AT ROAD INC - 10-K Annual Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $297,962,137 as of June 30, 2003, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 53,838,699 shares of the registrant’s Common Stock issued and outstanding as of February 27, 2004.

Part III incorporates information by reference from the definitive proxy statement to be filed in connection with the registrant’s 2004 annual meeting of stockholders.

Except for the historical information contained in this Report, the matters discussed in this Report are forward-looking statements involving risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Potential risks and uncertainties include, but are not limited to, fluctuations in quarterly results, our limited operating history, the infancy of the mobile resource management industry where there is no established market for our products and services, our ability to adapt to rapid technological change, our dependence on wireless networks, network infrastructure and positioning systems owned and controlled by others and general economic and political conditions. Further information regarding these and other risks is included in this Report and in our other filings with the Securities and Exchange Commission (“SEC”).

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

We are a leading provider of mobile resource management services, a rapidly growing category of business productivity solutions that enable the effective management of mobile resources. We market and sell our services to a broad range of customers in the United States and Canada that vary in size, geographic location and industry. In 2003, our largest customers based on revenues were Verizon Communications, Waste Management and Qwest Communications. We have grown our subscriber base from approximately 35,000 subscribers as of December 31, 2000 to approximately 125,000 subscribers as of December 31, 2003.

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

Our services are built on our LocationSmart technology platform, an end-to-end solution that seamlessly combines wireless communications, Global Positioning System (“GPS”) technology, hosted software applications and Internet technologies. The information technology infrastructure and network application software used in our LocationSmart technology platform reside at our co-located data centers in Virginia and California. Because we host our services, our customers do not need to make a substantial

investment in acquiring and supporting capital equipment, such as hardware, software and data networking equipment, to use our services. The LocationSmart technology platform is depicted in Figure 1.

Our service delivery architecture is designed to serve a growing number of subscribers with increasing data transmission volumes without compromising performance, delivery times or data accuracy. Because key technology components of our solution can be expanded to accommodate additional users, as in the case of wireless networks or the Internet, or are designed to accommodate a practically unlimited number of users, as in the case of GPS, we believe that we can support a significantly expanding customer base. With the addition of our services that run on a location- or wireless application protocol-enabled mobile telephone, a customer can easily expand the deployment of our services to existing or new handsets.

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


	•	Improved productivity of mobile resources. Customers use location, personalized mapping landmarks and path sequencing features to maximize the time spent completing work orders in the field and minimize non-productive time. Customers also monitor the progress of jobs in the field and re-allocate resources to better meet project deadlines. Customers measure improvements in their mobile workers’ productivity from using our services in many ways, including by an increase in the number of jobs a mobile worker can complete per day or by an increase in revenue earned by a mobile worker per day.

	•	Decreased costs of operations of mobile resources. Customers use our two-way communications services for low-cost transmission of completed business forms, signature verification and messaging. Customers also use our services to automatically monitor and schedule maintenance activities for assets in the field. Customers measure decreases in their costs from using our services in many ways, including by a decrease in the cost of having a mobile worker in the field or by a decrease in the cost of insuring mobile workers and assets.

	•	Improved efficiency of a customer’s overall operations. Customers use our services to capture timekeeping, workflow and inventory information in the field. This information can be delivered directly to our customers’ existing software applications or downloaded from our website and


		imported into a payroll or customer invoicing system. These services can minimize the need for back-office data entry services, minimize data entry errors and accelerate invoicing processes. Customers measure improvements in their efficiency from using our services in many ways, including by a decrease in costs of general and administrative expenses and by a reduction in days sales outstanding of accounts receivable.

	•	Improved responsiveness to our customers’ customers. Customers use location and workflow information to update our customers’ customers about pending work orders or deliveries. Our customers also use our location-on-demand feature to assign a pending work order to the closest or best-equipped mobile worker to provide the quickest response that meets the end-customer’s demands. Customers enhance their customer relationship management operations by accessing stored information about end-customers, including workflow data records, audit trails of mobile worker messages, and daily mobile worker activity data. Customers measure improvements in their responsiveness from using our services in many ways, including by a reduction in aged receivables and by an improvement in internal customer satisfaction indexes.

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

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


	•	Further penetrate vertical markets in which we have or are developing leading reference customers. We have developed a relationship with leading companies in some vertical markets, such as telecommunications, construction and facilities/waste management. We are leveraging our relationships with these customers and our knowledge of their MRM needs to attract other potential medium- to large-sized customers in these markets. In other vertical markets, we intend to replicate the model of deploying our services with a leading reference customer and leveraging this relationship and our MRM market expertise to attract other customers in those markets.

	•	Create new value-added services for our customers. We will continue to add new features and functionality to our services and develop new platforms that take advantage of advances that are being made in wireless communications. We expect to continue to release new features that synthesize the information currently retrieved by our existing services and which arise from working closely with our customers. We expect some of these features to be incorporated into our services as free enhancements, while others will be offered for additional fees. We intend to continue to use our capabilities in the U.S. and our wholly-owned subsidiary in India to help develop and support new features and functionality for our services. In addition, we are continuing to develop an open platform architecture to allow our customers and partners to integrate third-party applications with our services.

	•	Expand our services internationally. We intend to identify new geographic markets for which our services and our LocationSmart technology platform satisfy evolving customer demands. We believe that leveraging our technology leadership position, our broad experience with customers in the United States and Canada and the distribution resources of established vendors and wireless carriers will help us to establish customer awareness and acceptance of our services in international markets.

	•	Acquire complementary businesses and technologies. We intend to supplement our subscriber base, revenue and service offerings by selectively acquiring complementary businesses and technologies.


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

Our current family of MRM services includes GeoManager, GeoManager Pocket Edition, @Road Pathway, RoadREPORT, RoadFORCE and ConnectBusiness. Together, these service offerings are designed to meet the needs of customers in a variety of vertical markets, including telecommunications, field service, construction, facilities/waste management, freight and passenger transportation, courier/delivery, distribution, security, cable/broadband and utilities.

Our services provide current and historical data relating to a customer’s mobile resources in a variety of formats, including activity reports, maps and completed business forms. We provide these formats in a standard configuration, and customers can configure certain elements and views themselves to help achieve compliance with their internal business rules. Customers can choose to have reports delivered on a pre-scheduled basis, or they can submit queries to our databases to create reports and views on demand. Customers can also download reports to manipulate and store data as desired. Mobile resource data is typically stored by us for 14 days, unless the customer purchases our extended data storage service.

Our services are enabled by the deployment of a device, which we call a platform, to each of the customer’s mobile resources. We call each mobile resource with a platform a “subscriber.” Our services operate with three independent platforms. First, a mobile worker can use our proprietary hardware device embedded with software that integrates a GPS receiver with a wireless modem. Second, a mobile worker can use our proprietary hardware device embedded with software and an integrated GPS receiver and which is tethered by cable to a wireless telephone. Each of these proprietary hardware devices is called an Internet Location Manager. The Internet Location Manager is installed in a mobile worker’s vehicle. Installation in any type of vehicle typically takes less than an hour, and is completed by our subcontracted installation agents. Third, a mobile worker can use a location- or wireless application protocol-enabled mobile telephone installed with our software application.

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

The following table describes our current family of MRM services, selected features and enhancements of these services and platforms that operate with those services:

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


	•	Cost-effective. Our services are cost-effective for our customers because we utilize existing infrastructure, such as the Internet and wireless networks, developed by other companies, and GPS technology developed by the U.S. government. Our customers are not required to make substantial capital investment because our services can be deployed on an existing location- or wireless application protocol-enabled mobile telephone, customer data and our software reside at our data centers, and our services can be accessed by using the Internet or any wireline or wireless telephone.

	•	Ease of implementation. The implementation of our services is designed to be quick and easy for our customers. When deploying our services using a location- or wireless application protocol-enabled mobile telephone as the hardware platform, customers install a software program on the telephone. Once launched, this software program communicates with our data centers, and the customer deployment is complete. When deploying our services using an Internet Location Manager, an optional Internet Data Terminal device or a ruggedized personal digital assistant as the hardware platform, we install this hardware in the customer’s vehicles. As our customers grow, they can install software on additional mobile telephones or our hardware platform in additional vehicles to continue to expand their use of our services.

	•	Ease of use. Our services are designed to be deployed as end-to-end solutions. That is, a customer does not incur incremental information technology costs associated with the deployment or use of our services. Our services are designed to be available over the Internet and by telephone 24 hours a day, seven days a week, with the exception of scheduled maintenance. Our user interfaces, including those used with the Internet, mobile telephones, Internet Data Terminals and our ruggedized personal digital assistant, are designed to be intuitive and easy to use, require minimal training and be modified by the customer to meet each customer’s particular requirements. Additionally, our DirectData service streams customer data directly to a customer’s existing software applications, and the business intelligence arising from use of our services with a customer’s existing operations models enables a customer to maximize the value of its existing investments in information technology and productivity solutions.

	•	Ease of maintenance. We host and maintain all the services we provide. We also manage the wireless network and Internet connections between and among the platforms in the field, our data


		centers and the Internet. Additionally, we implement service and software upgrades centrally at our data centers and remotely to the platforms in the field over the same wireless connection used to transmit mobile resource information. For these reasons, customers benefit from enhancements to our services while avoiding information technology and infrastructure maintenance expenses and the daily interruption of the operations of their mobile resources.

	•	Wireless data connectivity. Our services operate with a number of wireless networks offered by some of the largest wireless carriers in the United States and Canada including: General Packet Radio Services, Code Division Multiple Access 1XRTT, Integrated Digital Enhanced Network and Cellular Digital Packet Data. With our wireless carrier partners, we deliver services in more than 200 of the top metropolitan statistical areas in the United States and Canada. Subject to a customer’s preferences, we typically configure our services with the most cost-effective and efficient wireless network available in the customer’s geographic area of operations. In some cases, a single customer with geographically disperse operations may receive services that seamlessly use more than one wireless network. Wireless network configuration typically occurs in the background and does not require significant time or effort of the customer.

	•	Store-and-forward functionality. Our services are designed to address common geographic limitations and network difficulties associated with wireless networks. When a subscriber travels outside a wireless network’s coverage area, the Internet Location Manager or mobile telephone, as the case may be, continues to collect and stores up to five days of information. These data are transmitted to our data centers when the subscriber returns to the wireless coverage area. Our services are designed to be tolerant of wireless network difficulties and to have the ability to confirm receipt of data from the field and re-transmit data when errors are detected.

	•	Robust reporting and mapping capabilities. Our services offer customers comprehensive, detailed reporting of workforce activity, either individually or for all or a selected group of a customer’s mobile resources. Reports can be formatted by customers and downloaded for additional sorting and analysis. A customer’s preferences are stored at our data centers and can be modified by the customer at any time to meet its changing needs. The current and past locations of each subscriber can be displayed on a map, making monitoring simple. Map views can be personalized by customers to graphically display different information about their mobile resources, including locating positions on maps by address or customer-defined landmarks.

	•	Location by Global Positioning System. Our services use the Global Positioning System to determine the location of a mobile resource. We believe GPS technology is more reliable than other positioning technologies because of its proven accuracy, the large number of deployed satellites and its ability to determine location regardless of velocity and altitude. The Global Positioning System uses pre-existing infrastructure developed by the U.S. government, which minimizes our costs of service delivery.

	•	Communications capabilities. Our customers may enhance their field operations by using our two-way communications services. These services operate using either a wireless telephone or the Internet Location Manager with our optional Internet Data Terminal. These services enable our customers to communicate regularly and quickly with mobile workers. While the services permit free-text messages, they also enable customers to pre-program a set of messages that can be transmitted with the push of a button to minimize distractions in the field. Messages are stored at our data centers, and are accessible by our customers using a web browser. Customers can use the message database for customer relationship management, proof of service, auditing and minimizing the occurrence of lost change orders, missed appointments or other communications.

We market and sell our services to a broad range of customers in the United States and Canada that vary in size, geographic location and industry. The number of mobile resources enabled with our services has grown from 135 as of December 31, 1998 to approximately 125,000 as of December 31, 2003. We

categorize a customer in a small-, medium- or large-sized customer group by reference to the total number of subscribers to our services for that customer. Small-sized customers have less than 30 subscribers, medium-sized customers have 31 to 750 subscribers and large-sized customers have more than 750 subscribers. Currently we have customers in the following industries:

In 2003, one customer, Verizon Communications, represented 17% of total revenues. No other customers comprised 10% or more of total revenues. In 2002 and 2001, no single customer or group of related customers comprised 10% or more of total revenues.

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


	•	Services. We intend to continue to develop our services by offering new features while enhancing existing features. For example, in March 2003, we launched GeoManager Pocket Edition service, which is designed to deliver our standard mobile resource management application using a location-enabled mobile telephone in lieu of an Internet Location Manager. In July 2003, we launched Electronic Driver Logs service, which eliminates paperwork for mobile workforces and office staff by generating reports by subscriber showing hours worked, hours available and regulatory violations. Also in July 2003, we launched Automated State Mileage Reports service, which enables companies to automatically record how many miles each subscriber has traveled, information that can be used when preparing state-mandated quarterly fuel tax reports. In September 2003, we launched @Road Pathway service, which is designed to provide a cost-effective mobile resource management solution using a location-enabled Nextel Communications cellular telephone.

	•	Platform. We intend to continue to develop and release platform upgrades to add new features as well as to enhance existing features. For example, in April 2003, we announced the availability of an Internet Location Manager with AT&T’s wireless General Packet Radio Service network. This new hardware platform enables customers to experience increased data transmission rates, enhanced security capabilities and wide geographic coverage. In June 2003, we announced the availability of an Internet Location Manager with Sprint’s Code Division Multiple Access 1XRTT wireless network. This new hardware platform enables customers to use our services on a third-generation wireless network that enables faster data transmission speeds than older wireless networks.

We spent $5.4 million, $5.9 million and $7.6 million on research and development activities in the years 2003, 2002 and 2001, respectively. As of December 31, 2003, we had 56 employees in research and development.

Our technology efforts focus on creating new services and enhancing the reliability, availability and features of our services while maintaining a scalable and cost effective architecture. Our proprietary technologies are designed to work with technologies from other companies, including our partners, competitors, and other third parties. While we have integrated wireless communications into our services in three ways, including a wireless modem embedded in our Internet Location Manager, an Internet Location Manager tethered to a Nextel Communications cellular telephone and installation of our thin client

software application on a location-enabled mobile telephone, our services are designed to operate with a variety of wireless communications protocols and devices. Similarly, although our services utilize our patented GPS chipset, our services have been designed to work with other location technologies. We expect to continue to develop additional proprietary technology where feasible and to purchase or license technology where cost-effective. Our technology efforts focus on the following areas:


	•	Wireless technology. Our services currently operate on several wireless networks offered by a number of wireless carriers, including the General Packet Radio Services, Code Division Multiple Access 1XRTT, Integrated Digital Enhanced Network and Cellular Digital Packet Data. One of our objectives is to continue to maintain our technological independence from any one wireless protocol or platform, enabling our customers to communicate with our data centers in the way or ways which best suit their needs.

	•	Access and Internet technology. The delivery of our services is complex in part because it involves the continuous collection, storage and processing of data from over one hundred thousand subscribers in the field as well as processing requests from thousands of users accessing our data centers. To manage the throughput of customer information and to deliver our services to our customers, we use secure Internet connections between our data centers and customers accessing our services as well as the wireless networks transmitting customer information. In addition to providing access to our services using any Internet connected computer, we provide access via any wireline or wireless telephone with our speech-to-text interface technology. We also facilitate the integration of customer data collected by our services with a customer’s existing software applications through our DirectData streaming service and application programming interfaces. We plan to further enhance access to customer data and our services by developing additional access methods for customers to obtain their data.

	•	Information technology. We have an information technology organization dedicated to maintaining and enhancing our data centers. By managing our services at our data centers, we relieve our customers of the development and operations burden of managing services resulting from the integration of wireless communications, location technologies, hosted software applications, transaction processing infrastructure and Internet technologies. Our data centers are composed of servers co-located in Redwood City, California and Ashburn, Virginia. We maintain variable-speed capacity connections between our data centers and the Internet and dedicated connections to the wireless networks we use. In addition, our data centers automatically replicate customer data on a minute-by-minute basis. In the event of a power failure, our systems would be powered by a backup power supply.

	•	Location technology. The Global Positioning System is a worldwide radio-navigation system formed from a constellation of satellites and ground systems that are used as reference points to calculate positions. We have developed a patented GPS chipset and algorithm designed to be optimized for our services. As a result, our Internet Location Manager is designed to determine its location in less time than that which is required by other commercial receivers.

We will continue to establish relationships with a number of companies to accelerate the adoption of our services. We believe that establishing strategic relationships will facilitate our technological leadership and provide early access to emerging technologies and new customers. Some of our existing relationships include:


	•	Wireless carriers. We have established strategic relationships with ALLTEL, AT&T Wireless, Bell Mobility, Cingular Wireless, Nextel Communications, Nextel Partners, Sprint, TELUS Mobility and Verizon Wireless to provide wireless connectivity between our subscribers and the Internet. We contract directly with ALLTEL, AT&T Wireless, Sprint and TELUS Mobility for the provision of wireless communications, which are bundled with our services. With Bell Mobility, Cingular Wireless, Nextel Communications and Nextel Partners our customers have separate contracts for


		wireless communications with their carrier. With Verizon Wireless, in some geographic areas we bundle our services with wireless communications, and in other areas our customers have separate contracts for wireless communications.

	•	Manufacturers. Symbol Technologies manufactures the ruggedized personal digital assistant for use with our services. Orient Semiconductor Electronics manufactures and tests our Internet Location Manager.

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


	•	Strategic sales force. We have a team of sales employees focused on marketing and selling our services to large-sized customers. Large-sized customers are defined as customers with greater than 750 mobile resources. This sales force is geographically dispersed throughout the United States near target sales prospects. The sales process with large-sized customers often requires many months of activity, is competitive and typically requires a pilot test of our services.

	•	Mid-market sales force. We have a team of sales employees focused on marketing and selling our services to small- and medium-sized customers. This sales force is geographically dispersed throughout the United States where major wireless networks are available. Additionally, our mid-market sales force works with our wireless carrier partners to increase our subscriber base.

	•	Inside sales force. We have a team of sales employees focused on marketing and selling our services to small-sized customers. This sales force is located at our headquarters in Fremont, CA. Additionally, our inside sales force works with our direct sales force to increase our subscriber base.

	•	Agent sales force. We have a team of employees who manage a network of independent sales agents focused on marketing and selling our services. These independent sales agents are geographically dispersed throughout the United States and Canada. Participants in the agent sales program are compensated for the sale of our services and for the length of time during which a customer is under contract with us. Independent sales agents facilitate sales of our services through their own efforts and work with wireless carrier partners to increase our subscriber base.

	•	Wireless carrier partners. Our wireless carrier partners are ALLTEL, AT&T Wireless, Bell Mobility, Cingular Wireless, Nextel Communications, Nextel Partners, Sprint, TELUS Mobility and Verizon Wireless. Certain of these partners market or facilitate sales of our services through their own sales channels and work with our mid-market sales force to increase our subscriber base.

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

As of December 31, 2003, our sales and marketing team consisted of 86 employees.

We face strong competition for our services. We compete primarily on the basis of functionality, ease of use, quality, price, service availability, geographic coverage of services and corporate financial strength. As the demand by businesses for mobile resource management services increases, the quality, functionality and breadth of competing products and services will likely improve and new competitors will likely enter our market. In addition, the widespread adoption of industry standards may make it easier for new market entrants or existing competitors to improve their existing services, to offer some or all of the services we offer or may offer in the future, or to offer new services that we do not offer. We also do not know to what extent network infrastructure developers and wireless network operators will seek to provide integrated

The market for our services is competitive and is expected to become even more competitive in the future. If we are unable to compete successfully, it may harm our business or increase our sales cycles, resulting in a loss of market share and revenues. We face competition from a number of different business productivity solutions, including:


	•	Solutions developed internally by our prospective customers’ information technology staffs;

	•	Discrete means of communication with mobile workers, such as pagers, two-way radios, handheld devices and wireless telephones;

	•	Solutions targeted at specific vertical markets, such as services offered by Qualcomm that monitor assets in the long-haul transportation sector; and

	•	Solutions offered by smaller market entrants.

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

We rely on a combination of patent, trade secret, trademark and copyright laws, and nondisclosure and other contractual restrictions to protect our proprietary technology. As of December 31, 2003, we possessed ten patents, which we believe cover our GPS chipset technology and some of the methods and structures for distributing information over a network as well as applications of those methods, and had approximately 35 patent applications pending in jurisdictions around the world. We have filed numerous additional patent applications to further protect and extend our technology leadership position. Although we have applied for patent protection primarily in the United States, we have filed and intend to continue to file patent applications in other countries where there is a strategic, technological or business justification.

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

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

As of December 31, 2003, we had 314 employees, 276 of whom were located in the U.S. and 38 of whom were located in Chennai, India. We believe relationships with our employees are good.

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

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

At December 31, 2003, there were approximately 106 holders of record of our common stock. This does not include the number of persons whose stock is held in nominee or “street name” accounts through brokers.

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

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

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

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

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

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

mobile resources. Subsequent to the introduction of FleetASAP, we have introduced a number of additional services, including GeoManager Pocket Edition, @Road Pathway, RoadREPORT, RoadFORCE and ConnectBusiness, and have added features to our services.

Our services provide current and historical data relating to a customer’s mobile resources in a variety of formats, including activity reports, maps and completed business forms. We provide these formats in a standard configuration, and customers can configure certain elements and views themselves to help achieve compliance with their internal business rules. Customers can choose to submit queries to our database to create reports and views on demand or they can have reports delivered on a pre-scheduled basis. Customers can also download reports to manipulate and store data as desired. Mobile resource data is typically stored by us for 14 days, unless the customer purchases our extended data storage services.

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

To date, we have not sold our services outside the United States and Canada; however, we intend to expand our service offerings to additional countries in the future. We do not expect that revenues from international sales will be material in 2004. In 2003, one customer, Verizon Communications, represented 17% of total revenues. No other customers comprised 10% or more of total revenues in 2003. In 2002 and 2001, no single customer or group of related customers comprised 10% or more of total revenues.

Since inception we have invested substantially in research and development, marketing, the building of our sales channels and our overall infrastructure. We anticipate that such investments may increase in the future. We incurred losses in each quarter from inception through the quarter ending June 30, 2003, and may incur net losses in the future. At December 31, 2003, we had an accumulated deficit of $116.2 million. Our limited operating history makes it difficult to forecast future operating results. We may not sustain or increase profitability on a quarterly or annual basis.

In the third quarter of 2002, AT&T Wireless announced that it expects to cease operating its Cellular Digital Packet Data network by June 30, 2004. On March 11, 2004, we received a letter dated March 9, 2004 from AT&T Wireless that states that AT&T Wireless will continue to operate its Cellular Digital Packet Data network for “certain valuable partners,” including @Road, until at least September 30, 2004. The letter further states that this extension of Cellular Digital Packet Data network availability extends across all AT&T Wireless geographic locations. We are currently in discussions with AT&T Wireless and other wireless carriers to minimize any disruption of the provision of our services to

subscribers. On or about the actual termination date of AT&T Wireless’ Cellular Digital Packet Data network and where possible, certain affected subscribers would be transferred to alternate Cellular Digital Packet Data networks without a change to the hardware platform then used by those subscribers. However, we currently estimate that as of September 30, 2004 we will have approximately 8,000 subscribers in their initial contract periods that are then using AT&T Wireless’ Cellular Digital Packet Data network and that would need to use an alternate wireless protocol to continue to use our services. To use an alternate wireless protocol, existing hardware platforms would have to be replaced for these subscribers. We do not expect to realize a loss on the sale of these replacement hardware platforms. While there is no assurance, we do not expect that the termination of AT&T Wireless’ Cellular Digital Packet Data network will have a material adverse impact on our financial results.

In its Report on Form 10-K filed with the SEC on March 27, 2003, Verizon Wireless disclosed that it expects to cease operating its Cellular Digital Packet Data network at the end of 2005. We estimate that as of December 31, 2005 we will have approximately 5,000 subscribers in their initial contract periods that are then using Verizon Wireless’ Cellular Digital Packet Data network and that would need to use an alternate wireless protocol to continue to use our services. To use an alternate wireless protocol, existing hardware platforms would have to be replaced for these subscribers. We do not expect to realize a loss on the sale of these replacement hardware platforms. While there is no assurance, we do not expect that the termination of Verizon Wireless’ Cellular Digital Packet Data network will have a material adverse impact on our financial results.

Financial Reporting Release No. 60, which was released by the SEC in January 2002, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Included in Note 1 of the Notes to the Consolidated Financial Statements, included in this Report, is a summary of the significant accounting policies and methods we use. The following is a discussion of the more significant of these policies and methods.

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

Through December 31, 2003, our services have been available only by using our platform or a location- or wireless application protocol-enabled mobile telephone. Accordingly, through December 31, 2003, service revenue, which is comprised of monthly fees, was recognized ratably over the minimum service contract period, which commenced (a) upon installation where customers have installed our platform in mobile worker vehicles or (b) upon the creation of subscription licenses and a customer account on our website where customers have elected to use our services with a location-enabled mobile telephone.

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

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

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

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

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

Results of Operations for the Years Ending December 31, 2003, 2002, and 2001

Service revenue increased to $49.6 million in 2003 from $33.7 million and $20.2 million in 2002 and 2001, respectively, as a direct result of the growth in our installed base of subscribers to our services. The number of subscribers using our services totaled approximately 125,000, 90,000 and 66,000 at December 31, 2003, 2002 and 2001, respectively. In addition to subscriber growth, our service revenue is affected by a number of factors, including the rate at which service features or add-ons are adopted and pricing associated with the size and term of customer contracts. Given the fixed nature of our arrangements with our customers and ratable revenue recognition, the impact on revenues of changes in current prices for products and services is tempered because revenues from new pricing are layered on top of revenues from existing subscribers. Price changes did not have a material impact on service revenue between periods. Achieved average monthly revenue per subscriber was approximately $38.19 for 2003, up from $36.02 in 2002. Of the increase, approximately $0.76 was related to adoption of additional service capabilities and features by subscribers. The remaining increase of approximately $1.41 was the result of price changes associated with the types of services and size and term of contracts for new subscribers as those new revenues were layered on top of revenues from existing subscribers. Achieved average monthly revenue per subscriber was approximately $36.02 for 2002, up from $32.60 for 2001. Of the increase, approximately $0.17 was related to adoption of additional service capabilities and features by subscribers. The remaining increase of approximately $3.25 was the result of price changes associated with the types of services and size and term of contracts for new subscribers as those new revenues were layered on top of revenues from existing subscribers.

Cost of service revenue consists of expenses related to the delivery and support of our services. Direct expenses are comprised of costs associated with connecting our services to wireless networks and the Internet and royalty and subscription fees paid to others. Support and other delivery costs include such expenses as employee salaries and related expenses and depreciation of our data centers. Cost of service revenue increased to $15.7 million in 2003 from $13.5 million in 2002. The increase in cost of service revenue resulted from an increase of $2.0 million in direct service delivery expenses, consistent with growth in our installed base of subscribers, and an increase in employee-related costs of $744,000, associated with a higher average headcount during the year. These costs were offset by a reduction in depreciation expense of $637,000 as certain assets became fully depreciated. Cost of service revenue increased to $13.5 million in 2002 from $12.7 million in 2001. The increase resulted from an increase in direct service delivery expenses of $1.4 million, consistent with growth in our installed base of subscribers, offset by reductions in personnel, service infrastructure and travel costs of $275,000, $121,000 and $118,000, respectively. Direct expenses generally increase at a rate proportional to the growth in subscribers using our services. Personnel costs and depreciation expense generally increase at a rate slower than the growth rate of subscribers to our services. As a result, we expect that the growth in service revenue will be greater than the growth in cost of service revenue as we continue to add subscribers.

During the year ended December 31, 2003 service gross margins improved to 67% from 55% and 29% in 2002 and 2001, respectively, as a result of increased service revenue associated with growth in our installed base of subscribers and a smaller increase in the total cost of service revenue, including intangibles amortization. The average number of subscribers to our services increased 39% in 2003 over 2002 and 51% in 2002 over 2001. Cost of service revenue includes fixed indirect expenses and, therefore, generally increases at rates slower than the growth in our installed base of subscribers.

Product revenue increased 28%, 48% and 169% over each prior year in 2003, 2002 and 2001, respectively. This growth is consistent with the growth in our installed base of subscribers. As new subscribers are added to our installed base, the amount of both deferred revenue and deferred costs recognized ratably over the minimum service contract period increases. Upon completion of the initial term of a customer’s contract, recognition of both deferred product revenue and product cost is complete. Customers may then renew their agreements for future services without the purchase of new hardware and, therefore, we anticipate that product revenue will grow more slowly than service revenue.

Cost of product revenue consists of the cost of the Internet Location Manager, Internet Data Terminal, ruggedized personal digital assistant and related parts; costs associated with the final assembly, test, provisioning, delivery and installation of our products; and other costs such as provisions for inventory and repair costs. Product costs not in excess of related product revenue are deferred at the time of

shipment and amortized ratably over the minimum service contract period. Where the selling prices of our products are below our costs, we expense the difference at the time of shipment of the related products. Generally, we expect the selling prices of our products to be approximately equal to or exceed the product costs in future periods. The impact of selling products below our cost on future cash flow from operations is expected to be minimal. As new subscribers are added to our installed base, the amount of both deferred revenue and deferred costs recognized ratably increases. Upon completion of the initial term of a customer’s contract, recognition of both deferred product revenue and product cost is complete. Customers may then renew their agreements for future services without the purchase of new hardware and, therefore, we anticipate that product revenue and cost of product revenue will grow more slowly than service revenue.

Cost of product revenue rose to $19.8 million in 2003 from $16.9 million in 2002. The increase in cost of product revenue resulted from an increase in product repair and refurbishment costs of $731,000, an increase in deferred product cost recognized during the period of $728,000, increases in employee-related costs of $355,000, and an increase in provisions for inventory valuation of $311,000. Cost of product revenue rose to $16.9 million in 2002 from $13.5 million in 2001. The increase in cost of product revenue resulted from a $2.6 million increase in deferred product cost recognized during the period, consistent with the growth in subscribers using our services, and increased employee-related expenses of $677,000.

Product gross deficit improved to (43)% in 2003 from (59)% in 2002 and from (89)% in 2001. Increases in product revenue from deferrals associated with the growth in our installed base of subscribers were greater than the related increases in product costs from deferrals. Other costs, including repair expenses, provisions for inventory valuation and the loss recognized on the excess of product cost over product revenue also increased between 2003, 2002 and 2001. While we expect the selling prices of our products to be approximately equal to or to exceed product costs in future periods, after considering other costs, such as those described in “Cost of product revenue” above, we do not expect to generate significant product gross margin during the next twelve months.

Sales and marketing expenses consist of employee salaries, sales commissions, and marketing and promotional expenses. Sales and marketing expenses increased to $11.4 million in 2003 from 10.7 million in 2002. The increase was the result of higher employee-related costs of $1.1 million, associated with higher average headcount during 2003, offset by decreases in depreciation of $221,000 as certain assets became fully depreciated and decreases in travel expenses of $204,000. Sales and marketing headcount decreased to 86 at December 31, 2003 from 88 at December 31, 2002. We expect that sales and marketing expenses will increase as we expand our sales and marketing efforts, including, but not limited to, modest headcount growth and promotional expenses related to new product and service offerings.

Sales and marketing expenses decreased to $10.7 million in 2002 from $17.3 million in 2001. The reduction in expenses was attributed to lower average headcount and the associated decline in compensation expense of $3.0 million and reductions in promotional expenses of $2.8 million, consistent with our cost control initiatives across the company. Sales and marketing headcount increased to 88 at December 31, 2002 from 85 at December 31, 2001.

Research and development expenses consist of employee salaries and expenses related to development personnel and consultants, as well as expenses associated with software and hardware development. Research and development expenses decreased to $5.4 million in 2003 from $5.9 million in 2002. The reduction in expense is attributed to decreases in depreciation of $257,000 as certain assets became fully depreciated during the year, decreases in indirect allocated costs of $158,000 and decreases in employee-related costs of $113,000, associated with a decrease in the average headcount. Headcount decreased to 56 at December 31,

2003 from 59 at December 31, 2002. We anticipate that research and development expenses will increase in future periods as we develop and introduce new products and services, including modest increases in consultant and employee-related expenses associated with those introductions.

Research and development expenses decreased to $5.9 million in 2002 from $7.6 million in 2001, as a result of reductions in employee-related expenses of $1.3 million and consultant expenses of $404,000. Headcount decreased to 59 at December 31, 2002 from 72 at December 31, 2001. After development of our initial service and product offerings was completed, certain personnel and consultants related to those initial introductions were no longer required. As a result, research and development expenses declined in connection with those headcount reductions.

In accordance with American Institute of Certified Public Accountants Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, we capitalize qualifying computer software costs that are incurred during the application development stage and amortize them over the software’s estimated useful life. During 2003, 2002 and 2001, no research and development costs were capitalized in accordance with SOP 98-1.

General and administrative expenses consist of employee salaries and related expenses for executive and administrative costs, accounting and professional fees, recruiting costs and provisions for doubtful accounts. General and administrative expenses increased to $9.2 million in 2003 from $8.6 million in 2002. The increase resulted from higher employee-related expenses of $433,000 related to growth in average headcount during the year, increases in corporate and other tax expenses of $362,000, increases in professional fees of $242,000 and a rise in general operating expenses such as insurance and bank fees of $173,000. These increases were consistent with our anticipated expenditures associated with our growth and were offset in part by a decrease in the provision for doubtful accounts of $588,000. We expect that general and administrative expenses will increase in future periods, including modest increases in employee-related expenses and professional fees associated with our operation as a public company.

General and administrative expenses decreased to $8.6 million in 2002 from $12.7 million in 2001. The decrease in 2002 was the result of reductions in provision for doubtful accounts of $2.0 million, decreases in employee-related expenses of $732,000 attributed to lower average headcount in 2002, reduced consultant charges of $431,000, and reduced legal fees of $346,000. These reductions, with the exception of the provisions for doubtful accounts, were consistent with our cost control initiatives across the company.

Provisions for doubtful accounts decreased to $(127,000) in 2003 from $461,000 in 2002 and from $2.4 million in 2001, due to improved collection activity and receivables management. We expect that provisions for doubtful accounts may increase because of the non-recurring nature of favorable adjustments that occurred during 2002 and 2003; however, we do not expect that these provisions will return to the levels reported in 2001.

General and administrative headcount totaled 53, 47 and 47 at December 31, 2003, 2002, and 2001, respectively.

During 2001, in response to a general downturn in the economy, we undertook a formal plan to lower our cost structure. We completed a reorganization to more effectively develop, market and sell mobile resource management products and services. This effort resulted in the total number of employees being reduced by approximately 11 percent. Restructuring expenses, which consist of severance and related costs, were $218,000 in 2001.

Intangibles amortization relates to the intangible assets purchased from Differential Corrections, Inc. in April 2000 and ConnectBusiness.com, Inc. in September 2002. The costs are being amortized over an estimated useful life of three and two years, respectively.

Deferred stock compensation related to the granting of stock options to employees and consultants was approximately $4,000 at December 31, 2003 and $491,000 as of December 31, 2002. Stock compensation expense decreased to $467,000 in 2003 from $1.1 million in 2002 and $3.0 million in 2001, and primarily represents the amortization of deferred stock compensation over the vesting periods of related options granted in 2000 and 1999.

At December 31, 2001, we held approximately 148,000 shares of preferred stock in Cellport Systems, Inc., with a book value of $1,035,000 which represented approximately seven percent ownership in Cellport Systems, Inc. We accounted for this investment using the cost method. During 2002, we determined that the investment had experienced a decline in value that was other than temporary. Accordingly, we expensed $1,035,000 in 2002.

Net interest income (expense) is composed primarily of interest earned on cash, cash equivalents and short-term investments, partially offset by interest expense related to the financing of directors and officers insurance costs. Net interest income (expense) decreased to approximately $675,000 in 2003 from $949,000 and $2.7 million in 2002 and 2001, respectively. The decreases resulted from lower balances available for investment and lower interest rates.

In 2003, 2002 and 2001 other expense consisted primarily of immaterial net foreign currency exchange losses related to our subsidiary in India.

Through 2002, we incurred net losses for federal and state tax purposes and except for only minimum state income and franchise taxes have not recognized any tax provision or benefit. The 2003 net income was offset by the utilization of prior years’ net operating losses; therefore no income tax expense was provided.

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

Net loss decreased to $14.2 million in 2002 from $38.6 million in 2001, the result of increases in revenue accompanied by decreases in operating costs. Specifically, cost of revenue grew more slowly than total revenues while stock compensation, sales and marketing expenses, research and development expenses and general and administrative expenses all declined.

We conduct operations primarily within the U.S. where inflation during 2003, 2002 and 2001 has been low and has not materially impacted our operating results. Foreign currency exchange losses resulting from transactions with our wholly-owned subsidiary in India, which began business in 1999, were not material during 2003, 2002 and 2001 and were expensed as incurred.

The following table presents certain unaudited consolidated statement of operations data for our eight most recent fiscal quarters. The information for each of these quarters is unaudited and has been prepared on the same basis as our audited consolidated financial statements appearing elsewhere in this Report. In the opinion of our management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related notes included elsewhere or incorporated by reference in this Report. We believe that results of operations for interim periods should not be relied upon as any indication of the results to be expected or achieved in any future period or any fiscal year as a whole. Certain quarterly amounts presented below for 2002 have been reclassified to conform with the 2003 presentation.

As of December 31, 2003, we had $103.7 million of cash and cash equivalents, $2.0 million of short-term investments and working capital of $108.1 million. We currently have a $100,000 revolving line of

Net cash provided by (used in) operating activities was $9.7 million, $(6.6) million and $(34.6) million in 2003, 2002 and 2001, respectively. In 2003, this improvement in cash provided by operating activities was primarily attributed to net income, net of non-cash expenses and charges (depreciation and amortization, provision for inventory valuation, amortization of deferred stock compensation, loss on disposal of property and equipment and provisions for doubtful accounts). Cash provided by operating activities during 2003 also increased in comparison to the prior year due to increases in deferred revenue, accounts payable, accrued and other liabilities, and reductions in inventory, offset by increases in deferred product costs. In 2002, cash used for operating activities increased in comparison to the prior year due to increases in accounts receivable and deferred product costs, offset by an increase in deferred revenue. In 2001, cash used for operating activities was also attributable to increases in accounts receivable, inventory, and deferred product costs, offset in part by increases in deferred revenue. Improvements in accounts receivable collections as compared to increases in customer billings also contributed to increased operating cash flows in both 2003 and 2002. As of December 31, 2003, approximately $1.2 million of our accounts receivable were over 90 days old. We believe we have adequately provided allowances as of December 31, 2003 for any such amounts that may ultimately become uncollectible.

Net cash used in investing activities was $1.5 million in 2003 and resulted from the purchase of property and equipment and other assets of $1.8 million, offset by the net cash proceeds from purchases and sales of short-term investments of $241,000. Net cash used in investing activities was $881,000 in 2002 and resulted from purchases of $755,000 of property and equipment and other assets of $101,000. Net cash provided by investing activities in 2001 was $4.2 million, primarily resulting from maturities of short-term investments of $5.2 million and offset in part by purchases of approximately $763,000 of property and equipment.

Net cash provided by financing activities was $59.8 million in 2003 and was attributed to proceeds from the issuance of our stock and payments on stockholders notes receivable. Net cash provided by financing activities was $2.9 million and $1.3 million in 2002 and 2001, respectively. Cash provided by financing activities in 2002 and 2001 was primarily attributable to proceeds from the issuance of our stock.

Our capital expenditures in 2003 increased to $1.5 million from $755,000 in 2002 and $763,000 in 2001. Our capital expenditures have been consistent with our anticipated needs in operations, infrastructure and personnel. We have no material commitments for capital expenditures, although we anticipate increases in capital expenditures and lease commitments with our expected growth in operations and infrastructure over the next twelve months. We also may establish additional operations as we expand globally.

The following table represents our future commitments under minimum annual lease payments and non-cancellable purchase commitments as of December 31, 2003 (in thousands):

Other long-term liabilities in our consolidated balance sheet as of December 31, 2003 include a deferred rent liability of $33,000. The payments related to this amount are included in non-cancellable operating lease commitments above.

We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for operating expenses, working capital and capital expenditures for at least the next eighteen months. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or to obtain a larger credit facility. If additional funds are raised through the issuance of debt securities, holders of these securities could have certain rights, preferences and privileges senior to holders of our common stock, and the terms of this debt could restrict our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our existing stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of our operations, which could harm our business, financial condition and operating results.

The Financial Accounting Standards Board (FASB) issued Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities in January 2003, and a revised interpretation of FIN 46 (“FIN 46-R”). FIN 46 requires certain variable interest entities (“VIEs”) to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003. We have not invested in any entities that we believe are variable interest entities for which we are the primary beneficiary. The adoption of FIN-46 had no impact, and we do not expect the adoption of FIN 46-R to have an impact, on our financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,which requires that certain financial instruments be presented as liabilities that were previously presented as equity or as temporary equity. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and was effective at the beginning of the first interim period beginning after June 15, 2003. In November 2003, the FASB issued FASB Staff Position (FSP) No. 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under SFAS No. 150, which defers the effective date for various provisions of SFAS No. 150. We believe that we have properly classified and measured in our balance sheets and disclosed in our consolidated financial statements certain financial instruments with characteristics of both liabilities and equity.

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

If, pursuant to its announcement, AT&T Wireless ceases to operate its Cellular Digital Packet Data network in 2004, we may lose subscribers and our revenues could decrease.

Beginning March 31, 2003, AT&T Wireless discontinued new sales of Cellular Digital Packet Data service. AT&T Wireless has also indicated that it expects to cease operating its Cellular Digital Packet Data network by September 30, 2004. If the termination of AT&T Wireless’ Cellular Digital Packet Data network disrupts our ability to deliver services to certain of our customers and we are unable to transition those customers to other networks, our revenues would decrease and customer satisfaction would suffer.

If, pursuant to its announcement, Verizon Wireless ceases to operate its Cellular Digital Packet Data network by the end of 2005, we may lose subscribers and our revenues could decrease.

Verizon Wireless has indicated that it expects to cease operating its Cellular Digital Packet Data network by the end of 2005. If the termination of Verizon Wireless’ Cellular Digital Packet Data network disrupts our ability to deliver services to certain of our customers and we are unable to transition those customers to other networks, our revenues would decrease and customer satisfaction would suffer.

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

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

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

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


	•	changes in the market for mobile resource management services;

	•	delays in market acceptance or implementation by customers of our services;

	•	changes in length of sales cycles of or demand by our customers for existing and additional services;

	•	changes in the productivity of our distribution channels;

	•	introduction of new services by us or our competitors;

	•	changes in our pricing policies or those of our competitors or suppliers;

	•	changes in our mix of sources of revenues;

	•	general economic and political conditions;

	•	wireless networks, positioning systems and Internet infrastructure owned and controlled by others; and

	•	any need to migrate to new wireless networks, which could cause our products to be incompatible with new wireless networks or out of date.

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

If we cannot deliver the features and functionality our customers demand, we will be unable to retain or attract new customers.

Our success depends upon our ability to determine the features and functionality our customers demand and to design and implement services that meet their needs in an efficient manner. We cannot assure you that we can successfully determine customer requirements or that our future services will adequately satisfy customer demands. In addition, we may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. If we cannot effectively deploy, maintain and enhance our services, our revenues may decrease, we may not be able to recover our costs and our competitive position may be harmed.

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

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

If one or more of the agreements we have with wireless carriers is terminated and as a result we are unable to offer services to our customers within a carrier’s coverage area, we may be unable to deliver our services, we may lose subscribers, and our revenues could decrease.

Our existing agreements with wireless carriers may in some cases be terminated immediately upon the occurrence of certain conditions or with prior written notice. In connection with ceasing operation of their Cellular Digital Packet Data networks, AT&T Wireless and/or Verizon Wireless may seek to terminate or not to renew their contracts for Cellular Digital Packet Data service with us. If one or more of our wireless carriers decides to terminate or not to renew its contract with us, we may incur additional costs relating to obtaining alternate coverage from another wireless carrier outside of its primary coverage area, or we may be unable to replace the coverage at all, causing a complete loss of services to our customers in that coverage area.

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

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


	•	diversion of management’s attention from our core business objectives and other business concerns;

	•	failure to integrate efficiently businesses or technologies acquired in the future with our pre-existing business or technologies;

	•	potential loss of key employees from either our pre-existing business or the acquired business;

	•	dilution of our existing stockholders as a result of issuing equity securities; and

	•	assumption of liabilities of the acquired company.

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

We face competition from internal development teams of potential customers and from existing and potential competitors, which could limit our ability to acquire subscribers and could reduce our market share and revenues.

The market for our services is competitive and is expected to become even more competitive in the future. Our customers evaluate our services and those of our competitors primarily on the basis of the functionality, ease of use, quality, price, geographic coverage of services and corporate financial strength. As the demand by businesses for mobile resource management services increases, the quality, functionality and breadth of competing products and services will likely improve and new competitors will likely enter our market. In addition, the widespread adoption of industry standards may make it easier for new market entrants or existing competitors to improve their existing services, to offer some or all of the services we offer or may offer in the future, or to offer new services that we do not offer. We also do not know to what extent network infrastructure developers and wireless network operators will seek to provide integrated wireless communications, Global Positioning System, software applications, transaction processing and Internet solutions, including access devices developed internally or through captive suppliers. If we are unable to compete successfully, it may harm our business, which in turn may limit our ability to acquire or retain subscribers, resulting in a loss of market share and revenues. We face competition from a number of different business productivity solutions, including:


	•	solutions developed internally by our prospective customers’ information technology staffs;

	•	discrete means of communication with mobile workers, such as pagers, two-way radios, handheld devices and wireless telephones;

	•	solutions targeted at specific vertical markets, such as services offered by Qualcomm that monitor assets in the long-haul transportation sector; and

	•	solutions offered by smaller market entrants.

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

We have only recently become profitable and may not sustain or increase profitability in the future. As of December 31, 2003, we had an accumulated deficit of $116.2 million. To sustain profitability we will need to generate significant revenues to offset our cost of revenues and our sales and marketing, research and development and general and administrative expenses. We may not achieve or sustain our revenue or profit goals and our losses may increase in the future. To facilitate the sale of our services, we have sold and may sell our hardware below our costs. As a result, we have experienced, and expect to continue to experience, negative gross margins on the sale of our hardware. Changes such as increases in our pricing for products and services or the pricing of competing products and services may harm our ability to increase sales of our products and services to new and existing customers. If we are not able to expand our customer base and increase our revenue from new and existing customers, we may be unprofitable.

Due to our limited operating history, it is difficult to predict future operating results or our stock price.

An evaluation of our business is difficult because we have a limited operating history. We commenced operations in July 1996 and commercially offered our first services in the second half of 1998. We may not


	•	our need to respond to technological change and introduce reliable and robust products and services that meet the demanding needs of customers;

	•	the uncertainty of market acceptance of our services;

	•	our need to expand and manage the expansion of our marketing, sales and support organizations, as well as our distribution channels;

	•	our ability to anticipate and respond to market competition;

	•	wireless networks, positioning systems and Internet infrastructure owned and controlled by others; and

	•	any need to migrate to new wireless networks, which could result in our products being incompatible with new wireless networks or out of date.

We may not successfully address these risks, and our business strategy may not be successful.

We have limited resources and may be unable to manage our anticipated growth in operations.

If we fail to develop and maintain our services as we experience rapid growth, demand for our services could decrease, which would result in a decrease in our revenues. Our development and expansion have placed, and will continue to place, significant strain on our managerial, operational and financial resources. Due to the limited deployment of our services, we are unable to assess our ability to grow the business and manage a substantially larger number of customers and additional services.

We depend on a limited number of third parties to manufacture and supply critical components for our products and services.

We rely on sole suppliers and manufacturers for a number of key components for these products and do not have long-term agreements with any of these suppliers or manufacturers. If these parties do not perform their obligations, or if they cease to manufacture and supply components critical for our products and services, we may be unable to find other suppliers or operate our business. We cannot be sure that alternative sources for key components used in our products, such as the Internet Location Manager and the Internet Data Terminal, will be available when needed, or if available, that these components will be available on commercially reasonable terms. Our sole suppliers and manufacturers of key components include:


	•	Orient Semiconductor Electronics, our sole manufacturer of Internet Location Managers;

	•	Motorola, our sole supplier of wireless modems operable on Integrated Digital Enhanced Networks and of microcontrollers for our Internet Location Manager; and

	•	Taiwan Semiconductor Manufacturing Company, our sole manufacturer of our GPS digital receiver chips.

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

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

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

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

Any disruption to our services, information systems or communications networks or those of third parties could result in the inability of our customers to receive our services for an indeterminate period of time. Our operations depend upon our ability to maintain and protect our computer systems at our co-located data centers in Ashburn, Virginia and Redwood City, California, which is on or near earthquake fault zones. Our services may not function properly if our systems fail, or if there is an interruption in the supply of power, or if there is an earthquake, fire, flood or other natural disaster, or an act of war or terrorism. Within each of our data centers, we have fully redundant systems; however, in the event of a system or network failure, the process of shifting access to customer data from one data center to the other would be performed manually, and could result in a further disruption to our services. Any disruption to our services could cause us to lose customers or revenue, or face litigation, customer service or repair work that would involve substantial costs and distract management from operating our business.

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

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

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

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

We must develop our services quickly to keep pace with the rapidly changing MRM market. Products and services that address this market are likely to contain undetected errors or defects, especially when first introduced or when new versions are introduced. Our services may not be free from errors or defects, which could result in the cancellation or disruption of our services or dissatisfaction of customers. This would damage our reputation and result in lost revenues, diverted development resources, and increased service and warranty costs.

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

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

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

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

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

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

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

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

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

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

Because of the technical nature of our services and the market in which we compete, our success depends on the continued services of our current executive officers and our ability to attract and retain qualified sales and other personnel with expertise in wireless communications, Global Positioning Systems, hosted software applications, transaction processing and the Internet. Competitors and others have in the past, and may attempt in the future, to recruit our employees and encourage our former employees to solicit business from our customers. In addition, new employees generally require substantial training, which requires significant resources and management attention. Even if we invest significant resources to recruit, train and retain qualified personnel, we may not be successful in our efforts.

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

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

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

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

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

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

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

Over the past several years, stock markets have experienced dramatic price and volume fluctuations, particularly for shares of technology companies. These fluctuations can be unrelated to the operating performance of these companies. Broad market fluctuations may reduce the market price of our common stock and cause you to lose some or all of your investment. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive nature and growth rate of our business and the mobile resource management market, the market price of our common stock may rise and fall in response to:


	•	quarterly variations in operating results;

	•	failure to achieve operating results anticipated by securities analysts and investors;

	•	changes in estimates of our financial performance or changes in recommendations by securities analysts;

	•	announcements of technological or competitive developments;

	•	the gain or loss of a significant customer or order;

	•	disposition of shares of our common stock held by large investors; and

	•	acquisitions or strategic alliances by us or our competitors.

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

As of February 27, 2004, a limited number of stockholders own approximately 49% of our stock and may act, or prevent certain types of corporate actions, to the detriment of other stockholders.

Our directors, officers and greater than 5% stockholders own, as of February 27, 2004, approximately 49% of our outstanding common stock. Accordingly, these stockholders may, if they act together, exercise significant influence over all matters requiring stockholder approval, including the election of a majority of the directors and the determination of significant corporate actions. This concentration could also have the effect of delaying or preventing a change in control that could otherwise be beneficial to our stockholders.

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

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


	•	establishing a classified board in which only a portion of the total board members will be elected at each annual meeting;

	•	authorizing the board to issue preferred stock;

	•	prohibiting cumulative voting in the election of directors;

	•	limiting the persons who may call special meetings of stockholders;

	•	prohibiting stockholder action by written consent; and

	•	establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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

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

Within 90 days prior to the date of this Report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective. Our disclosure controls are designed to provide a

There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their evaluation.

Information required by Part III is omitted from this Report because we will file a definitive proxy statement within 120 days after the end of our fiscal year pursuant to Regulation 14A (the “Proxy Statement”) for our 2004 annual meeting of stockholders and the information included in the Proxy Statement is incorporated herein by reference.


	1. Index to Consolidated Financial Statements

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


	2. Consolidated Financial Statement Schedules

	Schedule II — Valuation and Qualifying Accounts

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

The Company filed the following reports on Form 8-K during the three months ended December 31, 2003:


	•	A current report on Form 8-K was filed on October 2, 2003 pursuant to Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 9 (Regulation FD Disclosure).

	•	A current report on Form 8-K was filed on October 15, 2003 pursuant to Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 9 (Regulation FD Disclosure).


	•	A current report on Form 8-K was filed on October 23, 2003 pursuant to Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 12 (Results of Operations and Financial Condition).

	•	A current report on Form 8-K was filed on October 24, 2003 pursuant to Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 9 (Regulation FD Disclosure).


	*	Incorporated by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed with the SEC on July 13, 2000.


	**	Incorporated by reference to our Report on Form 10-K filed with the SEC on March 30, 2001.


	***	Incorporated by reference to our Report on Form 10-K filed with the SEC on March 28, 2002.


****	Incorporated by reference to our Report on Form 10-K/ A filed with the SEC on July 29, 2003.


	†	Certain information in this Exhibit has been omitted and filed separately with the SEC. Confidential treatment has been requested or granted with respect to the omitted portions.

We have audited the accompanying consolidated balance sheets of At Road, Inc. and its subsidiary (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2003. Our audit also included the consolidated financial statement schedule listed in Item 15.(a)2. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of At Road, Inc., and its subsidiary at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

At Road, Inc. (the Company), was incorporated in July 1994 in California and commenced operations on July 1, 1996. The Company is a leading provider of mobile resource management services through the use of the proprietary global positioning system (GPS) and wireless technologies.

The consolidated financial statements include the Company and its wholly-owned subsidiary. Intercompany accounts and transactions are eliminated upon consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

Short-term investments represent highly liquid debt instruments purchased with a remaining maturity date at purchase of greater than 90 days and are stated at fair value. The differences between amortized cost (cost adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value representing unrealized holding gains or losses, are recorded separately as accumulated other comprehensive loss within stockholders’ equity. While the Company’s intent is to hold debt securities to maturity, they are classified as available-for-sale because the sale of such securities may be required prior to maturity. Any gains and losses on the sale of debt securities are determined on a specific identification basis. At December 31, 2003 short-term investments consist of a certificate of deposit with a fair value which approximated cost. The certificate of deposit has a maturity date of June 12, 2004. There were no short-term investments at December 31, 2002.

Restricted short-term investments consist of a certificate of deposit with an original maturity of greater than 90 days, which was held as collateral under the Company’s line of credit agreement existing at that time (see Note 6). The certificate of deposit was classified as available-for-sale as the sale of such security may be required prior to maturity. At December 31, 2002 the fair value of the restricted short-term investment approximated cost. There were no restricted short-term investments at December 31, 2003.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash equivalents, short-term investments and accounts receivable. The Company’s cash equivalents and short-term investments consist of checking and savings accounts, money market accounts and highly liquid debt instruments with three financial institutions. The Company sells products primarily to companies in the United States. The Company does not require collateral or other security to support

accounts receivable. To reduce credit risk, management performs ongoing evaluations of its customers’ financial condition.

At December 31, 2003, Verizon Communications totaled 25% of outstanding accounts receivable. No other customers comprised 10% or more of total outstanding accounts receivable at December 31, 2003. At December 31, 2002, no single customer or group of related customers comprised 10% or more of total outstanding accounts receivable.

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

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

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

At December 31, 2001, the Company held approximately 148,000 shares of preferred stock in Cellport Systems, Inc., with a book value of $1,035,000 and which represented approximately seven percent ownership in Cellport Systems, Inc. The Company accounts for this investment using the cost method. During the quarter ended June 30, 2002, it was determined that the investment had experienced a decline in value that was other than temporary. Accordingly, $1,035,000 was expensed in 2002 (see Note 4).

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

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

Revenue is recognized when earned in accordance with applicable accounting standards, including American Institute of Certified Public Accountants (AICPA) Statement of Position No. 97-2, Software Revenue Recognition, as amended. The Company earns revenues under service contracts, which generally provide service over periods from two to three years, and from related products sold to customers (for which title passes on delivery). Through December 31, 2003, its services have been available only by using the Company’s platform or a location- or wireless application protocol-enabled mobile telephone.

Accordingly, service revenue, which is comprised of monthly fees, is recognized ratably over the minimum service contract period, which commences (a) upon installation where customers have installed the platform in mobile worker vehicles or (b) upon the creation of subscription licenses and a customer account on the Company’s website where customers have elected to use services with a location-enabled mobile telephone.

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

All advertising costs are expensed as incurred. Advertising costs, which are included in sales and marketing expenses, were approximately $301,000, $252,000 and $1,345,000 in 2003, 2002 and 2001, respectively. Advertising costs consist primarily of ad campaigns, catalog brochures, direct mailings and trade show expenses.

Research and development expenses are charged to operations as incurred. Such expenses include product development costs and costs related to the Company’s internally developed software systems, which have not met the capitalization criteria of Statement of Position 98-1 (SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. During 2003, 2002 and 2001 no research and development costs were capitalized in accordance with SOP 98-1.

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

The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements granted at fair market value.

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which requires that the fair value of such instruments be recognized as an expense over the period in which the related services are received.

SFAS No. 123 requires the disclosure of pro forma net income or loss had the Company adopted the fair value method. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. These models also require subjective assumptions, including

expected time to exercise, which greatly affect the calculated values. The Company’s calculations are based on a single option valuation approach, and forfeitures are recognized as they occur. The Company used the following weighted average assumptions:

If the computed minimum values of the Company’s stock-based awards to employees had been amortized to expense over the vesting period of the awards as specified under SFAS No. 123, loss attributable to common stockholders and basic and diluted loss per share on a pro forma basis (as compared to such items as reported) would have been (in thousands, except per share amounts):

Basic net income (loss) per common share excludes the effect of dilutive securities and is computed by dividing net income (loss) by the weighted average shares outstanding (excluding shares subject to repurchase). Diluted net income per share is computed by dividing net income by the weighted average shares outstanding plus the weighted average number of common shares resulting from the assumed conversion of outstanding stock options and employee stock plan share shares. Diluted net loss per common share for 2002 and 2001 was the same as basic net loss per common share since the effect of any

potentially dilutive securities is excluded, as they are anti-dilutive due to the Company’s net losses, respectively.

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

Motorola is the sole supplier of microcontrollers used in the Company’s products. The Company expects to rely on Motorola as a source for this component for the next several years. Taiwan Semiconductor Manufacturing Company (TSMC) is the sole manufacturer of the Company’s Global Positioning System digital receiver chips used in some of the Company’s products. The Company expects to rely on TSMC as a source for this component for at least the next twelve months.

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources. At December 31, 2003 and 2002, accumulated other comprehensive loss was zero.

In 2003, 2002 and 2001, the Company operated in a single reportable segment and will evaluate additional segment disclosure requirements as it expands its operations. The Company had no significant revenues from customers outside of the United States in 2003, 2002 and 2001, and had no significant long-lived assets deployed outside the United States at December 31, 2003 and 2002.

In 2003, one customer, Verizon Communications, represented 17% of total revenues. No other customers comprised 10% or more of total revenues in 2003. In 2002 and 2001, no single customer or group of related customers comprised 10% or more of total revenues.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 became effective for the Company on January 1, 2001. The adoption of this statement did not have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

The Financial Accounting Standards Board (FASB) issued Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities in January 2003, and a revised interpretation of FIN 46 (“FIN 46-R”). FIN 46 requires certain variable interest entities (“VIEs”) to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003. The Company has not invested in any entities that the Company believes are variable interest entities for which the Company is the primary beneficiary. The adoption of FIN-46 had no impact, and the Company does not expect the adoption of FIN 46-R to have an impact, on its financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which requires that certain financial instruments be presented as liabilities that were previously presented as equity or as temporary equity. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and was effective at the beginning of the first interim period beginning after June 15, 2003. In November 2003, the FASB issued FASB Staff Position (FSP) No. 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under SFAS No. 150, which defers the effective date for various provisions of SFAS No. 150. The Company believes that it has properly classified and measured in its balance sheets and disclosed in our consolidated financial statements certain financial instruments with characteristics of both liabilities and equity.

Certain reclassifications have been made to the 2002 financial statement presentation to conform to the 2003 presentation. These reclassifications had no effect on net loss or stockholders’ equity.

During 2002, the Company acquired an additional $83,000 of purchase technology. This intangible asset is being amortized on a straight-line basis over an estimated useful life of two years.

The Company reassessed the useful lives and classification of our identifiable intangible assets and determined that they continued to be appropriate. Information regarding the Company’s intangible assets having a finite life is as follows (in thousands):

Amortization expense for intangible assets was $455,000, $1,670,000 and $1,656,000 for 2003, 2002 and 2001, respectively. The estimated amortization for fiscal years subsequent to December 31, 2003 is as follows (in thousands):

At December 31, 2003, the Company had a non-collateralized line of credit agreement for $100,000 that expires on December 31, 2004. There were no borrowings against the line of credit at December 31, 2003. Borrowings bear interest at the certificate of deposit rate plus 2 percent.

The Company has authorized an undesignated class of preferred stock of 10,000,000 shares. The preferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions of such preferred stock. No shares were outstanding at December 31, 2003 or 2002.

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

In 2000, the Company adopted the 2000 Employee Stock Purchased Plan (the ESPP) under which a total of 450,000 shares of common stock were reserved for issuance. The number of shares reserved for issuance under the ESPP will automatically increase on the first day of each year beginning in 2001 and ending 2010 by an amount equal to the lesser of 900,000 shares or two percent of the total shares outstanding on the last day of the preceding year. Under the ESPP, shares of common stock will be sold to employees at a price not less than 85 percent of the lower of fair market value at the beginning of the two-year offering period or the end of the six-month purchase periods. In 2003, 563,295 shares were issued at a weighted average price of $2.634 per share under this plan. In 2002, 553,401 shares were issued at a weighted average price of $1.983 per share under this plan. At December 31, 2003, 765,725 shares of common stock were reserved for issuance under the plan.

In 2000, the Company adopted the 2000 Stock Option Plan (the 2000 Option Plan). A total of up to 7,612,364 shares are reserved for issuance under the 2000 Option Plan at December 31, 2003. In addition, up to 9,825,000 shares, if available for grant under the 1996 Stock Option Plan will be granted under the 2000 Option Plan. The number of shares reserved under the 2000 Option Plan will automatically be increased on the first day of each of the fiscal years beginning 2001 and ending 2010 in an amount equal to the lesser of 2,500,000 shares or four percent of the shares outstanding on the last day of the preceding year. These options generally expire ten years from date of grant and generally vest in installments over a four-year period.

In 2000, the Company adopted the 2000 Directors’ Stock Option Plan (the Directors’ Plan). A total of up to 1,200,000 shares of common stock are reserved for issuance under the Directors’ Plan at the fair market value at the grant date. Under the Directors’ Plan, each individual who first becomes a non-employee director after the effective date of the Directors’ Plan will receive an automatic initial grant of an option to purchase 40,000 shares. These initial grants generally vest in installments over a four-year period. The Directors’ Plan also provides for automatic annual grants of options to purchase 10,000 shares of common stock on the date of each annual meeting of the Company’s stockholders to each non-employee director who has served on the board for at least six months prior to the meeting. The automatic grants to purchase 10,000 shares generally vest in installments over a one-year period. Options granted under the Directors’ Plan have a term of 10 years from the date of grant.

Under the Company’s 1996 Stock Option Plan, the Board of Directors is authorized to grant to employees, officers, directors and consultants up to 11,326,125 shares of common stock. These options generally expire in 10 years from the date of the grant and generally vest in installments over a four-year period.

At December 31, 2003, an aggregate of 3,281,004 shares were available for future grant under the 2000 Option Plan and the Directors’ Plan.

Additional information regarding options outstanding as of December 31, 2003 is as follows:

In 2000 and 1999, the Company issued options and purchase rights to employees having a fair value greater than the related exercise price. These options and purchase rights totaled 1,264,875 and 7,045,125 shares of common stock at a weighted average exercise price of $2.28 and $0.59, respectively. The weighted average fair value of the common stock at the time the options were issued was $9.27 and $2.95 per share in 2000 and 1999, respectively. Accordingly, the Company recorded approximately $8,830,000 and $15,842,000 as the value of such options in 2000 and 1999, respectively. Stock compensation of $462,000, $1,025,000 and $2,957,000 was amortized to expense in 2003, 2002 and 2001, respectively. At December 31, 2003 and 2002, the Company had $4,000 and $491,000 in deferred compensation related to employee options, respectively.

In 2002, 2001, 2000 and 1999, the Company issued non-statutory common stock options to consultants to purchase 2,750, 12,500, 204,550 and 147,200 shares of common stock, of which options to purchase 63,250, 80,125, and 149,250 shares of common stock were outstanding at December 31, 2003, 2002, and 2001, respectively. Accordingly, the Company recorded $5,000, $15,000 and $85,000 as the fair value of such options in 2003, 2002 and 2001, respectively. Stock compensation expense of $5,000, $40,000, and $84,000 was recognized as a result of issuing these options in 2003, 2002 and 2001, respectively. The fair value attributed to the unvested portion of these options is subject to adjustment based upon the future value of the Company’s common stock. The fair values of these options were determined at the date of vesting using the methods specified by SFAS 123 with the following weighted average assumptions: expected life, five years in 2003, 2002 and 2001; risk-free interest rate, 2.9 percent in 2003, 3.6 percent in 2002 and 4.5 percent in 2001; volatility of 114 percent in 2003, 124 percent in 2002 and 143 percent in 2001; and no dividends during the expected term. Forfeitures are recognized as they occur.

At December 31, 2003, the Company has reserved shares of common stock for issuance as follows:

At December 31, 2003, notes receivable from stockholders representing notes receivable from certain employees of the Company were composed of (dollars in thousands, except per share amounts):

These full recourse notes are secured by common stock and generally are due five years from the issue dates. The stock sold in connection with certain of these notes and other stock sales for cash are subject to repurchase by the Company at the original issuance price; this right generally lapses over a four-year period subject to continued employment. At December 31, 2003, 44,072 shares of common stock were subject to this repurchase right.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts):

For the above-mentioned periods, the Company had securities outstanding which could potentially dilute basic earnings per share in the future, but which were excluded from the computation of diluted net loss per share in the periods presented, as their effect would have been antidilutive. Such outstanding securities consist of the following:

The Company leases its principal facilities under noncancelable operating leases expiring through December 2005. Future minimum rental payments under operating leases are as follows (in thousands):

Rent expense was approximately $1,415,000, $1,312,000 and $1,563,000 (net of sublease income of approximately $48,600, $72,000 and $79,000) for 2003, 2002 and 2001, respectively. The lease provides for escalating rental payments over the lease period. Rent expense is recognized on a straight-line basis over the term of the lease. Deferred rent represents the difference between rental payments and rent expense recognized. Current deferred rent is included in accrued liabilities, with the long-term portion being included in other long-term liabilities.

At December 31, 2003, the Company had noncancelable inventory purchase commitments totaling approximately $2,968,000.

In the third quarter of 2002, AT&T Wireless announced that it expects to cease operating its Cellular Digital Packet Data network by June 30, 2004. On March 11, 2004, the Company received a letter dated March 9, 2004 from AT&T Wireless that states that AT&T Wireless will continue to operate its Cellular Digital Packet Data network for “certain valuable partners,” including @Road, until at least September 30, 2004. The letter further states that this extension of Cellular Digital Packet Data network availability extends across all AT&T Wireless geographic locations. The Company is currently in discussions with AT&T Wireless and other wireless carriers to minimize any disruption of the provision of its services to subscribers. On or about the actual termination date of AT&T Wireless’ Cellular Digital Packet Data network and where possible, certain affected subscribers would be transferred to alternate Cellular Digital Packet Data networks without a change to the hardware platform then used by those subscribers. However, the Company currently estimates that as of September 30, 2004 the Company will have approximately 8,000 subscribers in their initial contract periods that are then using AT&T Wireless’ Cellular Digital Packet Data network and that would need to use an alternate wireless protocol to continue to use the Company’s services. To use an alternate wireless protocol, existing hardware platforms would have to be replaced for these subscribers. The Company does not expect to realize a loss on the sale of these replacement hardware platforms. While there is no assurance, the Company does not expect that the termination of AT&T Wireless’ Cellular Digital Packet Data network will have a material adverse impact on its financial results.

In its Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2003, Verizon Wireless disclosed that it expects to cease operating its Cellular Digital Packet Data network at the end of 2005. The Company estimates that as of December 31, 2005 it will have approximately 5,000 subscribers in their initial contract periods that are then using Verizon Wireless’ Cellular Digital Packet Data network and that would need to use an alternate wireless protocol to continue to use its services. To

use an alternate wireless protocol, existing hardware platforms would have to be replaced for these subscribers. The Company does not expect to realize a loss on the sale of these replacement hardware platforms. While there is no assurance, the Company does not expect that the termination of Verizon Wireless’ Cellular Digital Packet Data network will have a material adverse impact on our financial results.

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

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

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on the Company’s balance sheet as of December 31, 2003.

In general, the Company provides its customers a one year limited warranty in connection with the sale of its products that the hardware furnished under the agreement will be free from defects in materials and workmanship and will substantially conform to the specifications for such hardware. The Company’s policy is to expense such costs as incurred. To date, the Company has incurred minimal costs related to this limited warranty obligation.

During 2001, the Company adopted a formal plan to reduce operating costs in response to a general downturn in the economy. In connection with these actions, a pre-tax restructuring charge of approximately $218,000 (net of reversals in 2001 of $30,000) was recorded in 2001. The principal actions of the plan involved reducing the number of employees by approximately 11 percent. All areas of the Company were affected by the reduction of 29 employees. The restructuring expense was composed of severance and related costs. The total restructuring expense paid in 2001 was $218,000.

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

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

At December 31, 2003, the Company had federal and state net operating loss (NOL) carry forwards of approximately $95,700,000 and $50,897,000, respectively. The federal NOL carry forwards expire through 2023, while the state NOL carry forwards expire through 2013.

At December 31, 2003 approximately $3,089,000 of valuation allowance for deferred tax assets relating to net operating loss carry forwards is attributed to employee stock option deductions, the benefit from which will be allocated to equity rather than current earnings when realized.

At December 31, 2003, the Company also has federal and state research credits of approximately $2,078,000 and $1,529,000, respectively. The federal tax credit carry forward expires through 2023. The state tax credit carry forward has no expiration.

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

The Company purchased approximately $2,285,000 in 2003 and $1,892,000 in 2002, of inventory from a stockholder. During 2003, the stockholder sold all the shares of the Company’s common stock it previously owned. At December 31, 2002, approximately $198,000 owed to the stockholder was included in accounts payable.

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

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

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

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


	*	Incorporated by reference to our registration statement on Form S-1 (File No. 333-41372) initially filed with the SEC on July 13, 2000.


	**	Incorporated by reference to our Report on Form 10-K filed with the SEC on March 30, 2001.


	***	Incorporated by reference to our Report on Form 10-K filed with the SEC on March 28, 2002.


	****	Incorporated by reference to our Report on Form 10-K/A filed with the SEC on July 29, 2003.


	†	Certain information in this Exhibit has been omitted and filed separately with the SEC. Confidential treatment has been requested or granted with respect to the omitted portions.


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


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


PART I
Item 1.	Business	2
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	13
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	36
	Independent Auditors’ Report	39
	Consolidated Balance Sheets — December 31, 2003 and 2002	40
	Consolidated Statements of Operations — Years ended December 31, 2003, 2002 and 2001	41
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) — Years ended December 31, 2003, 2002 and 2001	42
	Consolidated Statements of Cash Flows — Years ended December 31, 2003, 2002 and 2001	43
	Notes to the Consolidated Financial Statements	44
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2




			@Road-Supported
Service	Description	Selected Features and Options	Platforms


GeoManager	Flagship service designed to provide detailed mobile resource management for customers in all of our markets. Provides services on a hosted basis using a web browser on demand, continuously streamed to customer applications or by providing connections to other applications with application programming interfaces (APIs).	4 DirectData— continuous streaming of subscriber data to customer applications 4 Two-Way Communications— text messaging and storage using multiple devices 4 Exception Services—alerts and reports identifying incidents where mobile workers meet or exceed customer-defined business rules 4 MobileForms—conduct business transactions, signature capture and document workflow in the field using a ruggedized personal digital assistant 4 Voice Solutions—speech-to-text translation engine for oral and text messaging 4 Mapping—provides automatic geocoding of location data and configurable map views

GeoManager, Pocket Edition	Provides much of the same functionality as the GeoManager service. Runs a java application on a location-enabled wireless telephone.	4 DirectData 4 Field Landmarking— subscribers can use wireless telephones to generate location-specific icons for use with mapping, reports and other features 4 Mapping

@Road Pathway	Provides customers a cost- effective, entry-level MRM solution using a location- enabled wireless telephone.	4 Activity Reports— detailed reporting of individual mobile workers and groups 4 Ping— locate workers in the field on demand using any web browser 4 Mapping

RoadREPORT	Provides detailed historical reporting of mobile resources and their activities. Cost-effective solution for companies in all of our markets that do not need current information from the field.	4 Multiple Report Retrieval Methods— reports are accessible using a web browser or can be delivered by email or file transfer protocol 4 Advanced Reports Scheduling— customers can configure reporting formats and delivery times in advance




			@Road-Supported
Service	Description	Selected Features and Options	Platforms


RoadFORCE	Provides companies with mobile professionals detailed information about their teams’ activities. Available in two modules, one focused on managing a mobile staff and one focused on managing company assets.	4 Productivity Reports 4 Customer Call Reports 4 Personal/ Business Mileage Management

ConnectBusiness	Provides project managers in construction and related industries an application for managing contractors, remote workers and multiple job sites. Data is available over the Internet using a web browser. Uses any wireless application protocol (WAP) enabled mobile telephone to send and receive data from our data centers.	4 Project Management Module 4 Timekeeping 4 Two-Way Communications 4 Easy Import into Accounting, Project Management and other Applications


• Telecommunications		• Courier/Delivery
• Field Service		• Distribution
• Construction		• Security
• Facilities/ Waste Management		• Cable/Broadband
• Freight and Passenger Transportation		• Utilities


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


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


	High		Low

Quarter ended March 31, 2002		8.45		4.90
Quarter ended June 30, 2002		8.12		6.13
Quarter ended September 30, 2002		6.25		3.20
Quarter ended December 31, 2002		5.99		3.87
Quarter ended March 31, 2003		6.76		4.34
Quarter ended June 30, 2003		11.73		6.00
Quarter ended September 30, 2003		15.10		10.93
Quarter ended December 31, 2003		15.15		10.98
Quarter ended March 31, 2004 (through February 27, 2004)		16.82		11.92



			Years Ended December 31,

			2003			2002			2001			2000			1999


			(In thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenues:
	Services		$	49,561		$	33,678		$	20,188		$	7,919		$	612
	Product			13,802			10,742			7,262			2,704			294

		Total revenues		63,363			44,420			27,450			10,623			906

Costs and expenses:
	Cost of service revenue (excluding intangibles amortization included below)			15,711			13,544			12,690			6,414			681
	Cost of product revenue			19,770			16,946			13,523			7,865			1,777
	Intangibles amortization			455			1,670			1,656			1,239			—
	Sales and marketing			11,408			10,746			17,267			15,512			3,530
	Research and development			5,379			5,878			7,608			8,893			2,109
	General and administrative			9,202			8,616			12,733			10,887			2,129
	Restructuring charges			—			—			218			—			—
	Stock compensation			467			1,065			3,041			11,664			4,973

		Total costs and expenses		62,392			58,465			68,736			62,474			15,199

Income (loss) from operations				971			(14,045	)		(41,286	)		(51,851	)		(14,293	)

Other income (expense), net:
	Interest income			686			964			2,662			3,243			829
	Interest expense			(11	)		(15	)		(9	)		—			(25	)
	Investment impairment charge						(1,035	)		—			—			—
	Other income (expense), net			16			(106	)		(14	)		(215	)		—

		Total other income (expense), net		691			(192	)		2,639			3,028			804

Net income (loss)			$	1,662		$	(14,237	)	$	(38,647	)	$	(48,823	)	$	(13,489	)

Net income (loss) per share:
	Basic		$	0.03		$	(0.31	)	$	(0.88	)	$	(3.48	)	$	(4.88	)

	Diluted		$	0.03		$	(0.31	)	$	(0.88	)	$	(3.48	)	$	(4.88	)

Shares used in calculating net income (loss) per share:
	Basic			49,978			46,134			43,892			14,026			2,763

	Diluted			54,282			46,134			43,892			14,026			2,763


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


	*Cost of Service Revenue (excluding intangibles amortization)*



			Quarters Ended

			December 31,			September 30,		June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
			2003			2003		2003			2003			2002			2002			2002			2002


			(In thousands)
Consolidated Statements of Operations Data:
Revenues:
	Services		$	13,710		$	13,113	$	12,135		$	10,603		$	9,813		$	8,657		$	7,957		$	7,251
	Product			3,527			3,503		3,634			3,138			3,133			2,659			2,501			2,449

		Total revenues		17,237			16,616		15,769			13,741			12,946			11,316			10,458			9,700

Costs and expenses:
	Cost of service revenue			3,871			3,782		4,266			3,792			3,570			3,440			3,325			3,209
	Cost of product revenue			4,692			5,249		5,192			4,637			4,931			4,265			3,796			3,954
	Intangibles amortization			10			11		10			424			424			418			414			414
	Sales and marketing			3,064			2,907		2,840			2,597			2,711			2,433			2,604			2,998
	Research and development			1,360			1,386		1,297			1,336			1,340			1,476			1,476			1,586
	General and administrative			2,355			2,189		2,440			2,218			1,911			1,873			1,899			2,933
	Stock compensation			26			154		95			192			248			380			376			61

		Total costs and expenses		15,378			15,678		16,140			15,196			15,135			14,285			13,890			15,155

Income (loss) from operations				1,859			938		(371	)		(1,455	)		(2,189	)		(2,969	)		(3,432	)		(5,455	)

Other income (expense), net:
	Interest income			239			151		142			152			297			203			219			245
	Interest expense			(1	)		—		(5	)		(4	)		(4	)		(1	)		(4	)		(6	)
	Investment impairment charge			—			—		—			—			—			—			(1,035	)		—
	Other income (expense), net			—			6		7			4			(121	)		4			(5	)		6

		Total other income (expense), net		238			157		144			152			172			206			(815	)		245

Net income (loss)			$	2,097		$	1,095	$	(227	)	$	(1,303	)	$	(2,017	)	$	(2,763	)	$	(4,247	)	$	(5,210	)


			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years

Non-cancellable operating lease commitments	$	2,262	$	1,489	$	773	$	—	$	—
Non-cancellable inventory purchase commitments		2,968		2,968		—		—		—

	$	5,230	$	4,457	$	773	$	—	$	—


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*


Item 1.	*Business*


	*Strategy*


	*@Road Service Offerings*


	*Customers*


Item 8.	*Financial Statements and Supplementary Data*


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


Item 15.	*Exhibits, Financial Statement Schedules and Reports on Form 8-K*


	Page

Independent Auditors’ Report		39
Consolidated Balance Sheets — December 31, 2003 and 2002		40
Consolidated Statements of Operations — Years ended December 31, 2003, 2002 and 2001		41
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) — Years ended December 31, 2003, 2002 and 2001		42
Consolidated Statements of Cash Flows — Years ended December 31, 2003, 2002 and 2001		43
Notes to the Consolidated Financial Statements		44


	3. Exhibits (numbered in accordance with Item 601 of Regulation S-K)


	3.4****			Amended and Restated Bylaws of the Registrant, as amended
	3.5*			Amended and Restated Certificate of Incorporation of the Registrant
	4.1*			Specimen Stock Certificate
	10.1*†			CDPD Value Added Reseller Agreement between the Registrant and AT&T Wireless Data, Inc. dated September 30, 1997
	10.2*†			Form of Wireless Network Services Agreement and Form of Purchase Agreement for Goods
	10.7*†			Joint Marketing Agreement between the Registrant and Cellco Partnership dated June 25, 1999 and Amendment No. 1 dated October 12, 1999
	10.8*			Sublease Agreement between the Registrant and Sterling Software (Western), Inc. dated August 24, 1999
	10.9*			Industrial Space Lease between Renco Equities IV as landlord and SEEQ Technology Inc. as tenant, First Addendum to Lease, each dated January 13, 1995, and First Amendment to Lease dated April 18, 1995
	10.10*			Sublease Agreement between the Registrant and LSI Logic Corporation dated January 25, 2000 and Consent to Sublease between LSI Logic Corporation and Renco Equities IV dated February 8, 2000
	10.11*			Agreement between the Registrant and Elnet Technologies Ltd. dated November 16, 1999
	10.12*			1996 Stock Option Plan
	10.13*			2000 Stock Option Plan
	10.14*			2000 Employee Stock Purchase Plan
	10.15*			2000 Directors’ Stock Option Plan
	10.16*			Form of Indemnification Agreement
	10.19*			Amended and Restated Rights Agreement between the Registrant and certain investors dated June 27, 2000
	10.20*†			CDPD Data National Service Agreement between the Registrant and GTE Wireless Incorporated dated May 5, 2000
	10.21*			Joint Marketing Agreement between the Registrant and GTE Wireless Service Corporation dated May 5, 2000
	10.22*			Loan and Security Agreement between the Registrant and Silicon Valley Bank dated June 30, 1999, Loan Modification Agreement dated July 23, 1999, Loan Modification Agreement dated December 29, 1999 and Loan Modification Agreement dated March 31, 2000
	10.23*†			Strategic Agreement between the Registrant and Hitachi Software Engineering Co., Ltd. dated July 21, 2000
	10.24*			Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated August 3, 2000
	10.25**			First Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated March 8, 2001
	10.26**			Loan Modification Agreement between the Registrant and Silicon Valley Bank dated March 21, 2001
	10.27***†			Cellular Digital Packet Data Reseller Agreement between the Registrant and TELUS Mobility dated January 19, 2001
	10.28***†			Co-Marketing Agreement between the Registrant and Nextel Partners Operating Corp. dated March 14, 2001


	10.29***†			Co-Marketing Agreement between the Registrant and Nextel Financing Company dated December 15, 2000
	10.30***†			Cellular Digital Packet Data Reseller Agreement between the Registrant and Ameritech Mobile Communications LLC dated January 10, 2002
	10.31***†			Service Agreement between the Registrant and ALLTEL Communications Inc. dated May 17, 2001
	10.32***†			Integrator Agreement between the Registrant and Symbol Technologies, Inc. dated July 31, 2001, as amended by Amendment to Agreement with Integrator between the Registrant and Symbol Technologies, Inc. dated December 28, 2001
	10.33***			Loan Modification Agreements between the Registrant and Silicon Valley Bank dated July 31, 2001, September 30, 2001 and November 5, 2001
	10.34***			Co-Marketing Agreement between the Registrant and Southern Communications Services, Inc. dated March 4, 2002
	10.35****			Agreement between the Registrant and Elnet Technologies Ltd. dated November 17, 2002
	10.36****			Loan Modification Agreement between the Registrant and Silicon Valley Bank dated December 24, 2002
	10.37****†			Reseller Agreement between the Registrant and AT&T Wireless dated February 24, 2003
	10.38			Loan Modification Agreement between the Registrant and Silicon Valley Bank dated December 30, 2003
	10.39			First Amendment to Sublease between the Registrant and Athena Semiconductor, Inc. dated March 14, 2003
	10.40			Second Amendment to Lease Agreement between the Registrant and ProLogis Limited Partnership-I dated December 31, 2003
	10.41			Agreement between the Registrant and Elnet Technologies Ltd. dated December 10, 2003
	21.1*			List of Subsidiaries
	23.1			Independent Auditors’ Consent
	24.1			Power of Attorney (see page 60)
	31.1			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
	31.2			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
	32.1			Certification pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer
	32.2			Certification pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer


										Notes			Accumulated
	Common Stock						Deferred			Receivable			Other									Total
							Stock			from			Comprehensive			Accumulated			Stockholders’			Comprehensive
	Shares			Amount			Compensation			Stockholders			Loss			Deficit			Equity			Income (loss)

BALANCES, January 1, 2001		46,071,979		$	171,208		$	(8,123	)	$	(3,309	)	$	(10	)	$	(65,000	)	$	94,766
Net loss																	(38,647	)		(38,647	)	$	(38,647	)
Change in net unrealized income (loss) from short- term investments														10						10			10

Comprehensive loss																				—		$	(38,637	)

Shares issued under employee stock purchase plan		367,579			672															672
Exercise of stock options		387,226			282						(35	)								247
Common stock issued for consulting services		2,250			4															4
Collection of notes receivable from stockholders											318									318
Repurchase of common stock through cancellation of notes receivable		(329,583	)		(278	)					278									—
Deferred stock compensation					85			(85	)											—
Reversal of deferred stock compensation due to employee terminations					(2,825	)		2,825												—
Amortization of deferred stock compensation								3,041												3,041

BALANCES, December 31, 2001		46,499,451		$	169,148		$	(2,342	)	$	(2,748	)	$	—		$	(103,647	)	$	60,411
Net loss																	(14,237	)		(14,237	)	$	(14,237	)

Shares issued under employee stock purchase plan		553,401			1,098															1,098
Exercise of stock options		788,054			1,276															1,276
Collection of notes receivable from stockholders											554									554
Repurchase of common stock through cancellation of notes receivable		(93,750	)		(126	)					126									—
Deferred stock compensation					15			(15	)											—
Reversal of deferred stock compensation due to employee terminations					(801	)		801												—
Amortization of deferred stock compensation								1,065												1,065

BALANCES, December 31, 2002		47,747,156		$	170,610		$	(491	)	$	(2,068	)	$	—		$	(117,884	)	$	50,167
Net income																				1,662		$	1,662

Common stock issued through secondary public offering, net of issuance costs		4,000,000			51,889															51,889
Shares issued through employee stock purchase plan		563,295			1,484															1,484
Exercise of stock options		1,389,994			4,478															4,478
Collection of notes receivable from stockholders											1,981									1,981
Deferred stock compensation					5			(5	)											—
Reversal of deferred stock compensation due to employee terminations					(25	)		25												—
Amortization of deferred stock compensation								467												467

Balances, December 31, 2003		53,700,445		$	228,441		$	(4	)	$	(87	)	$	—		$	(116,222	)	$	112,128


Note 1.	Organization and Summary of Significant Accounting Policies



	As of December 31, 2003							As of December 31, 2002

	Carrying		Accumulated			Net		Carrying		Accumulated			Net
	Amount		Amortization			Balance		Amount		Amortization			Balance

Purchased technology	$	5,052	$	(5,024	)	$	28	$	5,052	$	(4,569	)	$	483


	Amortization
Year Ended December 31,	Expense

2004	$	28


				Weighted
	Number of			Average
	Shares			Exercise Price

Outstanding, January 1, 2001 (576,993 exercisable at a weighted average exercise price of $0.87)		5,338,385		$	4.25
Granted (weighted average fair value of $2.29 per share)		3,678,605			2.53
Exercised		(387,226	)		0.73
Canceled		(1,765,643	)		5.36

Outstanding, December 31, 2001(1,562,775 exercisable at a weighted average exercise price of $3.41)		6,864,121			3.24
Granted (weighted average fair value of $4.59 per share)		2,542,250			5.41
Exercised		(788,054	)		1.64
Canceled		(749,404	)		3.94

Outstanding, December 31, 2002		7,868,913			4.04
Granted (weighted average fair value of $7.31 per share)		1,889,050			8.93
Exercised		(1,389,994	)		3.22
Canceled		(952,601	)		5.19

Outstanding, December 31, 2003		7,415,368			5.29



		Options Outstanding						Options Exercisable

				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
				Contractual		Exercise		Number		Exercise
Exercise Price		Number		Life (Years)		Price		Exercisable		Price

$	0.07 - 0.67		352,242		5.59	$	0.57		352,242	$	0.57
	1.33 - 1.97		1,068,468		6.84		1.54		892,264		1.52
	2.00 - 2.13		1,148,855		7.67		2.01		653,420		2.01
	3.69 - 3.85		460,000		7.48		3.73		282,708		3.71
	4.00 - 4.85		454,140		8.21		4.44		166,421		4.19
	5.04 - 5.69		1,325,57		8.74		5.20		86,629		5.36
	6.05 - 7.90		845,218		8.94		6.68		99,555		7.07
	8.40 - 10.93		1,279,722		7.79		9.77		719,667		9.42
	11.98 - 14.58		481,150		9.55		13.08		—		—

$	0.07 - 14.58		7,415,368		7.95	$	5.29		3,252,906	$	3.86


Issuance under stock option plans			10,696,372
Issuance under ESPP			765,725

			11,462,097



		Stock Purchased

Issue Date		Amount		Number		Per Share		Interest Rate

January 2000		$	50		37,500		1.33		6.12%
March 2000			37		9,375		4.00		6.46%

	Total	$	87		46,875


	Operating
	Leases

Year Ending December 31,
2004	$	1,489
2005		773

Total minimum lease payments	$	2,262


	2003			2002

Net operating loss carry forwards	$	36,141		$	34,815
Credit carry forwards		3,719			3,016
Accruals and reserves recognized in different periods		3,780			4,115

Total gross deferred tax assets before valuation allowance		43,640			41,946
Valuation reserve		(43,640	)		(41,946	)

Net deferred tax asset	$	—		$	—


Note 14.	Quarterly Financial Data (unaudited) (in thousands except per share amounts)


			Additions
	Balance at		and			Write-off		Balance at
	Beginning		Charges to			and		End of
	of Year		Expenses			Deductions		Year

Year Ended December 31, 2003
Accounts receivable allowance	$	1,900	$	(127	)	$	352	$	1,421

Year Ended December 31, 2002
Accounts receivable allowance	$	3,633	$	461		$	2,194	$	1,900

Year Ended December 31, 2001
Accounts receivable allowance	$	2,247	$	2,442		$	1,056	$	3,633



Signature	Title	Date


/s/ KRISH PANU Krish Panu	Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)	March 12, 2004

/s/ THOMAS C. HOSTER Thomas C. Hoster	Senior Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer)	March 12, 2004

/s/ KRIS CHELLAM Kris Chellam	Director	March 12, 2004

/s/ CHARLES E. LEVINE Charles E. Levine	Director	March 12, 2004

/s/ STUART PHILLIPS Stuart Phillips	Director	March 12, 2004

/s/ T. PETER THOMAS T. Peter Thomas	Director	March 12, 2004