UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number: 000-27871

GoRemote Internet Communications, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware		77-0368092
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1421 McCarthy Blvd., Milpitas, California		95035
(Address of Principal Executive Offices)		(Zip Code)

408-955-1920
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

The number of shares of the registrant’s common stock outstanding as of October 31, 2004 was 41,158,560 shares.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GoRemote Internet Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

	September 30, 2004			December 31, 2003
	(unaudited)
ASSETS
*Current assets:*
Cash and cash equivalents	$	2,839		$	5,299
Short-term investments	15,612			19,913
Accounts receivable, net of allowances of $683 and $949 at September 30, 2004 and December 31, 2003, respectively	7,087			7,446
Inventory	121			158
Deferred installation costs and other prepaid expenses	2,011			1,435
Total current assets	27,670			34,251
Property and equipment, net	1,736			2,009
Goodwill	21,612			46,680
Purchased intangible assets, net	3,963			7,467
Other assets	1,175			721
Total assets	$	56,156		$	91,128

LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current liabilities:*
Accounts payable	$	6,274		$	7,205
Restructuring accrual	1,074			—
Accrued compensation and benefits	1,198			1,311
Current portion of deferred revenue	2,548			661
Other current liabilities	1,421			691
Current portion of capital lease obligations	—			14
Total current liabilities	12,515			9,882
Deferred revenue, less current portion	1,280			114
Commitments and contingencies
Stockholders’ equity:
Series A redeemable convertible preferred stock, $0.001 par value: 12,801 shares authorized, no shares issued and outstanding at September 30, 2004 and 3,019 shares issued and outstanding at December 31, 2003	—			3,927
Common stock, $0.001 par value; 100,000 shares authorized at September 30, 2004 and December 31, 2003: 41,018 and 37,242 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively	41			37
Additional paid-in capital	213,228			208,228
Deferred stock-based compensation	(222		)	(644		)
Accumulated deficit	(170,686		)	(130,416		)
Total stockholders’ equity	42,361			81,132
Total liabilities and stockholders’ equity	$	56,156		$	91,128

See accompanying notes

GoRemote Internet Communications, Inc.

Condensed Consolidated Statements of Operations

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2004			2003		2004			2003
Revenues	$	12,400		$	10,694	$	37,895		$	30,043
Costs and expenses:
Cost of revenues	5,863			4,172		16,170			12,979
Network and operations	2,287			980		6,892			2,751
Research and development	802			634		3,204			1,833
Sales and marketing	4,516			3,828		15,257			9,837
General and administrative	1,710			947		4,938			3,572
Goodwill and intangible asset impairment	27,929			—		27,929			—
Amortization of purchased intangible assets	403			—		1,203			—
Amortization of stock-based compensation (1)	69			4		249			65
Restructuring charge (benefit)	2,370			—		2,370			(79		)
Total costs and expenses	45,949			10,565		78,212			30,958
Operating income (loss)	(33,549		)	129		(40,317		)	(915		)
Interest income and other, net	2			58		114			124
Income (loss) before income taxes	(33,547		)	187		(40,203		)	(791		)
Provision for income taxes	11			9		67			28
Net Income (loss)	$	(33,558	)	$	178	$	(40,270	)	$	(819	)

Basic net income (loss) per share	$	(0.82	)	$	0.01	$	(1.00	)	$	(0.04	)
Shares used to compute basic net loss per share	41,037			24,006		40,458			21,997

Diluted net income (loss) per share	$	(0.82	)	$	0.01	$	(1.00	)	$	(0.04	)
Shares used to compute diluted net loss per share	41,037			31,810		40,458			21,997

(1) Amortization of stock-based compensation consists of:

Network and operations	$	22	$	—	$	74	$	3
Research and development	7		1		45		4
Sales and marketing	33		—		107		1
General and administrative	7		3		23		57
Total amortization of stock-based compensation	$	69	$	4	$	249	$	65

See accompanying notes

GoRemote Internet Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine Months Ended September 30,
	2004			2003
*Cash flows from operating activities:*
Net loss	$	(40,270	)	$	(819	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	1,043			599
Amortization of stock-based compensation	249			65
Amortization of intangibles	1,203			—
Write-down of assets	449			—
Gain on sales of assets	—			(116		)
Accounts receivable allowances	(190		)	(5		)
Noncash portion of restructuring charge (benefit)	1,379			(79		)
Impairment of goodwill and intangibles	27,929			—
Net changes in assets and liabilities:
Accounts receivable	549			(1,414		)
Inventory	37			—
Prepaid expenses and other current assets	(712		)	(781		)
Other assets	(767		)	178
Accounts payable	(931		)	915
Accrued compensation and benefits	(114		)	336
Deferred revenue	3,053			196
Other current liabilities	219			8
Other long-term liabilities	—			(88		)
Net cash used in operating activities	(6,874		)	(1,005		)
*Cash flows from investing activities:*
Available-for-sale investments:
Purchases	(14,300		)	(9,250		)
Maturities	18,602			5,656
Acquisition of intangibles	(50		)	—
Proceeds from sales of assets	—			117
Capital expenditures	(1,021		)	(330		)
Net cash provided by (used in) investing activities	3,231			(3,807		)
*Cash flows from financing activities:*
Payments of capital lease obligations	(14		)	—
Proceeds from sales of common stock, net	1,197			1,167
Proceeds from exercise of Series A Preferred stock warrants	—			325
Net cash provided by financing activities	1,183			1,492
Net decrease in cash and cash equivalents	(2,460		)	(3,320		)
Cash and cash equivalents at beginning of the period	5,299			7,314
Cash and cash equivalents at end of the period	$	2,839		$	3,994

*Supplemental disclosures of cash flow information:*
Income taxes paid	$	53		$	28
*Supplemental disclosures of non-cash investing activities:*
Conversion of Series A preferred stock into common stock	$	3,019		$	6,395

See accompanying notes

GoRemote Internet Communications, Inc.

Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation

The financial information at September 30, 2004 and for the three and nine months ended September 30, 2004 and 2003 is unaudited, but includes all adjustments (consisting of normal recurring adjustments) that GoRemote Internet Communications, Inc. (the “Company” or “GoRemote”) considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial information set forth herein does not include all of the information and footnotes required by accounting principles generally accepted in the United States for annual financial statements. The results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for future periods.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The following information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. In May 2004, the Company changed its corporate name from GRIC Communications, Inc. to GoRemote Internet Communications, Inc. to reflect its current vision and service offerings.

In October of 2004 the Company changed its fiscal year end to October 31, effective with the fiscal year beginning November 1, 2004.

2. Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements include all the accounts of GoRemote and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. During the quarter ended September 30, 2004, the Company made estimates of future cash flows, discount rates and asset values to determine its goodwill and customer relationships intangible asset impairments. In addition, the Company made estimates as to the recoverability of a prepaid asset and potential liability as to certain tax obligations. Actual results could differ from those estimates.

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

Cash Equivalents. Cash equivalents consist of certificates of deposit, money market funds and commercial paper with maturities of 90 days or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates market value.

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

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

Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The Company maintains its cash and cash equivalents and short-term investments principally in domestic financial institutions of high credit standing. The Company is exposed to credit risks in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The credit risk in the Company’s accounts receivable is mitigated by the Company’s credit evaluation process for both domestic and foreign customers. The Company generally does not require collateral and maintains adequate allowances for potential credit losses. Cash equivalents and short-term investments are recorded at fair value. The carrying value of accounts receivable approximates fair value due to the short-term nature of this instrument.

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

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

Goodwill. Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable assets acquired and liabilities assumed. The Company does not amortize goodwill, but tests for impairment of goodwill on an annual basis in the third fiscal quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable.

Impairment of Goodwill. Circumstances that could trigger an impairment test include, but are not limited to, a significant adverse change in the business climate or legal factors, an adverse action or assessment by a regulator, unanticipated competition or loss of key personnel. In addition, the Company assesses goodwill for recoverability if its market capitalization is less than the recorded value of its net assets. If the carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss is recorded in net earnings (loss). The Company has determined that its service offerings have similar economic characteristics and as a result the Company treats its single operating segment as its sole reporting unit in testing for the impairment of goodwill.

Purchased Intangible Assets. Purchased intangible assets consist of customer relationships, internal use software and other purchased intangibles such as domain names. Intangible assets are amortized on a straight-line method basis over the estimated useful lives ranging from 1 to 5 years.

Impairment of Long-Lived Assets and Intangible Assets. The Company evaluates the carrying amount of its long-lived assets, including purchased intangible assets, when events or changes in business circumstances have occurred, which indicate the carrying amount of such assets may not be fully realizable. Determination of impairment is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. If the Company determines that any of these assets have been impaired, the impairment charge is recorded based on a comparison of the net book value of the assets and the fair value. The fair value of the assets is determined by either discounted future cash flows resulting from the use of the assets over their average remaining useful lives or specific appraisal.

Revenue Recognition. Revenues are recognized when a binding agreement or purchase order from the customer has been received, the services have been delivered, the fee or price was fixed or determinable, the collection of the receivable is reasonably assured, and no significant post-delivery obligations remained. The Company derives revenues primarily from remote Internet access services to customers through its virtual network and by providing monthly security and support services and monthly connectivity services for broadband Internet remote access customers. Remote Internet access services are generally billed on a per-minute basis for usage or at a flat rate per month per user based on negotiated rates. The Company has some customers with minimum commitment arrangements, which are recognized as revenue in the month it has been determined that the minimum commitments have not been achieved, assuming all other criteria for revenue recognition have been met. The Company’s broadband remote access services are provided as part of multiple-deliverable arrangements with its customers. These deliverables — for which the Company does not have vendor-specific objective evidence — may include installation services, provision of customer premises equipment, connectivity services, and monthly support and services. Revenues from monthly connectivity services for broadband remote access are recognized as earned and amounts billed in advance are recorded as deferred revenue if collected. Revenues from installation services, the provision of equipment related to broadband Internet remote access services and managed security services are recognized ratably over 24 months, the expected term of the user relationship. Revenues from security and support services are recognized in the month the service is provided. Revenues from licenses of the Company’s authentication software, related maintenance and support services, and other optional services related to its GoRemote Mobile Office offering are recognized ratably over the life of the contract under which they are provided, which typically ranges from 1 to 12 months. Revenues not currently recognized are included in deferred revenue on the balance sheet.

The Company records estimated allowances against revenues in the same period the revenues are recorded. These estimated allowances are based upon historical analysis of the Company’s credit memo data and other known factors for pricing and transaction volume disputes that arise in the normal course of business. To date, allowances pertaining to our current business have not been significant.

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

From time to time, the Company’s customers, including significant customers, may seek protection under bankruptcy laws. When this occurs, the Company determines its risk that an account receivable will prove to be uncollectible, and establishes appropriate allowances for that contingency as necessary. In addition, for each continuing customer in bankruptcy, the Company evaluates the creditworthiness of the customer and determines whether revenue should be recognized on an accrual basis or when cash payments are received. When revenue is recorded on an accrual basis, the Company has based its judgment on the creditworthiness of the debtor-in-possession, its payment experience, and whether the collectability of receivables is reasonably assured, in addition to other revenue recognition criteria having been met.

Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. In order to estimate the appropriate level of allowance, the Company analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment patterns. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Research and Development. Research and development costs are expensed as incurred. In certain cases the Company develops software for both its internal use and with plans to market the software to third parties. Therefore research and development costs, primarily related to the development of software, are expensed as incurred until technological feasibility has been established. To date, the software developed by the Company has generally been available for general release concurrent with the establishment of technological feasibility and, accordingly, no software development costs have been capitalized.

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

Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for awards to employees under the fair value method of SFAS No. 123. The fair value of stock options under the Company’s 1999 Equity Incentive Plan and stock purchase plan rights under the Company’s 1999 Employee Stock Purchase Plan (“Purchase Plan”) was estimated as of the grant date using the Black-Scholes option-pricing model.

The fair values of stock options granted during the three and nine months ended September 30, 2004 and 2003, respectively, were estimated at the date of grant assuming no expected dividends and based on the following weighted average assumptions.

Stock Options

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003

Expected life (years)	4.41		2.80		4.50		2.15
Expected stock price volatility	208	%	135	%	475	%	176	%
Risk-free interest rate	2.64	%	2.67	%	2.29	%	2.95	%

Stock Purchase

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003

Expected life (years)	0.50		0.45		0.50		0.55
Expected stock price volatility	226	%	86	%	266	%	107	%
Risk-free interest rate	1.94	%	2.52	%	1.81	%	2.59	%

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

The Company’s pro forma information is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(in thousands, except per share amounts)						(in thousands, except per share amounts)
Net loss as reported	$	(33,558	)	$	178		$	(40,270	)	$	(819	)
Add: Amortization of stock compensation measured under APB No. 25	69			4			249			65
Less: Stock-based compensation expense measured under SFAS No. 123	(225		)	(1,363		)	(3,034		)	(3,564		)
Pro forma net loss	$	(33,714	)	$	(1,181	)	$	(43,055	)	$	(4,318	)

Basic and diluted net income (loss) per share	$	(0.82	)	$	0.01		$	(1.00	)	$	(0.04	)
Pro forma basic and diluted net loss per share	$	(0.82	)	(0.05		)	$	(1.06	)	$	(0.20	)

Calculated under SFAS No. 123, the weighted-average fair values of the employee stock options granted during the three months ended September 30, 2004 and 2003 were $1.21 and $3.90 per share, respectively, and during the nine months ended September 30, 2004 and 2003, were $2.36 and $1.94, respectively. The weighted-average estimated fair value of shares purchased under the Purchase Plan during the three months ended September 30, 2004 and 2003 were $1.54 and $0.66, respectively, and during the nine months ended September 30, 2004 and 2003, were $2.13 and $0.54 per share, respectively.

Income Taxes. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which provides for the establishment of deferred tax assets and liabilities

based on the difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Net Loss Per Share. Net loss per common share and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”) for all years presented.

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

Weighted-average options outstanding to purchase approximately 8.5 million and 6.3 million shares of common stock for the three months ended September 30, 2004 and 2003, respectively, and approximately 8.0 million and 5.9 million shares of common stock for the nine months ended September 30, 2004 and 2003, respectively, were not included in the computation of diluted net loss per share because the effect would be antidilutive. The increase in weighted-average options outstanding for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003, respectively, was primarily due to the grant of new options to the Company’s employees and assumption of options held by former Axcelerant, Inc. (“Axcelerant”) employees in connection with the Company’s acquisition of Axcelerant. Such securities, had they been dilutive, would have been included in the computation of diluted net loss per share using the treasury stock method.

Indemnifications. The Company from time to time enters into types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company’s assets; (ii) real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; (iii) agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship; and (iv) agreements with customers and resellers, under which the Company may provide customary indemnifications against claims that its products and services infringe certain copyrights, patents or trademarks, or incorporate misappropriated trade secrets.

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated, except for indemnifications involving infringement of third party intellectual property rights. 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 any payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet at September 30, 2004.

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

3. Business Combination

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

The purchase price is not final and may be adjusted for a period of one year from the transaction close date based on higher than expected acquisition costs or unforeseen liabilities. A total of approximately 1.5 million shares of the total consideration that was to be delivered to Axcelerant’s stockholders as a result of the acquisition has been set aside as an escrow fund, serving as collateral for the indemnification obligations of Axcelerant stockholders. The Company may make claims against the escrow fund through December 1, 2004. During the third quarter, the Company recorded an increase to goodwill of $510,000 related to a tax obligation that Axcelerant had incurred but had not recognized prior to the acquisition in December 2003.

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

Deferred Stock-based Compensation. The intrinsic value of unvested stock options assumed as a result of the Axcelerant acquisition of approximately $674,000 has been allocated to deferred stock-based compensation and is being amortized to expense on a straight-line basis over the vesting period. The Company assumed options from Axcelerant to purchase a total of approximately 597,000 shares of the Company’s common stock, of which approximately 462,000 were fully vested. Options assumed in connection with the acquisition had exercise prices between $0.02 and $5.05 per share, with a weighted average exercise price of $1.32 per share and a weighted average remaining vesting period of approximately 2.5 years.

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

Property and Equipment

Property and equipment comprised the following (in thousands):

	September 30, 2004			December 31, 2003

Computer hardware	$	6,298		$	7,843
Software	4,435			4,241
Office furniture and equipment	1,504			1,726
Leasehold improvements	422			418
	12,659			14,228

Less accumulated depreciation and amortization	(10,923		)	(12,219		)
Total	$	1,736		$	2,009

Goodwill

The carrying amount of goodwill was as follows (in thousands):

	September 30, 2004		December 31, 2003

Goodwill	$	21,612	$	46,680

During the quarter ended September 30, 2004, the Company determined goodwill to be impaired and recorded a $25.6 million impairment charge. The Company determined that its market capitalization was less than the value of its net assets, indicating that goodwill or other intangible assets were likely impaired. The Company re-evaluated the cash flow forecasts for its consolidated business activities. Fair value was based on expected cash flows to be generated by its business, discounted at rates associated with underlying risks. The Company retained a third party valuation firm to value these business activities. During the first three quarters of 2004, the Company experienced lower than projected revenues due to the fact that prospective customers did not replace contractual frame relay services with the Company’s broadband-based Internet access services at the rate the Company had initially projected and due to the continued decline in customer demand for the Company’s dial-up access services. As a result, the Company’s cash flow projection for the reporting unit was revised and, effective September 30, 2004, the Company determined that goodwill was impaired and recorded a $25.6 million impairment charge. This impairment charge was included in the goodwill and intangible impairment expense of $27.9 million that was recorded for the quarter ended September 30, 2004.

Purchased Intangible Assets

Purchased intangible assets are carried at lower of cost or fair value, less accumulated amortization. Amortization of purchased intangible assets is computed using the straight-line method over their expected useful lives ranging from one to five years.

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

	September 30, 2004

Customer relationships	$	5,150
Internal use software	100
Website URL	50
	5,300
Less accumulated amortization	(1,337		)
Total	$	3,963

During the quarter ended September 30, 2004, the Company determined a purchased intangible asset related to customer relationships to be impaired and recorded a $2.4 million impairment charge. In conjunction with the revaluation of goodwill mentioned above, the Company re-evaluated the cash flow forecasts for the business activities acquired in connection with the acquisition of Axcelerant, Inc. Fair value was based on expected cash flows to be generated by the customers acquired, discounted at rates associated with underlying risks. The Company retained a third party valuation firm to value such customer relationships. The expected cash flow from the acquired customers was adjusted downward based on the Company’s experience serving these customers over the past year. As a result the Company determined that its Customer Relationships intangible asset acquired in connection with the acquisition of Axcelerant,

Inc. was not fully recoverable and was therefore written down $2.4 million to $3.9 million. The charge was included in the goodwill and intangible impairment expense of $27.9 million for the quarter ended September 30, 2004.

Other Assets

The Company entered into an agreement with a wireless service provider during 2001 for the exchange of services, which resulted in a prepayment for future wireless services and the obligation by the Company to provide future Internet roaming services. During September 2003, because these assets had not yet been utilized, the Company and the provider amended the underlying agreement to modify the scope of their business relationship and extend the term of the agreement until September 2007, thus permitting the Company to utilize the assets during the extended term. As a result of this amended agreement, the Company entered into a nonmonetary transaction for the exchange of prepaid wireless services for prepaid roaming services and wireless cards. Because this nonmonetary transaction did not represent a culmination of an earnings process, no revenues or expenses have been, or will be recorded by the Company pursuant to this transaction. In addition, there was no indicated loss at the time of this exchange of services. During the third quarter of 2004, the Company concluded from the actual and projected network traffic that the full value of the prepaid services would not be realized. Effective September 30, 2004, the Company adjusted the asset to its fair value and recorded a $449,000 charge to cost of revenues. As of September 30, 2004, the remaining carrying value of $59,000 is expected to be utilized over the remaining term of the agreement.

5. Commitments and Contingencies

Lease Commitments. The Company leases all of its facilities under operating leases that expire at various dates through 2008. As of September 30, 2004, the Company had $2.9 million in future operating lease commitments.

Purchase Commitments. The Company has entered into certain non-cancelable purchase commitments from suppliers who provide network access, software and related services that are utilized by the Company in order to deliver its GoRemote MobileOffice solution. As of September 30, 2004, the Company had $2.4 million in future purchase commitments that expire at various dates through 2006.

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

In July and August 2001, the Company and certain of its officers were named as defendants in five purported securities class action lawsuits filed in the United States District Court, Southern District of New York, captioned as In re GRIC Communications, Inc. Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), and consolidated with more than three hundred substantially identical proceedings as In re Initial Public Offering Securities Litigation, Master File No. 21 MC 92 (SAS). The Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws (“Consolidated Complaint”) was filed on or about April 19, 2002, and alleges claims against certain of the Company’s officers and against CIBC World Markets Corp., Prudential Securities Incorporated, DB Alex. Brown, as successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of the Company’s December 14, 1999 initial public offering (“underwriter defendants”), under Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended.

Citing several press articles, the Consolidated Complaint alleges that the underwriter defendants used improper methods in allocating shares in initial public offerings, and claim the underwriter defendants entered into improper commission agreements regarding aftermarket trading in the Company’s common stock purportedly issued pursuant to the registration statement for the initial public offering. The Consolidated Complaint also alleges market manipulation claims against the underwriter defendants based on the activities of their respective analysts, who were allegedly compromised by conflicts of interest. The plaintiffs in the Consolidated Complaint seek damages as measured under Section 11 and Section 10(b) of the Securities Act of 1933, pre-judgment and post-judgment interest, and reasonable attorneys’ and expert witnesses’ fees and other costs; no specific amount is claimed in the plaintiffs’ prayer in the Consolidated Complaint. By Order of the Court, no responsive pleading is yet due, although motions to dismiss on global issues affecting all of the issuers have been filed.

In October 2002, certain of the Company’s officers and directors who had been named as defendants in the In re Initial Public Offering Securities Litigation were dismissed without prejudice upon order of the presiding judge. In February 2003, the presiding judge dismissed the Section 10(b) claims against the Company and its named officers and directors with prejudice.

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

After careful consideration, the Company approved the settlement proposal in July 2003. Although the Company believes that plaintiffs’ claims are without merit, it decided to accept the settlement proposal (which does not admit wrongdoing) to avoid the cost and distraction of continued litigation. Because the settlement will be funded entirely by its Insurers, the Company does not believe that the settlement will have any effect on the Company’s consolidated financial condition, results of operations or cash flows.

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

6. Restructuring

In August 2004, the Company undertook a strategic restructuring to reduce its operating expense structure by streamlining operations. The activity related to the restructuring is accounted for under the provisions of Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“ FAS 146”).

The Company retained a third party commercial real estate expert to evaluate the potential sublease of its excess facilities. The specialist concluded that the construction costs required to divide the space for subtenancy would likely exceed any potential sublease income we might receive, particularly due to the uncertain probability of obtaining a subtenant under current market conditions. Accordingly, our current estimated accrual does not consider any sublease income.

The provision and associated charges against the provision for the August 2004 restructuring through the three and nine months ended September 30, 2004 are as follows:

	Employee Severance Costs			Lease Facilities and Other Obligations			Retirement of Fixed Assets			Valuation of Modified Stock Options			Total
	(in thousands)

Q3 2004 provision	$	1,415		$	650		$	252		$	53		$	2,370
Non-cash charges	—			14			(252		)	(53		)	(291		)
Cash payments	(993		)	(12		)	—						(1,005		)

Accruals at September 30, 2004	$	422		$	652		$	—		$	—		$	1,074

Restructuring-related involuntary employee severance costs resulted in a charge of $1.4 million, pertaining to the estimated termination payout to employees worldwide. The employee reductions came principally from Sales and Marketing, Engineering and General & Administrative areas. As of September 30, 2004, a total of 68 employees were terminated as part of these cost-cutting measures. During the period October 1, 2004 through January 31, 2005, the termination of an additional 4 employees will be effective. Termination benefits for these 4 employees are being accrued ratably over their future service periods. Part of the benefits provided to two of the Company’s former executives whose service was terminated as part of the restructuring included extension of the dates by which their vested options could be exercised following termination of employment from three months to six months and twelve months, respectively. This change to the expiration dates of their vested options was deemed to be a modification, resulting in a non-cash charge of approximately $53,000 being included in the restructuring charge.

In September 2004, the Company idled certain leaseholds and recognized other related obligations resulting in a charge of $650,000. The charge was primarily for the consolidation or ceased use of facilities. The Company considered the costs of terminating these commitments to be related to its decision to reduce operating expenses as part of the third quarter 2004 restructuring.

The loss on disposition and retirement of fixed assets totaled $252,000. This loss was primarily the result of the decision to cease the implementation of purchased software no longer required by the Company following the restructuring. Additionally, the Company wrote off $204,000 of fully depreciated furniture and fixtures related to idled facilities.

6. Segment Information

The Company operates in one segment, providing a global remote access solution to corporate enterprises with mobile and remote workforces and to the Company’s service provider resellers and value-added resellers.

The following is a summary of revenue by geographical area for the periods presented:

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
	(in thousands)				(in thousands)
Revenue by external customers:
United States, Canada and Latin America	$	8,868	$	5,917	$	26,224	$	16,396
Japan/Korea	1,635		2,828		5,861		8,049
Asia Pacific	880		882		2,638		2,531
Europe, Middle East and Africa	1,017		1,067		3,172		3,067
	$	12,400	$	10,694	$	37,895	$	30,043

The following is a summary of long-lived assets by geographical area for the periods presented:

	September 30, 2004		December 31, 2003
	(in thousands)
Long-lived assets:
United States	$	27,297	$	56,633
Rest of World	73		72
	$	27,370	$	56,705

Revenue by external customer is based on the customer’s billing locations. Long-lived assets are those assets used in each geographic location. For the three and nine months ended September 30, 2004, one customer accounted for 10% and 11%, respectively, of the Company’s total consolidated revenues.

7. Stockholder’s Equity

Series A Redeemable Convertible Preferred Stock. During the three months ended September 30, 2004 and 2003, zero and 4.3 million shares, respectively, and during the nine months ended September 30, 2004 and 2003, 3.0 million and 4.9 million shares, respectively, of Series A Preferred Stock were converted into common stock. No shares of Series A Preferred Stock were outstanding at September 30, 2004.

Series A Preferred Stock Warrants. No Series A Preferred Stock warrants were exercised during the three and nine months ended September 30, 2004. Series A Preferred Stock warrants for 151,000 and 193,000 shares were exercised during the three and nine months ended September 30, 2003. Warrants to purchase 1.5 million shares of Series A Preferred Stock were outstanding at September 30, 2004.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Unless expressly stated or the context otherwise requires, the terms “we”, “our”, “us”, “the Company” and “GoRemote” refer to GoRemote Internet Communications, Inc. and its subsidiaries as a whole.

Overview

We provide secure managed broadband and remote access solutions to enterprises and service providers. Our solutions enable enterprises to securely, reliably, and cost-effectively extend their corporate networks and applications to mobile and remote workers outside the corporate firewall. These workers include mobile professionals such as sales professionals, project managers and engineers; teleworkers, including call center agents; telecommuters; and employees in branch offices and retail settings. We provide comprehensive and integrated managed broadband and global remote access services that include: intelligent client software; multiple network access types, including broadband, Wi-Fi, dial-up and general packet radio service (or GPRS); security capabilities that ensure security policy compliance by remote workers; a real-time remote access management console; end-to-end managed and value-added services including managed security services; and design, deployment, monitoring, and technical support. Our products and services enable enterprises to reduce the cost, complexity and risk of remote office networking, while maximizing the productivity of mobile and remote workers.

In December 2003, we acquired Axcelerant, Inc., a privately held provider of broadband Internet remote access services and managed security services. In May 2004, we changed our corporate name from GRIC Communications, Inc. to GoRemote Internet Communications, Inc. to reflect our current vision and service offerings. On August 2, 2004, we announced the appointment of Tom Thimot to serve as our President and Chief Executive Officer. On August 12, 2004, we announced a restructuring of our global operations to reduce operating expense and streamline our operations.

The majority of our revenue comes from providing settlement and clearing-house services for our customers. We provide services over a heterogeneous virtual network known as the GoRemote Global Network. As of October 31, 2004, the GoRemote Global Network included more than 33,000 Internet access-dialing locations, over 10,500 public wireless fidelity—or WiFi—hotspots and approximately 1,500 public broadband access points in approximately 150 countries. Through the acquisition of Axcelerant, we added a virtual broadband cable modem and DSL network that spans the United States and Canada. This network is an aggregation of the networks of more than 150 broadband providers, including virtually all of the leading cable companies, incumbent local exchange carriers (or ILECs) and competitive local exchange carriers (or CLECs) in the United States. By utilizing this network, we are able to provide comprehensive coverage in the United States for enterprises requiring broadband branch office and broadband teleworker solutions. We created the GoRemote Global Network by forming contractual relationships with over 500 access providers — Internet service providers, cable companies, DSL companies and telecommunication companies. These providers, which we refer to as the GoRemote Global Network members, are able to share their communications networks. Our customers, who are enterprises, value added resellers (VARs) and service provider resellers, benefit from the resulting network delivering secure mobile Internet access cost-effectively. Our member providers benefit from the GoRemote Global Network because we manage this shared network and provide settlement services. We have established common technical, service and payment standards to settle charges that our customers incur when their end users access the network facilities of GoRemote Global Network members to conduct Internet-based communications. We intend to continue developing our solutions offering to introduce new Internet-based remote communications solutions that may be adopted, deployed and managed on a global scale across the GoRemote Global Network.

We have incurred substantial losses since our inception as a result of expenses associated with building the GoRemote Global Network and related network infrastructure, developing our software products and marketing our solutions to our customers. We had an accumulated deficit of approximately $170.7 million as of September 30, 2004. We cannot assure you that we will achieve or sustain profitability. See “Factors That May Affect Future Results—We have a history of net losses and may incur future losses.”

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

We have changed our fiscal year-end from December 31, 2004 to October 31, 2004. Therefore our fourth quarter will include the financial results for only the one-month period of October 2004. Our fiscal year 2005 will begin on November 1, 2004. The Company elected to change its fiscal year end in order to:

• align its fiscal year with its emerging business cycle following its acquisition of Axcelerant;

• minimize end-of-quarter discounting pressures by customers in corporate purchasing departments (many of whom operate on a calendar quarter basis);

• move the Company’s annual financial statement audit into a non-peak period in order to enable the Company to use management and independent auditor resources more effectively, with the objective of achieving audit efficiencies and cost savings; and

• improve the Company’s ability to obtain and schedule external audit and audit-related support required to ensure ongoing compliance with regulatory requirements.

Critical Accounting Policies and Estimates

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

Revenue Recognition and Related Allowances. We enter into agreements to sell our managed broadband and global access solutions, which may include one or more of our services and product offerings. Revenues are recognized when a binding agreement or purchase order from the customer has been received, the services have been delivered, the fee or price is fixed or determinable, the collection of the receivable was reasonably assured, and no significant post-delivery obligations remain. Our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is based on complex rules, which require us to make certain judgments and estimates. In applying our revenue recognition policy we must determine which portions of our revenues are recognized currently and which portions must be deferred. In order to recognize revenue, we make judgments and estimates with regard to the revenues earned for services—including related installation services and products—and maintenance services, as well as the timing of the delivery of such services and products. In addition, we provide services over a heterogeneous virtual network, which was created by forming contractual relationships with over 500 access providers — Internet service providers, cable companies, DSL companies and telecommunications companies. These companies may provide us their services under either a reseller or an agency arrangement. In applying our revenue recognition policy we must make judgments and estimates with regard to the specific facts and circumstances surrounding each provider relationship to determine which portion of our revenues we provide under a reseller arrangement, where we would record gross revenues and cost of revenues, and which portion of our revenues we provide as an agent, where we would record revenues and cost of revenues combined on a net basis. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes, any of which could cause a material impact on the revenues that we have reported.

Our services for remote Internet access are generally billed on a per-minute basis for usage or at a flat rate per month per user based on negotiated rates for which we recognize revenue in the month the services are provided. Our broadband remote access services are provided as part of multiple-deliverable arrangements with our customers. These deliverables — for which we do not have vendor-specific objective evidence — may include installation services, provision of customer premise equipment, connectivity services, and monthly support and security. Revenue from broadband installation services and the sale of related equipment is deferred and recognized ratably over a 24-month period. We consider these services and products to be essential to the customer receiving the expected benefit of using the related remote access services and we estimate that, on average, our customer’s remote broadband access workers use our services for a period of approximately 24 months. Revenues from managed security services are recognized in the month the service is provided. To a lesser extent, we also derive a portion of our revenues from licenses of our authentication software, related maintenance and support services, and other optional services related to our remote access solutions. We consider these services and products to be essential to the customer receiving the expected benefit of using our remote access service. The related revenue is recognized ratably over the term of service, which is typically 1 to 12 months. These other revenues amounted to five percent or less of total revenues over the last three years. Amounts billed in advance of revenue recognition are recorded to deferred revenue as collected. We have some customers with minimum commitment arrangements. We record such revenue in the month that we determine that minimum commitments have not been met and for which revenue recognition criteria have been met. We recognize certain broadband connectivity revenues generated under agency arrangements on a net basis.

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

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

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses from our customers’ inability to make payments they owe us. In order to estimate the appropriate level of this allowance, we analyze historical bad debts, customer concentrations, current customer credit-worthiness, current economic trends and changes in our customer payment patterns. If the financial condition of our customers were to deteriorate and to impair their ability to make payments to us, additional allowances might be required in future periods. If our estimates prove too low, our bad debt expense will increase.

Valuation of Long-Lived Assets including Intangible Assets. We evaluate the carrying amount of our long-lived assets, including purchased intangible assets, whenever events or circumstances indicate the amount of the assets may not be recoverable. Determination of impairment of property and equipment, goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis. This analysis is based on our estimate of future cash flows that the assets are expected to generate and their eventual disposition. If we determine that any of these assets have been impaired, the impairment charge will be charged to earnings in the period such determination is made. Effective September 30, 2004, we determined that our customer relationships intangible asset acquired in connection with the acquisition of Axcelerant, Inc. was not fully recoverable. As a result, this asset was written down from $3.9 million to $2.4 million.

Valuation of Goodwill. We test goodwill for possible impairment on an annual basis in the third fiscal quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an impairment test include, but are not limited to, a significant adverse change in the business climate or legal factors, an adverse action or assessment by a regulator, unanticipated competition and loss of key personnel. In addition, we assess goodwill for recoverability if our market capitalization is less than the value of our net assets. The determination as to whether a write down of goodwill is necessary involves significant judgment based on the short-term and long-term projections of our future performance. The assumptions supporting the estimated future cash flows, including the discount rate used and estimated terminal value reflect our best estimates. The Company treats its single operating segment as its reporting unit. Effective September 30, 2004, we determined that goodwill was impaired and recorded a $25.6 million impairment charge. We determined that our market capitalization was less than the value of our net assets, indicating that goodwill or other intangible assets were likely impaired. We re-evaluated the cash flow forecasts for our business activities. Fair value was based on expected cash flows to be generated by our business, discounted at rates associated with undelying risks. We retained a third party valuation firm to value these business activities. During the first three quarters of 2004, we experienced lower than projected revenues due to the fact that prospective customers did not replace contractual frame relay services with our broadband-based Internet access services at the rate we had intially projected and due to the continued decline in customer demand for our dial-up access services. As a result, our cash flow projection for the reporting unit was revised and, effective September 30, 2004, we determined that goodwill was impaired and recorded a $25.6 million impairment charge.

Restructuring , Workforce Reductions and Excess Facilities Accrual. In order to bring our operating expense structure in line with our current level of revenues, we implemented a restructuring, workforce reduction and facilities consolidation plan to improve our operating performance. Restructuring and facilities consolidation costs consist of expenses associated with workforce reductions, consolidation of excess facilities and the impairment of leasehold improvements and other equipment associated with abandoned facilities. At September 30, 2004, $652,000 was accrued for future facilities consolidation costs. In connection with our restructuring plans, we accrue for severance payments and other related termination benefits provided to employees in connection with involuntary staff reductions. We accrue for these benefits in the period when benefits are communicated to the terminated employees. Typically, terminated employees are not required to provide continued service to receive termination benefits. If continued service is required, then the severance liability is accrued over the required service period. In general, we use a formula based on a combination of the number of years of service and the employee’s position within the Company to calculate the termination benefits to be provided to affected employees. At September 30, 2004, $422,000 was accrued for future severance and termination benefits payments.

Business Combination

On December 1, 2003, we completed our acquisition of Axcelerant, a privately-held provider of broadband Internet remote access services and managed security services. Our acquisition of Axcelerant did not result in a new reportable segment. The results of operations of Axcelerant have been included in our financial statements subsequent to the date of the acquisition. See Note 3 “Business Combination” of “Notes to Condensed Consolidated Financial Statements.”

Results of Operations

Three and Nine Month Periods Ended September 30, 2004 Compared to Three and Nine Month Periods Ended September 30, 2003

Overview of the Third Quarter of 2004

During the third quarter of 2004, we continued to evolve our business model from one based principally on an indirect sales model — as it was in the third quarter of 2003 when we principally sold our services on a wholesale basis through large telecommunications companies and service providers — to a model under which we sell a significant portion of our services directly or through VARs to enterprise customers. During the third quarter of 2004 and 2003, 53% and 16%, respectively, of our quarterly revenues were derived from services sold to enterprise customers both directly and indirectly through our VARs. We continued our focus on acquiring and serving enterprise customers.

In the third quarter of 2004, our revenues and expenses increased over the third quarter of 2003. Revenues were higher year over year primarily due to the addition of managed broadband revenues that resulted from our December 2003 acquisition of Axcelerant. Cost of revenues was higher as a percentage of revenues principally as a result of a non-cash write-off of $449,000 of pre-paid dial network access and an accrual for sales tax obligations, which we believe will not be recoverable from customers. We expect the trend in our cost of revenues to be similar to that of prior quarters and possibly decrease as sales to enterprise customers grows and represents a higher percentage of total revenues. Our operating expenses were higher in the third quarter of 2004 than in the third quarter of 2003 principally due to the addition of personnel at our Irvine, California facility that resulted from our acquisition of Axcelerant and our increased investment in enterprise focused sales and marketing efforts. In addition, we recorded a charge for goodwill and intangible asset impairment totaling $27.9 million during the third quarter of 2004. We expect our quarterly operating expenses to decrease in absolute dollar terms and as a percentage of revenues during fiscal year 2005 as a result of the strategic restructuring we effected in August 2004 to reduce our operating expenses, streamline our operations and achieve operational efficiencies.

We continue to focus on delivering innovative services for our customers to drive revenues and achieve positive earnings. In fiscal 2005 we plan to release additional new value added services, which we expect will augment the revenues we derive from our existing customers and, together with expanding the global footprint of the GoRemote Global Network, drive revenues from new enterprise customers. Several factors will impact our ability to achieve and sustain profitability, including the effectiveness of our sales and marketing efforts through both direct and VAR sales channels, the timely release of new services and the introduction of new services by existing or new competitors. For a discussion of these and other risk factors, see the section titled “Factors That May Affect Future Results.”

Revenues

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(in millions)				(in millions)

Revenues	$	12.4	$	10.7	$	37.9	$	30.0

Total revenues increased approximately $1.7 million in the three months ended September 30, 2004, compared to the three months ended September 30, 2003, which represented an increase of 16%. The increase was principally due to the addition of broadband revenues in the amount of $4.3 million during the three months ended September 30, 2004, offset by reductions in legacy Internet access service and dial-up revenues in the amount of $2.6 million. Revenues increased $7.9 million in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, which represented an increase of 26%. The increase was principally due to the addition of broadband revenues in the amount of $11.4 million during the nine months ended September 30, 2004, offset by reductions in legacy Internet access service and dial-up revenues in the amount of $3.5 million. Approximately 34% and 30% of our revenues for the three and nine months ended September 30, 2004, respectively, were generated from sales of broadband and Wi-Fi services. Fiberlink Communications Corporation accounted for 10% and 11%, respectively, of our consolidated revenues during the three and nine months ended September 30, 2004. Fiberlink is both a customer and in certain markets a competitor of GoRemote, principally with respect to our dialup remote access offering. Our experience in the first nine months of 2004 showed us that the decline in dialup revenues from service providers might occur at a more rapid pace than previously projected.

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

Costs and Expenses

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
	(in millions)						(in millions)

Cost of revenues	$	5.9		$	4.2		$	16.2		$	13.0
Percentage of revenues	47.3		%	39.0		%	42.7		%	43.2		%
Network and operations	$	2.3		$	1.0		$	6.9		$	2.75
Percentage of revenues	18.4		%	9.2		%	18.2		%	9.2		%
Research and Development	$	0.8		$	0.6		$	3.2		$	1.8
Percentage of revenues	6.5		%	5.9		%	8.5		%	6.2		%
Sales and Marketing	$	4.5		$	3.8		$	15.3		$	9.8
Percentage of revenues	36.4		%	35.8		%	40.3		%	32.7		%
General and administrative	$	1.7		$	0.9		$	4.9		$	3.5
Percentage of revenues	13.8		%	8.9		%	13.0		%	11.9		%
Amortization of purchased intangibles	$	0.4		$	—		$	1.2		$	—
Percentage of revenues	3.3		%	—		%	3.2		%	—		%
Amortization of stock-based compensation	$	0.07		$	0.0		$	0.2		$	0.07
Percentage of revenues	0.6		%	0.0		%	0.7		%	0.2		%
Restructuring Charge (benefit)	$	2.4		$	0.0		$	2.4		$	(0.08	)
Percentage of revenues	19.1		%	0.0		%	6.3		%	-0.3		%

Cost of Revenues. Cost of revenues consists principally of amounts we pay to access the Internet in order to provide remote Internet access services for our customers and to offer other mobile broadband services.

Cost of revenues increased approximately $1.7 million in the three months ended September 30, 2004 compared to the three months ended September 30, 2003, representing an increase of 41%. The increase was primarily due to the inclusion of three months of the cost of broadband revenues following our acquisition of Axcelerant of $1.8 million, offset by decreased volumes of remote Internet access of $1.0 million Additionally, we wrote-off $449,000 in pre-paid dial network access, which we no longer expect to use, recorded $140,000 of license and maintenance fees related to our client software and recorded $89,000 in cost of revenues related to an accrual for tax obligations that we deemed unrecoverable from customers. Cost of revenues increased approximately $3.2 million in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, representing an increase of 25%. The increase was primarily due to the inclusion of nine months of the cost of broadband revenues following our acquisition of Axcelerant of $4.6 million, offset by decreased volumes of remote Internet access of $2.7 million. Additionally, the changes for the quarter discussed above affected the nine-month period. We expect that during fiscal year 2005 the cost of revenues will increase in absolute dollars as remote Internet access revenues and broadband revenues increase, but be similar to the nine months ended September 30, 2004 as a percentage of revenues.

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

Network and operations expenses increased approximately $1.3 million in the three months ended September 30, 2004 compared to the three months ended September 30, 2003, representing an increase of 133%. The increase was primarily due to an increase in compensation and benefits-related expenses of approximately $930,000 and increased facility allocation of approximately $276,000, both of which are primarily related to the inclusion of three months of network and operations expenses incurred in our Irvine, California facility following our acquisition of Axcelerant. Additionally, there was approximately $43,000 of increased travel and entertainment expenses and $60,000 in administrative expenses. Network and operations expenses increased approximately $4.1 million in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, representing an increase of 150%. The increase was primarily due to an increase in compensation and benefits-related expenses of approximately $2.9 million and increased facility allocation of approximately $743,000, both of which are primarily related to the inclusion of nine months of network and operations expenses incurred in our Irvine, California facility following our acquisition of Axcelerant. We expect the network and operations expenses to remain constant as a percentage of revenues during fiscal year 2005 as we become more efficient in deploying new customers and in our customer service operations.

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

Research and development expenses increased approximately $168,000 in the three months ended September 30, 2004 compared to the three months ended September 30, 2003, representing an increase of 27%. The increase was primarily due to an increase in compensation and benefits expenses of approximately $136,000 primarily related to the inclusion of three months of research and development expenses incurred in our Irvine, California facility following our acquisition of Axcelerant. This increase was offset by a reduction of $49,000 in expenses, driven by the migration of the GoRemote Mobile Office product line engineering function to our Bangalore, India location. Research and development expenses increased approximately $1.4 million in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, representing an increase of 75%. The increase was primarily due to an increase in compensation and benefits expenses of approximately $943,000 primarily related to the inclusion of nine months of compenstation and benefits expenses of approximately $607,000 incurred in our Irvine, California facility following our acquisition of Axcelerant, and approximately $317,000 related to increased compensation costs due to adding staff in India. Facilities expenses and additional furniture and equipment expenses increased $127,000 to support the staffing additions in India. In addition, engineering consulting fees increased by approximately $122,000. We expect research and development expenses to decrease in absolute dollars and as a percentage of revenues during fiscal year 2005 as we continue to shift staff from our U.S. headquarters to our development center in India where engineering talent is available at more favorable rates.

Sales and Marketing. Sales and marketing expenses consist of salaries and benefits, allocated facility and management information systems costs, travel and entertainment costs, costs for marketing and promotional programs, outside consultants, commissions earned by sales and marketing personnel, and costs associated with domestic and international sales offices and other related costs.

Sales and marketing expenses increased $688,000 in the three-month period ended September 30, 2004 compared to the three-month period ended September 30, 2003, representing an increase of 18%. The increase was primarily due to an increase in compensation and benefits of approximately $211,000, primarily related to the inclusion of three months of sales and marketing expenses incurred in our Irvine, California facility following our acquisition of Axcelerant. In addition, allocated facilities costs and administrative expenses increased by approximately $133,000 and advertising and promotional programs increased $309,000. These additional expenses were offset by approximately $170,000, decreased staffing expenses related to the restructuring (compensation and benefits), recruiting fees and travel and entertainment expenses. Sales and marketing expenses increased $5.4 million in the nine-month period ended September 30, 2004 compared to the nine-month period ended September 30, 2003, representing an increase of 55%. The increase was primarily due to an increase in compensation and benefits of approximately $2.5 million related to our increased sales force and marketing personnel, an increase of approximately $1.0 million in marketing and promotional programs, an increase of approximately $298,000 in travel and entertainment expenses, and an increase of approximately $796,000 in outside consulting services as we expanded our marketing activities. In addition, allocated facilities costs and administrative expenses increased by approximately $451,000. We expect the overall amount of sales and marketing expenses to be lower in fiscal year 2005 in absolute dollars and as a percentage of revenues as we improve the productivity of our sales force and refine our advertising and marketing strategy.

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

General and administrative expenses increased approximately $763,000 in the three months ended September 30, 2004 compared to the three months ended September 30, 2003, representing an increase of 81%. The increase was primarily due to approximately $411,000 of increased professional fees primarily related to services provided by our independent auditors and services for Sarbanes-Oxley compliance activities and higher compensation and benefits expenses of approximately $351,000 principally due to the inclusion of three months of general and administrative expenses incurred in our Irvine, California facility following the acquisition of Axcelerant. General and administrative expenses increased approximately $1.4 million in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, representing an increase of 38%. The increase was primarily due to approximately $1.0 million of increased professional fees primarily related to services provided by our independent auditors and Sarbanes-Oxley compliance consultants, higher compensation and benefits expenses of approximately $680,000 principally due to the inclusion of nine months of general and administrative expenses incurred in our Irvine, California facility following the acquisition of Axcelerant. These increases were partially offset by approximately $121,000 decrease in insurance expenses and $92,000 decrease in recruiting fees. We expect the amount of general and administrative expenses to increase in fiscal year 2005 in absolute dollars due to the addition of two months of expense based on a full twelve-month fiscal year in 2005. While we complete the integration of our Irvine, California operations and update back office processes and procedures company-wide to implement the requirements of the Sarbanes-Oxley Act of 2002 and related regulations, but to decrease as a percentage of revenues.

Impairment of Goodwill. During the quarter ended September 30, 2004, a goodwill impairment charge of $25.6 million was recognized and the carrying value of goodwill at September 30, 2004 was valued at $21.6 million.

Amortization and Impairment of Purchased Intangibles. Amortization of purchased intangibles includes three and nine months of amortization of the intangible assets acquired in connection with the acquisition of Axcelerant. The initial value assigned to Axcelerant customer relationships was $7.5 million, which was amortized on a straight-line basis over a five-year life at a rate of $125,000 per month. As of September 30, 2004 an impairment charge of $2.4 million was recognized and the carrying value of the customer relationships was adjusted to $3.9 million, which will be amortized over the remaining fifty-months of the original five-year life on a straight-line basis at a rate of $78,000 per month. The value assigned to internal use software was $100,000, which is amortized on a straight-line basis over a one-year life at a rate of $8,000 per month.

Amortization of Stock-Based Compensation. Some stock options previously granted through December 14, 1999 were considered compensatory because the deemed fair value for accounting purposes was higher than the stock option exercise price as determined by the board of directors on the date of grant. Additionally, in connection with of our acquisition of Axcelerant, we recorded $674,000 of additional deferred stock-based compensation, which will be amortized over the vesting period of the underlying stock options assumed during the acquisition. During the three months ended September 30, 2004, we reduced the unamortized amount of deferred stock-based compensation by $173,000 for employees who terminated before they were fully vested. As a result, we recorded amortization of deferred compensation expense of $69,000 and $4,000 during the three months ended September 30, 2004 and 2003, respectively, and of $249,000 and $63,000 during the nine months ended September 30, 2004 and 2003, respectively. We expect to record amortization of deferred compensation expense of approximately $149,000 in fiscal year 2005, related to options assumed by us in connection with our acquisition of Axcelerant.

As of September 30, 2004, we had an aggregate of $222,000 of deferred compensation related to the acquisition of Axcelerant that remained to be amortized. Deferred compensation is amortized on a straight-line basis over the vesting period of the options. We expect amortization of stock-based compensation to end in 2007.

Interest Income and Other, Net and Taxes

Interest income and other, net, interest expense and taxes for the three and nine months ended September 30, 2004 and 2003 were as follows:

	For the three months ended September 30,				For the nine months ended September 30,
	2004		2003		2004		2003
	(In thousands)				(In thousands)

Interest income and other, net	$	2	$	58	$	114	$	124
Provision for income taxes	$	11	$	9	$	67	$	28

Interest Income and Other, Net

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

Interest income and other, net, decreased $56,000 in the three months ended September 30, 2004 compared to the three months ended September 30, 2003. This decrease is primarily due to an approximately $61,000 charge to write-off a VAT receivable in a subsidiary that was no longer considered collectible, and a $17,000 loss on foreign currency re-measurement offset by an increase in interest income of approximately $13,000. Interest income and other, net, decreased $10,000 in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. The decrease primarily reflects higher sales, use and value-added tax of approximately $108,000 during 2003 offset by a higher gain on the sale of assets of approximately $99,000 during 2003.

Income Taxes

The provision for income taxes was $11,000 and $9,000 for the three months ended September 30, 2004 and 2003, respectively, and was $67,000 and $28,000 for the nine months ended September 30, 2004 and 2003, respectively. The provision for income taxes consists of foreign tax provisions and state taxes.

Liquidity and Capital Resources

	September 30,
	2004			2003
	(in thousands)

Cash and cash equivalents	$	2,839		$	3,994
Net cash used in operating activities	(6,874		)	(1,005		)
Net cash provided by (used in) investing activities	3,231			(3,807		)
Net cash provided by financing activities	1,183			1,492

Cash and Cash Equivalents. Our principal source of liquidity is our cash, cash equivalents and short-term investments. As of September 30, 2004, in addition to our cash and cash equivalents balance of $2.8 million, we had a short-term investment balance of approximately $15.6 million.

Operating Activities. Net cash used in operating activities in the nine months ended September 30, 2004 of $6.8 million was primarily a result of our net operating losses of $40.3 million, increased prepaid expenses and other assets of $1.5 million primarily related to deferred installation costs and decreased accounts payable balances of approximately $900,000 offset by a $27.9 million impairment charge for goodwill and other intangibles, increased deferred revenues of approximately $3.1 million primarily related to deferred installation revenues, an increase of approximately $2.5 million in depreciation, amortization of intangibles and stock-based compensation, a non-cash restructuring charge of approximately $1.4 million and lower accounts receivable balances of approximately $549,000 from increased collection activities. We expect the number of days it takes for us to collect our accounts receivable to lengthen from the periods experienced historically, primarily due to the longer payment cycles generally associated with enterprise customers and the increasing percentage of our revenue base represented by such customers.

Investing Activities. Net cash provided by investing activities during the nine months ended September 30, 2004 of approximately $3.2 million was primarily the result of liquidation of certain short-term instruments offset by capital expenditures of approximately $1.0 million.

Financing Activities. Net cash provided by financing activities during the nine months ended September 30, 2004 of approximately $1.2 million was primarily the result of proceeds of sales of common stock to our employees and option holders.

Commitments. We lease all of our facilities under operating leases that expire at various dates through 2008. We have entered into certain purchase commitments from suppliers who provide network access, software and related services that are utilized by us in order to deliver our product and service solutions.

During the first nine months of 2004, we increased capital equipment expenditures in absolute dollars as compared to the same period in 2003 while we updated many of our back office processes and procedures required to efficiently run our business following the acquisition of Axcelerant. We expect occasionally to provide customer premise equipment top customers under a monthly service arrangement for a fee, as part of our teleworker solution offering.

The future minimum operating lease and purchase commitments were as follows at September 30, 2004:

	Operating Leases		Purchase Commitments
	(in thousands)
Calendar Year
2004	$	485	$	316
2005	1,024		1,133
2006	786		921
2007	561		—
2008	90		—
Thereafter	—		—
	$	2,946	$	2,370

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

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated, except for indemnifications involving infringement of third party intellectual property rights. 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, we have not been obligated to make any payments for these obligations, and no liabilities have been recorded for these obligations on our balance sheet as of September 30, 2004.

Summary of Liquidity. We believe that our available cash, cash equivalents and short-term investments of $18.5 million at September 30, 2004, together with cash expected to be generated by operations during the next twelve months, will fund our currently planned operations for at least the next twelve months. We utilized $2.6 million and $6.8 million in cash during the three and nine months ended September 30, 2004, respectively.

We plan to invest in expanding our secure, managed remote access solutions, on a global basis, by continuing to build strategic partnering relationships. This will require us to maintain market acceptance, and to grow our remote access solutions offerings in order for us to continue our research and development activities and fund planned operating expenses. There can be no assurance that our remote access solutions offerings will maintain market acceptance or enable us to achieve the growth or operating margins that will be required to fund our future operations.

If we are unable to attain our revenue and margin goals, significant additional reductions in spending and the delay or cancellation of planned activities or more substantial restructuring may be necessary to enable us to meet our cash requirements through the next 12 months. These actions could have a material adverse effect on our business, results of operations and prospects. Furthermore, we may need to raise additional funds in future periods through public or private financing, or other arrangements, to fund operations and potential acquisitions, if any. If additional financing is needed, it might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and results of operations. If additional funds were raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to our common stock.

Factors That May Affect Future Results

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

If we fail in our strategy of focusing our sales efforts on larger companies, our revenue and profitability goals will likely not be achieved.

Historically, a significant portion of our revenues was derived from smaller companies and service providers in the Internet marketplace, but in recent periods we have attempted to focus our sales and marketing efforts on larger corporate and enterprise-level customers. This strategy places new demands on our business, such as the longer sales cycles and higher levels of service and support that larger accounts generally require. Some of our competitors with greater financial resources than ours have focused their sales efforts on selling to large enterprises for a longer period of time with more success than we have experienced, which adds to the risk of our strategy. In November 2004, we appointed a new Senior Vice President of Worldwide Sales, and a new Vice President of North American New Business Sales, but they may not succeed in executing this strategy. If we fail to execute this strategy, or if we have underestimated the costs of this strategy, we will likely miss our revenue and profitability goals.

The markets that we serve are highly competitive and there is no assurance that we will be able to achieve or maintain profitability.

We are aware of many companies in related markets that address particular aspects of the features and functions that our products provide. Currently, we compete directly with iPass and Fiberlink Communications Corporation in the market for Internet roaming and related settlement services, and each of iPass and Fiberlink has a network that competes with the GoRemote Global Network. In addition, iPass has greater cash resources than we do and each of iPass and Fiberlink has a larger sales force than our own dedicated to enterprise sales. Large communications service providers such as AT&T, Equant and MCI also have the ability and resources to compete with us in the Internet-based mobile office communications services market. In the mobile broadband services market, our primary competitors include Megapath, ePresence and Netifice. Many of our competitors have longer operating histories, greater name recognition or larger customer bases, which they may leverage in order to obtain more favorable volume discounts from suppliers. In addition, these competitors may be able to undertake more extensive marketing efforts, adopt more aggressive pricing policies and provide more favorable payment terms to customers than we can, which could limit our opportunities to obtain new customers or cause us to lose our existing customers.

If we are unable to increase revenues associated with broadband services, our ability to grow our business will be impaired.

Until our acquisition of Axcelerant in December 2003, we generated our remote Internet access services revenues almost exclusively from the sale of services based on dialup access—a narrowband technology. In some countries, including the United States, the use of narrowband as a primary means of remote access is expected to decline over time as broadband access technologies, such as cable modem, DSL and Wi-Fi, become more widely adopted and used. Our experience in the first nine months of 2004 showed us that the decline in dialup revenues from service providers may occur at a more rapid pace than previously projected. Although we have recently begun to generate revenues from managed broadband access following our acquisition of Axcelerant, the future growth of our business may depend in large part upon our ability to expand the broadband elements of our virtual network and generate broadband revenues at a substantially higher level and growth rate. We may not succeed in this expansion and we may not generate substantial new revenues, which could harm our results and cause our stock price to decline.

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

Our business strategy has changed over time. For example, we ceased to be an Internet service provider in 1997 and abandoned our Internet telephony services business in 2001. We have pursued our current business—managed remote access solutions—for a relatively brief period and in markets that are rapidly changing. We have only been offering managed broadband services to enterprises with branch offices and large teleworker populations since December 2003, following our acquisition of Axcelerant. There can be no assurance that we will succeed in our efforts to make our current business profitable, and there can be no assurance that our recent acquisition of Axcelerant will make us more likely to succeed.

We recently appointed a new chief executive officer and replaced a number of executives and other key personnel, which may lead to additional personnel and organizational changes that could impact our ability to achieve our strategic goals.

On August 2, 2004, we announced the appointment of Tom Thimot to serve as our President and Chief Executive Officer. During the third quarter of 2004, we replaced our senior marketing and operations executives and a number of other senior managers as part of a realignment of our global operations. On November 1, 2004, we appointed two new senior sales leaders, including our Senior Vice President of Worldwide Sales. It is possible that the new management team will introduce additional changes or cause workforce instability as it evaluates how best to achieve our strategic goal of returning to profitability and building sustainable revenue growth.

We may not be successful in our efforts to transition to a reduced cost structure, and the actions that we take in order to accomplish this transition could have long-term adverse effects on our business.

We have taken, and continue to take, various actions to transition our company to a reduced cost structure. In response to declining revenues in our legacy dial access and service provider business, we have scaled back our operations, reduced our expenses, and initiated facility closures and consolidations.

There are several risks inherent in our efforts to transition to a reduced cost structure. These include the risk that we will not be able to hold expenditures at a level necessary to achieve profitability, and that we may have to undertake further cost-reduction initiatives that would entail additional charges. If we are not able to hold down expenses or if we are not able to reduce our non-people-related costs in accordance with our plans, we may have to further reduce our workforce. There is also the risk that the cost-cutting actions we have taken and still plan to take will impair our ability to effectively develop and market products, to remain competitive in the industries in which we compete and to operate effectively. Each of the above measures could have long-term effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in our products, making it more difficult for us to respond to customers, limiting our ability to deploy our solutions to our customers quickly if and when the demand for our solutions increases and limiting our ability to hire and retain key personnel. These circumstances could cause our income to be lower than it otherwise might be, which would adversely affect our stock price.

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

Our customers are generally free to use competing products and services and prices for dialup remote access and Wi-Fi access are declining, so we could face significant customer losses, at unpredictable times. We had one customer in the three and nine months ended September 30, 2004 that accounted for more than ten percent of our revenues. Fiberlink Communications Corporation was 10% and 11% of revenues for the three and nine months ended September 30, 2004, respectively. This concentration of revenue from one customer, which principally purchases our dialup remote access service, makes our business more risky. Losing this customer could result in a significant revenue shortfall for us. In addition, large customers have significant negotiating power during contract discussions or in the event of a customer dispute, which may make it more likely that the terms of the customer arrangement or settlement may be more favorable to the customer. We are in direct competition with Fiberlink, which makes it more likely that revenues from Fiberlink will decline in the future. These factors make it difficult to anticipate the level of our future revenues from existing customers. In addition, our success depends on our ability to expand and diversify the composition of our customer base. If we are unable to expand our customer base and increase our average revenues per customer, our business success will be less likely.

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

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

The market price of our common stock has traditionally been highly volatile, and if we do not meet the expectations of analysts, the market price of our common stock could decline further.

In the past, the price of our common stock has experienced large swings up and down. As of November 1, 2004, our common stock is valued less than it was at the time of the closing of our acquisition of Axcelerant. This volatility might occur again in the future. Volatility can arise particularly in response to quarter-to-quarter variations in the actual or anticipated financial results of us or our customers or competitors, and announcements that our competitors or we make regarding new product and service introductions. The market price of our common stock can also fluctuate in response to price and volume fluctuations in the stock market, particularly those that affect the market prices of technology stocks.

In addition, the market price of our common stock is subject to decline if we do not achieve the expected benefits of the

Axcelerant acquisition as quickly as anticipated or the costs of or operational difficulties arising from the merger are greater than anticipated.

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

We have incurred significant losses to date and we expect to continue to incur losses for some period of time. We incurred operating losses before income taxes of approximately $1.8 million for 2003, $5.0 million for 2002 and $31.6 million for 2001. As of September 30, 2004, we had an accumulated deficit of $170.7 million and incurred a loss of $33.6 million for the quarter then ended.

We have experienced negative cash flows in each year since our inception in 1994, and we expect to continue to do so for some time in the future. In addition, we may also incur significant new costs related to possible acquisitions, the development of new products and services, the integration of new technologies or the update of old technologies. Moreover, we might not be able to achieve operating profitability on a quarterly or annual basis. To achieve profits, we will need to maintain our relationships with existing customers, generate additional revenue growth from our existing customers and obtain new customers, while continuing to control our expenses. We expect to continue to invest in network and operations, research and development and sales and marketing, and we expect to face pressure to adopt new pricing arrangements, including volume discounts, that may lower our gross margins. As a result, our ability to achieve and sustain profitability will depend on our ability to sustain and achieve substantially higher revenue while maintaining reasonable cost and expense levels. If we fail to achieve profitability, our stock price could decline.

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

If our cash proves to be insufficient to fund our operations, we may need to raise additional funds at some point in the future. In the three and nine month periods ended September 30, 2004 we utilized $2.6 million and $6.8 million, respectively, of cash, leaving us with a cash, cash equivalent and short term investment balance of $18.5 million. If we raise additional funds by selling equity or convertible debt securities, our stockholders may experience additional dilution and these new securities may have powers, preferences and rights that are senior to those of the rights of our common stock. We cannot predict whether additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to fund our business operations, promote our brand identity, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures. Any inability to do so could have a negative effect on our business, revenues, financial condition and results of operations.

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

If we fail to meet the criteria for continued listing on The Nasdaq National Market, our common stock may be delisted, which could make it more difficult for you to sell your shares. For example, if the market price for our common stock falls and remains below $1.00 per share for thirty trading days, we would be subject to delisting. On November 1, 2004, the closing price of our common stock was $1.62.

The telecommunications industry continues to experience instability, which may cause consolidation among network service providers and impair our ability to provide reliable, redundant service coverage and negotiate favorable network access terms.

The telecommunications industry continues to experience dramatic technological change and increased competition that have led to significant declines in network access pricing. In addition, the revenues of network service providers have declined as a result of the general economic slowdown. Network service providers have experienced related operating difficulties in the last several years, leading to poor operating results and declarations of bankruptcy by a number of these providers. If these conditions continue, some of these service providers may consolidate or otherwise cease operations, which would reduce the number of network service providers from which we are able to obtain network access. To the extent this were to occur, while we would still be able to maintain operations and provide enterprise connectivity services with a small number of network service providers, we would potentially not be able to provide sufficient alternative access points in some geographic areas, which could diminish our ability to provide broad, reliable, redundant coverage. Further, our ability to negotiate favorable access rates from network service providers could be impaired, which could increase our network access expenses and harm our operating results.

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

Our target markets are characterized by rapid technological advances, changes in end-user requirements, and frequent new product introductions. Our future success will depend on our ability to anticipate or adapt to such changes and to offer, on a timely and cost-effective basis, products that meet changing customer demands. For example, our growth prospects will be determined, among other things, by our ability to grow our new branch office services offering, which is an offering into a highly competitive market with a large number of incumbents. We may lack sufficient resources to anticipate technological and market trends, manage long development cycles or develop, introduce and market new products and enhancements. In addition, we cannot predict whether our products and services will meet with market acceptance or be profitable.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property.

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

We may become involved in litigation regarding intellectual property rights that could be costly, could cause us to lose significant rights, and divert our management time and attention.

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

• stop or delay selling, incorporating or using products that use the challenged intellectual property;

• obtain a license to sell or use the relevant technology, which license might not be available on reasonable terms or at all; and

• redesign the products and services that use that technology.

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

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

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

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

Our success depends on our ability to assure generally error-free clearinghouse services, uninterrupted operation of our network and software infrastructure, and a satisfactory experience for our customers’ end users. In the past, we have experienced problems due to our inability to detect system malfunctions and due to errors in collecting or processing account usage and settlement data. Due to the high level of performance required for critical communications traffic, any failure to deliver a satisfactory experience to end users, whether or not caused by our own failures, and any failure to provide accurate settlement data in connection with acting as a clearinghouse, could reduce demand for our products and services.

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

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

The unpredictability of our quarterly results may cause the trading price of our common stock to decline.

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

• the volume of transaction-based revenues;

• the timing of deployment of services by our customers;

• competitive pricing pressure;

• the mix of services used by our customers’ end users;

• difficulty collecting accounts receivable, particularly from customers based outside the U.S.;

• changes in global travel patterns due to past and potential future terrorist activities in the U.S. and the military responses to them in the Middle East, Southern Asia and elsewhere; and

• regulation, domestically and internationally.

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

If we fail to attract and retain qualified sales personnel, our business might be harmed.

Our success depends in large part upon our ability to identify, attract and retain qualified sales individuals. Competition for these individuals is often intense, and we may not be able to hire the type and number of sales personnel it needs. Our new Senior Vice President of Worldwide Sales has only been in this position since November 1, 2004, and has not had sufficient opportunity to fully evaluate whether his sales team has the resources and skills required to achieve our revenue growth objectives. His appointment could lead to the departure of other key sales personnel and the need to recruit additional qualified personnel in the coming months. Once qualified salespersons are hired, they require extensive training in our multiple services solution offering. This training typically covers several weeks of formal in-class and on-the-job instruction. As of November 1, 2004, we have 32 sales personnel. If we are unable to continue to retain our current sales employees and train new sales personnel as rapidly as necessary, we may not be able to increase market awareness and sales of our services, which may prevent us from generating revenue and may negatively impact our ability to maintain customer relationships.

The uncertain economic environment in general could adversely affect our revenue, gross margins and expenses.

Our revenue and gross margins depend in part on the overall demand for information technology products and services, particularly in the product and service segments in which we compete. Softening demand for our products and services caused by the ongoing economic downturn has resulted in decreased revenue growth rates, and may in the future result in decreased revenue, earnings or growth rates and problems with our ability to realize customer receivables. The global economy has weakened and market conditions continue to be challenging. As a result, companies are delaying or reducing expenditures, including those for information technology. In addition, if our customers experience financial difficulties, we could suffer losses associated with the outstanding portion of accounts receivable. The global economic downturn has contributed to reported declines in our revenue growth during the first half of 2004. Further delays or reductions in information technology spending could have a material adverse effect on demand for our products and services and consequently our results of operations, prospects and stock price.

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

The secure transmission of confidential information over public networks is a significant barrier to widespread adoption of electronic commerce and communications. The Internet is a public network and information is sent over this network from many sources. Advances in computer capabilities, new discoveries in the field of code breaking or other developments could result in compromised security on our network or the networks of others. Security and authentication concerns with respect to the transmission over the Internet of confidential information, such as corporate access passwords, and the ability of unauthorized computer users, so-called hackers, to penetrate online security systems may reduce the demand for our services. If any well-publicized compromises of confidential information were to occur, it could reduce demand for Internet-based communications and our products and services.

Government regulations and legal uncertainties regarding the Internet could harm GoRemote’s business.

GoRemote will be subject to local regulations or laws applicable to access to or commerce on the Internet, in addition to regulations applicable to businesses generally. However, the Federal Communications Commission has initiated several proceedings that may change the regulatory and legal framework for the provision of broadband and Internet services and current and future Federal Communications Commission rules and regulations, as well as judicial interpretations of these rules and regulations, which could negatively affect GoRemote’s business. In addition, international regulatory standards will govern GoRemote’s products and services in foreign markets and could impair its ability to develop products and services for international service providers in the future. GoRemote may not be able to obtain or maintain all of the regulatory approvals that may be required to operate its business. The inability to obtain these approvals, as well as any delays caused by its compliance and its customers’ compliance with regulatory requirements or resulting from uncertainty associated with future regulatory decisions, could result in postponements or cancellations of product orders, which would significantly reduce GoRemote’s revenue.

Recently enacted and proposed regulatory changes may cause us to incur increased costs.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, will increase our expenses as we evaluate the implications of new rules and devote resources to respond to the new requirements. In particular, we expect to incur additional administrative expense as we implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our independent auditors to attest to, our internal controls. The Sarbanes-Oxley Act mandates, among other things, that companies adopt new corporate governance measures and imposes comprehensive reporting and disclosure requirements, sets stricter independence and financial expertise standards for audit committee members and imposes increased civil and criminal penalties for companies, their chief executive officers and chief financial officers and directors for securities law violations. In addition, The Nasdaq National Stock Market, on which our common stock is listed, has also adopted comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations have increased and will continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

Further, our board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficultly attracting and retaining qualified board members and executive officers, which would adversely affect our business.

If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately or detect fraud. As a result, we could be subject to costly litigation, and current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and to detect and prevent fraud. We are currently performing the system and process evaluation required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. This evaluation may conclude that enhancements, modifications or changes to our internal controls are necessary. Completing this evaluation, performing testing and implementing any required remedial changes will require significant expenditures in the short term and on a regular basis in the future. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, during our 2003 audit, our independent auditor brought to our attention a need to improve the closing process used at our Irvine, California location by formally documenting our policy relating to recognition of revenues derived from agency arrangements versus reseller arrangements, ensuring proper recognition of broadband service installation revenues, training employees performing key finance and accounting functions and documenting certain judgmental accounting matters. Although these items were subsequently addressed, the auditor initially identified these items, collectively, as a “reportable condition,” which means that they were matters that in the auditor’s judgment could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. In addition, we recently determined that the internal documentation of our revenue recognition policy was not consistent with our actual practice, which we believe is consistent with accounting principles generally accepted in the United States (“GAAP”). As a result, we are assessing our other written policies and procedures for consistency and compliance with our actual practice and GAAP. Going forward, the completion of our evaluation of internal controls, implemention of any changes that are necessary, and maintenance of an effective system of internal controls will be expensive and require considerable management attention. However, if we fail to maintain an effective system of internal controls or prevent fraud, we could be subject to costly litigation, we may be unable to comply with Section 404 of Sarbanes-Oxley we may be delisted from trading, investors could lose confidence in our reported financial information and our brand and operating results could be harmed, which could have a negative effect on the trading price of our common stock.

The current regulatory environment affecting accounting principles generally accepted in the United States of America is uncertain and volatile, and significant changes in current principles could affect our financial statements going forward.

Recent actions and public comments from the Securities and Exchange Commission have focused on the integrity of financial reporting generally. In addition, the Financial Accounting Standards Board (“FASB”) and other regulatory accounting agencies have recently introduced several new or proposed accounting standards, or are developing new proposed standards, such as accounting for stock options, some of which would represent a significant change from current industry practices. While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, we cannot predict the impact of the adoption of any such proposals on our financial statements going forward. For example, we currently are not required to record stock-based compensation charges if the employee’s stock option exercise price equals or exceeds the fair value of our common stock at the date of grant. However, several companies have recently elected to change their accounting policies and begun to record the fair value of stock options as an expense. Although the standards have not been finalized and the timing of a final statement has not been established, the FASB has announced its support for recording expense for the fair value of stock options granted. If we were to change our accounting policy in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock- Based Compensation—Transition and Disclosure and retroactively restate all prior periods as if we had adopted SFAS 123 for all periods presented, then our operating expenses would increase by approximately $225,000 and $1.4 million for the three months ended September 30, 2004 and 2003, respectively, and would increase by approximately $3.0 million and $3.6 million for the nine months ended September 30, 2004 and 2003, respectively.

Provisions in our charter documents might deter a company from acquiring us, which could inhibit your ability to receive an acquisition premium for your shares.

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

• authorize the board to issue preferred stock without stockholder approval;

• prohibit cumulative voting in the election of directors;

• limit the persons who may call special meetings of stockholders; and

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

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

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk. We have limited exposure to financial market risks, including changes in foreign currency exchange rates and interest rates. Although we have foreign operations in Europe and Asia, to date our exposure to foreign currency fluctuations has not been significant. Therefore, no accompanying table has been provided.

Interest Rate Risk. Our exposure to interest rate risk relates primarily to our investment portfolio and debt obligations. Interest rate risk occurs when we cannot hold a purchased investment to its maturity. The weighted-average maturity of our investment portfolio, when taking into account the reset feature of floating rate municipal bonds, is limited to 90 days. We intend to have our securities available for sale. We do not expect to recognize an adverse impact on income or cash flows, although there can be no assurance of this. We have established policies and business practices regarding our investment portfolio to preserve principal while obtaining reasonable rates of return without significantly increasing risk. We place investments with high credit quality issuers according to our investment policy. We do not use derivative financial instruments in our investment portfolio. All investments were carried at fair market value at June 30, 2004. Due to the short-term nature of our investments and the immaterial amount of our debt obligation, we believe that there is no material exposure to interest fluctuation. Therefore, no accompanying table has been provided.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and our Chief Financial Officer, based on their evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, concluded that our disclosure controls and procedures were not effective, due to a control deficiency in the Company’s documentation and understanding of revenue recognition for multiple-deliverable arrangements, which the Company has subsequently taken steps to correct. The Company believes that its revenue has been recognized in accordance with accounting principles generally accepted in the United States.

Changes in Internal Controls. During the period, the Company’s current independent registered public accounting firm brought to the Company’s attention a control deficiency consisting of inaccurate documentation and understanding of appropriate revenue recognition principles regarding multiple-deliverable arrangements under EITF 00-21, Revenue Arrangements With Multiple Deliverables. The Company intends to revise its documentation to accurately reflect the Company's application of this EITF and train its accounting personnel accordingly.

Limitations on Effectiveness of Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. While our Chief Executive Officer and our Chief Financial Officer, based on their evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, concluded that our disclosure controls and procedures were effective at that time, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

In July and August 2001, we and certain of our officers were named as defendants in five purported securities class action lawsuits filed in the United States District Court, Southern District of New York, captioned as In re GRIC Communications, Inc. Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), and consolidated with more than three hundred substantially identical proceedings as In re Initial Public Offering Securities Litigation, Master File No. 21 MC 92 (SAS). The Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws (“Consolidated Complaint”) was filed on or about April 19, 2002, and alleges claims against certain of our officers and against CIBC World Markets Corp., Prudential Securities Incorporated, DB Alex. Brown, as successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of our December 14, 1999 initial public offering (“underwriter defendants”), under Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended.

Citing several press articles, the Consolidated Complaint alleges that the underwriter defendants used improper methods in allocating shares in initial public offerings, and claims the underwriter defendants entered into improper commission agreements regarding aftermarket trading in our common stock purportedly issued pursuant to the registration statement for the initial public offering. The Consolidated Complaint also alleges market manipulation claims against the underwriter defendants based on the activities of their respective analysts, who were allegedly compromised by conflicts of interest. The plaintiffs in the Consolidated Complaint seek damages as measured under Section 11 and Section 10(b) of the Securities Act of 1933, pre-judgment and post-judgment interest, and reasonable attorneys’ and expert witnesses’ fees and other costs; no specific amount is claimed in the plaintiffs’ prayer in the Consolidated Complaint. By Order of the Court, no responsive pleading is yet due, although motions to dismiss on global issues affecting all of the issuers have been filed.

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

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

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

The settlement was presented to the Court for approval in June 2004. The parties submitted briefing regarding the merits of the proposed settlement during the summer of 2004. The Court is expected to approve or disapprove the settlement in the coming months. There can be no guarantee that the settlement will be judicially approved.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit

Incorporated by Reference

Filed or Furnished

Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

10.02

Offer letter dated October 15, 2004 to John Grosshans.

31.01

Rule 13a-14(a)/15d-14(a) certification of Registrant’s Chief Executive Officer, dated November 9, 2004.

31.02

Rule 13a-14(a)/15d-14(a) certification of Registrant’s Chief Financial Officer, dated November 9, 2004.

32.01*

Section 1350 certification of Registrant’s Chief Executive Officer, dated November 9, 2004.

32.02*

Section 1350 certification of Registrant’s Chief Financial Officer, dated November 9, 2004.

* These certifications accompany GoRemote’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004. These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of GoRemote under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURE		30

	GoRemote Internet Communications, Inc.


	/s/ DANIEL W. FAIRFAX
	Daniel W. Fairfax
	Senior Vice President and Chief Financial Officer
	(principal financial officer and duly authorized officer)