     |   | 3 |   | 8      |   | 9  |   | 13 |   |
| Total  amortization of stock-based compensation |   | $ | 27     |   | $      | 89 |   | $  | 84     |   | $ | 149 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements

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**GoRemote InternetCommunications, Inc.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited)**
| ** **                                                                            | ** ** | **Six Months Ended  April 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| ***Cash  flows from operating activities:***                                          |       |                                           |       |   |   |
| Net loss                                                                              |       | $                                              | (1,011     | ) | $ | (4,628 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:          |       |                                           |       |   |   |
| Depreciation and amortization of property and  equipment                              |       | 593                                            |       | 751 |   |
| Amortization of stock-based compensation                                              |       | 84                                             |       | 149 |   |
| Amortization of intangibles                                                           |       | 482                                            |       | 666 |   |
| Provision for accounts receivable allowances                                          |       | 22                                             |       | — |   |
| Non-cash portion of restructuring charge (benefit)                                    |       | (21                                            | )          | — |   |
| Net changes in  assets and liabilities:                                               |       |                                           |       |   |   |
| Accounts receivable                                                                   |       | 1,340                                          |       | (464 | ) |
| Inventories                                                                           |       | 15                                             |       | (38 | ) |
| Prepaid expenses and other current assets                                             |       | (1,024                                         | )          | 81 |   |
| Other assets                                                                          |       | (118                                           | )          | (553 | ) |
| Accounts payable                                                                      |       | (876                                           | )          | 112 |   |
| Accrued compensation and benefits                                                     |       | 245                                            |       | (518 | ) |
| Deferred revenue                                                                      |       | 1,925                                          |       | 1,639 |   |
| Other current liabilities                                                             |       | 129                                            |       | (190 | ) |
| Net cash provided by (used in) operating activities                                   |       | 1,785                                          |       | (2,993 | ) |
| ***Cash  flows from investing activities:***                                          |       |                                           |       |   |   |
| Available-for-sale  investments:                                                      |       |                                           |       |   |   |
| Purchases                                                                             |       | (3,798                                         | )          | (3,194 | ) |
| Sales and maturities                                                                  |       | 3,994                                          |       | 5,598 |   |
| Cash provided by  business combination, net                                           |       | —                                         |       | 1,412 |   |
| Capital  expenditures                                                                 |       | (608                                           | )          | (653 | ) |
| Net cash provided by (used in) investing activities                                   |       | (412                                           | )          | 3,163 |   |
| ***Cash  flows from financing activities:***                                          |       |                                           |       |   |   |
| Proceeds from  sales of common stock, net                                             |       | 566                                            |       | 1,201 |   |
| Net cash provided by financing activities                                             |       | 566                                            |       | 1,201 |   |
| Net increase in cash and cash equivalents                                             |       | 1,939                                          |       | 1,371 |   |
| Cash and cash  equivalents at beginning of the period                                 |       | 2,407                                          |       | 3,560 |   |
| Cash and cash  equivalents at end of the period                                       |       | $                                              | 4,346      |   | $ | 4,931 |   |
| ***Supplemental  disclosures of cash flow information:***                             |       |                                           |       |   |   |
| Income taxes paid                                                                     |       | $                                              | 132        |   | $ | 36 |   |
| ***Supplemental  disclosures of noncash financing activities:***                      |       |                                           |       |   |   |
| Conversion of  Series A redeemable convertible preferred stock into common stock |       | $                                              | —     |   | $ | 1,326 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements

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**GoRemote InternetCommunications, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)**

**1.**   Basisof Presentation

The financial information at April 30, 2005 andfor the three and six months ended April 30, 2005 and 2004 is unaudited,but includes all adjustments that GoRemote Internet Communications, Inc.(the “Company”) considers necessary for a fair presentation of the financialinformation set forth herein, in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, the financial information set forth hereindoes not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for annual financialstatements. The results for the three and six months ended April 30, 2005are not necessarily indicative of the results that may be expected for futureperiods.

The balance sheet at October 31, 2004 has beenderived from the audited financial statements at that date, but does notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.

The following informationshould be read in conjunction with the consolidated financial statements andnotes thereto included in the Company’s Annual Report on Form 10-KT forthe ten months ended October 31, 2004.

**2.**   Summaryof Significant Accounting Policies

*Basis of Presentation.  *Thecondensed consolidated financial statements include all the accounts ofGoRemote and its wholly owned subsidiaries. All significant intercompanybalances and transactions have been eliminated. The condensed consolidatedfinancial statements have been prepared in conformity with accountingprinciples generally accepted in the United States.

*Use of Estimates.  *Thepreparation of the condensed consolidated financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. The Company’s broadbandservice providers do not deliver actual accounting information to the Companyon a timely basis at month-end. Due to this delay, which is outside the Company’scontrol, the Company estimates its revenue and cost of sales related tobroadband services on a monthly basis, and adjusts them to actual in thesubsequent month after receiving information from its service providers.Historically, these adjustments have been immaterial. In addition, the Companymade estimates as to its accounts receivable allowance and reserves, therecoverability of a prepaid asset, potential liability derived from certain taxobligations and restructuring expenses. Actual results could differ from thoseestimates.

*Foreign Currency Remeasurement.  *TheCompany considers the functional currency of its foreign subsidiaries to be theU.S. dollar. Adjustments resulting from the process of remeasurement into U.S.dollars of the foreign currency financial statements of the Company’s foreignsubsidiaries are included in operations and have not been material.

*Cash Equivalents.  *Cashequivalents consist of certificates of deposits, money market funds andcommercial paper with maturities of 90 days or less at the date ofpurchase. Cash and cash equivalents are carried at cost that approximatesmarket value.

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*Short-term Investments.  *TheCompany’s policy is to invest in various short-term instruments with investmentgrade credit ratings and ready markets. All of the Company’s investments areclassified as available-for-sale, and the Company views its available-for-saleportfolio as available for use in its current operations. Even though some ofour investments have maturities greater than one year they are consideredshort-term because they have interest features that are similar to short-terminvestments and therefore they are classified as available-for-sale inaccordance with Statement of Financial Accounting Standards No. 115, *“Accounting for Certain Investments in Debt andEquity Securities”* (“SFAS No. 115”).

The cost of securities sold is based on the specificidentification method. Any realized gains or losses and declines in value,judged to be other-than-temporary, are included in interest income and other.The Company includes unrealized gains or losses in comprehensive income instockholders’ equity, if material.

*Concentration of Credit Risk.  *Financialinstruments that potentially subject the Company to concentrations of creditrisk consist principally of cash equivalents, short-term investments andaccounts receivable. The Company maintains its cash and cash equivalents andshort-term investments principally in domestic financial institutions of highcredit standing. The Company is exposed to credit risks in the event of defaultby these institutions to the extent of the amount recorded on the balancesheet. The credit risk in the Company’s accounts receivable is mitigated by theCompany’s credit evaluation process for both domestic and foreign customers.The Company generally does not require collateral and maintains adequatereserves for potential credit losses. Cash equivalents and short-terminvestments are recorded at fair value. The carrying value of accountsreceivable approximates fair value due to the short-term nature of thisinstrument.

*Inventories.  *Inventoriesconsist of finished goods and are stated at the lower of cost or market, costbeing determined using the first-in, first-out method.

*Property and Equipment.  *Propertyand equipment are stated at cost, net of accumulated depreciation andamortization. Depreciation and amortization are provided on a straight-linebasis over the estimated useful lives of the respective assets. The usefullives used by the Company are 36 months for furniture and fixtures, 24 to42 months for computer equipment and software and the shorter of theuseful life or the remaining lease term for leasehold improvements,respectively.

*Goodwill.  *Goodwillrepresents the excess of the purchase price of an acquired enterprise or assetsover the fair value of the identifiable assets acquired and liabilitiesassumed. The Company does not amortize goodwill, but tests for impairment ofgoodwill on an annual basis in the third fiscal quarter and at any other timeif events occur or circumstances indicate that the carrying amount of goodwillmay not be recoverable. During fiscal year 2005, the third quarter will end July 31,2005 and will be the date we test again for impairment.

*Impairment of Goodwill.  *Circumstancesthat could trigger an impairment test include, but are not limited to, asignificant adverse change in the business climate or legal factors, an adverseaction or assessment by a regulator, unanticipated competition or loss of keypersonnel. In addition, the Company assesses goodwill for recoverability if itsmarket capitalization is less than the recorded value of its net assets. If thecarrying amount of the goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recorded in net earnings (loss). The Companyhas determined that its service offerings have similar economic characteristicsand as a result the Company treats its single operating segment as its solereporting unit in testing for the impairment of goodwill.

*PurchasedIntangible Assets.  *Purchased intangible assets consistof customer relationships, internal use software and other purchasedintangibles such as domain names. Intangible assets are amortized on astraight-line basis over the estimated useful lives ranging from one tofive years.

*Impairmentof Long-Lived Assets and Intangible Assets.  *The Companyevaluates the carrying amount of its long-lived assets, including purchasedintangible assets, when events or changes in business 

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circumstances have occurred,which indicate the carrying amount of such assets may not be fully realizable.Determination of impairment is based on an estimate of undiscounted future cashflows resulting from the use of the assets and their eventual disposition. Ifthe Company determines that any of these assets have been impaired, theimpairment charge is recorded based on a comparison of the net book value ofthe assets and the fair value. The fair value of the assets is determined byeither discounted future cash flows resulting from the use of the assets overtheir average remaining useful lives or specific appraisal.

*Revenue Recognition and RelatedAllowances.  *The Company derives revenues primarily fromproviding remote Internet access services to customers through its virtual networkand by providing monthly security and support services and monthly connectivityservices to broadband Internet remote access customers. The Company’sarrangements with its customers typically have multiple deliverables. Thesedeliverables may include software, installation services, customer premisesequipment, connectivity services, and maintenance and support services.

The Company recognizes revenues when persuasiveevidence of an arrangement exists, service has been provided to the customer,the price to the customer is fixed or determinable, and collectibility isprobable. Mobile remote Internet access services are generally billed on aper-minute basis for usage or at a flat rate per month per user based onnegotiated rates. Usage fees are recognized in the period the services arerendered to end users, and monthly fees are recognized ratably based on thenumber of days that have elapsed. The Company has minimum commitmentarrangements with some customers. These customers are not contractually entitledto use or otherwise receive benefit for unused service in subsequent periods.Minimum commitment fees are recognized as revenue in the month it has beendetermined that the minimum commitments have not been achieved, assuming allother criteria for revenue recognition have been met.

The Company’s solutions sometimes include installationservices, the sale of customer premise equipment and managed security servicesrelated to its broadband services offerings. Depending on the service providedand the nature of the arrangement, the Company may charge a one-time, annual ormonthly fee for these additional services or deliverables. Revenue frominstallation services and the sale of equipment is deferred and recognizedratably over the period of expected usage by its customers since the Companyconsiders these services and products to be an enabler of the related managedremote access service contracts. The Company’s estimate of expected usage is24 months for all periods presented. On a quarterly basis, the Companyreviews this estimate of expected usage based on actual data. Revenues frommanaged security services are recognized in the month the service is provided.To a lesser extent, the Company also derives a portion of its revenues fromlicenses of its authentication software, related maintenance and supportservices, and other optional services related to its remote access solutionsall of which are recognized ratably over the term of service. These otherrevenues amounted to five percent or less of total revenues over the last threeyears. Fees generated from maintenance contracts are recognized over the lifeof those contracts. The majority of the maintenance contracts cover periods ofone to twelve months. Amounts billed in advance of revenue recognition arerecorded to deferred revenue as collected. The Company recognizes certainbroadband connectivity revenues generated under agency arrangements on a netbasis. Product returns and allowances have not been significant.

The Company provides services over a heterogeneousvirtual network, which was created by forming contractual relationships withapproximately 500 Internet service providers, cable companies, DSL companiesand telecommunications companies. These companies may provide their services undereither a reseller or an agency arrangement. In applying its revenue recognitionpolicy, the Company must make judgments and estimates with regard to thespecific facts and circumstances surrounding each provider relationship todetermine which portion of its revenues the Company provides under a resellerarrangement, where the Company would record gross revenues and cost ofrevenues, and which portion of its revenues the Company provides as an agent,where the Company would record revenues and cost of revenues combined on a netbasis. The Company bases its estimates on historical experience and on 

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various other assumptionsbelieved to be applicable and reasonable under the circumstances. Theseestimates may change as new events occur, as additional information is obtainedand as its operating environment changes, any of which could cause a materialimpact on the revenues that the Company has reported.

The Company records estimated allowances againstrevenues for returns, disputes and cancellations in the same period therevenues are recorded. These estimates are based upon historical analysis ofthe Company’s service level agreements, credit memo data and other knownfactors for pricing and transaction volume disputes that arise in the normalcourse of business. To date, allowances pertaining to the Company’s currentbusiness have not been significant. If the historical data the Company uses tocalculate these estimates does not accurately reflect amounts associated withfuture disputes, its actual revenues could be higher or lower than what theCompany has recognized.

*Cost of Revenues.  *Costof revenues represents the amounts paid to Internet service providers, cablecompanies, DSL companies and telecommunications companies for the use of theirnetworks, and amounts paid to other third party providers of products orservices that the Company includes in its solutions. The Company has enteredinto minimum purchase commitments with some network service providers foraccess that the Company expects to utilize during the term of the contracts.Costs of minimum purchase contracts are recognized as network access expensesat the greater of the minimum commitment or actual usage. If the Companyestimates that the revenues derived from the purchase commitment will be lessthan the purchase commitment, the Company recognizes a loss on that purchasecommitment to the extent of that difference. No such loss has been recognizedto date.

*Allowance for Doubtful Accounts.  *TheCompany maintains allowances for doubtful accounts for estimated losses fromits customers’ inability to make payments they owe. In order to estimate theappropriate level of this allowance, the Company analyzes historical bad debts,customer concentrations, current customer credit-worthiness, currenteconomic trends and changes in its customer payment patterns. If the financialcondition of its customers were to deteriorate and to impair their ability tomake payments to the Company, additional allowances might be required in futureperiods. If the Company determines that collectibility is not probable, revenueis recognized as cash is collected. If the Company’s estimates prove too low,its bad debt expense will increase.

*Research and Development.  *TheCompany’s research and development costs, which principally have related todevelopment of internal use software that is also marketed to the Company’scustomers, are expensed as incurred until technological feasibility has beenestablished. To date, the software developed by the Company has generally beenavailable for general release concurrent with the establishment oftechnological feasibility and, accordingly, no software development costs havebeen capitalized.

*Stock-based Compensation.  *Aspermitted under the provisions of Statement of Financial Accounting Standards No. 123,*“Accounting for Stock-BasedCompensation”* (“SFAS No. 123”), the Company accounts foremployee stock-based compensation in accordance with AccountingPrinciples Board Opinion No. 25, *“Accountingfor Stock Issued to Employees”* (“APB No. 25”), using anintrinsic value approach to measure compensation expense, if any. Under APB No. 25,the Company generally recognizes no compensation expense with respect to suchawards. Appropriate disclosures using a fair-value based method, as provided bySFAS No. 123, are also reflected herein. Options issued to non-employeesare accounted for in accordance with SFAS 123 using a fair-value approach.

Pro forma information regarding net income andearnings per share is required by SFAS No. 123 and has been determined asif the Company had accounted for awards to employees under the fair-valuemethod of SFAS No. 123. The fair value of stock options under the Company’sstock option plan and stock purchase plan rights under the Company’s stockpurchase plan was estimated as of the grant date using the Black-Scholesoption-pricing model.

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The fair value of stockoptions granted during the three and six months ended April 30, 2005 and2004, respectively, were estimated at the date of grant assuming no expecteddividends and the following weighted average assumptions.

*Stock Options*
| ** **                       | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                       | ** ** | **2005**                                         | ** ** | **2004**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Expected life  (years)           |       |                                             | 2.32       |                                           |       |   | 2.93 |   |   |   | 2.55 |   |   |   | 2.80 |   |   |
| Expected stock  price volatility |       |                                             | 256        | %                                              |       |   | 384 | % |   |   | 256 | % |   |   | 384 | % |   |
| Risk-free interest rate          |       |                                             | 3.17       | %                                              |       |   | 1.17 | % |   |   | 2.69 | % |   |   | 1.11 | % |   |

 

*Stock Purchase*
| ** **                       | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                       | ** ** | **2005**                                         | ** ** | **2004**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Expected life  (years)           |       |                                             | 0.49       |                                           |       |   | 0.50 |   |   |   | 0.50 |   |   |   | 0.50 |   |   |
| Expected stock  price volatility |       |                                             | 193        | %                                              |       |   | 544 | % |   |   | 229 | % |   |   | 436 | % |   |
| Risk-free interest rate          |       |                                             | 2.90       | %                                              |       |   | 0.98 | % |   |   | 2.98 | % |   |   | 1.11 | % |   |

 

For purposes of pro forma disclosure only, theestimated fair value of stock-based awards is amortized against pro forma netincome over the stock-based awards’ vesting period for options and over theoffering period for stock purchases under the Company’s 1999 Employee StockPurchase Plan.

TheCompany’s pro forma information is as follows:
| ** **                                                           | ** ** | **Three Months Ended  April 30,**                  | ** ** | **Six Months Ended  April 30,**                    | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2005**                                                          | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                           | ** ** | **(in thousands, except  per share amounts)** | ** ** | **(in thousands, except  per share amounts)** | ** ** |
| Net loss  attributable to common stockholders as reported            |       | $                                                                 | (192       | )                                                                 | $          | (2,785 | ) | $ | (1,011 | ) | $ | (4,628 | ) |
| Add: Amortization of stock compensation measured  under APB 25       |       | 27                                                                |       | 89                                                                |       | 84 |   | 149 |   |
| Less: Stock-based compensation expense measured under  SFAS 123 |       | (889                                                              | )          | (1,368                                                            | )          | (1,720 | ) | (3,121 | ) |
| Pro forma net loss                                                   |       | $                                                                 | (1,054     | )                                                                 | $          | (4,064 | ) | $ | (2,647 | ) | $ | (7,600 | ) |
| Basic and diluted net loss per share                                 |       | $                                                                 | (0.00      | )                                                                 | $          | (0.07 | ) | $ | (0.02 | ) | $ | (0.12 | ) |
| Pro forma basic and  diluted net loss per share                      |       | $                                                                 | (0.03      | )                                                                 | (0.10      | ) | $ | (0.06 | ) | $ | (0.20 | ) |

 

Calculated under SFAS No. 123, the weighted-averagefair value of the employee stock options granted during the three months ended April 30,2005 and 2004 was $1.50 and $3.70 per share, respectively, and during the sixmonths ended April 30, 2005 and 2004, was $1.52 and $5.08, respectively.The weighted-average estimated fair value of shares purchased under thePurchase Plan during the three months ended April 30, 2005 and 2004 was$1.08 and $5.82 per share, respectively, and during the six months ended April 30,2005 and 2004, was $1.05 and $5.52, respectively.

In December 2004, the FASB issued a revision ofSFAS No. 123R (“SFAS 123 Revised”). The Company will adopt the provisionsof SFAS 123 Revised effective as of the beginning of its next fiscal year,which will commence on November 1, 2005. The Company has not completed itsevaluation of the impact 

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of adoption ofSFAS 123 Revised on the Company’s consolidated financial position orresults of operations. The Company expects to complete its evaluation duringthe fourth quarter of fiscal year 2005.

*Income Taxes.  *TheCompany accounts for income taxes under the provisions of Statement ofFinancial Accounting Standards No. 109, *“Accountingfor Income Taxes”* (“SFAS No. 109”), which provides for theestablishment of deferred tax assets and liabilities based on the differencebetween the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes.

*Net LossPer Share.  *Net loss per common share and diluted netloss per share are presented in conformity with the Financial AccountingStandards Board’s Statement of Financial Accounting Standards No. 128, *“Earnings Per Share”* (“SFAS No. 128”)for all years presented. In accordance with SFAS No. 128, basic anddiluted net loss per share has been computed using the weighted-averagenumber of shares of common stock outstanding during the period. Weighted-averageoptions outstanding to purchase approximately 8.5 million and 7.7 millionshares of common stock for the three months ended April 30, 2005 and 2004,respectively, and approximately 8.7 and 7.4 million shares of common stock forthe six months ended April 30, 2005 and 2004, respectively, were notincluded in the computation of diluted net loss per share because the effectwould be antidilutive. The increase in weighted-average optionsoutstanding in the three and six months ended April 30, 2005,respectively, compared to the same periods in 2004, respectively, was primarilydue to grants of new options to the Company’s employees. Such securities, hadthey been dilutive, would have been included in the computation of diluted netloss per share using the treasury stock method.

**3.**   Changein Fiscal Year End

In October 2004, theCompany changed its fiscal year end from December 31 to October 31. Theconsolidated financial information for 2005 presented in this Form 10-Qis for the three and six month periods ended April 30, 2005. The 2004financial results presented in this Form 10-Q are for the three andsix month periods ended April 30, 2004.

**4.**   BusinessCombination

On December 1, 2003, the Company completed itsacquisition of Axcelerant, a privately held provider of broadband Internetremote access services and managed security services. The Company’s acquisitionof Axcelerant did not result in a new reportable segment. The results ofoperations of Axcelerant have been included in the Company’s financialstatements subsequent to the date of the acquisition.

A total of approximately 1.5 million shares ofthe total consideration that was to be delivered to Axcelerant’s stockholdersas a result of the acquisition was set aside as an escrow fund, serving ascollateral for the indemnification obligations of Axcelerant stockholders. TheCompany made no claims against the escrow fund through December 1, 2004,the expiration date for the escrow period. The escrowed shares were released tothe former Axcelerant shareholders during December 2004.

*Deferred Stock Compensation.  *Theintrinsic value of unvested stock options assumed in the Axcelerant acquisitionin an amount of approximately $674,000 has been allocated to deferred stockcompensation and is being amortized to expense on a straight-line basis overthe vesting period. The Company assumed options from Axcelerant to purchase atotal of approximately 597,000 shares of the Company’s common stock, of whichapproximately 462,000 were fully vested. Options assumed in connection with theacquisition had exercise prices between $0.02 and $5.05 per share, with aweighted average exercise price of $1.32 per share and a weighted averageremaining vesting period of approximately 2.5 years as of the acquisitiondate. As of April 30, 2005, the Company had an aggregate of $76,000 of deferredcompensation related to the acquisition of Axcelerant remaining to beamortized.

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**5.**   Property and Equipment and IntangibleAssets

*Property andEquipment*

Propertyand equipment comprised the following (in thousands):
| ** **                                      | ** ** | **   April 30,   ** | ** ** | **  October 31,  ** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                               | ** ** | **2004**                                     | ** ** |
| Computer hardware                               |       |                                                   | $          | 6,569                                        |       |   |   | $ | 6,319 |   |   |
| Software                                        |       |                                                   | 4,829      |                                         |       |   | 4,495 |   |   |
| Office furniture  and equipment                 |       |                                                   | 1,531      |                                         |       |   | 1,506 |   |   |
| Leasehold  improvements                         |       |                                                   | 422        |                                         |       |   | 422 |   |   |
|                                            |       |                                                   | 13,351     |                                         |       |   | 12,742 |   |   |
| Less accumulated  depreciation and amortization |       |                                                   | (11,642    | )                                            |       |   | (11,048 | ) |   |
| Total                                           |       |                                                   | $          | 1,709                                        |       |   |   | $ | 1,694 |   |   |

 

*PurchasedIntangible Assets*

Purchased intangible assets are carried at cost lessaccumulated amortization. Amortization of purchased intangible assets iscomputed using the straight-line method over their expected useful lives offive years for customer relationships and Website URLs and one year forinternal use software.

Purchasedintangible assets consisted of the following (in thousands):
| ** **                     | ** ** | **April 30,** | ** ** |
|--------------------------------|------------|--------------------|------------|
| ** **                     | ** ** | **2005**           | ** ** |
| Customer  relationships        |       | $                  | 5,150      |   |
| Internal use  software         |       | 100                |       |
| Website URL                    |       | 50                 |       |
|                           |       | 5,300              |       |
| Less accumulated  amortization |       | (1,906             | )          |
| Total                          |       | $                  | 3,394      |   |

 

Theaggregate estimated remaining amortization expense from May 1, 2005through October 31, 2009, based on fiscal years ending October 31, isas follows (in thousands): 
| ** ** | ** ** | **Amortization** | ** ** |
|------------|------------|------------------|------------|
| 2005       |       |             | 473        |   |   |
| 2006       |       |             | 946        |   |   |
| 2007       |       |             | 946        |   |   |
| 2008       |       |             | 946        |   |   |
| 2009       |       |             | 83         |   |   |
|       |       |             | $          | 3,394 |   |   |
|            |            |                  |            |  |  |  |

 

*Other IntangibleAssets*

The Company entered intoan agreement with a wireless service provider during 2001 for the exchange ofservices, which resulted in a prepayment for future wireless services and the obligationby the Company to provide future Internet roaming services. As of April 30,2005, $46,000 of the asset remained to be utilized, an amount that the Companybelieves will be utilized over the period of the agreement.

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**6.**   Commitmentsand Contingencies

*Commitments.  *TheCompany leases all of its facilities under operating leases that expire atvarious dates through 2008. It has entered into certain purchase commitmentsfrom suppliers who provide network access, software and related services thatare utilized by us in order to deliver its products and services.

During 2005, the Company expects  to continue automating and updating backoffice processes and procedures that are required for it to efficiently run itsbusiness, however, the Company believes that its capital equipment expendituresin absolute dollars will be relatively flat as compared to 2004. The Companyexpects to continue to provide customer premises equipment to customers for afee, as part of its solution offerings.

Thefuture minimum operating lease and purchase commitments were as follows at April 30,2005, based on fiscal years ending October 31 (in thousands):
| ** ** | ** ** | **Operating  Leases** | ** ** | **Purchase  Commitments** | ** ** |
|------------|------------|-----------------------|------------|---------------------------|------------|
| 2005       |       |                  | $          | 766                       |       |   |   | $ | 737 |   |   |
| 2006       |       |                  | 1,389      |                      |       |   | 1,073 |   |   |
| 2007       |       |                  | 817        |                      |       |   | 149 |   |   |
| 2008       |       |                  | 181        |                      |       |   | — |   |   |
| Thereafter |       |                  | —     |                      |       |   | — |   |   |
|       |       |                  | $          | 3,153                     |       |   |   | $ | 1,959 |   |   |

 

*Legal Matters.  *TheCompany is subject to various legal proceedings and claims arising in theordinary course of business. The Company’s management does not expect that theresults in any of these legal proceedings will have a material adverse effecton its financial condition, results of operations, or cash flows.

In July and August 2001, the Company andcertain of its officers were named as defendants in five purported securitiesclass action lawsuits filed in the United States District Court, SouthernDistrict of New York, captioned as In re GoRemote Internet Communications, Inc.Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), andconsolidated with more than three hundred substantially identical proceedingsas In re Initial Public Offering Securities Litigation, Master File No. 21MC 92 (SAS). The Consolidated Amended Class Action Complaint for Violationof the Federal Securities Laws (“Consolidated Complaint”) was filed on or aboutApril 19, 2002, and alleges claims against certain of the Company’sofficers and against CIBC World Markets Corp., Prudential SecuritiesIncorporated, DB Alex. Brown, as successor to Deutsche Bank, and U.S. BancorpPiper Jaffray Inc., underwriters of the Company’s December 14, 1999initial public offering (“underwriter defendants”), under Sections 11 and15 of the Securities Act of 1933, as amended, and under Section 10(b) and20(a) of the Securities Exchange Act of 1934, as amended.

Citing several press articles, the ConsolidatedComplaint alleges that the underwriter defendants used improper methods inallocating shares in initial public offerings, and claim the underwriterdefendants entered into improper commission agreements regarding aftermarkettrading in the Company’s common stock purportedly issued pursuant to the registrationstatement for the initial public offering. The Consolidated Complaint alsoalleges market manipulation claims against the underwriter defendants based onthe activities of their respective analysts, who were allegedly compromised byconflicts of interest. The plaintiffs in the Consolidated Complaint seekdamages as measured under Section 11 and Section 10(b) of theSecurities Act of 1933, pre-judgment and post-judgment interest, and reasonableattorneys’ and expert witnesses’ fees and other costs; no specific amount isclaimed in the plaintiffs’ prayer in the Consolidated Complaint. By Order ofthe Court, no responsive pleading is yet due, although motions to dismiss onglobal issues affecting all of the issuers have been filed.

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In October 2002, certain of the Company’sofficers and directors who had been named as defendants in the In re InitialPublic Offering Securities Litigation were dismissed without prejudice uponorder of the presiding judge. In February 2003, the presiding judgedismissed the Section 10(b) claims against the Company and its namedofficers and directors with prejudice.

From September 2002 through June 2003, theCompany participated in settlement negotiations with a committee of issuers’litigation counsel, plaintiffs’ executive committee and representatives ofvarious insurance companies (the “Insurers”). The Company’s Insurers wereactively involved in the settlement negotiations, and strongly supported asettlement proposal presented to the Company for consideration in early June 2003.The settlement proposed by the plaintiffs would be paid for by the Insurers andwould dispose of all remaining claims against the Company.

After careful consideration, the Company decided toapprove the settlement proposal in July 2003. Although the Companybelieves that plaintiffs’ claims are without merit, it has decided to acceptthe settlement proposal (which does not admit wrongdoing) to avoid the cost anddistraction of continued litigation. Because the settlement will be fundedentirely by its Insurers, the Company does not believe that the settlement willhave any effect on the Company’s financial condition, results of operations orcash flows.

The settlement waspresented to the Court for approval in June 2004. The Court preliminarily approvedmost of the settlement in February 2005, but requested a few minormodifications be made to its terms. The parties are currently negotiating thesemodifications and intend to present the revised settlement agreement to theCourt shortly. While the Court is expected to finally approve or disapprove thesettlement in the coming months, there can be no guarantee that the settlementwill be judicially approved.

**7.**   RestructuringEvents

In August 2004, the Company undertook a strategicrestructuring to reduce its operating expense structure by streamliningoperations. The activity related to the restructuring is accounted for underthe provisions of Statement of Financial Accounting Standards No. 146, *“Accounting for Costs Associated with Exit orDisposal Activities”* (“SFAS 146”).

Theprovision and associated charges against the provision for the August 2004restructuring through April 30, 2005 are as follows:
| ** **                                                       | ** ** | **Employee  Severance Costs** | ** ** | **Lease  Facilities  and Other  Obligations** | ** ** | **Retirement of  Fixed Assets** | ** ** | **Valuation of  Modified  Stock Options** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|-----------|------------|
| ** **                                                       | ** ** | **(in thousands)**            | ** ** |
| Provision  recorded in the quarter ended September 30, 2004 |       |                               | $          | 1,492                                              |       |                                      |       | $                                                   | 650        |      |       |   | $ | 273 |   |   |   | $ | 53 |   |   | $ | 2,468 |   |
| Non-cash charges                                                 |       |                               | —     |                                               |       |                                      | 15         |                                                |       |      | (273       | ) |   |   | (53 | ) |   | (311 | ) |
| Cash payments                                                    |       |                               | (1,268     | )                                                  |       |                                      | (39        | )                                                   |       |      | —     |   |   |   | — |   |   | (1,307 | ) |
| Accruals at  October 31, 2004                               |       |                               | 224        |                                               |       |                                      | 626        |                                                |       |      | —     |   |   |   | — |   |   | 850 |   |
| Provision  recorded in the quarter ended January 31, 2005   |       |                               | 69         |                                               |       |                                      | (9         | )                                                   |       |      | —     |   |   |   | — |   |   | 60 |   |
| Non-cash charges  (recoveries)                                   |       |                               | —     |                                               |       |                                      | (16        | )                                                   |       |      | —     |   |   |   | — |   |   | (16 | ) |
| Cash payments                                                    |       |                               | (293       | )                                                  |       |                                      | (48        | )                                                   |       |      | —     |   |   |   | — |   |   | (341 | ) |
| Accruals at  January 31, 2005                               |       |                               | —     |                                               |       |                                      | 553        |                                                |       |      | —     |   |   |   | — |   |   | 553 |   |
| Non-cash charges  (recoveries)                                   |       |                               | —     |                                               |       |                                      | —     |                                                |       |      | —     |   |   |   | — |   |   | — |   |
| Cash payments                                                    |       |                               | —     |                                               |       |                                      | (54        | )                                                   |       |      | —     |   |   |   | — |   |   | (54 | ) |
| Accruals at  April 30, 2005                                 |       |                               | $          | —                                             |       |                                      |       | $                                                   | 499        |      |       |   | $ | — |   |   |   | $ | — |   |   | $ | 499 |   |

 

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**8.**   SegmentInformation

The Company operates in one segment, providing securemanaged broadband and remote access services to corporate enterprises with mobile and remote workforces andto the Company’s service provider resellers and value-added resellers.

Thefollowing is a summary of revenue by geographical area for the periodspresented:
| ** **                                    | ** ** | **Three months ended  April 30,**                                                         | ** ** | **Six months ended  April 30,**                                               | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **        2005        ** | ** ** | **       2004       ** | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                                                                                  | ** ** | **(in thousands)**                                                                      | ** ** |
| Revenue by external  customers:               |       |                                                                                                     |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| United States, Canada and Latin America  |       |                                                                                                     | $          | 9,593                                                                                        |       |   |   | $ | 8,638 |   |   |   | $ | 18,776 |   |   |   | $ | 16,070 |   |   |
| Japan/Korea                                   |       |                                                                                                     | 824        |                                                                                         |       |   | 2,162 |   |   |   | 1,955 |   |   |   | 4,865 |   |   |
| Asia Pacific                                  |       |                                                                                                     | 708        |                                                                                         |       |   | 938 |   |   |   | 1,440 |   |   |   | 1,719 |   |   |
| Europe, Middle East and Africa                |       |                                                                                                     | 905        |                                                                                         |       |   | 1,144 |   |   |   | 1,835 |   |   |   | 2,146 |   |   |
|                                          |       |                                                                                                     | $          | 12,030                                                                                       |       |   |   | $ | 12,882 |   |   |   | $ | 24,006 |   |   |   | $ | 24,800 |   |   |

 

Thefollowing is a summary of long-lived assets by geographical area for theperiods presented:
| ** **         | ** ** | **April 30,  2005** | ** ** | **October 31,  2004** | ** ** |
|--------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **         | ** ** | **(in thousands)**  | ** ** |
| Long-lived assets: |       |                     |       |                       |       |   |   |
| United States      |       | $                        | 26,659     |                       |       | $ | 27,169 |   |   |
| Rest of World      |       | 102                      |       |                       | 67         |   |   |
|               |       | $                        | 26,761     |                       |       | $ | 27,236 |   |   |

 

Revenue by externalcustomer is based on the customer’s billing locations. Long-lived assets arethose assets used in each geographic location. For the six months ended April 30,2005, Fiberlink Communications Corporation accounted for approximately elevenpercent of the Company’s total consolidated revenues, however, for the threemonths then ended, no customer accounted for 10 percent or more of theserevenues.

**9.**   Stockholders’Equity

*Series A Convertible PreferredStock.  *During the three months ended April 30,2004, 1.0 million shares of Series A Preferred Stock were converted intocommon stock. No shares of Series A Preferred Stock were outstanding as ofApril 30, 2005 and 2004.

*Series A Preferred StockWarrants.  *No Series A Preferred Stock warrantswere exercised during the three and six months ended April 30, 2005 and2004, respectively. Warrants to purchase 1.5 million shares of Series APreferred Stock were outstanding at April 30, 2005.

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**ITEM2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*The followingdiscussion should be read in conjunction with the selected consolidatedfinancial information and the consolidated financial statements and notes appearingelsewhere in this Form 10-Q. The following discussion containsforward-looking statements, such as statements of expected revenues andexpenses that involve risks and uncertainties. We assume no obligation toupdate any such forward-looking statements. Our actual results coulddiffer materially from those anticipated in these forward-lookingstatements. Factors that could cause or contribute to such differences include,but are not limited to, those detailed from time to time in our filings withthe Securities and Exchange Commission and those discussed in this Form 10-Q,particularly in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations and under “Factors That May AffectFuture Results.”*

*In October 2004, we changed our fiscal year-endfrom December 31 to October 31. As a result, references in this Form 10-Qto the second quarter of 2005 are references to the three-month period ended April 30,2005 and references to the second quarter of 2004 are references to thethree-month period ended April 30, 2004. Unless expressly stated or thecontext otherwise requires, the terms “we”, “our”, “us”, “the Company” and “GoRemote”refer to GoRemote Internet Communications, Inc. and its subsidiaries as awhole.*

**Overview**

We provide managed remote Internet access services tocustomers through our virtual network and provide monthly security and supportservices and monthly connectivity services to broadband Internet remote accesscustomers. Our services enable enterprises to securely, reliably, andcost-effectively extend their corporate networks and applications to mobile andremote workers outside the corporate firewall. These workers include mobileprofessionals such as sales professionals, project managers and engineers; teleworkers,including call center agents; telecommuters; and employees in branch officesand retail settings. We provide comprehensive and integrated managed broadbandand global remote access services that include: intelligent client software;multiple network access types, including broadband, Wi-Fi, dial-up and generalpacket radio service (or GPRS); security capabilities that ensure securitypolicy compliance by remote workers; a real-time remote access managementconsole; end-to-end managed and value-added services including managed securityservices; and design, deployment, monitoring, and technical support. Ourproducts and services enable enterprises to reduce the cost, complexity andrisk of remote office networking, while maximizing the productivity of mobileand remote workers.

In December 2003, we acquired Axcelerant, Inc.,a privately held provider of broadband Internet remote access services andmanaged security services. In May 2004, we changed our corporate name fromGRIC Communications, Inc. to GoRemote Internet Communications, Inc.to reflect our current vision and service offerings. On August 12, 2004,we announced a restructuring of our global operations to reduce operatingexpense and streamline our operations.

The majority of our revenue comes from providingmanaged remote Internet access services to customers through our virtualnetwork and by providing monthly security and support services and monthlyconnectivity services to broadband Internet remote access customers. We provideservices over a heterogeneous virtual network known as the GoRemote GlobalNetwork. As of April 30, 2005, the GoRemote Global Network includedapproximately 28,000 Internet access—dial-up locations, over 21,000 publicwireless fidelity—or WiFi—hotspots and approximately 1,700 public broadbandaccess points in over 150 countries. Through the acquisition of Axcelerant, weadded a virtual broadband cable modem and DSL network that spans the UnitedStates and Canada. This network is an aggregation of the networks of more than150 broadband providers, including virtually all of the leading cablecompanies, incumbent local exchange carriers (or ILECs) and competitive localexchange carriers (or CLECs) in the United States. By utilizing this network,we are able to provide comprehensive coverage in the United States forenterprises requiring broadband branch office and broadband teleworkersolutions. We created the GoRemote Global 

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Network by formingcontractual relationships with approximately 500 access providers—Internet serviceproviders, cable companies, DSL companies and telecommunication companies.These providers, which we refer to as the GoRemote Global Network members, areable to share their communications networks. Our customers, who areenterprises, value added resellers (VARs) and service provider resellers,benefit from the resulting network delivering secure mobile Internet accesscost-effectively. Our member providers benefit from the GoRemote Global Networkbecause we manage this shared network and provide settlement services. We haveestablished common technical, service and payment standards to settle chargesthat our customers incur when their end users access the network facilities ofGoRemote Global Network members to conduct Internet-based communications. Weintend to continue developing our solutions offering to introduce new managedInternet-based remote communications services that may be adopted, deployed andmanaged on a global scale across the GoRemote Global Network.

We have incurred substantial losses since ourinception as a result of expenses associated with building the GoRemote GlobalNetwork and related network infrastructure, developing our software productsand marketing our solutions to our customers. We had an accumulated deficit ofapproximately $172.1 million as of April 30, 2005. We cannot assure youthat we will achieve or sustain profitability. See “Factors That May AffectFuture Results—We have a history of net losses and may incur future losses.”

Our business model has evolved in the course of ourdevelopment and we believe that period-to-period comparisons of our operatingresults should not be relied upon as indicative of future performance. Ourfuture prospects must be considered in light of the risks, expenses anddifficulties frequently encountered by companies in the early stages ofdevelopment, particularly companies in new and rapidly evolving markets. See “FactorsThat May Affect Future Results—We have limited experience in our business,which makes it more difficult for us to execute our business plan and for youto evaluate us.”

We have changed our fiscalyear-end from December 31 to October 31. The consolidated financialinformation for 2005 presented in this Form 10-Q are for the three and sixmonth periods ended April 30, 2005. The 2004 financial results presentedin this Form 10-Q are for the three and six month periods ended April 30,2004.

**CriticalAccounting Policies and Estimates**

The methods, estimates and judgments we use inapplying our most critical accounting policies have a significant impact on theresults we report in our consolidated financial statements. We evaluate ourestimates and judgments on an on-going basis. We base our estimates onhistorical experience and on assumptions that we believe to be reasonable underthe circumstances when made. Our experience and assumptions form the basis forour judgments about the carrying value of assets and liabilities and reportedamounts of revenues and expenses that are not readily apparent from othersources. Actual results may vary from what we anticipate, and differentassumptions or estimates about the future could change our reported results.

*Revenue Recognition and RelatedAllowances.  *We derive revenues primarily from providingmanaged remote Internet access services to customers through our virtualnetwork and by providing monthly security and support services and monthlyconnectivity services to broadband Internet remote access customers. Ourarrangements with our customers typically have multiple deliverables. Thesedeliverables may include software, installation services, customer premisesequipment, connectivity services, and maintenance and support services.

We recognize revenues when persuasive evidence of anarrangement exists, service has been provided to the customer, the price to thecustomer is fixed or determinable, and collectibility is probable. Mobileremote Internet access services are generally billed on a per-minute basis forusage or at a flat rate per month per user based on negotiated fees. Usage revenuesare recognized in the period the services are rendered to end users, andmonthly fees are recognized ratably based on the number of days that have 

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elapsed. We have minimumcommitment arrangements with some customers. These customers are not contractuallyentitled to use or otherwise receive benefit for unused service in subsequentperiods. Minimum commitment fees are recognized as revenue in the month it hasbeen determined that the minimum commitments have not been achieved, assumingall other criteria for revenue recognition have been met.

Our solutions may also include installation services,the sale of customer premise equipment and managed security services related toour broadband services offerings. Depending on the service provided and the natureof the arrangement, we may charge a one-time, annual or monthly fee for theseadditional services or deliverables. Revenue from installation services and thesale of equipment is deferred and recognized ratably over the period ofexpected usage by our customers since we consider these services and productsto be an enabler of the related remote access service contracts. Our estimateof expected usage is 24 months for all periods presented. On a quarterlybasis, we review this estimate of expected usage based on actual data. Revenuesfrom managed security services are recognized in the month the service isprovided. To a lesser extent, we also derive a portion of our revenues fromlicenses of our authentication software, related maintenance and support services,and other optional services related to our managed remote access solutions, allof which revenues are recognized ratably over the term of service. These otherrevenues amounted to five percent or less of total revenues over the last threeyears. Fees generated from maintenance contracts are recognized over the lifeof those contracts. The majority of the maintenance contracts cover periods ofone to twelve months. Amounts billed in advance of revenue recognition arerecorded to deferred revenue as collected. We recognize certain broadbandconnectivity revenues generated under agency arrangements on a net basis.Product returns and allowances have not been significant.

We provide services over a heterogeneous virtualnetwork, which was created by forming contractual relationships withapproximately 500 access providers, including Internet service providers, cablecompanies, DSL companies and telecommunications companies. These companies mayprovide us their services under either a reseller or an agency arrangement. Inapplying our revenue recognition policy we must make judgments and estimateswith regard to the specific facts and circumstances surrounding each providerrelationship to determine which portion of our revenues we provide under a resellerarrangement, where we would record gross revenues and cost of revenues, andwhich portion of our revenues we provide as an agent, where we would recordrevenues and cost of revenues combined on a net basis. We base our estimates onhistorical experience and on various other assumptions believed to beapplicable and reasonable under the circumstances. These estimates may changeas new events occur, as additional information is obtained and as our operatingenvironment changes, any of which could cause a material impact on the revenuesthat we have reported. The Company’s broadband service providers do not deliveractual accounting information to the Company on a timely basis at month-end.Due to this delay, which is outside the Company’s control, the Companyestimates its revenue and cost of sales related to broadband services on amonthly basis, and adjusts them to actual in the subsequent month afterreceiving information from its service providers. Historically, theseadjustments have been immaterial. In addition, the Company made estimates as toits accounts receivable allowance and reserves, the recoverability of a prepaidasset, potential liability derived from certain tax obligations andrestructuring expenses. Actual results could differ from those estimates. Werecord estimated allowances against revenues for returns and cancellations inthe same period the revenues are recorded. These estimates are based uponhistorical analysis of our service level agreements, credit memo data and otherknown factors for pricing and transaction volume disputes that arise in thenormal course of business. To date, allowances pertaining to our currentbusiness have not been significant. If the historical data we use to calculatethese estimates does not accurately reflect amounts associated with futuredisputes, our actual revenues could be higher or lower than what we haverecognized.

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*Cost of Revenues.  *Costof revenues represents the amounts paid to Internet service providers, cablecompanies, DSL companies and telecommunications companies for the use of theirnetworks, and amounts paid to other third party providers of products orservices that we include in our solutions. We have entered into minimumpurchase commitments with some network service providers for access that weexpect to utilize during the term of the contracts. Costs of minimum purchasecontracts are recognized as network access expenses at the greater of theminimum commitment or actual usage. If we estimate that the revenues derivedfrom the purchase commitment will be less than the purchase commitment, werecognize a loss on that purchase commitment to the extent of that difference. Nosuch loss has been recognized to date.

*Allowance for Doubtful Accounts.  *Wemaintain allowances for doubtful accounts for estimated losses from ourcustomers’ inability to make payments they owe us. In order to estimate theappropriate level of this allowance, we analyze historical bad debts, customerconcentrations, current customer credit-worthiness, current economictrends and changes in our customer payment patterns. If the financial conditionof our customers were to deteriorate and to impair their ability to makepayments to us, additional allowances might be required in future periods. Ifwe determine that collectibility is not probable, revenue is recognized as cashis collected. If our estimates prove too low, our bad debt expense willincrease.

*Valuation of Long-Lived Assetsincluding Intangible Assets.  *We evaluate the carryingamount of our long-lived assets, including purchased intangible assets,whenever events or circumstances indicate the amount of the assets may not berecoverable. Determination of impairment of property and equipment, goodwilland intangible assets is highly subjective and requires significant judgment atmany points during the analysis. This analysis is based on our estimate offuture cash flows that the assets are expected to generate and their eventualdisposition. If we determine that any of these assets have been impaired, theimpairment charge will be charged to earnings in the period such determinationis made. We have determined that our service offerings have similar economiccharacteristics and as a result we treat our single operating segment as oursole reporting unit in testing for the impairment of long-lived assetsincluding intangible assets.

*Valuation of Goodwill.  *Wetest goodwill for possible impairment on an annual basis in the third fiscalquarter and at any other time if events occur or circumstances indicate thatthe carrying amount of goodwill may not be recoverable. Circumstances thatcould trigger an impairment test include, but are not limited to, a significantadverse change in the business climate or legal factors, an adverse action orassessment by a regulator, unanticipated competition and loss of key personnel.In addition, we assess goodwill for recoverability if our market capitalizationis less than the value of our net assets. The determination as to whether awrite-down of goodwill is necessary involves significant judgment based on theshort-term and long-term projections of our future performance. The assumptionssupporting the estimated future cash flows, including the discount rate usedand estimated terminal value reflect our best estimates.

*Restructuring,Workforce Reductions and Excess Facilities Accrual.  *Inorder to bring our operating expense structure in line with our current levelof revenues, in August 2004 we implemented a restructuring, workforcereduction and facilities consolidation plan to improve our operatingperformance. Restructuring and facilities consolidation costs consist ofexpenses associated with workforce reductions, consolidation of excessfacilities and impairment of leasehold improvements and other equipmentassociated with abandoned facilities. At April 30, 2005, $499,000 wasaccrued for future facilities consolidation costs. In connection with ourrestructuring plans, we accrue for severance payments and other relatedtermination benefits provided to employees in connection with involuntary staffreductions. We accrue for these benefits in the period when benefits arecommunicated to the terminated employees. Typically, terminated employees arenot required to provide continued service to receive termination benefits. Ifcontinued service is required, then the severance liability is accrued over therequired service 

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period. In general,we use a formula based on a combination of the number of years of service andthe employee’s position within the Company to calculate the terminationbenefits to be provided to affected employees. At April 30, 2005, allaffected employees were terminated and there was no remaining accrual forfuture severance and termination benefits payments.

**Business Combination**

On December 1, 2003,we completed our acquisition of Axcelerant, a privately held provider ofbroadband Internet remote access services and managed security services. Ouracquisition of Axcelerant did not result in a new reportable segment. Theresults of operations of Axcelerant have been included in our financialstatements subsequent to the date of the acquisition.

**Results of OperationsThree and Six Month Periods Ended April 30, 2005 Compared to Three and SixMonth Periods Ended April 30, 2004**

*Overview of theSecond Quarter of Fiscal 2005*

During the second quarter of 2005, we continued to evolveour business model from one based principally on a reseller sales model to amodel under which we sell a significant portion of our services directly andthrough third parties to enterprise customers. During the second quarter of2005 and 2004, 62 percent and 44 percent, respectively, of our quarterlyrevenues was derived from services sold to enterprise customers both directlyand indirectly through third parties.

In the second quarter of 2005, our revenues andexpenses each decreased compared to the second quarter of 2004. Revenues werelower quarter over quarter primarily due to a reduction in dial-up basedInternet access revenues that was partially offset by an increase in managedbroadband revenues. Cost of revenues was slightly lower as a percentage ofrevenues principally due to the reversal of loss contingencies established forcarrier costs no longer required. We expect the trend in our cost of revenuesto be similar to that of prior quarters and possibly increase as sales toenterprise customers through partners grow and represent a higher percentage oftotal revenues. Our operating expenses were lower in the second quarter of 2005than in the second quarter of 2004 principally due to the cost savingsgenerated from our strategic restructuring in August 2004. We expect ourquarterly operating expenses to remain approximately the same as a percentageof revenues during fiscal year 2005.

In the six months ended April 30, 2005, ourrevenues decreased from the six months ended April 30, 2004 while ourexpenses in the six month period of 2005 were lower than the six month periodof 2004. Revenues were lower primarily due to a reduction in dial-up basedInternet access revenues that was partially offset by an increase in managedbroadband. Cost of revenues, which were slightly lower as a percentage ofrevenues, were flat period to period. Our operating expenses were lower in thesix month period of 2005 than in the six month period of 2004 principally dueto the cost savings generated from our strategic restructuring in August 2004,which was partially offset by the inclusion of six months of costs incurred atof our Irvine, California facility that resulted from our acquisition ofAxcelerant whereas five months of Irvine location expense are included in thesix month period of 2004.

We continue to focus on delivering innovative servicesfor our customers to drive revenues and achieve positive earnings. During thebalance of fiscal 2005 and during fiscal 2006 we plan to release additional newvalue added services, which we expect over time will augment the revenues weearn from our existing customers and, together with expanding the globalfootprint of the GoRemote Global Network, generate revenues from new enterprisecustomers. Several factors will impact our ability to achieve and sustainprofitability, including the effectiveness of our sales and marketing effortsthrough both direct and third party sales channels, the timely release of newservices and the introduction of new 

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services by existing ornew competitors. For a discussion of these and other risk factors, see thesection titled “Factors That May Affect Future Results.”

The results of operationsfor the six months ended April 30, 2005 include six months of revenues andexpenses related to the acquisition of Axcelerant that was completed in December 2003.The results of operations for the six months ended April 30, 2004 includefive months of revenues and expenses related to the prior Axcelerantoperations.

*Revenues*
| ** ** | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **2005**                                         | ** ** | **2004**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** ** | ** ** | **(in millions)**                           | ** ** | **(in millions)**                         | ** ** |
| Revenues   |       |                                             | $          | 12.0                                           |       |   |   | $ | 12.9 |   |   |   | $ | 24.0 |   |   |   | $ | 24.8 |   |   |
|            |            |                                                  |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Total revenues decreased approximately $852,000 in thethree months ended April 30, 2005, compared to the three months ended April 30,2004. The net decrease during the three months ended April 30, 2005 wasprincipally due to reductions in dial-up based Internet access service in theamount of $3.0 million that were partially offset by an earned annual minimumcommitment fee of approximately $385,000 and by increased broadband revenues inthe amount of $1.8 million. Our experience leads us to believe that the declinein dial-up revenues from service providers will likely continue. We believethat future declines in dial-up access revenue that may occur over the nexttwelve months will be more predictable and of a lower magnitude than previouslydue to our expectation that no single dial-up access customer will representten percent or more of our revenue in any fiscal quarter.Total revenuesdecreased approximately $794,000 in the six months ended April 30, 2005,compared to the six months ended April 30, 2004. The net decrease wasprincipally due to reductions in legacy dial-up Internet access servicerevenues in the amount of $5.1 million that were partially offset by increasedbroadband revenues in the amount of $4.3 million during the six months ended April 30,2005.

We expect our revenues to increase, based on sales tonew customers and sales of additional services, such as our newer broadbandteleworker and branch office solutions and managed security service offering,to existing customers. We expect these revenues to be partially offset by acontinuing decline in our dial-based Internet access services. FiberlinkCommunications Corporation accounted for eleven percent of our consolidatedrevenues during both the six months ended April 30, 2005 and 2004. Fiberlinkis both our customer and in certain markets our competitor, principally withrespect to our dial-up access offering. During the second quarter of 2005,Fiberlink obtained direct access in a small number of countries that hadrepresented a majority of its dial-up traffic on our network. Traffic from thisgroup of countries represented approximately $894,000 of our revenues in thefirst fiscal quarter of 2005 and $475,000 in the second fiscal quarter of 2005.We expect to receive no traffic from Fiberlink from this group of countries inthe future.

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*Costs and Expenses*
| ** **                                | ** ** | **For the Three Months Ended  April 30,** | ** ** | **For the Six Months Ended  April 30,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                                           | ** ** | **2004**                                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(in millions)**                                             | ** ** | **(in millions)**                                           | ** ** |
| Cost of revenues                          |       |                                                               | $          | 4.6                                                              |       |   |   | $ | 5.3 |   |   |   | $ | 9.6 |   |   |   | $ | 10.0 |   |   |
| Percentage of revenues                    |       |                                                               | 38.4       | %                                                                |       |   | 41.2 | % |   |   | 40.1 | % |   |   | 40.4 | % |   |
| Network and  operations                   |       |                                                               | $          | 2.3                                                              |       |   |   | $ | 2.3 |   |   |   | $ | 4.4 |   |   |   | $ | 4.0 |   |   |
| Percentage of revenues                    |       |                                                               | 19.0       | %                                                                |       |   | 18.0 | % |   |   | 18.5 | % |   |   | 16.2 | % |   |
| Research and  Development                 |       |                                                               | $          | 0.5                                                              |       |   |   | $ | 1.2 |   |   |   | $ | 1.1 |   |   |   | $ | 2.1 |   |   |
| Percentage of revenues                    |       |                                                               | 4.3        | %                                                                |       |   | 9.3 | % |   |   | 4.6 | % |   |   | 8.3 | % |   |
| Sales and  Marketing                      |       |                                                               | $          | 3.1                                                              |       |   |   | $ | 4.7 |   |   |   | $ | 6.2 |   |   |   | $ | 9.5 |   |   |
| Percentage of revenues                    |       |                                                               | 25.4       | %                                                                |       |   | 36.7 | % |   |   | 25.7 | % |   |   | 38.3 | % |   |
| General and  administrative               |       |                                                               | $          | 1.5                                                              |       |   |   | $ | 1.6 |   |   |   | $ | 3.1 |   |   |   | $ | 3.0 |   |   |
| Percentage of revenues                    |       |                                                               | 12.3       | %                                                                |       |   | 12.8 | % |   |   | 12.8 | % |   |   | 12.1 | % |   |
| Amortization of  purchased intangibles    |       |                                                               | $          | 0.2                                                              |       |   |   | $ | 0.4 |   |   |   | $ | 0.5 |   |   |   | $ | 0.7 |   |   |
| Percentage of revenues                    |       |                                                               | 2.0        | %                                                                |       |   | 3.1 | % |   |   | 2.0 | % |   |   | 2.7 | % |   |
| Amortization of  stock-based compensation |       |                                                               | $          | 0.03                                                             |       |   |   | $ | 0.09 |   |   |   | $ | 0.08 |   |   |   | $ | 0.15 |   |   |
| Percentage of revenues                    |       |                                                               | 0.2        | %                                                                |       |   | 0.7 | % |   |   | 0.3 | % |   |   | 0.3 | % |   |
| Restructuring  charge                     |       |                                                               | $          | —                                                           |       |   |   | $ | — |   |   |   | $ | 0.06 |   |   |   | $ | — |   |   |
| Percentage of  revenues                   |       |                                                               | —     | %                                                                |       |   | — | % |   |   | 0.2 | % |   |   | — | % |   |

 

*Cost of Revenues.  *Costof revenues consists of amounts we pay to access the Internet in order toprovide remote Internet access services for our customers and to offer othermobile broadband services and includes amortization of the deferredinstallation costs we incur to provide broadband connectivity to our customers.

Cost of revenues decreased approximately $696,000 inthe three months ended April 30, 2005 compared to the three months ended April 30,2004, representing an decrease of 13 percent. The decrease was primarily due todecreased volumes of remote Internet access of approximately $1.7 million,partially offset by a one-time adjustment for the reversal of losscontingencies for carrier costs no longer required of $310,000, and by anincrease in broadband cost of sales of approximately $748,000, related to ourincrease in broadband revenues. We expect that during fiscal year 2005 the costof revenues will increase in absolute dollars as remote Internet accessrevenues and broadband revenues increase, but be similar to the six monthsended April 30, 2005 as a percentage of revenues and possibly increase assales through partners represent a greater percentage of total revenues.

Cost of revenues decreased approximately $393,000 inthe six months ended April 30, 2005 compared to the six months ended April 30,2004, representing a decrease of four percent. The decrease was primarily dueto decreased volumes of remote Internet access of approximately $2.6 million,partially offset by a one-time adjustment for the reversal of losscontingencies for carrier costs no longer required of $310,000, and an increasein broadband cost of sales of approximately $1.9 million due to a relatedincrease in broadband revenues.

*Network and Operations.  *Networkand operations expenses consist of salaries and benefits, depreciation onnetwork equipment, allocated facility and management information systemsexpenses, administrative expenses, costs of co-location of network equipmentand leased telecommunication lines and other related costs.

Network and operations expenses decreasedapproximately $26,000 in the three months ended April 30, 2005 compared tothe three months ended April 30, 2004, representing a decrease of onepercent. The decrease was due primarily to an decrease in compensation andbenefits-related expenses of 

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approximately $171,000based on lower temporary help costs and the reversal of an accrued bonus nolonger expected to be earned, partially offset by higher professional expensesof approximately $173,000 due to the deployment of outsourced post-salescustomer support. We expect network and operations expenses to remain constant asa percentage of revenues during the remainder of fiscal year 2005 as we deployand support new customers.

Network and operations expenses increasedapproximately $422,000 in the six months ended April 30, 2005 compared tothe three months ended April 30, 2004, representing an increase of ten percent.The increase was due primarily to an increase of approximately $233,000 ofprofessional expenses in our Milpitas facility as a result of outsourcing ofcertain customer support activities, increased facility allocation ofapproximately $100,000 and increased internet and telecommunications cost of$91,000. Additionally, there was a increase of compensation and benefits ofapproximately $132,000 partially offset by a decrease in temporary help ofapproximately $159,000. We expect network and operations expenses to remainconstant as a percentage of revenues during fiscal year 2005 as we deploy andsupport new customers.

*Research and Development.  *Researchand development expenses consist of salaries and benefits, allocated facilityand management information systems, depreciation costs, outside consultants,facilities costs, administration and other related costs.

Research and development expenses decreasedapproximately $678,000 in the three months ended April 30, 2005 comparedto the three months ended April 30, 2004, representing a decrease of 57percent. The decrease was due primarily to a reduction of approximately$505,000 of compensation and benefits related to reduced California basedpersonnel resulting from the August 2004 strategic restructuring and therelocation of our development activities to our network operations anddevelopment center in India. Additionally, there was a reduction in thefacility allocation expense of approximately $129,000 due to a lower shareallocation and lower overall facility costs.

Research and development expenses decreasedapproximately $963,000 in the six months ended April 30, 2005 compared tothe three months ended April 30, 2004, representing a decrease of 47percent. The decrease was due primarily to a reduction of approximately$716,000 of compensation and benefits related to reduced California basedpersonnel resulting from the August 2004 strategic restructuring and therelocation of our development activities to our network operations anddevelopment center in India. Additionally, there was a reduction in thefacility allocation expense of approximately $232,000 due to a lower shareallocation and lower overall facility costs. We expect research and developmentexpenses to remain constant as a percentage of revenues during fiscal year2005.

*Sales and Marketing.  *Salesand marketing expenses consist of salaries and benefits, allocated facility andmanagement information systems costs, travel and entertainment costs, costs formarketing and promotional programs, outside consultants, commissions earned bysales and marketing personnel, and costs associated with domestic andinternational sales offices and other related costs.

Sales and marketing expenses decreased $1.7 million inthe three-month period ended April 30, 2005 compared with the three-monthperiod ended April 30, 2004, representing a decrease of 35 percent. Thedecrease is due primarily to a decrease in compensation and benefits and traveland entertainment of approximately $852,000 and $159,000, respectively, as aresult of our strategic workforce reduction in August 2004. In addition,advertising and promotional programs decreased by $270,000 as we scaled backour marketing programs and our facility allocation expense decreased by$178,000 as a result of lower facility costs and reduced personnel. We expectsales and marketing expenses to be constant as a percentage of revenues as wecontinue to develop our sales force and redefine our advertising and marketingstrategy during 2005.

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Sales and marketing expenses decreased $3.3 million inthe six-month period ended April 30, 2005 compared with the six-monthperiod ended April 30, 2004, representing a decrease of 35 percent. Thedecrease is due primarily to a decrease in compensation and benefits and traveland entertainment of approximately $1.6 million and $233,000, respectively, asa result of our strategic workforce reduction in late 2004. In addition,advertising and promotional programs decreased by $849,000 as we realigned ourmarketing program focus and our facility allocation expense decreased by$331,000 as a result of lower facility costs and reduced personnel. We expectsales and marketing expenses to be constant as a percentage of revenues as wecontinue to develop our sales force and redefine our advertising and marketingstrategy during 2005.

*General and Administrative.  *Generaland administrative expenses consist of general corporate and facility costs aswell as salary, benefits and related costs for executive, finance, legal,administrative, human resources, investor relations and management informationsystems functions and provisions for uncollectible receivables.

General and administrative expenses decreasedapproximately $164,000 in the three months ended April 30, 2005 comparedto the three months ended April 30, 2004, representing an decrease of tenpercent. The decrease was due primarily to $260,000 of decreased professionalfees primarily related to higher fees charged by our previous independentauditors and consultants for Sarbanes-Oxley compliance activities in fiscal2004 and decreased compensation and benefits of approximately $106,000, as aresult of our strategic workforce reduction in late 2004 partially offset by anet increase in facility allocation expenses of $218,000, as a result of thereallocation of facilities costs following our strategic workforce reduction.

General and administrative expenses increasedapproximately $70,000 in the six months ended April 30, 2005 compared tothe six months ended April 30, 2004, representing an increase of twopercent. The increase was due primarily to a net increase in facilityallocation expenses of $188,000, as a result of the reallocation of facilitiescosts as a result of our strategic workforce reduction and an increase intravel and entertainment expense of approximately $65,000 partially offset by a$119,000 reduction of professional fees primarily related to fees charged byour previous independent auditors and consultants for Sarbanes-Oxley complianceactivities, as well as a reduction in compensation and benefits ofapproximately $81,000. We expect general and administrative expenses toincrease in fiscal year 2005 in absolute dollars as we continue to update backoffice processes and procedures company-wide to meet the requirements of theSarbanes-Oxley Act of 2002 and related regulations, but to decrease as apercentage of revenues.

*Amortization of PurchasedIntangibles.  *Amortization of purchased intangiblesincludes three months of amortization of the intangible assets acquired inconnection with the acquisition of Axcelerant. The initial value assigned toAxcelerant customer relationships was $7.5 million, which was amortized on astraight-line basis over a five-year life at a rate of $125,000 per month. At September 30,2004 an impairment charge of $2.4 million was recognized and the carrying valueof the customer relationships was adjusted to $3.9 million, which will beamortized over the remaining 50 months of the original five-year life on astraight-line basis at a rate of $78,000 per month. The value assigned tointernal use software was $100,000, which is amortized on a straight-line basisover a one-year life at a rate of $8,000 per month. The internal use softwarewas fully amortized in November 2004.

*Amortization of Stock-BasedCompensation.  *In connection with our acquisition ofAxcelerant, we recorded $674,000 of additional deferred stock-basedcompensation, which is being amortized over the vesting period of theunderlying stock options assumed during the acquisition. As a result, werecorded amortization of deferred compensation expense of $27,000 and $89,000during the three months ended April 30, 2005 and 2004, respectively, and$84,000 and $149,000 during the six months ended April 30, 2005 and 2004,respectively. We expect to record amortization of deferred compensation expenseof 

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approximately $39,000 inthe remainder of fiscal year 2005, related to options assumed by us inconnection with our acquisition of Axcelerant.

As of April 30, 2005,we had an aggregate of $76,000 of deferred compensation related to theacquisition of Axcelerant remaining to be amortized. Deferred compensation isamortized on a straight-line basis over the vesting period of the options. Weexpect amortization of stock-based compensation related to these optionsassumed by us to end in 2007.

*Interest Income(Expense) and Other and Taxes*

Interestincome and other, net, interest expense and taxes for the three and six monthsended April 30, 2005 and 2004 were as follows:
| ** **                      | ** ** | **For the three months ended  April 30,** | ** ** | **For the six months ended  April 30,** | ** ** |
|---------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                                           | ** ** | **2004**                                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                      | ** ** | **(in thousands)**                                            | ** ** | **(in thousands)**                                          | ** ** |
| Interest income  and other, net |       |                                                               | $          | 23                                                               |       |   |   | $ | 57 |   |   |   | $ | 78 |   |   |   | $ | 51 |   |   |
| Provision for income  taxes     |       |                                                               | $          | 19                                                               |       |   |   | $ | 34 |   |   |   | $ | 50 |   |   |   | $ | 56 |   |   |

 

*Interest Income andOther, Net*

Interest income and other, net, primarily representsinterest income on cash balances and on short-term investments, gain on dispositionof assets, sales, use and value-added tax, and interest expense.

Interest income and other, net, decreased $34,000 inthe three months ended April 30, 2005 compared to the three months ended April 30,2004. This decrease was primarily due to approximately $83,000 of higher sales,use and value-added taxes that was partially offset by $57,000 of additionalinterest income based on higher interest rate yields and $6,000 of interestexpense incurred in 2005.

Interest income and other, net, increased $27,000 inthe six months ended April 30, 2005 compared to the three months ended April 30,2004. This increase was primarily due to $86,000 of additional interest incomebased on higher interest rate yields partially offset by approximately $30,000of higher sales, use and value-added taxes, partially offset by $15,000 ofinterest expense incurred in 2005.

Interest expense consistsof the amortization of the discount of future facility lease payments relatedto the ceased use of facilities in connection with the August 2004strategic restructuring. The discount was approximately $50,000, which is beingamortized over the remaining life of the lease. During the three and six monthsended April 30, 2005, $6,000 and $15,000, respectively, of interestexpense was recorded.

*Income Taxes*

The provision for incometaxes was $19,000 and $34,000 for the three months ended April 30, 2005and 2004, respectively. The provision for income taxes was $50,000 and $56,000for the six months ended April 30, 2005 and 2004, respectively. Theprovision for income taxes consists of foreign tax provisions and state taxes.

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**Liquidity andCapital Resources**
| ** **                                           | ** ** | **For the six months ended** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **April 30,**                               | ** ** |
| ** **                                           | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                          | ** ** |
| Cash and cash  equivalents                           |       |                                             | $          | 4,346 |   |   |   | $ | 4,931 |   |   |
| Net cash provided  by (used in) operating activities |       |                                             | 1,785      |   |   |   | (2,993 | ) |   |
| Net cash provided  by (used in) investing activities |       |                                             | (412       | ) |   |   | 3,163 |   |   |
| Net cash provided by  financing activities           |       |                                             | 566        |   |   |   | 1,201 |   |   |

 

*Cash, Cash Equivalents andShort-Term Investments.  *Our principal source ofliquidity is our cash, cash equivalents and short-term investments. As of April 30,2005, in addition to our cash and cash equivalents balance of $4.3 million, wehad a short-term investment balance of approximately $15.4 million.

*Operating Activities.  *Netcash provided by operating activities in the six months ended April 30,2005 of $1.8 million was primarily a result of an increase in deferred revenueof approximately $1.9 million ($1.1 million and $800,000 in the three monthsended April 30, 2005 and January 31, 2005, respectively) primarilyrelated to deferred installation revenues and a reduction in accountsreceivable balances of approximately $1.3 million , partially offset by our netoperating losses of $1.0 million, increases in prepaid expenses and othercurrent assets of $1.0 million primarily related to an increase in deferredinstallation costs and decreased accounts payable balances of approximately$876,000 principally from reductions in restructuring accruals. While our dayssales outstanding fell significantly during the six months ended April 30,2005, we generally expect the number of days it takes for us to collect ouraccounts receivable to lengthen from the periods experienced historically,primarily due to the longer payment cycles generally associated with enterprisecustomers and the increasing percentage of our revenue base represented by suchcustomers.

*Investing Activities.  *Netcash used in investing activities during the six months ended April 30,2005 of approximately $412,000 was primarily the result of capital expendituresof approximately $608,000, partially offset by the liquidation of certainshort-term instruments.

*Financing Activities.  *Netcash provided by financing activities during the six months ended April 30,2005 of approximately $566,000 was primarily the result of sales of commonstock to our employees and option holders.

*Commitments.  *Welease all of our facilities under operating leases that expire at various datesthrough 2008. We have entered into certain purchase commitments from supplierswho provide network access, software and related services that are utilized byus in order to deliver our products and services.

During 2005, we expect to continue automating andupdating back office processes and procedures that are required for us toefficiently run our business, however, we believe that our capital equipmentexpenditures in absolute dollars will be relatively flat as compared to 2004.We expect to continue to provide customer premises equipment to customers for afee, as part of our solution offerings.

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Thefuture minimum operating lease and purchase commitments were as follows at April 30,2005, based on fiscal years ending October 31 (in thousands):
| ** ** | ** ** | **Operating  Leases** | ** ** | **Purchase  Commitments** | ** ** |
|------------|------------|-----------------------|------------|---------------------------|------------|
| 2005       |       |                  | $          | 766                       |       |   |   | $ | 737 |   |   |
| 2006       |       |                  | 1,389      |                      |       |   | 1,073 |   |   |
| 2007       |       |                  | 817        |                      |       |   | 149 |   |   |
| 2008       |       |                  | 181        |                      |       |   | — |   |   |
| Thereafter |       |                  | —     |                      |       |   | — |   |   |
|       |       |                  | $          | 3,153                     |       |   |   | $ | 1,959 |   |   |

 

*Indemnifications.  *Fromtime to time we enter into types of contracts that contingently require us toindemnify parties against third party claims. These contracts primarily relateto: (i) divestiture agreements, under which we may provide customaryindemnifications to purchasers of our assets; (ii) real estate leases,under which we may be required to indemnify property owners for environmentaland other liabilities, and other claims arising from our use of the applicablepremises; (iii) agreements with our officers, directors and employees,under which we may be required to indemnify such persons for liabilitiesarising out of their employment relationship; and (iv) agreements withcustomers and resellers, under which we may provide customary indemnificationsagainst claims that our products and services infringe certain copyrights,patents or trademarks, or incorporate misappropriated trade secrets.

The terms of such obligations vary. Generally, amaximum obligation is not explicitly stated, except for indemnifications involvinginfringement of third party intellectual property rights. Because the obligatedamounts of these types of agreements often are not explicitly stated, theoverall maximum amount of the obligations cannot be reasonably estimated.Historically, we have not been obligated to make any payments for theseobligations, and no liabilities have been recorded for these obligations on ourbalance sheet at April 30, 2005.

*Summary of Liquidity.  *Webelieve that our available cash, cash equivalents and short-term investments of$19.8 million at April 30, 2005 and cash expected to be generated byoperations during the next twelve months will fund planned operations for atleast the same period. We generated $430,000 in cash during the quarter ended April 30,2005.

We plan to invest in expanding our managed remoteaccess services, on a global basis, by continuing to build strategic partneringrelationships. This will require us to maintain market acceptance, by growingour mobile office communications services offerings, continuing our researchand development activities and funding planned operating expenses. There can beno assurance that our managed remote access services will maintain marketacceptance, growth and operating margins.

If we are unable to attainour revenue and margin goals, significant reductions in spending and the delayor cancellation of planned activities or additional restructuring may benecessary to enable us to meet our cash requirements through the next twelvemonths. These actions could have a material adverse effect on our business,results of operations and prospects. Furthermore, we may need to raiseadditional funds in future periods through public or private financing, orother arrangements, to fund operations and potential acquisitions, if any. Ifadditional financing is needed, it might not be available on reasonable termsor at all. Failure to raise capital when needed could seriously harm ourbusiness and results of operations. If additional funds were raised through theissuance of equity securities, the percentage of ownership of our stockholderswould be reduced. Furthermore, these equity securities might have rights,preferences or privileges senior to our common stock.

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**Recent Accounting Pronouncements**

In December 2004, theFASB issued a revision of SFAS No. 123R (“SFAS 123 Revised”), *Accounting for Stock-Based Compensation*.SFAS 123 Revised establishes standards for the accounting for transactionsin which an entity exchanges its equity instruments for goods or services. Italso addresses transactions in which an entity incurs liabilities in exchangefor goods or services that are based on the fair value of the entity’s equityinstruments or that may be settled by the issuance of those equity instruments.SFAS 123 Revised is effective as of the beginning of our next fiscal year,which will commence on November 1, 2005. We have not completed ourevaluation of the impact of adoption of SFAS 123 Revised on ourconsolidated financial position or results of operations. We expect to completeour evaluation during the fourth quarter of fiscal year 2005.

**Factors That May AffectFuture Results**

In addition to theinformation elsewhere in this Quarterly Report on Form 10-Q, thefollowing should be considered in evaluating GoRemote and our business.

**If wefail in our strategy of focusing our sales efforts on larger companies, ourrevenue and profitability goals will likely not be achieved.**

Historically, asignificant portion of our revenues was derived from smaller companies andservice providers in the Internet marketplace, but in recent periods we haveattempted to focus our sales and marketing efforts on larger corporate andenterprise-level customers. This strategy places new demands on ourbusiness, such as the longer sales cycles and higher levels of service andsupport that larger accounts generally require. Some of our competitors withgreater financial resources than ours have focused their sales efforts onselling to large enterprises for a longer period of time with more success thanwe have experienced, which adds to the risk of our strategy. In November 2004,we appointed a new Senior Vice President of Worldwide Sales and he may notsucceed in executing this strategy. If we fail to execute this strategy, or ifwe have underestimated the costs of this strategy, we will likely miss ourrevenue and profitability goals.

**Themarkets that we serve are highly competitive and there is no assurance that wewill be able to achieve or maintain profitability.**

We are aware of manycompanies in related markets that address particular aspects of the featuresand functions that our products provide. Currently, in the managed broadbandservices market, our primary competitors include New Edge, Megapath andNetifice.  In the market for manageddial-up Internet access services we compete directly with iPass and FiberlinkCommunications Corporation, each of whom has a network that competes with theGoRemote Global Network. In addition, iPass has greater cash resources than wedo and each of iPass and Fiberlink has a larger sales force than our owndedicated to enterprise sales. Large communications service providers such asAT&T, Equant and MCI also have the ability and resources to compete with usin the remote Internet access services market. Many of our competitors havelonger operating histories, greater name recognition or larger customer bases,which they may leverage in order to obtain more favorable volume discounts fromsuppliers. In addition, these competitors may be able to undertake moreextensive marketing efforts, adopt more aggressive pricing policies and providemore favorable payment terms to customers than we can, which could limit ouropportunities to obtain new customers or cause us to lose our existingcustomers.

**If we are unable toincrease revenues associated with broadband services, our ability to grow ourbusiness will be impaired.**

Until our acquisition ofAxcelerant in December 2003, we generated our remote Internet access servicesrevenues almost exclusively from the sale of services based on dial-up access—anarrowband 

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technology.In some countries, including the United States, the use of narrowband as aprimary means of remote access is expected to decline over time as broadbandaccess technologies, such as cable modem, DSL and Wi-Fi, become more widelyadopted and used. Our experience during 2004 and during the first four monthsof 2005 showed us that the decline in dial-up revenues from service providerswill likely continue to occur and possibly at a more rapid pace that may not bepredictable. Increasingly, we believe that the future growth of our businesswill depend in large part upon our ability to expand the broadband elements ofour virtual network and generate managed broadband revenues at a substantiallyhigher level and growth rate. We may not succeed in this expansion and we maynot generate substantial new revenues, which could harm our results and causeour stock price to decline.

**Our businessstrategy has shifted over time and remains unproven, so the success of ourstrategy cannot be assured.**

Our business strategy haschanged over time. For example, we ceased to be an Internet service provider in1997 and abandoned our Internet telephony services business in 2001. We havepursued our current business—secure managed remote access services—for arelatively brief period, and in markets that are rapidly changing. We have onlybeen offering managed broadband services to enterprises with branch offices andlarge teleworker populations since December 2003, following ouracquisition of Axcelerant. There can be no assurance that we will succeed inour efforts to make our current business profitable.

**We recentlyappointed a new chief executive officer and replaced a number of executives andother key personnel, which may lead to additional personnel and organizationalchanges that could impact our ability to achieve our strategic goals.**

On August 2, 2004, weannounced the appointment of Tom Thimot to serve as our President and ChiefExecutive Officer. During the third quarter of 2004, we replaced our seniormarketing and operations executives and a number of other senior managers aspart of a realignment of our global operations. On November 1, 2004, weappointed our Senior Vice President of Worldwide Sales. It is possible that thenew management team will introduce additional changes or cause workforceinstability as it evaluates how best to achieve our strategic goal of returningto profitability and building sustainable revenue growth.

**We may not besuccessful in our efforts to transition to a reduced cost structure, and theactions that we take in order to accomplish this transition could havelong-term adverse effects on our business.**

We have taken, and continue to take, various actionsto transition our company to a reduced cost structure. In response to decliningrevenues in our legacy dial access and service provider business, we havescaled back our operations, reduced our expenses, and initiated facilityclosures and consolidations.

There are several risksinherent in our efforts to transition to a reduced cost structure. Theseinclude the risk that we will not be able to hold expenditures at a levelnecessary to achieve profitability, and that we may have to undertake furthercost-reduction initiatives that would entail additional charges. If we are notable to hold down expenses or if we are not able to reduce our non-people-relatedcosts in accordance with our plans, we may have to further reduce ourworkforce. There is also the risk that the cost-cutting actions we have takenand still plan to take will impair our ability to effectively develop andmarket products, to remain competitive in the industries in which we competeand to operate effectively. Each of the above measures could have long-termeffects on our business by reducing our pool of technical talent, decreasing orslowing improvements in our products, making it more difficult for us torespond to customers, limiting our ability to deploy our solutions to ourcustomers quickly if and when the demand for our solutions increases andlimiting our ability to hire and retain key personnel. These circumstancescould cause our income to be lower than it otherwise might be, which wouldadversely affect our stock price.

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**Since we have noassurance that customers will continue to use our services or that our customerbase will expand, we will have little ability to predict revenue growth oroperating results.**

Our customers aregenerally free to use competing products and services and prices for dial-upremote access and Wi-Fi access are declining, so we could face significantcustomer losses and revenue declines, at unpredictable times. FiberlinkCommunications Corporation accounted for eleven percent of our revenues in thesix-month period ended April 30, 2005. During this period, a majority ofthe revenue derived from Fiberlink resulted from access to our network in asmall number of countries. As a result of obtaining direct dial-up accessthrough third parties in some of these countries, however, Fiberlink ceasedbeing a ten percent customer in the three-month period ended April 30,2005, causing a negative revenue impact for us. Revenue concentrations in oneor a small group of customers can make our business more risky. In addition,large customers have significant negotiating power during contract discussionsor in the event of a customer dispute, which may make it more likely that theterms of the customer arrangement or settlement may be more favorable to thecustomer. These factors make it difficult to anticipate the level of our futurerevenues from existing customers. In addition, our success depends on ourability to expand and diversify the composition of our customer base. If we areunable to expand our customer base and increase our average revenues percustomer, our business success will be less likely.

**We may not succeedin cost-effectively automating, integrating and updating critical back officesystems and processes, which could limit our ability to achieve and maintainprofitability.**

Historically, we haveinvested in the automation of back office systems and processes in order toenable us to cost effectively grow our traditional mobile office communicationsbusiness. The back office systems and processes of Axcelerant, whose businesswe acquired in December 2003, are largely manual. In order to efficientlyprovision, support and service our customers, we will be required tocost-effectively update, automate and, where appropriate, integrate thesesystems and processes. We will need to ensure that the combined company’sfinancial reporting, financial controls and documentation processes meet allapplicable financial controls certification standards, such as Section 404of the Sarbanes-Oxley Act. We may underestimate the investments requiredto accomplish this automation, integration, updating and certification. We maynot succeed in this effort, which could impair our ability to scale ouroperations, limit our growth and lessen the likelihood that we would achieveprofitability.

**The market price ofour common stock has traditionally been highly volatile, and if we do not meetthe expectations of analysts, the market price of our common stock coulddecline further.**

In the past, the price ofour common stock has experienced large swings up and down. This volatilitymight occur again in the future. Volatility can arise particularly in responseto quarter-to-quarter variations in the actual or anticipated financial resultsof our Company or our customers or competitors, and announcements that ourcompetitors or we make regarding new product and service introductions. Themarket price of our common stock can also fluctuate in response to price andvolume fluctuations in the stock market, particularly those that affect themarket prices of technology stocks.

**We have incurredsignificant losses to date and we may continue to incur losses in the future.If we fail to generate sufficient revenue to achieve and sustain positive cashflow or profits, our stock price will decline.**

We have incurred significant losses to date and weexpect to continue to incur losses for some period of time. We incurred netlosses of approximately $192,000 and $1.0 million for the three and six monthsending April 30, 2005, respectively, and $40.7 million for the ten monthsending October 31, 2004. As of April 30, 2005, we had an accumulateddeficit of $172.1 million.

Prior to fiscal year 2005,we have experienced negative cash flows in each year since our inception in1994, and we may continue to do so in the future. In addition, we may alsoincur significant new costs related to possible acquisitions, the developmentof new products and services, the integration of new 

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technologiesor the update of old technologies. Moreover, we might not be able to achieveoperating profitability on a quarterly or annual basis. To achieve profits, wewill need to maintain our relationships with existing customers, generateadditional revenue growth from our existing customers and obtain new customers,while continuing to control our expenses. We expect to continue to invest innetwork and operations, research and development, and sales and marketing, andwe expect to face pressure to adopt new pricing arrangements, including volumediscounts, that may lower our margins. As a result, our ability to achieve andsustain profitability will depend on our ability to sustain and achievesubstantially higher revenue while maintaining reasonable cost and expenselevels. If we fail to achieve profitability, our stock price could decline.

**We may requireadditional capital for our operations, which could have a negative effect onyour investment.**

If our cash proves to beinsufficient to fund our operations, we may need to raise additional funds atsome point in the future. In the three-month period ended April 30, 2005we generated $430,000 of cash, leaving us with a cash, cash equivalent andshort-term investment balance of $19.8 million. If we raise additionalfunds by selling equity or convertible debt securities, our stockholders mayexperience additional dilution and these new securities may have powers,preferences and rights that are senior to those of the rights of our commonstock. We cannot predict whether additional financing will be available onterms favorable to us, or at all. If adequate funds are not available or arenot available on acceptable terms, we may be unable to fund our businessoperations, promote our brand identity, take advantage of acquisitionopportunities, develop or enhance services or respond to competitive pressures.Any inability to do so could have a negative effect on our business, revenues,financial condition and results of operations.

**If our common stockprice falls below and remains under $1.00, or if we otherwise fail to complywith Nasdaq rules, our common stock could be delisted from The NASDAQ NationalMarket, which could severely limit the trading market for our common stock.**

If we fail to meet thecriteria for continued listing on The NASDAQ National Market, our common stockmay be delisted, which could make it more difficult for you to sell yourshares. For example, if the market price for our common stock falls and remainsbelow $1.00 per share for thirty trading days, we would be subject todelisting. On May 31, 2005, the closing price of our common stock was$1.56 per share.

**Thetelecommunications industry continues to experience instability, which maycause consolidation among network service providers and impair our ability toprovide reliable, redundant service coverage and negotiate favorable networkaccess terms.**

The telecommunicationsindustry continues to experience dramatic technological change and increasedcompetition that have led to significant declines in network access pricing. Inaddition, the revenues of network service providers have declined as a resultof the general economic slowdown. Network service providers have experiencedrelated operating difficulties in the last several years, leading to pooroperating results and declarations of bankruptcy by a number of theseproviders. These conditions have already led to attempts at consolidation, andmore service providers may consolidate or otherwise cease operations in thefuture, which would reduce the number of network service providers from whichwe are able to obtain network access. To the extent this were to occur, whilewe would still be able to maintain operations and provide enterpriseconnectivity services with a small number of network service providers, wewould potentially not be able to provide sufficient alternative access pointsin some geographic areas, which could diminish our ability to provide broad,reliable, redundant coverage. Further, our ability to negotiate favorableaccess rates from network service providers could be impaired, which could increaseour network access expenses and impact our operating results.

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**If we fail toenhance our existing products or if new services, products or features weintroduce do not succeed in the marketplace, we will not be able to generatenew revenues and we will have increased costs without the expected returns.**

Our target markets arecharacterized by rapid technological advances, changes in end-userrequirements, and frequent new product introductions. Our future success willdepend on our ability to anticipate or adapt to such changes and to offer, on atimely and cost-effective basis, products that meet changing customer demands.For example, our growth prospects will be determined, among other things, byour ability to grow our new branch office services offering in a highlycompetitive market with a large number of incumbents. We may lack sufficientresources to anticipate technological and market trends, manage longdevelopment cycles or develop, introduce and market new products andenhancements. In addition, we cannot predict whether our products and serviceswill meet with market acceptance or be profitable.

**Our ability tocompete could be jeopardized if we are unable to protect our intellectualproperty.**

Our products and servicesrely upon intellectual property rights. For example, we have been issued UnitedStates Patent Number 5,898,780 dated April 27, 1999 for “Method andApparatus for Authorizing Remote Internet Access,” and have other U.S. patentspending. We cannot assure you that patents will issue from the pendingapplications or, if any patents are issued, that they will be sufficientlybroad to protect our technology adequately. In addition, we have a number oftrademarks and trademark applications and we use copyright and trade secretprotection to protect our software and other original works. Because thetechnology and intellectual property associated with these products areevolving rapidly, current intellectual property rights may not adequatelyprotect us. In addition, despite efforts to protect our proprietary rights,unauthorized parties may attempt to copy or otherwise obtain and use ourproducts or technology. Monitoring unauthorized use of technology is difficult,and we cannot assure you that the steps we have taken will prevent unauthorizeduse of the technology. Moreover, effective patent, trademark, copyright andtrade secret protection may not be available in some countries in which weprovide, or may anticipate providing, our products. Furthermore, ourcompetitors may independently develop similar technologies that limit the valueof our intellectual property. If competitors are able to use our technology,our competitive edge would be reduced or eliminated.

**We may becomeinvolved in litigation regarding intellectual property rights that could becostly, could cause us to lose significant rights, and divert our managementtime and attention.**

In the future, we,or our customers, may become a party to litigation to protect our intellectualproperty or to respond to allegations that we infringe others’ intellectualproperty. We may receive communications from third parties inquiring abouttheir interest in licensing certain of the third party’s intellectual propertyor more generally identifying intellectual property that could be the basis ofa future infringement claim. If a party accuses us of infringing upon itsproprietary rights, we would have to defend our company and possibly ourcustomers against the alleged infringement. These lawsuits, regardless of theirsuccess, would likely be time-consuming and expensive to resolve and woulddivert management’s time and attention. Any potential intellectual propertylitigation could also force us to:

·       stopor delay selling, incorporating or using products that use the challengedintellectual property;

·       obtaina license to sell or use the relevant technology, which license might not beavailable on reasonable terms or at all; and

·       redesignthe products and services that use that technology.

If we are forced to takeany of these actions, it may have a material adverse effect on our business,financial condition and results of operations.

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**Terrorist acts andacts of war may seriously harm our business and revenue, costs and expenses andfinancial condition.**

Terrorist acts or acts ofwar, including military actions in Iraq and other parts of the Middle East andthe geo-political uncertainties in other continents are having an adverseeffect on the U.S. economy and could possibly induce or accelerate the adventof a more severe economic recession. The U.S. government’s political, socialand economic policies and policy changes as a result of these circumstancescould have consequences that we cannot predict, including causing furtherweaknesses in the economy. In addition, as a multi-national company withheadquarters and significant operations located in the United States, we may beimpacted by actions against the United States. We will be predominantlyuninsured for losses and interruptions caused by terrorist acts and acts ofwar. Thus, the long-term impact of these events on our business is uncertain.As a result, our operating results and financial condition could be materiallyand adversely affected.

**Our customersrequire a high degree of reliability in the delivery of our services, and if wecannot meet their expectations for any reason, demand for our products andservices will suffer.**

Our success depends on ourability to assure generally error-free clearinghouse services, uninterruptedoperation of our network and software infrastructure, and a satisfactoryexperience for our customers’ end users. In the past, we have experiencedproblems due to our inability to detect system malfunctions and due to errorsin collecting or processing account usage and settlement data. Due to the highlevel of performance required for critical communications traffic, any failureto deliver a satisfactory experience to end users, whether or not caused by ourown failures, and any failure to provide accurate settlement data in connectionwith acting as a clearinghouse, could reduce demand for our products andservices.

**We depend on ourreseller customers to market Internet-based communications services totheir end users, so if our reseller customers fail to market their serviceseffectively, our revenues may be reduced.**

Our business depends inpart on the efforts and success of our Internet service provider andtelecommunications service customers in marketing Internet-basedcommunications services to their end users. Although we have recently focusedmore heavily on selling to large enterprise customers, the highest percentageof our revenues is derived from our traditional service provider business. Itis important that we maintain a healthy service provider business while weattempt to grow a more expansive enterprise customer base. Recently, we haveexperienced a faster than projected decline in revenues derived from ourservice provider customers. We have little ability to promote our services, orto promote demand for our reseller customers’ services generally. The use ofthe Internet as a medium for communications services remains unproven. If ourreseller customers fail to market their Internet-based communicationsservices effectively, our revenues will be reduced. Similarly, if the marketfor Internet-based communications services fails to grow, or expands moreslowly than anticipated, our revenues will be lower than expected. The Internet-basedservices we provide are relatively new and have not achieved widespread marketacceptance. Network service providers and communication solutions providers maybe reluctant to promote or rely upon our services until they gain greatercommercial acceptance, which may never occur.

**Theunpredictability of our quarterly results may cause the trading price of ourcommon stock to decline.**

Our quarterlyrevenues and operating results have varied in the past and are likely tofluctuate unpredictably in the future for many reasons beyond our control. Anyof these factors could cause our stock price to decline. The primary factorsthat affect revenues and operating results, in addition to the factorsdiscussed elsewhere in this section, include the following:

·       thevolume of transaction-based revenues;

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·       thetiming of deployment of services by our customers;

·       competitivepricing pressure;

·       themix of services used by our customers’ end users;

·       difficultycollecting accounts receivable, particularly from customers based outside theU.S.;

·       changesin global travel patterns due to past and potential future terrorist activitiesin the U.S. and the military responses to them in the Middle East, SouthernAsia and elsewhere; and

·       regulation,domestically and internationally.

Our operating expenses arelargely determined based on our expectations about revenues. A high percentageof our expenses are fixed in the short term. As a result, lower thananticipated revenues for any reason could cause substantial operating losses.

**If we fail toattract and retain qualified sales personnel, our business might be harmed.**

Our success depends in largepart upon our ability to identify, attract and retain qualified salesindividuals. Competition for these individuals is often intense, and we may notbe able to hire the type and number of sales personnel we need. Once qualifiedsalespersons are hired, they require extensive training in our multipleservices solution offering. This training typically covers several weeks offormal in-class and on-the-job instruction. As of May 31, 2005, we had 35sales personnel. If we are unable to retain our current sales employees andtrain new sales personnel as rapidly as necessary, we may not be able toincrease market awareness and sales of our services, which may prevent us fromgenerating revenue and may negatively impact our ability to maintain customerrelationships.

**The uncertaineconomic environment in general could adversely affect our revenue, grossmargins and expenses.**

Our revenues depend inpart on the overall demand for information technology products and services,particularly in the product and service segments in which we compete. Softeningdemand for our products and services caused by the ongoing economic downturnhas resulted in decreased revenue growth rates, and may in the future result indecreased revenue, earnings or growth rates and problems with our ability torealize customer receivables. Global economic and market conditions continue tobe challenging. As a result, companies are delaying or reducing expenditures,including those for information technology. In addition, if our customersexperience financial difficulties, we could suffer losses associated with theoutstanding portion of accounts receivable. The global economic downturncontributed to reported declines in our revenue growth during fiscal year 2004.Further delays or reductions in information technology spending could have amaterial adverse effect on demand for our products and services andconsequently our results of operations, prospects and stock price.

**Security concernsmay deter the use of the Internet for Internet-based communications,which would reduce demand for our products and services.**

The secure transmission ofconfidential information over public networks is a significant barrier towidespread adoption of electronic commerce and communications. The Internet isa public network and information is sent over this network from many sources.Advances in computer capabilities, new discoveries in the field of codebreaking or other developments could result in compromised security on ournetwork or the networks of others. Security and authentication concerns withrespect to the transmission over the Internet of confidential information, suchas corporate access passwords, and the ability of unauthorized computer users,so-called hackers, to penetrate online security systems may reduce 

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thedemand for our services. If any well-publicized compromises of confidentialinformation were to occur, it could reduce demand for Internet-basedcommunications and our products and services.

**Governmentregulations and legal uncertainties regarding the Internet could harm ourbusiness.**

We will be subject tolocal regulations or laws applicable to access to or commerce on the Internet,in addition to regulations applicable to businesses generally. However, theFederal Communications Commission has initiated several proceedings that maychange the regulatory and legal framework for the provision of broadband andInternet services and current and future Federal Communications Commission rules andregulations, as well as judicial interpretations of these rules andregulations, which could negatively affect our business. In addition,international regulatory standards will govern our products and services inforeign markets and could impair our ability to develop products and servicesfor international service providers in the future. We may not be able to obtainor maintain all of the regulatory approvals that may be required to operate ourbusiness. The inability to obtain these approvals, as well as any delays causedby our compliance and our customers’ compliance with regulatory requirements orresulting from uncertainty associated with future regulatory decisions, couldresult in postponements or cancellations of product orders, which wouldsignificantly reduce our revenue.

**Recently enactedand proposed regulatory changes may cause us to incur increased costs.**

Recently enacted and proposed changes in the laws andregulations affecting public companies, including the provisions of theSarbanes-Oxley Act of 2002, will increase our expenses as we evaluate theimplications of new rules and devote resources to respond to the newrequirements. In particular, we expect to incur additional administrativeexpense as we implement Section 404 of the Sarbanes-Oxley Act, whichrequires management to report on, and our independent auditors to attest to,our internal controls. The Sarbanes-Oxley Act mandates, among otherthings, that companies adopt new corporate governance measures and imposescomprehensive reporting and disclosure requirements, sets stricter independenceand financial expertise standards for audit committee members and imposesincreased civil and criminal penalties for companies, their chief executiveofficers, chief financial officers and directors for securities law violations.In addition, The NASDAQ National Market, on which our common stock is listed,has also adopted comprehensive rules and regulations relating to corporategovernance. These laws, rules and regulations have increased and willcontinue to increase the scope, complexity and cost of our corporategovernance, reporting and disclosure practices, which could harm our results ofoperations and divert management’s attention from business operations. We alsoexpect these developments to make it more difficult and more expensive for usto obtain director and officer liability insurance in the future, and we may berequired to accept reduced coverage or incur substantially higher costs toobtain coverage.

Further, our boardmembers, Chief Executive Officer and Chief Financial Officer could face anincreased risk of personal liability in connection with the performance oftheir duties. As a result, we may have difficultly attracting and retainingqualified board members and executive officers, which would adversely affectour business.

**If we fail tomaintain an effective system of internal controls, we may not be able to reportour financial results accurately or detect fraud. As a result, we could besubject to costly litigation, and current and potential shareholders could loseconfidence in our financial reporting, which could harm our business and thetrading price of our common stock.**

Effective internalcontrols are necessary for us to provide reliable financial reports and todetect and prevent fraud. We are currently performing the system and processevaluation required to comply with the management certification and auditorattestation requirements of Section 404 of the Sarbanes-Oxley Act.This evaluation may conclude that enhancements, modifications or changes to ourinternal controls are necessary. Completing this evaluation, performing testingand implementing any required remedial 

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changeswill require significant expenditures in the short term and on a regular basisin the future. We cannot be certain as to the timing of completion of ourevaluation, testing and remediation actions or the impact of the same on ouroperations. We have in the past discovered, and may in the future discover,areas of our internal controls that need improvement. For example, during our2003 audit, our independent registered public accountant brought to ourattention a need to improve the closing process used at our Irvine, Californialocation by formally documenting our policy relating to recognition of revenuesderived from agency arrangements as well as reseller arrangements, ensuringproper recognition of broadband service installation revenues, trainingemployees performing key finance and accounting functions and documentingcertain judgmental accounting matters. Although these items were subsequentlyaddressed, the auditor initially identified these items, collectively, as a “reportablecondition,” which means that they were matters that in the auditor’s judgmentcould adversely affect our ability to record, process, summarize and report financialdata consistent with the assertions of management in the financial statements.During late 2004, we determined that the internal documentation of our revenuerecognition policy was not consistent with our actual practice, which webelieve has been and is consistent with accounting principles generallyaccepted in the United States (“GAAP”). We subsequently revised thisdocumentation to be consistent with our practice. During our 2004 audit, ourindependent registered public accountant noted deficiencies which theyconsidered to be significant in the aggregate, although they noted no mattersinvolving our internal control structure and our operations that theyconsidered to be a material weakness that had a material impact on the true andfair view of our consolidated financial statements. Going forward, thecompletion of our evaluation of internal controls, implemention of any changesthat are necessary, and maintenance of an effective system of internal controlswill be expensive and require considerable management attention. However, if wefail to maintain an effective system of internal controls or prevent fraud, wecould be subject to costly litigation, we may be unable to comply with Section 404of Sarbanes-Oxley, we may be delisted from trading, investors could loseconfidence in our reported financial information and our brand and operatingresults could be harmed, which could have a negative effect on the tradingprice of our common stock.

**The currentregulatory environment affecting accounting principles generally accepted inthe United States is uncertain and volatile, and significant changes in currentprinciples could affect our financial statements going forward.**

Recent actions and publiccomments from the Securities and Exchange Commission have focused on theintegrity of financial reporting generally. In addition, the FinancialAccounting Standards Board (“FASB”) and other regulatory accounting agencieshave recently introduced new accounting standards, such as accounting for stockoptions, and continue to develop new proposed standards, some of which wouldrepresent a significant change from current industry practices. While webelieve that our financial statements have been prepared in accordance withaccounting principles generally accepted in the United States, we cannotpredict the impact of the adoption of any such proposals on our financialstatements going forward. For example, we currently are not required to recordstock-based compensation charges if the employee’s stock option exerciseprice equals or exceeds the fair value of our common stock at the date ofgrant. However, several companies have elected to change their accountingpolicies and begun to record the fair value of stock options as an expense. In December 2004,the FASB issued SFAS 123 Revised, which is effective as of the beginning of thefirst annual reporting period that begins after June 15, 2005. We have notcompleted our evaluation of the impact of adoption of SFAS 123 Revised onour consolidated financial position or results of operations. We expect tocomplete our evaluation during the fourth quarter of fiscal year 2005.

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**Provisions in ourcharter documents might deter a company from acquiring us, which could inhibityour ability to receive an acquisition premium for your shares.**

Provisions of ourcertificate of incorporation, bylaws and Delaware law make it difficult for athird party to acquire us, despite the possible benefit to our stockholders,and this may potentially lower the price of our common stock. These provisionsof our certificate of incorporation and bylaws:

·       authorizethe board to issue preferred stock without stockholder approval;

·       prohibitcumulative voting in the election of directors;

·       limitthe persons who may call special meetings of stockholders; and

·       establishadvance notice requirements for nominations for the election of the board ofdirectors or for proposing matters that can be acted on by stockholders atstockholder meetings.

In addition, we haveelected to remain subject to the anti-takeover provisions of Delaware law.These factors may discourage takeover attempts.

**ITEM3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK**

*Foreign Currency Risk.  *Wehave limited exposure to financial market risks, including changes in foreigncurrency exchange rates and interest rates. Although we have foreign operationsin Europe and Asia, to date, our exposure to foreign currency fluctuations hasnot been material. We primarily invoice and settle in U.S. dollars amongst ourcustomers and providers. We do not participate in any foreign currency hedgingactivities.

*InterestRate Risk.  *Our exposure to interest rate risk relatesprimarily to our investment portfolio. Interest rate risk occurs when we cannothold a purchased investment to its maturity. The weighted-averagematurity of our investment portfolio, when taking into account the resetfeature of floating rate municipal bonds, is limited to 90 days. We intendto have our securities available for sale. We do not expect to recognize anadverse impact on income or cash flows, although there can be no assurance ofthis result. We have established policies and business practices regarding ourinvestment portfolio to preserve principal while obtaining reasonable rates ofreturn without significantly increasing risk. We place investments with highcredit quality issuers according to our investment policy. We do not usederivative financial instruments in our investment portfolio. All investmentsare carried at fair market value at April 30, 2005 and are consideredavailable for sale. Due to the short-term nature of our investments, we believethat there is no material exposure to interest fluctuation. Therefore, noaccompanying table has been provided.

**ITEM 4.   CONTROLS AND PROCEDURES**

*Evaluation of Disclosure Controlsand Procedures*.   Regulations under the SecuritiesExchange Act of 1934 require public companies to maintain “disclosure controlsand procedures,” which are defined as a company’s controls and other proceduresdesigned to ensure that information required to be disclosed in the reportsthat it files or submits under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theCommission’s rules and forms. Our Chief Executive Officer and our ChiefFinancial Officer, based on their evaluation of the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport, concluded that our disclosure controls and procedures were effectivefor this purpose.

*Changes in Internal Controls.  *Duringthe period covered by this report, there were no changes in the Company’sinternal control over financial reporting that materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting. However, we have in the past and intend in the future tocontinue to refine our internal controls on an ongoing basis.

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*Limitationson Effectiveness of Controls and Procedures.  *Ourmanagement, including our Chief Executive Officer and Chief Financial Officer,does not expect that our disclosure controls and procedures or our internalcontrols will prevent all error and all fraud. A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected. Theseinherent limitations include, but are not limited to, the realities thatjudgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts, by collusion of two or more people, or by managementoverride of the control. The design of any system of controls also is based inpart upon certain assumptions about the likelihood of future events and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions; over time, the control may becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitationsin a cost-effective control system, misstatements due to error or fraudmay occur and not be detected.

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**PART II.**   OTHERINFORMATION

**ITEM1.   LEGAL PROCEEDINGS**

We are subject to various legal proceedings and claimsarising in the ordinary course of business. Our management does not expect thatthe results in any of these legal proceedings will have a material adverseeffect on our financial condition, results of operations, or cash flows.

In July and August 2001, we and certain ofour officers were named as defendants in five purported securities class actionlawsuits filed in the United States District Court, Southern District of NewYork, captioned as In re GRIC Communications, Inc. Initial Public OfferingSecurities Litigation, No. 01 Civ 6771 (SAS), and consolidated withmore than three hundred substantially identical proceedings as In re InitialPublic Offering Securities Litigation, Master File No. 21 MC 92 (SAS). TheConsolidated Amended Class Action Complaint for Violation of the FederalSecurities Laws (“Consolidated Complaint”) was filed on or about April 19,2002, and alleges claims against certain of our officers and against CIBC WorldMarkets Corp., Prudential Securities Incorporated, DB Alex. Brown, as successorto Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of ourDecember 14, 1999 initial public offering (“underwriter defendants”),under Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section 10(b) and20(a) of the Securities Exchange Act of 1934, as amended.

Citing several press articles, the ConsolidatedComplaint alleges that the underwriter defendants used improper methods inallocating shares in initial public offerings, and claims the underwriterdefendants entered into improper commission agreements regarding aftermarkettrading in our common stock purportedly issued pursuant to the registration statementfor the initial public offering. The Consolidated Complaint also alleges marketmanipulation claims against the underwriter defendants based on the activitiesof their respective analysts, who were allegedly compromised by conflicts ofinterest. The plaintiffs in the Consolidated Complaint seek damages as measuredunder Section 11 and Section 10(b) of the Securities Act of1933, pre-judgment and post-judgment interest, and reasonable attorneys’ andexpert witnesses’ fees and other costs; no specific amount is claimed in theplaintiffs’ prayer in the Consolidated Complaint. By Order of the Court, noresponsive pleading is yet due, although motions to dismiss on global issuesaffecting all of the issuers have been filed.

In October 2002, certain of our officers anddirectors who had been named as defendants in the In re Initial Public OfferingSecurities Litigation were dismissed without prejudice upon order of thepresiding judge. In February 2003, the presiding judge dismissed the Section 10(b) claimsagainst us and our named officers and directors with prejudice.

From September 2002 through June 2003, weparticipated in settlement negotiations with a committee of issuers’ litigationcounsel, plaintiffs’ executive committee and representatives of variousinsurance companies (the “Insurers”). Our Insurers were actively involved inthe settlement negotiations, and strongly supported a settlement proposalpresented to us for consideration in early June 2003. The settlementproposed by the plaintiffs would be paid for by the Insurers and would disposeof all remaining claims against us.

After careful consideration, we decided to approve thesettlement proposal in July 2003. Although we believe that plaintiffs’claims are without merit, we have decided to accept the settlement proposal(which does not admit wrongdoing) to avoid the cost and distraction ofcontinued litigation. Because the settlement will be funded entirely by ourInsurers, we do not believe that the settlement will have any effect on ourconsolidated financial condition, results or operations or cash flows.

The settlement waspresented to the Court for approval in June 2004. The Court preliminarilyapproved most of the settlement in February 2005, but requested a fewminor modifications be made to its terms. The parties are currently negotiatingthese modifications and intend to present the revised settlement agreement tothe Court shortly. While the Court is expected to finally approve or disapprove

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thesettlement in the coming months, there can be no guarantee that the settlementwill be judicially approved.

**ITEM2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

Not applicable.

**ITEM3.   DEFAULTS UPON SENIOR SECURITIES**

Not applicable.

**ITEM4.**   SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

**The Company held its annual meeting of stockholders onMarch 3, 2005. Following are descriptions of the matters voted on and theresults of such meeting:**
| ** **                                                                                                                                                                    | ** ** | **Votes  For** | ** ** | **Votes  Against** | ** ** | **Votes  Abstained** | ** ** | **Votes  Withheld** | ** ** | **Broker   Non-  Votes** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|--------------------|------------|----------------------|------------|---------------------|------------|-------------------------------|------------|
| 1. Election of Directors                                                                                                                                                      |       |           |       |               |       |                 |       |                |       |                          |       |   |   |
| Additional  Directors                                                                                                                                                         |       |           |       |               |       |                 |       |                |       |                          |       |   |   |
| Dr. Hong Chen                                                                                                                                                            |       | 33,287,337     |       |               |       |                 |       |                |       | 158,601                       |       |   |   |
| James Goodman                                                                                                                                                                 |       | 33,316,979     |       |               |       |                 |       |                |       | 128,959                       |       |   |   |
| Olof Pripp                                                                                                                                                                    |       | 33.275,445     |       |               |       |                 |       |                |       | 170,493                       |       |   |   |
| Murray Rudin                                                                                                                                                                  |       | 33,277,315     |       |               |       |                 |       |                |       | 168,623                       |       |   |   |
| Walter Sousa                                                                                                                                                                  |       | 33,254,363     |       |               |       |                 |       |                |       | 191,575                       |       |   |   |
| Tom Thimot                                                                                                                                                                    |       | 33,170,286     |       |               |       |                 |       |                |       | 275,652                       |       |   |   |
| Gerald Wright                                                                                                                                                                 |       | 33,276,765     |       |               |       |                 |       |                |       | 169,173                       |       |   |   |
| Joseph M. Zaelit                                                                                                                                                              |       | 33,147,957     |       |               |       |                 |       |                |       | 297,984                       |       |   |   |
| 2. Proposal to  ratify the appointment of BDO Seidman, LLP as independent registered public  accounting firm of the Company for the fiscal year ending October 31,  2005 |       | 33.335.980     |       | 58,665             |       |                 | 51,293     |                |       |                          |       |   |   |

 

**ITEM5.   OTHER INFORMATION**

Not applicable.

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**ITEM6.**   EXHIBITS

(a)   Exhibits
| Exhibit    | ** ** | ** **                                                                                                         | ** **                   | **Incorporated by Reference** | ** ** | **Filed or Furnished** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------|------------------------------|-------------------------------|------------|------------------------|
| **Number** | ** ** | ** **                                                                                                         | **Exhibit Description** | ** **                    | **Form**   | ** **             | **File No.** | ** ** | **Exhibit** | ** ** | **Filing Date** | ** ** | **Herewith** |
| 31.01      |       | Rule 13a-14(a)/15d-14a  certification of Registrant’s Chief Executive Officer, dated June 9,  2005. |                         |                          |       |                   |   |   |   |   |   | X |
| 31.02      |       | Rule 13a-14(a)/15d-14a  certification of Registrant’s Chief Financial Officer, dated June 9,  2005. |                         |                          |       |                   |   |   |   |   |   | X |
| 32.01*     |       | Section 1350  certification of Registrant’s Chief Executive Officer, dated June 9,  2005.           |                         |                          |       |                   |   |   |   |   |   | X* |
| 32.02*     |       | Section 1350  certification of Registrant’s Chief Financial Officer, dated June 9,  2005.           |                         |                          |       |                   |   |   |   |   |   | X* |
|            |            |                                                                                                                    |                              |                               |            |                        |  |  |  |  |  |  |  |

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*                    Thesecertifications accompany GoRemote’s Quarterly Report on Form 10-Qfor the quarterly period ended April 30, 2005. These certifications arenot deemed filed with the Securities and Exchange Commission and are not to beincorporated by reference in any filing of GoRemote under the Securities Act of1933 or the Securities Exchange Act of 1934, whether made before or after thedate hereof and irrespective of any general incorporation language in anyfilings.

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, on June 9, 2005.
|            | GoRemote Internet Communications, Inc.                 |
|------------|-------------------------------------------------------------|
| ** ** | /s/  DANIEL W. FAIRFAX                                      |
|       | Daniel W. Fairfax                                           |
|       | Senior Vice  President and Chief Financial Officer          |
|       | (principal  financial officer and  duly authorized officer) |

 

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