**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **(Mark One)**                                                                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                  |   |   |
| **ý**                                                                                                                                                                                                                                            | ** ** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |
| ** **                                                                                                                                                                                                                                            |   |   |
| **For the quarterly period  ended June 30, 2004**                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                            | ** ** | ** ** |
| **or**                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                  |   |   |
| **o**                                                                                                                                                                                                                                                 | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |
| ** **                                                                                                                                                                                                                                            |   |   |
| **For the transition period  from                     to                 ** |
| ** **                                                                                                                                                                                                                                            | ** ** | ** ** |
| **Commission file number: 000-27871**                                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                            |
| **GoRemote Internet Communications, Inc.**                                                                                                                                                                                                       |
| (Exact Name of Registrant as 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 Telephone Number, Including Area Code)                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                       |  |  |  |  |

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes  ý    No  o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

Yes  ý    No  o

 

Thenumber of shares of the registrant’s common stock outstanding as ofJuly 30, 2004 was 41,086,991 shares.

 

 

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**GoRemote Internet Communications, Inc.**

**INDEX**
| ** ** | **PART I  FINANCIAL INFORMATION**                                                                               | ** ** |
|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| Item 1.    | Financial Statements:                                                                                           |       |
|       | Condensed Consolidated Balance Sheets as of  June 30, 2004 and   December 31, 2003               |       |
|       | Condensed Consolidated Statements of  Operations for the Three and Six Months Ended June 30, 2004 and 2003 |       |
|       | Condensed Consolidated Statements of Cash  Flows for the Six Months Ended June 30, 2004 and 2003           |       |
|       | Notes to Condensed Consolidated Financial  Statements                                                           |       |
| Item 2.    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                     |       |
| Item 3.    | Quantitative and Qualitative Disclosures  About Market Risk                                                     |       |
| Item 4.    | Controls and Procedures                                                                                         |       |
|       |                                                                                                            |       |
| ** ** | **PART II  OTHER INFORMATION**                                                                                  | ** ** |
| ** ** | ** **                                                                                                      | ** ** |
| Item 1.    | Legal Proceedings                                                                                               |       |
| Item 2.    | Changes in Securities and Use of Proceeds                                                                       |       |
| Item 3.    | Defaults Upon Senior Securities                                                                                 |       |
| Item 4.    | Submission of Matters to a Vote of Security  Holders                                                            |       |
| Item 5.    | Other Information                                                                                               |       |
| Item 6.    | Exhibits and Reports on Form 8-K                                                                                |       |
| SIGNATURE  |                                                                                                            |

 

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**PARTI****. FINANCIALINFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

 

**GoRemote Internet Communications, Inc.**

**Condensed Consolidated Balance Sheets**

**(in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                                                                   | ** ** | **Jun 30,  2004** | ** ** | **Dec 31,  2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                                                   | ** ** | **(unaudited)**   | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                                                                                                                                                                   |       |              |       |              |       |
| ***Current  assets:***                                                                                                                                                                                                                       |       |              |       |              |       |
| Cash and cash equivalents                                                                                                                                                                                                                    |       | $                 | 2,994      |              | $          | 5,299 |   |
| Short-term investments                                                                                                                                                                                                                       |       | 18,011            |       | 19,913            |       |
| Accounts receivable, net of allowances of  $261 and $949 at June 30, 2004 and December 31, 2003,  respectively                                                                                                                |       | 6,891             |       | 7,446             |       |
| Inventory                                                                                                                                                                                                                                    |       | 147               |       | 158               |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                    |       | 2,119             |       | 1,435             |       |
| Total current assets                                                                                                                                                                                                                         |       | 30,162            |       | 34,251            |       |
| Property and equipment, net                                                                                                                                                                                                                  |       | 2,178             |       | 2,009             |       |
| Goodwill                                                                                                                                                                                                                                     |       | 46,680            |       | 46,680            |       |
| Purchased intangible assets, net                                                                                                                                                                                                             |       | 6,717             |       | 7,467             |       |
| Other assets                                                                                                                                                                                                                                 |       | 1,302             |       | 721               |       |
| Total assets                                                                                                                                                                                                                                 |       | $                 | 87,039     |              | $          | 91,128 |   |
|                                                                                                                                                                                                                                         |       |              |       |              |       |
| **LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                                                                               |       |              |       |              |       |
| ***Current  liabilities:***                                                                                                                                                                                                                  |       |              |       |              |       |
| Accounts payable                                                                                                                                                                                                                             |       | $                 | 5,732      |              | $          | 7,205 |   |
| Accrued compensation and benefits                                                                                                                                                                                                            |       | 1,977             |       | 1,311             |       |
| Current portion of deferred revenue                                                                                                                                                                                                          |       | 1,903             |       | 661               |       |
| Other current liabilities                                                                                                                                                                                                                    |       | 754               |       | 691               |       |
| Current portion of capital lease obligations                                                                                                                                                                                                 |       | —            |       | 14                |       |
| Total current liabilities                                                                                                                                                                                                                    |       | 10,366            |       | 9,882             |       |
| Deferred revenue, less current portion                                                                                                                                                                                                       |       | 1,109             |       | 114               |       |
| Commitments and contingencies                                                                                                                                                                                                                |       |              |       |              |       |
| Stockholders’ equity:                                                                                                                                                                                                                   |       |              |       |              |       |
| Series A redeemable convertible preferred  stock, $0.001 par value: 12,801 shares authorized, no shares issued and  outstanding at June 30, 2004 and 3,019 shares issued and outstanding at  December 31, 2003                |       | —            |       | 3,927             |       |
| Common stock, $0.001 par value; 100,000  shares authorized at June 30, 2004 and December 31, 2003:  40,891 and 37,242 shares issued and outstanding at June 30, 2004  and December 31, 2003, respectively |       | 41                |       | 37                |       |
| Additional paid-in capital                                                                                                                                                                                                                   |       | 213,115           |       | 208,228           |       |
| Deferred stock-based compensation                                                                                                                                                                                                            |       | (464              | )          | (644              | )          |
| Accumulated deficit                                                                                                                                                                                                                          |       | (137,128          | )          | (130,416          | )          |
| Total stockholders’ equity                                                                                                                                                                                                              |       | 75,564            |       | 81,132            |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                              |       | $                 | 87,039     |              | $          | 91,128 |   |

 

See accompanying notes

 

3

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**GoRemoteInternet Communications, Inc.**

**CondensedConsolidated Statements of Operations**

**(inthousands, except per share amounts)****(unaudited)**

 
| ** **                                                   | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six  Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues                                                     |       | $                                      | 12,535     |                                 | $          | 9,858 |   | $ | 25,495 |   | $ | 19,349 |   |
| Costs and  expenses:                                         |       |                                   |       |                                 |       |   |   |   |   |
| Cost of revenues                                             |       | 5,014                                  |       | 4,442                                |       | 10,307 |   | 8,807 |   |
| Network and  operations                                      |       | 2,300                                  |       | 824                                  |       | 4,605 |   | 1,771 |   |
| Research and  development                                    |       | 1,235                                  |       | 554                                  |       | 2,402 |   | 1,199 |   |
| Sales and  marketing                                         |       | 5,678                                  |       | 3,312                                |       | 10,741 |   | 6,009 |   |
| General and  administrative                                  |       | 1,638                                  |       | 1,225                                |       | 3,228 |   | 2,625 |   |
| Amortization of  purchased intangible assets                 |       | 400                                    |       | —                               |       | 800 |   | — |   |
| Amortization of  stock-based compensation (1)                |       | 90                                     |       | 20                                   |       | 180 |   | 61 |   |
| Restructuring  benefit                                       |       | —                                 |       | (79                                  | )          | — |   | (79 | ) |
| Total costs and  expenses                                    |       | 16,355                                 |       | 10,298                               |       | 32,263 |   | 20,393 |   |
| Operating loss                                               |       | (3,820                                 | )          | (440                                 | )          | (6,768 | ) | (1,044 | ) |
| Interest income  and other, net                              |       | 19                                     |       | 75                                   |       | 112 |   | 66 |   |
| Loss before  income taxes                                    |       | (3,801                                 |  )    | (365                                 | )          | (6,656 | ) | (978 | ) |
| Provision for  income taxes                                  |       | 34                                     |       | 11                                   |       | 56 |   | 19 |   |
| Net loss                                                     |       | $                                      | (3,835     | )                                    | $          | (376 | ) | $ | (6,712 | ) | $ | (997 | ) |
|                                                         |       |                                   |       |                                 |       |   |   |   |   |
| Basic and  diluted net loss per share                        |       | $                                      | (0.09      |  )                              | $          | (0.02 | ) | $ | (0.17 | ) | $ | (0.05 | ) |
| Shares used to  compute basic and diluted net loss per share |       | 40,862                                 |       | 21,255                               |       | 40,169 |   | 20,992 |   |

 

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(1) Amortization of stock-based compensation consistsof:

 
| Network and  operations                         |   | $  | 26     |   | $      | 1  |   | $  | 52     |   | $ | 3  |   |
|-------------------------------------------------|--------|----|--------|--------|--------|----|--------|----|--------|--------|---|----|--------|
| Research and  development                       |   | 19 |   | 2      |   | 38 |   | 3  |   |
| Sales and  marketing                            |   | 37 |   | 1      |   | 74 |   | 1  |   |
| General and  administrative                     |   | 8  |   | 16     |   | 16 |   | 54 |   |
| Total  amortization of stock-based compensation |   | $  | 90     |   | $      | 20 |   | $  | 180    |   | $ | 61 |   |

 

See accompanying notes

 

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**GoRemoteInternet Communications, Inc.****CondensedConsolidated Statements of Cash Flows********(inthousands)(unaudited)**

 
| ** **                                                                   | ** ** | **Six Months Ended**    | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                   | ** ** | **June 30,  2004** | ** ** | **June 30,  2003** | ** ** |
| ***Cash flows from  operating activities:***                                 |       |                    |       |   |   |
| Net loss                                                                     |       | $                       | (6,712     | ) | $ | (997 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                    |       |   |   |
| Depreciation and amortization of property and  equipment                     |       | 725                     |       | 300 |   |
| Amortization of stock-based compensation                                     |       | 180                     |       | 61 |   |
| Amortization of intangibles                                                  |       | 800                     |       | — |   |
| Gain on sales of assets                                                      |       | —                  |       | (116 | ) |
| Accounts receivable allowances                                               |       | (235                    | )          | (5 | ) |
| Noncash portion of restructuring benefit                                     |       | —                  |       | (79 | ) |
| Net changes in assets and liabilities:                                       |       |                    |       |   |   |
| Accounts receivable                                                          |       | 790                     |       | (725 | ) |
| Inventory                                                                    |       | 11                      |       | — |   |
| Prepaid expenses and other current assets                                    |       | (684                    | )          | (360 | ) |
| Other assets                                                                 |       | (581                    | )          | 161 |   |
| Accounts payable                                                             |       | (1,473                  | )          | 366 |   |
| Accrued compensation and benefits                                            |       | 666                     |       | 368 |   |
| Deferred revenue                                                             |       | 2,237                   |       | 172 |   |
| Other current liabilities                                                    |       | 63                      |       | (8 | ) |
| Other long-term liabilities                                                  |       | —                  |       | (88 | ) |
| Net cash used in operating activities                                        |       | (4,213                  | )          | (950 | ) |
| ***Cash flows from  investing activities:***                                 |       |                    |       |   |   |
| Available-for-sale investments:                                              |       |                    |       |   |   |
| Purchases                                                                    |       | (13,100                 | )          | (9,150 | ) |
| Maturities                                                                   |       | 15,002                  |       | 5,656 |   |
| Acquisition of intangibles                                                   |       | (50                     | )          | — |   |
| Proceeds from sales of assets                                                |       | —                  |       | 117 |   |
| Capital expenditures                                                         |       | (894                    | )          | (208 | ) |
| Net provided by (used in) investing activities                               |       | 958                     |       | (3,585 | ) |
| ***Cash flows from  financing activities:***                                 |       |                    |       |   |   |
| Payments of capital lease obligations                                        |       | (14                     | )          | — |   |
| Proceeds from sales of common stock, net                                     |       | 964                     |       | 647 |   |
| Net cash provided by financing activities                                    |       | 950                     |       | 647 |   |
| Net decrease in cash and cash equivalents                                    |       | (2,305                  | )          | (3,888 | )  |
| Cash and cash equivalents at beginning of the  period                        |       | 5,299                   |       | 7,314 |   |
| Cash and cash equivalents at end of the period                               |       | $                       | 2,994      |   | $ | 3,426 |   |
|                                                                         |       |                    |       |   |   |
| ***Supplemental  disclosures of cash flow information:***                    |       |                    |       |   |   |
| Income taxes paid                                                            |       | $                       | 42         |   | $ | 20 |   |
| ***Supplemental  disclosures of non-cash investing activities:***            |       |                    |       |   |   |
| Conversion of Series A preferred stock into common  stock                    |       | $                       | 3,927      |   | $ | 784 |   |

 

See accompanying notes

 

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**GoRemote Internet Communications, Inc.**

**Notes to CondensedConsolidated Financial Statements********(unaudited)**

 

**1.****                  ****Basis of Presentation**

 

Thefinancial information at June 30, 2004 and for the three and six monthsended June 30, 2004 and 2003 is unaudited, but includes all adjustments(consisting of normal recurring adjustments) that GoRemote InternetCommunications, Inc. (the “Company” or “GoRemote”) considers necessary fora fair presentation of the financial information set forth herein, inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, the financial information set forth herein does not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for annual financial statements. Theresults for the three and six months ended June 30, 2004 are notnecessarily indicative of the results that may be expected for future periods.

 

Thebalance sheet at December 31, 2003 has been derived from the auditedfinancial statements at that date but does not include all of the informationand footnotes required by accounting principles generally accepted in theUnited States for complete financial statements.

 

Thefollowing information should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2003.  In May 2004, the Company changed itscorporate name from GRIC Communications, Inc. to GoRemote InternetCommunications, Inc. to reflect its current vision and service offerings.

 

**2.****                  ****Summary of SignificantAccounting Policies**

 

*Basis of Presentation.*  The condensed consolidated financialstatements include all the accounts of GoRemote and its wholly ownedsubsidiaries. All significant intercompany balances and transactions have beeneliminated.

 

*Use of Estimates.*  The preparation of the condensed consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

*Foreign Currency Remeasurement.*  The Company considers the functional currencyof its foreign subsidiaries to be the U.S. dollar. Adjustments resulting fromthe process of remeasurement into U.S. dollars of the foreign currencyfinancial statements of the Company’s foreign subsidiaries are included inoperations and have not been material.

 

*Cash Equivalents.*  Cash equivalents consist of certificates ofdeposit, money market funds and commercial paper with maturities of90 days or less at the date of purchase. Cash and cash equivalents arecarried at cost, which approximates market value.

 

*Short-term Investments.*  The Company’s policy is to invest in variousshort-term instruments with investment grade credit ratings. All of theCompany’s investments are classified as available-for-sale, and the Companyviews its available-for-sale portfolio as available for use in its currentoperations. Accordingly, the Company has classified all investments asshort-term, even though the stated maturity date may be one year or more pastthe current balance sheet date. Investments with maturities greater than oneyear are considered short-term and they are classified as available-for-sale inaccordance with Statement of Financial Accounting Standards No. 115,“Accounting for Certain Investments in Debt and Equity Securities” (“SFASNo. 115”).

 

The cost of securities sold is based on the specific identificationmethod. Any realized gains or losses and declines in value, judged to beother-than-temporary, are included in interest income and other. The Companyincludes unrealized gains or losses in comprehensive income in stockholders’equity, if material.

 

*Concentration of Credit Risk.*  Financial instruments that potentiallysubject the Company to concentrations of credit risk consist principally ofcash equivalents, short-term investments and accounts receivable. The Company maintainsits cash and cash equivalents and short-term investments principally indomestic financial institutions of high credit standing. The Company is exposedto credit risks in the event of default by these institutions to the extent ofthe amount recorded on the balance sheet. The credit risk in the Company’saccounts receivable is mitigated by the Company’s credit evaluation process forboth domestic and foreign customers. The Company generally does not requirecollateral and maintains adequate allowances for potential credit losses. Cashequivalents and short-term investments are recorded at fair value. The carryingvalue of accounts receivable approximates fair value due to the short-termnature of this instrument.

 

*Inventories.*  Inventories consist of finished goods and arestated at the lower of cost or market, cost being determined using thefirst-in, first-out method.

 

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*Property and Equipment.*  Property and equipment are stated at cost,net of accumulated depreciation and amortization. Depreciation and amortizationare provided on a straight-line basis over the estimated useful lives of therespective assets, generally over the lease term or two to three years.

 

*Impairment of Long-Lived Assets and IntangibleAssets.*  TheCompany evaluates the carrying amount of its long-lived assets, includingpurchased intangible assets, when events or changes in business circumstanceshave occurred, which indicate the carrying amount of such assets may not befully realizable. Determination of impairment is based on an estimate ofundiscounted future cash flows resulting from the use of the assets and theireventual disposition. If the Company determines that any of these assets havebeen impaired, the impairment charge is recorded based on a comparison of thenet book value of the assets and the fair value. The fair value of the assetsis determined by either discounted future cash flows resulting from the use ofthe assets over their average remaining useful lives or specific appraisal.

 

*Goodwill.*  Goodwill represents the excess of thepurchase price of an acquired enterprise or assets over the fair value of theidentifiable assets acquired and liabilities assumed. The Company does notamortize goodwill, but tests for impairment of goodwill on an annual basis andat any other time if events occur or circumstances indicate that the carryingamount of goodwill may not be recoverable.

 

Circumstances that could trigger an impairment test include, but arenot limited to, a significant adverse change in the business climate or legalfactors, an adverse action or assessment by a regulator, unanticipatedcompetition or loss of key personnel. In addition, the Company assessesgoodwill for recoverability if its market capitalization is less than the valueof its net assets. If the carrying amount of the goodwill exceeds the impliedfair value of that goodwill, an impairment loss is recorded in net earnings(loss). Goodwill was not considered impaired as of June 30, 2004.

 

*Purchased Intangible Assets.*  Purchased intangible assets consist ofcustomer relationships, internal use software and other purchased intangiblessuch as domain names. Intangible assets are amortized on a straight-line methodbasis over the estimated useful lives ranging from 1 to 5 years. Purchasedintangible assets were not considered impaired as of June 30, 2004.

 

*Revenue Recognition.*  Revenues are recognized when a bindingagreement or purchase order from the customer has been received, the serviceshave been delivered, the fee or price was fixed or determinable, the collectionof the receivable is reasonably assured, and no significant post-deliveryobligations remained. The Company derives revenues primarily from remoteInternet access services to customers through its virtual network and byproviding monthly security and support services and monthly connectivityservices for broadband Internet remote access customers.  Remote Internet access services are generallybilled on a per-minute basis for usage or at a flat rate per month per userbased on negotiated rates. The Company has some customers with minimumcommitment arrangements, which 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.  Revenues from monthly connectivity servicesfor broadband remote access are recognized as earned and amounts billed inadvance are recorded as deferred revenue if collected. Revenues from securityand support services are recognized in the month the service is provided.  Revenues from licenses of the Company’sauthentication software, related maintenance and support services, and otheroptional services related to its GoRemote Mobile Office offering are recognizedratably over the life of the contract under which they are provided, whichtypically ranges from 1 to 12 months. Revenues from installation services andthe sale of equipment related to broadband Internet remote access services andmanaged security services are recognized ratably over 24 months, the expectedterm of the user relationship.

 

The Company records estimated allowances against revenues in the sameperiod the revenues are recorded. These estimated allowances are based uponhistorical analysis of the Company’s credit memo data and other known factorsfor pricing and transaction volume disputes that arise in the normal course ofbusiness. To date, allowances pertaining to our current business have not beensignificant.

 

The Company treats the incremental direct costs of installationservices related to broadband Internet remote access services and managedsecurity services (which consist primarily of customer premise equipment andinstallation and service activation fees paid to broadband providers andtelecommunications companies) as deferred charges in amounts that do not exceedthe upfront fees that are deferred. The deferred incremental direct costs ofinstallation services are amortized to cost of revenues ratably over 24 months,the expected term of the user relationship.

 

From time to time, the Company’s customers, including significantcustomers, may seek protection under bankruptcy laws. When this occurs, theCompany determines its risk that an account receivable will prove to beuncollectible, and establishes appropriate allowances for that contingency asnecessary. In addition, for each continuing customer in bankruptcy, the Companyevaluates the creditworthiness of the customer and determines whether revenueshould be recognized on an accrual basis or when cash payments are received.When revenue is recorded on an accrual basis, the Company has based itsjudgment on the creditworthiness of the debtor-in-possession, its paymentexperience, and whether the collectability of receivables is reasonablyassured, in addition to other revenue recognition criteria having been met.

 

*Allowance for Doubtful Accounts.*  The Company maintains allowances for doubtfulaccounts for estimated losses resulting from the inability of its customers tomake required payments. In order to estimate the appropriate level ofallowance, the Company analyzes historical bad debts, customer concentrations,customer credit-worthiness, current economic trends and changes in its

 

7

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customer payment patterns. If the financial condition of its customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required.

 

*Research and Development.*  Research and development costs, primarilyrelated to the development of software, are expensed as incurred untiltechnological feasibility has been established. To date, the software developedby the Company has generally been available for general release concurrent withthe establishment of technological feasibility and, accordingly, no softwaredevelopment costs have been capitalized.

 

*Stock-based Compensation.*  The Company accounts for employee stock-basedcompensation in accordance with Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”),using an intrinsic value approach to measure compensation expense, if any.Under APB No. 25, the Company generally recognizes no compensation expense withrespect to such awards. Appropriate disclosures using a fair-value basedmethod, as provided by Statement of Financial Accounting StandardsNo. 123.  “Accounting forStock-Based Compensation” (“SFAS No. 123”), are also reflected herein.Options issued to non-employees are accounted for in accordance with SFAS No.123 using a fair value approach.

 

Pro forma information regarding net income and earnings per share isrequired by SFAS No. 123 and has been determined as if the Company hadaccounted for awards to employees under the fair value method of SFASNo. 123. The fair value of stock options under the Company’s 1999 EquityIncentive Plan and stock purchase plan rights under the Company’s 1999 EmployeeStock Purchase Plan (“Purchase Plan”) was estimated as of the grant date usingthe Black-Scholes option-pricing model.

 

The fair values of stock options granted during the three and sixmonths ended June 30, 2004 and 2003 were estimated at the date of grantassuming no expected dividends and the following weighted average assumptions.

 

##### ***Stock Options***

 
| ** **                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **2004**                              | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Expected life (years)           |       | 5.09                                  |       | 2.09                                |       | 4.94 |   | 2.04 |   |
| Expected stock price volatility |       | 4.48                                  |       | 2.50                                |       | 5.66 |   | 1.94 |   |
| Risk-free interest rate         |       | 2.61                                  | %          | 2.62                                | %          | 2.81 | % | 2.76 | % |
|                            |       |                                  |       |                                |       |   |   |   |   |
| *Stock Purchase*                |       |                                  |       |                                |       |   |   |   |   |
|                            |       |                                  |       |                                |       |   |   |   |   |
| ** **                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                      | ** ** | **2004**                              | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Expected life (years)           |       | 0.50                                  |       | 0.49                                |       | 0.50 |   | 0.50 |   |
| Expected stock price volatility |       | 2.88                                  |       | 0.77                                |       | 3.94 |   | 0.77 |   |
| Risk-free interest rate         |       | 1.68                                  | %          | 2.46                                | %          | 1.37 | % | 2.46 | % |

 

For purposes of pro forma disclosures, the estimated fair value ofstock-based awards is amortized on a straight line basis against pro forma netloss over the stock-based awards’ vesting period for options and over theoffering period for stock purchases under the Purchase Plan.

 

The Company’s pro forma information is as follows:

 
| ** **                                                         | ** ** | **Three Months Ended June 30,**          | ** ** | **Six Months Ended June 30,**            | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **2004**                                      | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                         | ** ** | **(in thousands, except per  share amounts)** | ** ** | **(in thousands, except per share  amounts)** | ** ** |
| Net loss as reported                                               |       | $                                             | (3,835     | )                                             | $          | (376 | ) | $ | (6,712 | ) | $ | (977 | ) |
| Add: Amortization of stock compensation  measured under APB No. 25 |       | 90                                            |       | 20                                            |       | 180 |   | 61 |   |
| Less: Stock-based compensation expense  measured under FAS No. 123 |       | (1,441                                        | )          | (1,219                                        | )          | (2,795 | ) | (1,953 | ) |
| Pro forma net loss                                                 |       | $                                             | (5,186     | )                                             | $          | (1,575 | ) | $ | (9,327 | ) | $ | (2,869 | ) |
|                                                               |       |                                          |       |                                          |       |   |   |   |   |
| Basic and diluted net loss per share                               |       | $                                             | (0.09      | )                                             | $          | (0.02 | ) | $ | (0.17 | ) | $ | (0.05 | ) |
| Pro forma basic and diluted net loss per  share                    |       | $                                             | (0.13      | )                                             | (0.07      | ) | $ | (0.23 | ) | $ | (0.14 | ) |

 

Calculated under SFAS No. 123, the weighted-average fair values ofthe employee stock options granted during the three months ended June 30,2004 and 2003 were $2.93 and $2.24 per share, respectively, and during the sixmonths ended June 30, 2004 and 2003, were $4.27 and $1.94,respectively.  The weighted-averageestimated fair value of shares purchased under the Purchase Plan during thethree months ended June 30, 2004 and 2003 were $4.48 and $0.66,respectively, and during the six months ended June 30, 2004 and 2003, were$5.13 and $0.54 per share, respectively.

 

8

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*Income Taxes.*  The Company accounts for income taxes underthe provisions of Statement of Financial Accounting Standards No. 109,“Accounting for 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 Loss Per Share.*  Net loss per common share and diluted netloss per share are presented in conformity with Statement of FinancialAccounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”)for all years presented.

 

In accordance with SFAS No. 128, basic and diluted net loss pershare has been computed using the weighted-average number of shares of commonstock outstanding during the period. Potentially dilutive securities have beenexcluded from the computation of basic and diluted net loss per share, as theireffect is antidilutive.

 

Weighted-average options outstanding to purchase approximately 7.9million and 6.3 million shares of common stock for the three months endedJune 30, 2004 and 2003, respectively, and approximately 7.7 million and5.7 million shares of common stock for the six months ended June 30, 2004and 2003, respectively, were not included in the computation of diluted net lossper share because the effect would be antidilutive. The increase inweighted-average options outstanding for the three and six months ended June30, 2004, respectively, compared to the same periods in 2003, respectively, wasprimarily due to the grant of new options to the Company’s employees andassumption of options held by former Axcelerant, Inc. (“Axcelerant”) employeesin connection with the Company’s acquisition of Axcelerant. Such securities,had they been dilutive, would have been included in the computation of dilutednet loss per share using the treasury stock method.

 

*Indemnifications*.  The Company from time to time enters intotypes of contracts that contingently require the Company to indemnify partiesagainst third party claims. These contracts primarily relate to: (i)divestiture agreements, under which the Company may provide customaryindemnifications to purchasers of the Company’s assets; (ii) real estateleases, under which the Company may be required to indemnify property ownersfor environmental and other liabilities, and other claims arising from theCompany’s use of the applicable premises; (iii) agreements with the Company’sofficers, directors and employees, under which the Company may be required toindemnify such persons for liabilities arising out of their employmentrelationship; and (iv) agreements with customers and resellers, under which theCompany may provide customary indemnifications against claims that its productsand services infringe certain copyrights, patents or trademarks, or incorporatemisappropriated trade secrets. 

 

The terms of such obligations vary. Generally, a maximum obligation isnot explicitly stated, except for indemnifications involving infringement ofthird party intellectual property rights. Because the obligated amounts ofthese types of agreements often are not explicitly stated, the overall maximumamount of the obligations cannot be reasonably estimated. Historically, theCompany has not been obligated to make any payments for these obligations, andno liabilities have been recorded for these obligations on its balance sheet atJune 30, 2004.

 

*Reclassifications*.  To conform to the 2004 presentation, $114,000previously reported on the 2003 consolidated balance sheet under currentliabilities as the current portion of deferred revenue has been reclassified bythe Company and is now included in long-term liabilities under deferredrevenue.

 

**3. Business Combination**

 

On December 1, 2003, the Company completed its acquisition ofAxcelerant, a privately held provider of broadband Internet remote accessservices and managed security services. The Company acquired Axcelerant toextend its service offerings, enhance retention of existing customers andimprove its ability to obtain new enterprise customers. The purchase price was$58.6 million and the transaction was accounted for as a purchase.

 

The purchase price is not final and may be adjusted for a period of oneyear from the transaction close date based on higher than expected acquisitioncosts or unforeseen liabilities. A total of approximately 1.5 millionshares of the total consideration that was to be delivered to Axcelerant’sstockholders as a result of the acquisition has been set aside as an escrowfund, serving as collateral for the indemnification obligations of Axcelerantstockholders. The Company may make claims against the escrow fund throughDecember 1, 2004.

 

The results of operations of Axcelerant have been included in theCompany’s financial statements subsequent to the date of acquisition.

 

*Deferred Stock-based Compensation.  *The intrinsic valueof unvested stock options assumed as a result of the Axcelerant acquisition ofapproximately $674,000 have been allocated to deferred stock-based compensationand is being amortized to expense on a straight-line basis over the vestingperiod. The Company assumed options from Axcelerant to purchase a total ofapproximately 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.

 

9

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**4. Property and Equipment, Intangible Assets and Other Assets**

 

*Property and Equipment*

 

Property and equipment comprised the following:

 
| ** **                                      | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                            |       |                    |       |                        |       |
| Computer hardware                               |       | $                       | 6,190      |                        | $          | 7,843 |   |
| Software                                        |       | 4,696                   |       | 4,241                       |       |
| Office furniture and equipment                  |       | 1,761                   |       | 1,726                       |       |
| Leasehold improvements                          |       | 422                     |       | 418                         |       |
|                                            |       | 13,069                  |       | 14,228                      |       |
|                                            |       |                    |       |                        |       |
| Less accumulated depreciation and  amortization |       | (10,891                 | )          | (12,219                     | )          |
| Total                                           |       | $                       | 2,178      |                        | $          | 2,009 |   |

 

*Purchased Intangible Assets*

 

Purchased intangible assets are carried at cost less accumulatedamortization. Amortization of purchased intangible assets is computed using thestraight-line method over their expected useful lives ranging from one to fiveyears.

 

Purchased intangible assets consisted of the following (in thousands):

 
| ** **                    | ** ** | **June 30,  2004** | ** ** |
|-------------------------------|------------|-------------------------|------------|
|                          |       |                    |       |
| Customer relationships        |       | $                       | 7,500      |   |
| Internal use software         |       | 100                     |       |
| Website URL                   |       | 50                      |       |
|                          |       | 7,650                   |       |
| Less accumulated amortization |       | (933                    | )          |
| Total                         |       | $                       | 6,717      |   |

 

*Other Assets*

 

The Company entered into an agreement with a wireless service providerduring 2001 for the exchange of services, which resulted in a prepayment forfuture wireless services and the obligation by the Company to provide futureInternet roaming services.  DuringSeptember 2003, because these assets had not yet been utilized, theCompany and the provider amended the underlying agreement to modify the scopeof their business relationship and extend the term of the agreement untilSeptember 2007, thus permitting the Company to utilize the assets duringthe extended term. As a result of this amended agreement, the Company enteredinto a nonmonetary transaction for the exchange of prepaid wireless servicesfor prepaid roaming services and wireless cards. Because this nonmonetarytransaction did not represent a culmination of an earnings process, no revenuesor expenses have been, or will be recorded by the Company pursuant to thistransaction. In addition, there was no indicated loss on this exchange ofservices. As of June 30, 2004, there was $537,000 of the asset remainingto be utilized, which the Company believes will be utilized over the period ofthe agreement.

 

**5. Commitments and Contingencies**

 

#### *Lease Commitments. *The Company leases all of its facilities underoperating leases that expire at various dates through 2008. As of June 30,2004, the Company had $3.4 million in future operating lease commitments.

####  

*Purchase Commitments. *The Company hasentered into certain non-cancelable purchase commitments from suppliers whoprovide network access, software and related services that are utilized by theCompany in order to deliver its GoRemote MobileOffice solution. As ofJune 30, 2004, the Company had $2.7 million in future purchase commitmentsthat expire at various dates through 2005.

 

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*Legal Matters. *The Company issubject to various legal proceedings and claims arising in the ordinary courseof business. The Company’s management does not expect that the results in anyof these legal proceedings will have a material adverse effect on the Company’sconsolidated financial condition, results of operations, or cash flows.

 

In July and August 2001, the Company and certain of itsofficers were named as defendants in five purported securities class action lawsuitsfiled in the United States District Court, Southern District of New York,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). The Consolidated Amended Class Action Complaint for Violation of theFederal Securities Laws (“Consolidated Complaint”) was filed on or about April 19,2002, and alleges claims against certain of the Company’s officers and againstCIBC World Markets Corp., Prudential Securities Incorporated, DB Alex. Brown,as successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc.,underwriters of the Company’s December 14, 1999 initial public offering(“underwriter defendants”), under Sections 11 and 15 of the Securities Actof 1933, as amended, and under Section 10(b) and 20(a) of the SecuritiesExchange Act of 1934, as amended.

 

Citing several press articles, the Consolidated Complaint alleges thatthe underwriter defendants used improper methods in allocating shares ininitial public offerings, and claim the underwriter defendants entered intoimproper commission agreements regarding aftermarket trading in the Company’scommon stock purportedly issued pursuant to the registration statement for theinitial 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 of 1933,pre-judgment and post-judgment interest, and reasonable attorneys’ and expertwitnesses’ 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 the Company’s officers and directorswho 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 theSection 10(b) claims against the Company and its named officers anddirectors with prejudice.

 

From September 2002 through June 2003, the Companyparticipated in settlement negotiations with a committee of Issuers’ litigationcounsel, plaintiffs’ executive committee and representatives of variousinsurance companies (the “Insurers”). The Company’s Insurers were activelyinvolved in the settlement negotiations, and strongly supported a settlementproposal 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 approved the settlementproposal in July 2003. Although the Company believes that plaintiffs’claims are without merit, it decided to accept the settlement proposal (whichdoes not admit wrongdoing) to avoid the cost and distraction of continued litigation.Because the settlement will be funded entirely by its Insurers, the Companydoes not believe that the settlement will have any effect on the Company’sconsolidated financial condition, results or operations or cash flows.

 

The settlement was presented to the Court for approval inJune 2004. While the Court is expected to approve or disapprove thesettlement in the coming months, there can be no guarantee that the settlementwill be judicially approved.

 

**6.****                  ****Segment Information**

 

TheCompany operates in one segment, providing a global remote access solution forcorporate enterprises with mobile and remote workforces and for the Company’sservice provider resellers and value-added resellers.

 

Thefollowing is a summary of revenue by geographical area for the periodspresented:

 
| ** **                              | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                              | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                              | ** ** | **(in thousands)**                   | ** ** | **(in thousands)**                 | ** ** |
| Revenue by external customers:          |       |                                 |       |                               |       |   |   |   |   |
| United States, Canada and Latin America |       | $                                    | 8,703      |                               | $          | 5,454 |   | $ | 17,356 |   | $ | 10,479 |   |
| Japan/Korea                             |       | 1,906                                |       | 2,637                              |       | 4,226 |   | 5,221 |   |
| Asia Pacific                            |       | 892                                  |       | 792                                |       | 1,758 |   | 1,649 |   |
| Europe, Middle East and Africa          |       | 1,034                                |       | 975                                |       | 2,155 |   | 2,000 |   |
|                                    |       | $                                    | 12,535     |                               | $          | 9,858 |   | $ | 25,495 |   | $ | 19,349 |   |

 

11

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Thefollowing is a summary of long-lived assets by geographical area for theperiods presented:

 
| ** **         | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **         | ** ** | **(in thousands)**      | ** ** |
| Long-lived assets: |       |                    |       |                        |       |
| United States      |       | $                       | 56,048     |                        | $          | 56,633 |   |
| Rest of World      |       | 63                      |       | 72                          |       |
|               |       | $                       | 56,111     |                        | $          | 56,705 |   |

 

Revenue by external customer is based on the customer’s billinglocations. Long-lived assets are those assets used in each geographiclocation.  For the three and six monthsended June 30, 2004, one customer and two customers, respectively,accounted for 10% or more of the Company’s total consolidated revenues.

 

**7.****                                      Stockholder’sEquity**

 

*Series A Redeemable Convertible PreferredStock.*  Duringthe three months ended June 30, 2004 and 2003, zero and 286,000 shares,respectively, and during the six months ended June 30, 2004 and 2003, 3.0million and 602,000 shares, respectively, of Series A Preferred Stock wereconverted into common stock.  No sharesof Series A Preferred Stock were outstanding at June 30, 2004.

 

*Series A Preferred Stock Warrants. *No Series APreferred Stock warrants were exercised during the three and six months endedJune 30, 2004.  Series A PreferredStock warrants for 42,000 shares were exercised during the three and six monthsended June 30, 2003.  Warrants topurchase 1.5 million shares of Series A Preferred Stock were outstanding atJune 30, 2004.

 

*Stock Repurchase Program.*InSeptember 2001, the Board of Directors approved a program to expend up to$2.0 million to repurchase shares of the Company’s common stock in openmarket transactions. The Company purchased 110,000 shares for approximately$99,000 during 2001. Although the program approval remains in effect, theCompany repurchased no additional shares during 2002, 2003 or during the threeand six months ended June 30, 2004.

 

**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

*The following discussion should be read inconjunction with the selected consolidated financial information and theconsolidated financial statements and notes appearing elsewhere in this Form10-Q. The following discussion contains forward-looking statements, such asstatements of expected revenues and expenses that involve risks anduncertainties. We assume no obligation to update any such forward-lookingstatements. Our actual results could differ materially from those anticipatedin these forward-looking statements. Factors that could cause or contribute tosuch differences include, but are not limited to, those detailed from time totime in our filings with the Securities and Exchange Commission and thosediscussed in this Form 10-Q, particularly in this Management’s Discussion andAnalysis of Financial Condition and Results of Operations and under “FactorsThat May Affect Future Results.”*

 

*Unless expressly stated or the contextotherwise requires, the terms “we”, “our”, “us”, “the Company” and “GoRemote”refer to GoRemote Internet Communications, Inc. and its subsidiaries as awhole.*

 

**Overview**

 

We provide secure managed broadband and remote access solutions toenterprises and service providers. Our solutions enable enterprises tosecurely, reliably, and cost-effectively extend their corporate networks andapplications to mobile and remote workers outside the corporate firewall. Theseworkers include mobile professionals such as sales professionals, projectmanagers and engineers; teleworkers, including call center agents;telecommuters; and employees in branch offices and retail settings. We providecomprehensive and integrated managed broadband and global remote accessservices that include: intelligent client software; multiple network accesstypes, including broadband, Wi-Fi and dial-up; security capabilities thatensure security policy compliance by remote workers; a real-time remote accessmanagement console; end-to-end managed and value-added services includingmanaged security services; and design, deployment, monitoring, and technicalsupport. Our products and services enable enterprises to reduce the cost,complexity and risk of remote office networking, while maximizing theproductivity of mobile and remote workers.

 

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In December 2003, we acquired Axcelerant, Inc., a privately-heldprovider of broadband Internet remote access services and managed securityservices.  In May 2004, we changed ourcorporate name from GRIC Communications, Inc. to GoRemote InternetCommunications, Inc. to reflect our current vision and service offerings. OnAugust 2, 2004, we announced the appointment of Tom Thimot to serve as ourPresident and Chief Executive Officer, replacing Bharat Davé, who resigned inlate July.

 

The majority of our revenue comes from providing settlement andclearing-house services for our customers. We provide services over a heterogeneousvirtual network known as the GoRemote Global Network. As of August 1,2004, the GoRemote Global Network included more than 33,000 Internetaccess-dialing locations, over 12,000 public wireless fidelity—or WiFi—hotspotsand approximately 1,400 public broadband access points in approximately 150countries. Through the acquisition of Axcelerant, we added a virtual broadbandcable modem and DSL network that spans the United States and Canada. Thisnetwork is an aggregation of the networks of more than 150 broadband providers,including virtually all of the leading cable companies, ILECs and CLECs in theUnited States. By utilizing this network, we are able to provide comprehensivecoverage in the United States for enterprises requiring broadband branch officeand broadband teleworker solutions. We created the GoRemote Global Network byforming contractual relationships with over 500 access providers — Internetservice providers, cable companies, DSL companies and telecommunicationcompanies. These providers, which we refer to as the GoRemote Global Networkmembers, are able to share their communications networks. Our customers, whoare enterprises, 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 have established common technical, serviceand payment standards to settle charges that our customers incur when their endusers access the network facilities of GoRemote Global Network members toconduct Internet-based communications, such as Internet roaming. We intend tocontinue developing our service offering to introduce new Internet-based remotecommunications services that may be adopted, deployed and managed on a globalscale across the GoRemote Global Network.

 

We have incurred substantial losses since our inception as a result ofexpenses associated with building the GoRemote Global Network and relatednetwork infrastructure, developing our software products and marketing oursolutions to our customers. We had an accumulated deficit of approximately$137.1 million as of June 30, 2004. We cannot assure you that we will achieveor sustain profitability. See “Factors That May Affect Future Results—We have ahistory of net losses and may incur future losses.”

 

Our business model has evolved in the course of our development and webelieve that period-to-period comparisons of our operating results should notbe relied upon as indicative of future performance. Our future prospects mustbe considered in light of the risks, expenses and difficulties frequentlyencountered by companies in the early stages of development, particularlycompanies in new and rapidly evolving markets. See “Factors That May AffectFuture Results—We have limited experience in our business, which makes it moredifficult for us to execute our business plan and for you to evaluate us.”

 

**Critical Accounting Policies and Estimates**

 

The methods, estimates and judgments we use in applying our mostcritical accounting policies have a significant impact on the results we reportin our consolidated financial statements. We evaluate our estimates andjudgments on an on-going basis. We base our estimates on historical experienceand on assumptions that we believe to be reasonable under the circumstanceswhen made. Our experience and assumptions form the basis for our judgmentsabout the carrying value of assets and liabilities and reported amounts ofrevenues and expenses that are not readily apparent from other sources. Actualresults may vary from what we anticipate, and different assumptions orestimates about the future could change our reported results. We believe thefollowing accounting policies are the most critical to us, because they areimportant to the portrayal of our financial statements and they require ourmost difficult, subjective or complex judgments in the preparation of ourconsolidated financial statements.

 

*Revenue Recognition and Related Allowances.*  We enter into agreements to sell our managedbroadband and global access solutions, which may include one or more of ourservices and product offerings. Revenues are recognized when a bindingagreement or purchase order from the customer has been received, the serviceshave been delivered, the fee or price is fixed or determinable, the collectionof the receivable was reasonably assured, and no significant post-deliveryobligations remain. Our revenue recognition policy is one of our criticalaccounting policies because revenue is a key component of our results ofoperations and is based on complex rules, which require us to make certainjudgments and estimates. In applying our revenue recognition policy we mustdetermine which portions of our revenues are recognized currently and whichportions must be deferred. In order to recognize revenue, we make judgments andestimates with regard to the revenues earned for services—including relatedinstallation services and products—and maintenance services, as well as thetiming of the delivery of such services and products. In addition, we provideservices over a heterogeneous virtual network, which was created by formingcontractual relationships with over 500 access providers — Internetservice providers, cable companies, DSL companies and telecommunicationscompanies. These companies may provide us their services under either areseller or an agency arrangement. In applying our revenue recognition policywe must make judgments and estimates with regard to the specific facts andcircumstances surrounding each provider relationship to determine which portionof our revenues we provide under a reseller arrangement, where we would recordgross revenues and cost of revenues, and which portion of our revenues weprovide as an agent, where we would record revenues and cost of revenuescombined on a net basis. We base our estimates on historical experience and onvarious other assumptions believed to be applicable and reasonable under thecircumstances. These estimates may change as new events occur, as additionalinformation is obtained and as our operating environment changes, any of whichcould cause a material impact on the revenues that we have reported.

 

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Our services for remote Internet access are generally billed on aper-minute basis for usage or at a flat rate per month per user based onnegotiated rates for which we recognize revenue in the month the services areprovided. Our solutions may also include installation services, the sale ofcustomer premise equipment and managed security services related to ourbroadband services offerings. Revenue from broadband installation services andthe sale of related equipment is deferred and recognized ratably over a24-month period. We consider these services and products to be an enabler ofthe related remote access service contracts and we estimate that, on average,our customer’s remote broadband access workers use our services for a period ofapproximately 24 months. Revenues from managed security services are recognizedin the month the service is provided. To a lesser extent, we also derive aportion of our revenues from licenses of our authentication software, relatedmaintenance and support services, and other optional services related to ourremote access solutions which are recognized ratably over the term of service,which is typically 1 to 12 months. These other revenues amounted to fivepercent or less of total revenues over the last three years.  Amounts billed in advance of revenuerecognition are recorded to deferred revenue as collected. We have somecustomers with minimum commitment arrangements. We record such revenue in themonth that we determine that minimum commitments have not been met and forwhich revenue recognition criteria have been met. We recognize certainbroadband connectivity revenues generated under agency arrangements on a netbasis.

 

We record estimated allowances against revenues in the same period therevenues are recorded. These estimates are based upon historical analysis ofour credit memo data and other known factors for pricing and transaction volumedisputes that arise in the normal course of business. To date, allowancespertaining to our current business have not been significant. If the historicaldata we use to calculate these estimates does not accurately reflect amountsassociated with future disputes, our actual revenues could be higher or lowerthan what we have recognized.

 

From time to time our customers, including significant customers, mayseek protection under bankruptcy laws. While we assess the credit-worthiness ofour customers on an on-going basis, when such a bankruptcy event occurs, ourmanagement determines our risk that an account receivable will prove to beuncollectable, and establishes appropriate allowances for that contingency asnecessary. In addition, for each continuing customer in bankruptcy managementevaluates the creditworthiness of the customer and determines whether revenueshould be recognized on an accrual basis or when cash payments are received.When we record revenue on an accrual basis, management has based their judgmenton the creditworthiness of the debtor-in-possession, their payment experienceand whether the collectability of receivables is reasonably assured, inaddition to other revenue recognition criteria having been met.

 

*Allowance for Doubtful Accounts.*  We maintain allowances for doubtful accountsfor estimated losses from our customers’ inability to make payments they oweus. In order to estimate the appropriate level of this allowance, we analyzehistorical bad debts, customer concentrations, current customercredit-worthiness, current economic trends and changes in our customer paymentpatterns. If the financial condition of our customers were to deteriorate andto impair their ability to make payments to us, additional allowances might berequired in future periods. If our estimates prove too low, our bad debtexpense will increase.

 

*Valuation of Long-Lived Assets includingIntangible Assets.* We evaluate the carrying amount of our long-lived assets, includingpurchased intangible assets, whenever events or circumstances indicate theamount of the assets may not be recoverable. Determination of impairment ofproperty and equipment, goodwill and intangible assets is highly subjective andrequires significant judgment at many points during the analysis. This analysisis based on our estimate of future cash flows that the assets are expected togenerate and their eventual disposition. If we determine that any of theseassets have been impaired, the impairment charge will be charged to earnings inthe period such determination is made.

 

*Valuation of Goodwill.*  We test goodwill for possible impairment onan annual basis and at any other time if events occur or circumstances indicatethat the 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.

 

**Business Combination**

 

On December 1, 2003, we completed our acquisition of Axcelerant, aprivately-held provider of broadband Internet remote access services and managedsecurity services. Our acquisition of Axcelerant did not result in a newreportable segment. The results of operations of Axcelerant have been includedin our financial statements subsequent to the date of the acquisition. See Note3 “Business Combination” of “Notes to Condensed Consolidated FinancialStatements.”

 

14

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**Results of Operations**

**Three and Six Month Periods EndedJune 30, 2004 Compared to Three and Six Month Periods Ended June 30,2003**

 

*Overview of the Second Quarter of 2004*

 

During the second quarter of 2004, we continued to develop our businessfrom being based principally on an indirect sales model — as it was in thesecond quarter of 2003 when we principally sold our services on a wholesalebasis through large telecommunications companies and service providers — to amodel under which we sell a significant portion of our services directly orthrough VARs to enterprise customers. During the second quarter of fiscal 2004 and fiscal 2003, 49% and 16%,respectively, of our quarterly revenues were derived from services sold toenterprise customers both directly and indirectly through our VARs. Wecontinued our focus on acquiring and serving enterprise customers by enhancingthe quality and breadth of the GoRemote Global Network and increasing the valueof our solution offering by delivering new products such as our management andadministrative console for enterprise IT departments and our end–to–end remoteaccess security solution. As a result of our December 2003 acquisition ofAxcelerant, the GoRemote Global Network now also includes a virtual broadbandcable and DSL network that spans the United States and Canada. By aggregatingthe networks of more than 150 broadband providers, we are able to provideenterprise branch offices and teleworkers with comprehensive broadband coveragein North America.

 

In the second quarter of 2004, our revenues, expenses and gross margineach increased over the second quarter of 2003. Revenues were higher primarilydue to the addition of managed broadband revenues that resulted from ouracquisition of Axcelerant. Cost of revenues was lower as a percentage ofrevenues principally as a result of sales to enterprise customers representinga higher percentage of our total revenues during the first quarter of 2004. Ouroperating expenses were higher in the second quarter of 2004 than in the secondquarter of 2003 principally due to the addition of personnel at our Irvine,California facility that resulted from our acquisition of Axcelerant and ourincreased investment in enterprise focused sales and marketing efforts.   We expect our quarterly operating expensesto decrease in absolute dollar terms in the third quarter of 2004 as wecontinue to improve our operating efficiency in support of our enterprisecustomer base. During August 2004, we intend to develop a plan to return toprofitability and build sustainable revenue growth.  In the course of developing this plan, weexpect to identify additional cost savings measures to be implemented duringthe second half of 2004.

 

We continue to focus on delivering innovative services for ourcustomers to drive revenues and achieve positive earnings. In fiscal 2004 weplan to release additional new value added services, which we expect willaugment the revenues we derive from our existing customers and, together withexpanding the global footprint of the GoRemote Global Network, drive revenuesfrom new enterprise customers. Several factors will impact our ability toachieve and sustain profitability, including the effectiveness of our sales andmarketing efforts through both direct and VAR sales channels, the timelyrelease of new services and the introduction of new services by existing or newcompetitors.  Currently, we do not expectto be profitable during 2004.  For adiscussion of these and other risk factors, see the section titled“Factors That May Affect Future Results.”

 

*Revenues*

 
| ** ** | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** ** | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** ** | ** ** | **(in millions)**                    | ** ** | **(in millions)**                  | ** ** |
|       |       |                                 |       |                               |       |   |   |   |   |
| Revenues   |       | $                                    | 12.5       |                               | $          | 9.9 |   | $ | 25.5 |   | $ | 19.3 |   |
|            |            |                                      |            |                                    |            |  |  |  |  |  |  |  |  |

 

Total revenues increased approximately $2.7 million in the three monthsended June 30, 2004, compared to the three months ended June 30,2003, which represented an increase of 27%. The increase was principally due to the addition of broadband revenuesduring the three and six months ended June 30, 2004.  Approximately 31% and 28% of our revenues forthe three and six months ended June 30, 2004, respectively, were generatedfrom sales of broadband and Wi-Fi services. Fiberlink Communications Corporation accounted for 11% of ourconsolidated revenues during the three months ended June 30, 2004.  Sony Communication Network Corporation andFiberlink Communications Corporation, both of which are service providerresellers, each accounted for 11%, of our consolidated revenues during the sixmonths ended June 30, 2004. Fiberlink is both a customer and in certain markets a competitor ofGoRemote, principally with respect to our dialup remote access offering.  Our experience in the first half of 2004showed us that the decline in dialup revenues from service providers may occurat a more rapid pace than previously projected.

 

We expect 2004 revenues to exceed 2003 revenues, based on both sales tonew customers and sales of additional services, such as our newer broadbandteleworker and branch office solutions and managed security service offering,to our existing customers, partially offset by competitive pricing pressures onour legacy Internet access services and a decline in dial-up usage.

 

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*Costs and Expenses*

 
| ** **                               | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                      | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                               | ** ** | **(in millions)**                             | ** ** | **(in millions)**                           | ** ** |
|                                     |       |                                          |       |                                        |       |   |   |   |   |
| Cost of revenues                         |       | $                                             | 5.0        |                                        | $          | 4.4 |   | $ | 10.3 |   | $ | 8.8 |   |
| Percentage of revenues                   |       | 40.0                                          | %          | 45.1                                        | %          | 40.4 | % | 45.5 | % |
| Network and operations                   |       | $                                             | 2.3        |                                        | $          | 0.8 |   | $ | 4.6 |   | $ | 1.8 |   |
| Percentage of revenues                   |       | 18.3                                          | %          | 8.4                                         | %          | 18.1 | % | 9.2 | % |
| Research and Development                 |       | $                                             | 1.2        |                                        | $          | 0.6 |   | $ | 2.4 |   | $ | 1.2 |   |
| Percentage of revenues                   |       | 9.9                                           | %          | 5.6                                         | %          | 9.4 | % | 6.2 | % |
| Sales and Marketing                      |       | $                                             | 5.7        |                                        | $          | 3.3 |   | $ | 10.7 |   | $ | 6.0 |   |
| Percentage of revenues                   |       | 45.3                                          | %          | 33.6                                        | %          | 42.1 | % | 31.1 | % |
| General and administrative               |       | $                                             | 1.6        |                                        | $          | 1.2 |   | $ | 3.2 |   | $ | 2.6 |   |
| Percentage of revenues                   |       | 13.1                                          | %          | 12.4                                        | %          | 12.7 | % | 13.6 | % |
| Amortization of purchased intangibles    |       | $                                             | 0.4        |                                        | $          | — |   | $ | 0.8 |   | $ | — |   |
| Percentage of revenues                   |       | 3.2                                           | %          | —                                      | %          | 3.1 | % | — | % |
| Amortization of stock-based compensation |       | $                                             | 0.09       |                                        | $          | 0.02 |   | $ | 0.2 |   | $ | 0.06 |   |
| Percentage of revenues                   |       | 0.7                                           | %          | 0.2                                         | %          | 0.7 | % | 0.3 | % |
| Restructuring recovery                   |       | $                                             | —     |                                        | $          | (0.08 | ) | $ | — |   | $ | (0.08 | ) |
| Percentage of revenues                   |       | —                                        | %          | 0.1                                         | %          | — | % | 0.4 | % |

 

*Cost of Revenues.*  Cost of revenues consists of amounts we payto access the Internet in order to provide remote Internet access services forour customers and to offer other mobile broadband services.

 

Cost of revenues increased approximately $572,000 in the three monthsended June 30, 2004 compared to the three months ended June 30, 2003,representing an increase of 13%.  Theincrease was primarily due to the inclusion of three months of the cost ofbroadband revenues following our acquisition of Axcelerant, offset by decreasedvolumes of remote Internet access. Additionally, we expensed license and maintenance cost related to ournew client software in the amount of approximately $157,000 offset by thereversal of an accrual related to unbilled service provider charges from priorperiods. Cost of revenues increased approximately $1.5 million in the six monthsended June 30, 2004 compared to the six months ended June 30, 2003,representing an increase of 17%.  Weexpect that for the remainder of 2004 the cost of revenues will increase inabsolute dollars as remote Internet access revenues and broadband revenuesincrease, but be similar to the quarter ending December 31, 2003 as apercentage of revenues.

 

*Network and Operations.*  Network and operations expenses consist ofsalaries and benefits, depreciation on network equipment, allocated facilityand management information systems expenses, administrative expenses, costs ofco-location of network equipment and leased telecommunication lines and otherrelated costs.

 

Network and operations expenses increased approximately $1.5 million inthe three months ended June 30, 2004 compared to the three months endedJune 30, 2003, representing an increase of 179%. The increase wasprimarily due to an increase in compensation and benefits-related expenses ofapproximately $1.0 million and increased facility allocation of approximately$214,000, both of which are primarily related to the inclusion of three monthsof network and operations expenses incurred in our Irvine, California facilityfollowing our acquisition of Axcelerant. Additionally, there was approximately $41,000 of increased professionalfees related to post-acquisition integration activities and improving networksystems and a reduction of depreciation expense in the three months endedJune 30, 2003 of approximately $74,000 related to property and equipmentadjustments that related to prior periods, which did not reoccur in 2004.  Network and operations expenses increasedapproximately $2.8 million in the six months ended June 30, 2004 comparedto the six months ended June 30, 2003, representing an increase of 160%.  The increase was primarily due to an increasein compensation and benefits-related expenses of approximately $2.0 million andincreased facility allocation of approximately $468,000, both of which areprimarily related to the inclusion of three months of network and operationsexpenses incurred in our Irvine, California facility following our acquisitionof Axcelerant.  We expect the network andoperations expenses to decrease in absolute dollars and as a percentage ofrevenues during the remainder of 2004 as we become more efficient in deployingnew customers and in our customer service operations.

 

*Research and Development.*  Research and development expenses consist ofsalaries and benefits, allocated facility and management information systems,depreciation costs, outside consultants, facilities costs, administration andother related costs.

 

Research and development expenses increased approximately $681,000 inthe three months ended June 30, 2004 compared to the three months endedJune 30, 2003, representing an increase of 123%.  The increase was primarily due to an increasein compensation and benefits expenses of approximately $212,000 primarilyrelated to the inclusion of three months of research and

 

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development expenses incurred in our Irvine, California facilityfollowing our acquisition of Axcelerant, and approximately $213,000 related toincreased compensation costs due to adding staff in the United States and Indiain order to service our growing enterprise customer base. In addition,engineering consulting fees increased by approximately $55,000 and a reductionof depreciation expense in the three months ended June 30, 2003 ofapproximately $87,000 related to property and equipment adjustments thatrelated to prior periods, which did not reoccur in 2004.  Research and development expenses increasedapproximately $1.2 million in the six months ended June 30, 2004 comparedto the six months ended June 30, 2003, representing an increase of 100%.  The increase was primarily due to an increasein compensation and benefits expenses of approximately $465,000 primarilyrelated to the inclusion of six months of research and development expensesincurred in our Irvine, California facility following our acquisition ofAxcelerant, and approximately $342,000 related to increased compensation costsdue to adding staff in the United States and India. In addition, engineeringconsulting fees increased by approximately $133,000.  We expect research and development expensesto decrease in absolute dollars and as a percentage of revenues during theremainder of 2004 as we continue to shift staff from our U.S. headquarters toour development center in India where engineering talent is available at morefavorable rates.

 

*Sales and Marketing.*  Sales and marketing expenses consist ofsalaries and benefits, allocated facility and management information systemscosts, travel and entertainment costs, costs for marketing and promotionalprograms, outside consultants, commissions earned by sales and marketingpersonnel, and costs associated with domestic and international sales officesand other related costs.

 

Sales and marketing expenses increased $2.4 million in the three-monthperiod ended June 30, 2004 compared to the three-month period endedJune 30, 2003, representing an increase of 71%. The increase was primarilydue to an increase in compensation and benefits of approximately $1.2 millionrelated to our increased sales force and marketing personnel, an increase of approximately$666,000 in marketing and promotional activities, an increase of approximately$118,000 in travel and entertainment expenses, and an increase of approximately$94,000 in outside consulting services as we expanded our marketing activities.  In addition, allocated facilities costs andadministrative expenses increased by approximately $200,000 and a reduction ofdepreciation expense in the three months ended June 30, 2003 ofapproximately $79,000 related to property and equipment adjustments thatrelated to prior periods, which did not reoccur in 2004.  Sales and marketing expenses increased $4.7million in the six-month period ended June 30, 2004 compared the six-monthperiod ended June 30, 2003, representing an increase of 79%.  The increase was primarily due to an increasein compensation and benefits of approximately $2.3 million related to ourincreased sales force and marketing personnel, an increase of approximately$1.3 million in marketing and promotional programs, an increase of approximately$319,000 in travel and entertainment expenses, and an increase of approximately$235,000 in outside consulting services as we expanded our marketingactivities.  In addition, allocatedfacilities costs and administrative expenses increased by approximately$403,000.  We expect the overall amountof sales and marketing expenses to decrease for the remainder of 2004 inabsolute dollars and as a percentage of revenues as we improve the productivityof our sales force and refine our advertising and marketing strategy.

 

*General and Administrative.*  General and administrative expenses consistof general corporate and facility costs as well as salary, benefits and relatedcosts for executive, finance, legal, administrative, human resources, investorrelations and management information systems functions and provisions foruncollectible receivables.

 

General and administrative expenses increased approximately $413,000 inthe three months ended June 30, 2004 compared to the three months endedJune 30, 2003, representing an increase of 34%. The increase was primarilydue to higher compensation and benefits expenses of approximately $386,000principally due to the inclusion of three months of general and administrativeexpenses incurred in our Irvine, California facility following the acquisitionof Axcelerant, approximately $308,000 of increased professional fees primarilyrelated to services provided by our independent auditors and services forSarbanes-Oxley compliance activities. Additionally, there was a reduction of depreciation expense in the threemonths ended June 30, 2003 of approximately $62,000 related to propertyand equipment adjustments that related to prior periods, which did not reoccurin 2004. These increases were offset by a reduction of the allowance fordoubtful accounts of approximately $235,000 and a $66,000 reduction ininsurance costs.  General andadministrative expenses increased approximately $603,000 in the six monthsended June 30, 2004 compared to the six months ended June 30, 2003,representing an increase of 23%.  Theincrease was primarily due to higher compensation and benefits expenses ofapproximately $665,000 principally due to the inclusion of six months ofgeneral and administrative expenses incurred in our Irvine, California facilityfollowing the acquisition of Axcelerant, approximately $561,000 of increasedprofessional fees primarily related to services provided by our independentauditors and Sarbanes-Oxley compliance consultants.  These increases were partially offset by approximately$408,000 for non-recurring costs related to payments made in connection withthe resignation of our former Chief Executive Officer during the first quarterof 2003.  We expect the amount of generaland administrative expenses to increase during 2004 in absolute dollars whilewe complete the integration of our Irvine, California operations and updateback office processes and procedures company-wide to implement the requirementsof the Sarbanes-Oxley Act of 2002 and related regulations, but to stayapproximately the same as a percentage of revenues.

 

*Amortization of Purchased Intangibles.*  Amortization of purchased intangiblesincludes three and six months of amortization of the intangible assets acquiredin connection with the acquisition of Axcelerant.  The value assigned to Axcelerant customerrelationships was $7.5 million, which is amortized on a straight-line basisover a five-year life at a rate of $125,000 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.

 

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*Amortization of Stock-Based Compensation.*  Some stock options previously granted throughDecember 14, 1999 were considered compensatory because the deemed fairvalue for accounting purposes was higher than the stock option exercise priceas determined by the board of directors on the date of grant. Additionally, inconnection with of our acquisition of Axcelerant, we recorded $674,000 ofadditional deferred stock-based compensation, which will be amortized over thevesting period of the underlying stock options assumed during the acquisition.As a result, we recorded amortization of deferred compensation expense of$90,000 and $20,000 during the three months ended June 30, 2004 and 2003,respectively, and $180,000 and $61,000 during the six months endedJune 30, 2004 and 2003, respectively. We expect to record amortization ofdeferred compensation expense of approximately $359,000 in 2004, related tooptions assumed by us in connection with our acquisition of Axcelerant.

 

As of June 30, 2004, we had an aggregate of $464,000 of deferredcompensation related to the acquisition of Axcelerant that remained to beamortized. Deferred compensation is amortized on a straight-line basis over thevesting period of the options. We expect amortization of stock-basedcompensation to end in 2007.

 

*Interest Income and Other, Net and Taxes*

 

Interest income and other, net, interest expense and taxes for thethree and six months ended June 30, 2004 and 2003 were as follows:

 
| ** **                     | ** ** | **For the three months ended  June 30,** | ** ** | **For the six months ended  June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2004**                                      | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                     | ** ** | **(In thousands)**                            | ** ** | **(In thousands)**                          | ** ** |
|                           |       |                                          |       |                                        |       |   |   |   |   |
| Interest income and other, net |       | $                                             | 19         |                                        | $          | 75 |   | $ | 112 |   | $ | 66 |   |
| Provision for income taxes     |       | $                                             | 34         |                                        | $          | 11 |   | $ | 56 |   | $ | 19 |   |

 

*Interest Income and Other, Net*

 

Interest income and other, net, primarily represents interest income oncash balances and on short-term investments, gain on disposition of assets andsales, use and value-added tax.

 

Interest income and other, net, decreased $56,000 in the three monthsended June 30, 2004 compared to the three months ended June 30,2003.  This decrease is primarily due toapproximately $21,000 loss on foreign currency re-measurement, a reduction ininterest income of approximately $11,000 in interest income due to lowerinterest rate yields and a gain on the disposition of an asset recorded in2003, which did not reoccur in 2004. Interest income and other, net, increased $46,000 in the six monthsended June 30, 2004 compared to the six months ended June 30, 2003.The increase primarily reflects higher sales, use and value-added tax ofapproximately $177,000 during 2003 offset by a gain on the sale of assets ofapproximately $116,000 during 2003, which did not reoccur in 2004.

 

*Income Taxes*

 

The provision for income taxes was $34,000 and $11,000 for the threemonths ended June 30, 2004 and 2003, respectively, and was $56,000 and$19,000 for the six months ended June 30, 2004 and 2003,respectively.  The provision for incometaxes consists of foreign tax provisions and state taxes.

 

**Liquidity and Capital Resources**

 
| ** **                                           | ** ** | **June 30,**  | ** ** |
|------------------------------------------------------|------------|--------------------|------------|
| ** **                                           | ** ** | **2004**           | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in thousands)** | ** ** |
|                                                 |       |               |       |   |   |
| Cash and cash equivalents                            |       | $                  | 2,994      |   | $ | 3,426 |   |
| Net cash used in operating activities                |       | (4,213             | )          | (950 | ) |
| Net cash provided by (used in) investing  activities |       | 958                |       | (3,585 | ) |
| Net cash provided by financing activities            |       | 950                |       | 647 |   |
|                                                      |            |                    |            |  |  |  |  |

 

*Cash and Cash Equivalents.*  Our principal source of liquidity is ourcash, cash equivalents and short-term investments. As of June 30, 2004, inaddition to our cash and cash equivalents balance of $3.0 million, we had ashort-term investment balance of approximately $18.0 million.

 

*Operating Activities. *Net cash used inoperating activities in the six months ended June 30, 2004 of $4.2 millionwas primarily a result of our net operating losses of $6.7 million, decreasedaccounts payable balances of approximately $1.5 million and increased prepaidexpenses and other assets of $1.3 million primarily related to deferredinstallation costs offset by increased deferred revenues of approximately $2.2million primarily related to deferred installation revenues, an increase ofapproximately $1.7 million

 

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in depreciation, amortization of intangibles and stock-basedcompensation and lower accounts receivable balances of approximately $790,000from increased collection activities. We expect the number of days it takes forus to collect our accounts receivable to lengthen from the periods experiencedhistorically, primarily due to the longer payment cycles generally associatedwith enterprise customers and the increasing percentage of our revenue baserepresented by such customers.

 

*Investing Activities.*  Net cash provided by investing activitiesduring the six months ended June 30, 2004 of approximately $958,000 wasprimarily the result of liquidation of certain short-term instruments offset bycapital expenditures of approximately $894,000.

 

*Financing Activities.*  Net cash provided by financing activitiesduring the six months ended June 30, 2004 of approximately $950,000 wasprimarily the result of proceeds of sales of common stock to our employees andoption holders.

 

*Commitments.*  We lease all of our facilities underoperating leases that expire at various dates through 2008. We have enteredinto certain purchase commitments from suppliers who provide network access,software and related services that are utilized by us in order to deliver ourproducts and services solution.

 

During 2004, we expect to increase capital equipment expenditures inabsolute dollars as compared to 2003 while we complete the back officeautomation and integration of Axcelerant and update certain other back officeprocesses and procedures required for us to efficiently run our business.  We also expect to provide certain customerpremise equipment under a monthly service arrangement for a fee.

 

The future minimum operating lease and purchase commitments were asfollows at June 30, 2004:

 
| ** ** | ** ** | **Operating  Leases** | ** ** | **Purchase  Commitments** | ** ** |
|------------|------------|-----------------------|------------|---------------------------|------------|
| ** ** | ** ** | **(in thousands)**    | ** ** |
|       |       |                  |       |                      |       |
| 2004       |       | $                     | 982        |                      | $          | 626 |   |
| 2005       |       | 993                   |       | 1,124                     |       |
| 2006       |       | 784                   |       | 921                       |       |
| 2007       |       | 561                   |       | —                    |       |
| 2008       |       | 90                    |       | —                    |       |
| Thereafter |       | —                |       | —                    |       |
|       |       | $                     | 3,410      |                      | $          | 2,671 |   |

 

*Indemnifications.*  From time to time we enter into types ofcontracts that contingently require us to indemnify parties against third partyclaims. These contracts primarily relate to: (i) divestiture agreements,under which we may provide customary indemnifications to purchasers of ourassets; (ii) real estate leases, under which we may be required toindemnify property owners for environmental and other liabilities, and otherclaims arising from our use of the applicable premises; (iii) agreementswith our officers, directors and employees, under which we may be required toindemnify such persons for liabilities arising out of their employmentrelationship; and (iv) agreements with customers and resellers, underwhich we may provide customary indemnifications against claims that ourproducts and services infringe certain copyrights, patents or trademarks, orincorporate misappropriated trade secrets.

 

The terms of such obligations vary. Generally, a maximum obligation isnot explicitly stated, except for indemnifications involving infringement ofthird party intellectual property rights. Because the obligated amounts ofthese types of agreements often are not explicitly stated, the overall maximumamount of the obligations cannot be reasonably estimated. Historically, we havenot been obligated to make any payments for these obligations, and noliabilities have been recorded for these obligations on our balance sheet as ofJune 30, 2004.

 

*Summary of Liquidity.*  We believe that our available cash, cashequivalents and short-term investments of $21.0 million at June 30, 2004and cash expected to be generated by operations during the next twelve months,will fund planned operations for at least the next twelve months. We utilized$1.4 million and $4.2 million in cash during the three and six months endedJune 30, 2004, respectively.

 

We plan to invest in expanding our remote access solutions, on a globalbasis, by continuing to build strategic partnering relationships. This willrequire us to maintain market acceptance, and to grow our remote accesssolutions offerings in order for us to continue our research and developmentactivities and fund planned operating expenses. There can be no assurance thatour remote access solutions offerings will maintain market acceptance, growth andoperating margins.

 

If we are unable to attain our revenue and margin goals, significantreductions in spending and the delay or cancellation of planned activities ormore substantial restructuring may be necessary to enable us to meet our cashrequirements through the next 12 months. These actions could have a materialadverse effect on our business, results of operations and prospects.Furthermore, we may need to raise additional funds in future periods throughpublic or private financing, or other arrangements, to fund operations andpotential acquisitions, if any. If additional financing is needed, it might notbe available on reasonable terms or at all. Failure to raise capital whenneeded could seriously harm our business and results of operations. Ifadditional funds were raised through the issuance of equity securities, thepercentage of ownership of our stockholders would be reduced. Furthermore,these equity securities might have rights, preferences or privileges senior toour common stock.

 

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**Factors That May Affect Future Results**

 

In addition to the information in this Quarterly Report on Form 10-Q,the following should be considered in evaluating GoRemote and our business.

 

**If we fail in our strategy of focusing oursales efforts on larger companies, our revenue and profitability goals willlikely not be achieved.**

 

Historically, a significant portion of our revenues was derived fromsmaller companies 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 our business,such as the longer sales cycles and higher levels of service and support thatlarger accounts generally require. Some of our competitors with greaterfinancial resources than ours have focused their sales efforts on selling tolarge enterprises for a longer period of time with more success than we haveexperienced, which adds to the risk of our strategy.  In July 2004, our senior vice presidentof worldwide sales resigned, which may make execution of this strategy moredifficult.  If we fail in this strategy,or if we have underestimated the costs of this strategy, we will likely missour revenue and profitability goals.

 

**The markets that we serve are highlycompetitive and there is no assurance that we will be able to achieve ormaintain profitability.**

 

We are aware of many companies in related markets that addressparticular aspects of the features and functions that our products provide.Currently, we compete directly with iPass and Fiberlink CommunicationsCorporation in the market for Internet roaming and related settlement services,and each of iPass and Fiberlink has a network that competes with the GoRemoteGlobal Network. In addition, iPass has greater cash resources than we do andeach of iPass and Fiberlink has a larger sales force than our own dedicated toenterprise sales. Large communications service providers such as AT&T, Equantand MCI also have the ability and resources to compete with us in theInternet-based mobile office communications services market. In the mobilebroadband services market, our primary competitors include Megapath, ePresenceand Netifice. Many of our competitors have longer operating histories, greatername recognition or larger customer bases, which they may leverage in order toobtain more favorable volume discounts from suppliers. In addition, thesecompetitors may be able to undertake more extensive marketing efforts, adoptmore aggressive pricing policies and provide more favorable payment terms tocustomers than we can, which could limit our opportunities to obtain newcustomers or cause us to lose our existing customers.

 

**If we are unable to increase revenuesassociated with broadband services, our ability to grow our business will beimpaired.**

 

Until our acquisition of Axcelerant in December 2003, we generatedour remote Internet access services revenues almost exclusively from the saleof services based on dialup access—a narrowband technology. In some countries,including the United States, the use of narrowband as a primary means of remoteaccess is expected to decline over time as broadband access technologies, suchas cable modem, DSL and Wi-Fi, become more widely adopted and used. Ourexperience in the first half of 2004 showed us that the decline in dialuprevenues from service providers may occur at a more rapid pace than previouslyprojected.  Although we have recentlybegun to generate revenues from managed broadband access following ouracquisition of Axcelerant, the future growth of our business may depend inlarge part upon our ability to expand the broadband elements of our virtualnetwork and generate broadband revenues at a substantially higher level andgrowth rate. We may not succeed in this expansion and we may not generatesubstantial new revenues, which could harm our results and cause our stockprice to decline.

 

**Our business strategy has shifted over timeand remains unproven, so the success of our strategy cannot be assured.**

 

Our business strategy has changed over time. For example, we ceased tobe an Internet service provider in 1997 and abandoned our Internet telephonyservices business in 2001. We have pursued our current business—remote access,managed security and related mobile office services—for a relatively briefperiod and in markets that are rapidly changing. We have only been offeringmanaged broadband services to enterprises with branch offices and largeteleworker populations since December 2003, following our acquisition ofAxcelerant. There can be no assurance that we will succeed in our efforts tomake our current business profitable, and there can be no assurance that ourrecent acquisition of Axcelerant will make us more likely to succeed.

 

**We recentlyappointed a new chief executive officer, which may lead to other unanticipateddepartures of executives and other key personnel.**

 

OnAugust 2, 2004, we announced the appointment of Tom Thimot to serve as ourPresident and Chief Executive Officer, replacing Bharat Davé who resigned inlate July.  Our Senior Vice PresidentWorldwide Sales resigned earlier in July. It is possible that these executive changes will lead to the departureof other executives, senior managers or other key personnel.  Because our 

 

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managementteam is relatively small, any single departure can have a significantimpact.  Unanticipated departures ofadditional executives and other key personnel could make it more difficult forus to run our business and execute on our strategic goal of returning toprofitability and building sustainable revenue growth.

 

**Since we have no assurance that customerswill continue to use our services or that our customer base will expand, wewill have little ability to predict revenue growth or operating results.**

 

Our customers are generally free to use competing products and servicesand dialup remote access prices are declining, so we could face significantcustomer losses, at unpredictable times. We had one customer in the threemonths ended June 30, 2004 that accounted for more than ten percent of ourrevenues, Fiberlink Communications Corporation (11%). We had two customers inthe six months ended June 30, 2004 that each accounted for more than tenpercent of our revenues, Sony Communication Network Corporation (11%) andFiberlink Communications Corporation (11%). This concentration of revenue fromtwo customers, each of which principally purchases our dialup remote accessservice, makes our business more risky. Losing either of these customers could result in a significant revenueshortfall for us. In addition, large customers have significant negotiatingpower during contract discussions or in the event of a customer dispute, whichmay make it more likely that the terms of the customer arrangement orsettlement may be more favorable to the customer. We are in direct competitionwith Fiberlink, which makes it more likely that revenues from Fiberlink willdecline in the future. These factors make it difficult to anticipate the levelof our future revenues from existing customers. In addition, our successdepends on our ability to expand and diversify the composition of our customerbase. If we are unable to expand our customer base and increase our averagerevenues per customer, our business success will be less likely.

 

**If we cannot effectively integrateAxcelerant’s operations with our own operations, we will not realize thepotential benefits of our recent merger.**

 

The integration of Axcelerant into our company has been and continuesto be a time consuming and expensive process and may disrupt our operations ifit is not completed in a timely and efficient manner.  If this integration effort is not successful,our results of operations could be harmed, employee morale could decline, keyemployees could leave and customers could cancel existing orders or choose notto place new ones. In addition, we may not achieve anticipated synergies orother benefits of the merger. Having completed the merger, we must now operatea single organization utilizing common information and communication systems,operating procedures, financial controls and human resources practices. We mayencounter the following difficulties, costs and delays involved in fullyintegrating Axcelerant’s operations into our operations:

 

•                                          failureof customers to accept new services of the combined company;

 

•                                          potentialincompatibility of technologies and systems; and

 

•                                          potentialdifficulties in successfully integrating the employees of GoRemote andAxcelerant;

 

•                                          managingour growth and managing larger, more geographically dispersed operations;

 

•                                          perceivedadverse changes in business focus; and

 

•                                          theloss of key employees and diversion of the attention of management from otherongoing business concerns.

 

**We may not succeed in cost-effectivelyautomating, integrating and updating critical back office systems andprocesses, which could limit our ability to achieve and maintain profitability.**

 

Historically, we have invested in the automation of back office systemsand processes in order to enable us to cost effectively grow our traditionalmobile office communications business. The back office systems and process ofAxcelerant, whose business we acquired in December 2003, are largelymanual. In order to efficiently provision, support and service our customers,we will be required to cost-effectively update, automate and, whereappropriate, integrate these systems and processes. We will need to ensure thatthe combined company’s financial reporting, financial controls anddocumentation processes meet all applicable financial controls certificationstandards, such as Section 404 of the Sarbanes-Oxley Act. We mayunderestimate the investments required to accomplish this automation,integration, updating and certification. We may not succeed in this effort,which could impair our ability to scale our operations, limit our growth andlessen the likelihood that we would achieve profitability.

 

**The market price of our common stock hastraditionally been highly volatile, and if we do not meet the expectations ofanalysts, the market price of our common stock could decline further.**

 

In the past, the price of our common stock has experienced large swingsup and down. As of August 1, 2004, our common stock is valued less than itwas at the time of the closing of our acquisition of Axcelerant. Thisvolatility might occur again in the future. Volatility can arise particularlyin response to quarter-to-quarter variations in the actual or anticipatedfinancial results of us or

 

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our customers or competitors, and announcements that our competitors orwe make regarding new product and service introductions. The market price ofour common stock can also fluctuate in response to price and volumefluctuations in the stock market, particularly those that affect the marketprices of technology stocks.

 

In addition, the market price of our common stock is subject to declineif we do not achieve the expected benefits of the Axcelerant acquisition asquickly as anticipated or the costs of or operational difficulties arising fromthe merger are greater than anticipated.

 

**We have incurred significant losses to dateand expect to continue to incur losses for some period of time. If we fail togenerate sufficient revenue to achieve and sustain positive cash flow orprofits, our stock price will decline.**

 

We have incurred significant losses to date and we expect to continueto incur losses for some period of time. We incurred operating losses beforeincome taxes of approximately $1.8 million for 2003, $5.0 million for 2002 and$31.6 million for 2001. As of June 30, 2004, we had an accumulated deficitof $137.1 million and incurred a loss of $3.8 million for the quarter thenended.

 

We have experienced negative cash flows in each year since ourinception in 1994, and we expect to continue to do so for some time in thefuture. In addition, we may also incur significant new costs related topossible acquisitions, the development of new products and services, theintegration of new technologies or the update of old technologies. Moreover, wemight not be able to achieve operating profitability on a quarterly or annualbasis. To achieve profits, we will need to maintain our relationships withexisting customers, generate additional revenue growth from our existingcustomers and obtain new customers, while continuing to control our expenses.We expect to continue to invest in network and operations, research and developmentand sales and marketing, and we expect to face pressure to adopt new pricingarrangements, including volume discounts, that may lower our gross margins. Asa result, our ability to achieve and sustain profitability will depend on ourability to sustain and achieve substantially higher revenue while maintainingreasonable cost and expense levels. If we fail to achieve profitability, ourstock price could decline.

 

**We may require additional capital for ouroperations, which could have a negative effect on your investment.**

 

If our cash proves to be insufficient to fund our operations, we mayneed to raise additional funds at some point in the future. In the three andsix month periods ended June 30, 2004 we utilized $1.4 million and $4.2million, respectively, in cash, leaving us with a cash, cash equivalent andshort term investment balance of $21.0 million. If we raise additional funds byselling equity or convertible debt securities, our stockholders may experienceadditional dilution and these new securities may have powers, preferences andrights that are senior to those of the rights of our common stock. We cannotpredict whether additional financing will be available on terms favorable tous, or at all. If adequate funds are not available or are not available onacceptable terms, we may be unable to fund our business operations, promote ourbrand identity, take advantage of acquisition opportunities, develop or enhanceservices or respond to competitive pressures. Any inability to do so could havea negative effect on our business, revenues, financial condition and results ofoperations.

 

**If our common stock price falls below andremains under $1.00, or if we otherwise fail to comply with Nasdaq rules, ourcommon stock could be delisted from The Nasdaq National Market, which couldseverely limit the trading market for our common stock.**

 

If we fail to meet the criteria for continued listing on The NasdaqNational Market, our common stock may be delisted, which could make it moredifficult for you to sell your shares. For example, if the market price for ourcommon stock falls and remains below $1.00 per share for thirty trading days,we would be subject to delisting. On July 30, 2004, the closing price ofour common stock was $1.27.

 

**The telecommunications industry continues toexperience instability, which may cause consolidation among network serviceproviders and impair our ability to provide reliable, redundant servicecoverage and negotiate favorable network access terms.**

 

The telecommunications industry continues to experience dramatictechnological change and increased competition that have led to significantdeclines in network access pricing. In addition, the revenues of networkservice providers have declined as a result of the general economic slowdown.As a result, network service providers have experienced operating difficultiesin the last several years, resulting in poor operating results and a number ofthese providers declaring bankruptcy. If these conditions continue, some ofthese service providers may consolidate or otherwise cease operations, whichwould reduce the number of network service providers from which we are able toobtain network access. To the extent this were to occur, while we would stillbe able to maintain operations and provide enterprise connectivity serviceswith a small number of network service providers, we would potentially not beable to provide sufficient alternative access points in some geographic areas,which could diminish our ability to provide broad, reliable, redundantcoverage. Further, our ability to negotiate favorable access rates from networkservice providers could be impaired, which could increase our network accessexpenses and harm our operating results.

 

 

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**If we fail to enhance our existing productsor if new services, products or features we introduce do not succeed in themarketplace, we will not be able to generate new revenues and we will haveincreased costs without the expected returns.**

 

Our target markets are characterized by rapid technological advances,changes in end-user requirements, and frequent new product introductions. Ourfuture success will depend on our ability to anticipate or adapt to suchchanges and to offer, on a timely and cost-effective basis, products that meetchanging customer demands. For example, our growth prospects will bedetermined, among other things, by our ability to grow our new branch officeservices offering, which is an offering into a highly competitive market with alarge number of incumbents. We may lack sufficient resources to anticipatetechnological and market trends, manage long development cycles or develop,introduce and market new products and enhancements. In addition, we cannotpredict whether our products and services will meet with market acceptance orbe profitable.

 

**Any strategic acquisitions or investments weengage in could dilute our stockholders and/or result in the assumption ofadditional liabilities, loss of sales and disruption of our business.**

 

We expect that we will consider future acquisitions of, or investmentsin, complementary businesses, products or technologies. We may encounterdifficulties in identifying and acquiring suitable candidates on reasonableterms.

 

In the event of any future acquisitions, we could:

 

•                                          issuestock that would dilute our current stockholders’ percentage ownership;

 

•                                          incurdebt that will give rise to interest charges and may impose materialrestrictions on the manner in which we operate our business;

 

•                                          assumeliabilities;

 

•                                          incurexpenses related to impairment of goodwill and other intangible assets; or

 

•                                          incurlarge write-offs.

 

Any strategic acquisitions or investments that we make in the futurewill involve many risks, including the following:

 

•                                          problemscombining the acquired operations, technologies, products or personnel;

 

•                                          unanticipatedcosts;

 

•                                          diversionof management time and attention from our existing business;

 

•                                          adverseeffects on existing business relationships with our suppliers and customers;

 

•                                          risksassociated with entering markets in which we have no or limited priorexperience; and

 

•                                          potentialloss of key employees, particularly those of acquired companies.

 

We may not be able to successfully integrate the businesses, products,technologies or personnel that we might acquire in the future. We cannot assureyou that any strategic investments we may make will meet our financial or otherinvestment objectives. Any failure to do so could seriously harm our business,financial condition and results of operations.

 

**Our ability to compete could be jeopardizedif we are unable to protect our intellectual property.**

 

Our products rely upon intellectual property rights. For example, wehave been issued United States Patent Number 5,898,780 dated April 27,1999 for “Method and Apparatus for Authorizing Remote Internet Access,” andhave other U.S. patents pending. We cannot assure you that patents will issuefrom the pending applications or, if any patents are issued, that they will besufficiently broad to protect our technology adequately. In addition, we have anumber of trademarks and trademark applications and we use copyright and tradesecret protection to protect its 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 they have taken will preventunauthorized use of the technology. Moreover, effective patent, trademark,copyright and trade secret protection may not be available in some countries inwhich we provide, 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.

 

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**We may become involved in litigationregarding intellectual property rights that could be costly, could cause us tolose significant rights, and divert our management time and attention.**

 

In the future, we, or our customers, may become a party to litigationto protect our intellectual property or to respond to allegations that weinfringe others’ intellectual property. We may receive communications fromthird parties inquiring about their interest in licensing certain of the thirdparty’s intellectual property or more generally identifying intellectualproperty that could be the basis of a future infringement claim. If a partyaccuses us of infringing upon its proprietary rights, we would have to defendour company and possibly our customers against the alleged infringement. Theselawsuits, regardless of their success, would likely be time-consuming and expensiveto resolve and would divert management’s time and attention. Any potentialintellectual property litigation 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 take any of these actions, it may have a material adverseeffect on our business, financial condition and results of operations.

 

**Terrorist acts and acts of war may seriouslyharm our business and revenue, costs and expenses and financial condition.**

 

Terrorist acts or acts of war, including military actions in Iraq andother parts of the Middle East and the geo-political uncertainties in othercontinents are having an adverse effect on the U.S. economy and could possiblyinduce or accelerate the advent of a more severe economic recession. The U.S.government’s political, social and economic policies and policy changes as aresult of these circumstances could have consequences that we cannot predict,including causing further weaknesses in the economy. In addition, as amulti-national company with headquarters and significant operations located inthe United States, we may be impacted by actions against the United States. Wewill be predominantly uninsured for losses and interruptions caused byterrorist acts and acts of war. Thus, the long-term impact of these events onour business is uncertain. As a result, our operating results and financialcondition could be materially and adversely affected.

 

**Our customers require a high degree ofreliability in the delivery of our services, and if we cannot meet their expectationsfor any reason, demand for our products and services will suffer.**

 

Our success depends on our ability to assure generally error-freeclearinghouse services, uninterrupted operation of our network and softwareinfrastructure, and a satisfactory experience for our customers’ end users. Inthe past, we have experienced problems due to our inability to detect systemmalfunctions and due to errors in collecting or processing account usage andsettlement data. Due to the high level of performance required for criticalcommunications traffic, any failure to deliver a satisfactory experience to endusers, whether or not caused by our own failures, and any failure to provideaccurate settlement data in connection with acting as a clearinghouse, could reducedemand for our products and services.

 

**We depend on our reseller customers to marketInternet-based communications services to their end users, so if our resellercustomers fail to market their services effectively, our revenues may bereduced.**

 

Our business depends in part on the efforts and success of our Internetservice provider and telecommunications service customers in marketingInternet-based communications services to their end users. Although we haverecently focused more heavily on selling to large enterprise customers, thehighest percentage of our revenues is derived from our traditional serviceprovider business. It is important that we maintain a healthy service providerbusiness while we attempt to grow a more expansive enterprise customer base.Recently, we have experienced a faster than projected decline in revenuesderived from our service provider customers. We have little ability to promote our services, or to promote demand forour reseller customers’ services generally. The use of the Internet as a mediumfor communications services remains unproven. If our reseller customers fail tomarket their Internet-based communications services effectively, our revenueswill be reduced. Similarly, if the market for Internet-based communicationsservices fails to grow, or expands more slowly than anticipated, our revenueswill be lower than expected. The Internet-based services we provide arerelatively new and have not achieved widespread market acceptance. Networkservice providers and communication solutions providers may be reluctant topromote or rely upon our services until they gain greater commercialacceptance, which may never occur.

 

 

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**The unpredictability of our quarterly resultsmay cause the trading price of our common stock to decline.**

 

Our quarterly revenues and operating resultshave varied in the past and are likely to fluctuate unpredictably in the futurefor many reasons beyond our control. Any of these factors could cause our stockprice to decline. The primary factors that affect revenues and operatingresults, in addition to the factors discussed elsewhere in this section,include the following:

 

•                                          thevolume of transaction-based revenues;

 

•                                          thetiming of deployment of services by our customers;

 

•                                          competitivepricing pressure;

 

•                                          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;

 

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

 

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

 

•                                          regulation,domestically and internationally.

 

Our operating expenses are largely determined based on our expectationsabout revenues. A high percentage of our expenses are fixed in the short term.As a result, lower than anticipated revenues for any reason could causesubstantial operating losses.

 

**If we fail to attract and retain qualifiedsales personnel, our business might be harmed.**

 

Our success depends in large part upon our ability to identify, attractand retain qualified sales individuals. Competition for these individuals isoften intense, and we may not be able to hire the type and number of salespersonnel it needs. The recent resignation of our Senior Vice President ofWorldwide Sales makes this recruiting effort even more important over the nextseveral months.  Moreover, even after wehire salespersons, they require extensive training in our combined products andservices. This training typically covers several weeks of formal in-class andon-the-job instruction. If we are unable to continue to retain our currentemployees and train new sales personnel as rapidly as necessary, we may not beable to increase market awareness and sales of our services, which may preventus from generating revenue and may negatively impact our ability to maintaincustomer relationships.

 

**The uncertain economic environment in generalcould adversely affect our revenue, gross margins and expenses.**

 

Our revenue and gross margins depend in part on the overall demand forinformation technology products and services, particularly in the product andservice segments in which we compete. Softening demand for our products andservices caused by the ongoing economic downturn has resulted in decreasedrevenue growth rates, and may in the future result in decreased revenue,earnings or growth rates and problems with our ability to realize customerreceivables. The global economy has weakened 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 downturn hascontributed to reported declines in our revenue growth during the first half of2004. Further delays or reductions in information technology spending could havea material adverse effect on demand for our products and services andconsequently our results of operations, prospects and stock price.

 

**Security concerns may deter the use of theInternet for Internet-based communications, which would reduce demand for ourproducts and services.**

 

The secure transmission of confidential information over publicnetworks is a significant barrier to widespread adoption of electronic commerceand communications. The Internet is a public network and information is sentover this network from many sources. Advances in computer capabilities, newdiscoveries in the field of code breaking or other developments could result incompromised security on our network or the networks of others. Security andauthentication concerns with respect to the transmission over the Internet ofconfidential information, such as corporate access passwords, and the abilityof unauthorized computer users, so-called hackers, to penetrate online securitysystems may reduce the demand for our services. If any well-publicizedcompromises of confidential information were to occur, it could reduce demandfor Internet-based communications and our products and services.

 

**Government regulations and legaluncertainties regarding the Internet could harm GoRemote’s business.**

 

GoRemote will be subject to local regulations or laws applicable toaccess to or commerce on the Internet, in addition to regulations applicable tobusinesses generally. However, the Federal Communications Commission hasinitiated several proceedings that may change the regulatory and legalframework for the provision of broadband and Internet services and current andfuture Federal Communications Commission rules and regulations, as well asjudicial interpretations of these rules and regulations, could

 

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negatively affect GoRemote’s business. In addition, internationalregulatory standards will govern GoRemote’s products and services in foreignmarkets and could impair its ability to develop products and services forinternational service providers in the future. GoRemote may not be able toobtain or maintain all of the regulatory approvals that may be required tooperate its business. The inability to obtain these approvals, as well as any delayscaused by its compliance and its customers’ compliance with regulatoryrequirements or resulting from uncertainty associated with future regulatorydecisions, could result in postponements or cancellations of product orders,which would significantly reduce GoRemote’s revenue.

 

**Recently enacted and proposed regulatorychanges may cause us to incur increased costs.**

 

Recently enacted and proposed changes in the laws and regulationsaffecting public companies, including the provisions of the Sarbanes-Oxley Actof 2002, will increase our expenses as we evaluate the implications of newrules and devote resources to respond to the new requirements. In particular,we expect to incur additional administrative expense as we implementSection 404 of the Sarbanes-Oxley Act, which requires management to reporton, and our independent auditors to attest to, our internal controls. TheSarbanes-Oxley Act mandates, among other things, that companies adopt newcorporate governance measures and imposes comprehensive reporting anddisclosure requirements, sets stricter independence and financial expertisestandards for audit committee members and imposes increased civil and criminalpenalties for companies, their chief executive officers and chief financialofficers and directors for securities law violations. In addition, The NasdaqNational Stock Market, on which our common stock is listed, has also adoptedcomprehensive rules and regulations relating to corporate governance. Theselaws, rules and regulations have increased and will continue to increase thescope, complexity and cost of our corporate governance, reporting anddisclosure practices, which could harm our results of operations and divertmanagement’s attention from business operations. We also expect these developmentsto make it more difficult and more expensive for us to obtain director andofficer liability insurance in the future, and we may be required to acceptreduced coverage or incur substantially higher costs to obtain coverage.

 

Further, our board members, Chief ExecutiveOfficer and Chief Financial Officer could face an increased risk of personalliability in connection with the performance of their duties. As a result, wemay have difficultly attracting and retaining qualified board members and executiveofficers, which would adversely affect our business.

 

**If we fail to maintain an effective system ofinternal controls, we may not be able to report our financial resultsaccurately or detect fraud. As a result, we could be subject to costlylitigation, and current and potential shareholders could lose confidence in ourfinancial reporting, which could harm our business and the trading price of ourcommon stock.**

 

Effective internal controls are necessary forus to provide reliable financial reports and to detect and prevent fraud. Weare currently performing the system and process evaluation required to complywith the management certification and auditor attestation requirements ofSection 404 of the Sarbanes-Oxley Act. This evaluation may conclude that enhancements,modifications or changes to our internal controls are necessary. Completingthis evaluation, performing testing and implementing any required remedialchanges will require significant expenditures in the short term and on aregular basis in the future. We cannot be certain as to the timing ofcompletion of our evaluation, testing and remediation actions or the impact ofthe same on our operations.  We have inthe past discovered, and may in the future discover, areas of our internalcontrols that need improvement. For example, during our 2003 audit, ourindependent auditor brought to our attention a need to improve the closingprocess used at our recently-acquired Irvine, California location by formallydocumenting our policy relating to recognition of revenues derived from agencyarrangements versus reseller arrangements, ensuring proper recognition ofbroadband service installation revenues, training employees performing keyfinance and accounting functions and documenting certain judgmental accountingmatters. The auditor identified these items, collectively, as a “reportablecondition,” which means that it was a matter that in the auditor’s judgmentcould adversely affect our ability to record, process, summarize and reportfinancial data consistent with the assertions of management in the financialstatements.  Completing our evaluation ofinternal controls, implementing any changes that are necessary, and maintainingan effective system of internal controls will be expensive and require considerablemanagement attention. However, if we fail to maintain an effective system ofinternal controls or prevent fraud, we could be subject to costly litigation,we may be unable to comply with Section 404 of Sarbanes-Oxley we may bedelisted from trading, investors could lose confidence in our reportedfinancial information and our brand and operating results could be harmed,which could have a negative effect on the trading price of our common stock.

 

**The current regulatory environment affectingaccounting principles generally accepted in the United States of America isuncertain and volatile, and significant changes in current principles couldaffect our financial statements going forward.**

 

Recent actions and public comments from theSecurities and Exchange Commission have focused on the integrity of financialreporting generally. In addition, the Financial Accounting Standards Board(“FASB”) and other regulatory accounting agencies have recently introducedseveral new or proposed accounting standards, or are developing new proposedstandards, such as accounting for stock options, some of which would representa significant change from current industry practices. While we believe that ourfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America, we cannotpredict the impact of the adoption of any such proposals on our financialstatements going forward.

 

For example, we currently are not required to record stock-basedcompensation charges if the employee’s stock option exercise price equals orexceeds the fair value of our common stock at the date of grant. However,several companies have

 

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recently elected to change their accounting policies and begun torecord the fair value of stock options as an expense. Although the standardshave not been finalized and the timing of a final statement has not beenestablished, the FASB has announced its support for recording expense for thefair value of stock options granted. If we were to change our accounting policyin accordance with Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure and retroactively restate allprior periods as if we had adopted SFAS 123 for all periods presented, then ouroperating expenses would increase by approximately $1.4 million and $1.2million for the three months ended June 30, 2004 and 2003, respectively,and would increase by approximately $2.8 million and $1.9 million for the sixmonths ended June 30, 2004 and 2003, respectively.

 

**Provisions in our charter documents mightdeter a company from acquiring us, which could inhibit your ability to receivean acquisition premium for your shares.**

 

Provisions of our certificate ofincorporation, bylaws and Delaware law make it difficult for a third party toacquire us, despite the possible benefit to our stockholders, and this maypotentially lower the price of our common stock. These provisions of ourcertificate 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 have elected to remain subject to the anti-takeoverprovisions of Delaware law. These factors may discourage takeover attempts.

 

## **ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK**

 

*Foreign Currency Risk. *We have limitedexposure to financial market risks, including changes in foreign currencyexchange rates and interest rates. Although we have foreign operations inEurope and Asia, to date our exposure to foreign currency fluctuations has notbeen significant. Therefore, no accompanying table has been provided.

 

*Interest Rate Risk. *Our exposure tointerest rate risk relates primarily to our investment portfolio and debtobligations. Interest rate risk occurs when we cannot hold a purchasedinvestment to its maturity. The weighted-average maturity of our investmentportfolio, when taking into account the reset feature of floating ratemunicipal bonds, is limited to 90 days. We intend to have our securitiesavailable for sale. We do not expect to recognize an adverse impact on incomeor cash flows, although there can be no assurance of this. We have establishedpolicies and business practices regarding our investment portfolio to preserveprincipal while obtaining reasonable rates of return without significantlyincreasing risk. We place investments with high credit quality issuersaccording to our investment policy. We do not use derivative financialinstruments in our investment portfolio. All investments were carried at fairmarket value at June 30, 2004. Due to the short-term nature of ourinvestments and the immaterial amount of our debt obligation, we believe thatthere is no material exposure to interest fluctuation. Therefore, noaccompanying table has been provided.

 

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**ITEM4.  CONTROLS AND PROCEDURES**

 

***Evaluation of Disclosure Controls andProcedures***.  Regulationsunder the Securities Exchange Act of 1934 require public companies to maintain“disclosure controls and procedures,” which are defined to mean a company’scontrols and other procedures that are designed to ensure that informationrequired to be disclosed in the reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the Commission’s rules and forms. OurChief Executive Officer and our Chief Financial Officer, based on theirevaluation of the effectiveness of our disclosure controls and procedures as ofthe end of the period covered by this report, concluded that our disclosurecontrols and procedures were effective for this purpose.

 

*Changes in Internal Controls.*  During the period covered by this report,there were no changes in the Company’s internal control over financialreporting that materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.  However, we intend to continue to refine ourinternal controls on an ongoing basis.

 

*Limitations onEffectiveness of Controls and Procedures.*  Our management, including our Chief ExecutiveOfficer and Chief Financial Officer, does not expect that our disclosurecontrols and procedures or our internal controls will prevent or detect allerrors and all fraud. While our Chief Executive Officer and our Chief FinancialOfficer, based on their evaluation of the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this report,concluded that our disclosure controls and procedures were effective at thattime, a control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the factthat there are resource constraints and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beendetected. These inherent limitations include, but are not limited to, therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the control. The design of any systemof controls also is based in part upon certain assumptions about the likelihoodof future events and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions; over time,control may become inadequate because of changes in conditions, or the degreeof compliance with the policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and not be detected.

 

**PART II. OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

We are subject to various legal proceedings and claims arising in theordinary course of business. Our management does not expect that the results inany of these legal proceedings will have a material adverse effect on ourfinancial condition, results of operations, or cash flows.

 

In July and August 2001, we and certain of our officers werenamed as defendants in five purported securities class action lawsuits filed inthe United States District Court, Southern District of New York, captioned asIn re GRIC Communications, Inc. Initial Public Offering Securities Litigation,No. 01 Civ 6771 (SAS), and consolidated with more than three hundredsubstantially identical proceedings as In re Initial Public Offering SecuritiesLitigation, Master File No. 21 MC 92 (SAS). The Consolidated Amended ClassAction Complaint for Violation of the Federal Securities Laws (“ConsolidatedComplaint”) was filed on or about April 19, 2002, and alleges claimsagainst certain of our officers and against CIBC World Markets Corp.,Prudential Securities Incorporated, DB Alex. Brown, as successor to DeutscheBank, 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 underSection 10(b) and 20(a) of the Securities Exchange Act of 1934, asamended.

 

Citing several press articles, the Consolidated Complaint alleges thatthe underwriter defendants used improper methods in allocating shares ininitial public offerings, and claims the underwriter defendants entered intoimproper commission agreements regarding aftermarket trading in our commonstock purportedly issued pursuant to the registration statement for the initialpublic offering. The Consolidated Complaint also alleges market manipulationclaims against the underwriter defendants based on the activities of theirrespective analysts, who were allegedly compromised by conflicts of interest.The plaintiffs in the Consolidated Complaint seek damages as measured underSection 11 and Section 10(b) of the Securities Act of 1933,pre-judgment and post-judgment interest, and reasonable attorneys’ and expertwitnesses’ 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 and directors who hadbeen named as defendants in the In re Initial Public Offering SecuritiesLitigation were dismissed without prejudice upon order of the presiding judge.In February 2003, the presiding judge dismissed the Section 10(b)claims against us and our named officers and directors with prejudice.

 

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From September 2002 through June 2003, we participated insettlement negotiations with a committee of issuers’ litigation counsel,plaintiffs’ executive committee and representatives of various insurancecompanies (the “Insurers”). Our Insurers were actively involved in thesettlement negotiations, and strongly supported a settlement proposal presentedto us for consideration in early June 2003. The settlement proposed by theplaintiffs would be paid for by the Insurers and would dispose of all remainingclaims against us.

 

After careful consideration, we decided to approve the settlementproposal in July 2003. Although we believe that plaintiffs’ claims arewithout merit, we have decided to accept the settlement proposal (which doesnot admit wrongdoing) to avoid the cost and distraction of continuedlitigation. Because the settlement will be funded entirely by our Insurers, wedo not believe that the settlement will have any effect on our consolidatedfinancial condition, results or operations or cash flows.

 

The settlement was presented to the Court for approval inJune 2004. While the Court is expected to approve or disapprove thesettlement in the coming months,  therecan be no guarantee that the settlement will be judicially approved.

 

**ITEM2.  CHANGES IN SECURITIES AND USE OFPROCEEDS**

 

See Note 7 of “Notes to Condensed Consolidated Financial Statements.”

 

##### **ITEM 3.  DEFAULTS UPON SENIORSECURITIES**

 

Not applicable.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

**The Company held its annual meeting ofstockholders on May 19, 2004.  Followingare descriptions of the matters voted on and the results of such meeting:**

 
| ** **                                                                                                                                                                         | ** ** | **Votes  For** | ** ** | **Votes  Against** | ** ** | **Votes  Abstained** | ** ** | **Votes  Withheld** | ** ** | **Broker  Non-  Votes** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|--------------------|------------|----------------------|------------|---------------------|------------|-------------------------|------------|
| 1. Election of Directors                                                                                                                                                           |       |           |       |               |       |                 |       |                |       |                    |       |
|                                                                                                                                                                               |       |           |       |               |       |                 |       |                |       |                    |       |
| Additional Directors                                                                                                                                                               |       |           |       |               |       |                 |       |                |       |                    |       |
| Dr. Hong Chen                                                                                                                                                                      |       | 31,105,678     |       |               |       |                 |       | 1,102,067           |       |                    |       |
| Bharat Davé                                                                                                                                                                   |       | 32,005,636     |       |               |       |                 |       | 202,109             |       |                    |       |
| James Goodman                                                                                                                                                                      |       | 31,403,988     |       |               |       |                 |       | 803,757             |       |                    |       |
| Roderick C. McGeary                                                                                                                                                                |       | 31,819,067     |       |               |       |                 |       | 388,678             |       |                    |       |
| Olof Pripp                                                                                                                                                                         |       | 31,795,643     |       |               |       |                 |       | 412,102             |       |                    |       |
| Walter Sousa                                                                                                                                                                       |       | 31,719,014     |       |               |       |                 |       | 488,731             |       |                    |       |
| Tom Thimot                                                                                                                                                                         |       | 31,896,059     |       |               |       |                 |       | 311,686             |       |                    |       |
| Gerald Wright                                                                                                                                                                      |       | 31,316,650     |       |               |       |                 |       | 891,095             |       |                    |       |
| Joseph M. Zaelit                                                                                                                                                                   |       | 30,819,470     |       |               |       |                 |       | 1,388,275           |       |                    |       |
|                                                                                                                                                                               |       |           |       |               |       |                 |       |                |       |                    |       |
| 2. Proposal to ratify the appointment of  Ernst & Young LLP as independent registered public accounting firm of the  Company for the fiscal year ending December 31, 2003 |       | 32,004,426     |       | 159,105            |       | 44,214               |       |                |       |                    |       |
|                                                                                                                                                                               |       |           |       |               |       |                 |       |                |       |                    |       |
| 3. Proposal to change the Company name to  GoRemote Internet Communications, Inc.                                                                                                  |       | 31,919,600     |       | 247,460            |       | 40,685               |       |                |       |                    |       |

 

**ITEM5.  OTHER INFORMATION**

 

On July 29, 2004, Bharat Davé, the Company’s President and ChiefExecutive Officer, submitted his resignation from these positions as well asfrom the Company’s board of directors, in order to pursue other interests.

 

In connection with Mr. Davé’s resignation, the Company entered into arelease agreement with Mr. Davé, which provides for the modification of certainstock option grants to extend the period during which Mr. Davé may exercise hisvested shares to July 29, 2005.  Inaddition, pursuant to the terms of Mr. Davé’s offer letter with the Company,the Company will make a severance payment

 

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equal to six months’ base salary and will pay all accrued salary andaccrued but unused vacation pay.  Mr.Davé has agreed to make himself reasonably available from time to time fortransition consultations with the Company’s new Chief Executive Officer, forwhich the Company has agreed to pay Mr. Davé a retainer of $5,000 per monthover the six month period beginning August 1, 2004 and endingJanuary 31, 2005.

 

Simultaneous with Mr. Davé’s resignation, the Company appointed TomThimot, 38, as its President and Chief Executive Officer.  Mr. Thimot has served on the Company’s boardof directors since April 2004 and will continue to serve on the Company’sboard of directors.

 

From October 2002 to July 2004, Mr. Thimot served as the VicePresident of Sales and Services for Netegrity, Inc.  From February 2001 to June 2002, heserved as President and Chief Operating Officer of Enigma.  Between November 1994 and January 2001,he served in various positions at Oracle Corporation, most recently as AreaVice President for Central U.S. Sales. Prior to Oracle, Mr. Thimot heldvarious consulting positions with PriceWaterhouseCoopers and Accenture.  Mr. Thimot holds a B.S. degree inMechanical Engineering from Marquette University.

 

In connection with Mr. Thimot’s appointment as President and ChiefExecutive Officer, the Company entered into an offer letter with Mr. Thimot,which provides for base salary compensation of $275,000 per annum, payablesemi-monthly, an incentive bonus opportunity, reimbursement for up to $100,000of relocation expenses, as well as standard employee benefits.  Mr. Thimot will also receive an incentivestock option for the purchase of 1,200,000 shares of the Company’s commonstock, vesting at a rate of 12.5% after 6 months and the balance vesting ratablyon a monthly basis over the following 42 months.  Mr. Thimot’s base salary will increase to$300,000 per annum after the Company achieves one fiscal quarter of positiveincome before taxes, measured on a GAAP basis, but excluding non-cashamortization charges (“Adjusted Income”) and to $350,000 per annum after theCompany achieves two fiscal quarters of positive Adjusted Income.  In the event that the Company terminates Mr.Thimot’s employment without cause, the Company will provide Mr. Thimot a severancepayment equal to six months’ base salary, payable monthly in accordance withits normal payroll policies.  If theCompany terminates Mr. Thimot’s employment with cause, Mr. Thimot will receiveno severance payment from the Company. The offer letter also provides that upon a change in control of theCompany, Mr. Thimot’s options will immediately vest as to an additional 50% ofhis unvested options upon the effective date of the change in control of theCompany.

 

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**ITEM6.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)                                  Exhibits

 
| **Exhibit** | ** ** | ** **                                                                                                                                                  | ** ** | **Incorporated by Reference** | ** ** | **Filed or Furnished** |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------|
| **Number**  | ** ** | **Exhibit Description**                                                                                                                                     | ** ** | **Form**                      | ** ** | **File No.**           | ** ** | **Exhibit** | ** ** | **Filing Date** | ** ** | **Herewith** |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 10.01       |       | Release letter dated July 29, 2004 to Bharat Davé.                                                                                                |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 10.02       |       | Offer  letter dated July 29, 2004 to Tom Thimot.                                                                                                       |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 31.01       |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Executive Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 31.02       |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Financial Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 32.01*      |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Executive Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X* |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 32.02*      |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Financial Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X* |

 

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*                                         Thesecertifications accompany GoRemote’s Quarterly Report on Form 10-Q for thequarterly period ended June 30, 2004. These certifications are not deemed filed with the Securities andExchange Commission and are not to be incorporated by reference in any filingof GoRemote under the Securities Act of 1933 or the Securities Exchange Act of1934, whether made before or after the date hereof and irrespective of anygeneral incorporation language in any filings.

 

(b)**Reports on Form 8-K**

 
| **Date  Filed or  Furnished** | ** ** | **Item(s)** | ** ** | **Description**                                                                                                                       |
|-------------------------------|------------|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                          |       |        |       |                                                                                                                                  |
|                          |       | 7,  12      |       | On May 5, 2004, we filed a  Form 8-K regarding a press release announcing our financial results for  the first quarter of 2004.* |
|                          |       |        |       |                                                                                                                                  |
|                          |       | 5           |       | On May 19, 2004, we filed  a Form 8-K announcing the change in our corporate name following our  annual stockholders meeting.    |

 

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*  The information included under Items 7 and 12of these reports on Form 8-K was furnished, but is not intended to be deemedfiled or incorporated by reference into any filing.

 

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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 August 9, 2004.

 
|       | **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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**Exhibit Index**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                  | ** ** | **Incorporated by Reference** | ** ** | **Filed or Furnished** |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------|
| **Number**  | ** ** | **Exhibit Description**                                                                                                                                     | ** ** | **Form**                      | ** ** | **File No.**           | ** ** | **Exhibit** | ** ** | **Filing Date** | ** ** | **Herewith** |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 10.01       |       | Release letter dated July 29, 2004 to Bharat Davé.                                                                                                |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 10.02       |       | Offer  letter dated July 29, 2004 to Tom Thimot.                                                                                                       |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 31.01       |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Executive Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 31.02       |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Financial Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 32.01*      |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Executive Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X* |
|        |       |                                                                                                                                                        |       |                          |       |                   |   |   |   |   |   |   |
| 32.02*      |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 of the Registrant’s Chief Financial Officer, dated August 9,  2004. |       |                          |       |                   |   |   |   |   |   | X* |

 

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*                                         Thesecertifications accompany GoRemote’s Quarterly Report on Form 10-Q for thequarterly period ended June 30, 2004. These certifications are not deemed filed with the Securities andExchange Commission and are not to be incorporated by reference in any filingof GoRemote under the Securities Act of 1933 or the Securities Exchange Act of1934, whether made before or after the date hereof and irrespective of anygeneral incorporation language in any filings.

 

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