AT ROAD INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-31511

AT ROAD, INC.
(Exact name of registrant as specified in its charter)

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

47200 BAYSIDE PARKWAY
FREMONT, CA 94538
(Address of principal executive offices, including zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 510-668-1638

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK

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

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $150,837,738 as of March 20, 2002, based upon
the closing sale price on the Nasdaq National Market reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

There were 46,711,375 shares of the registrant's Common Stock issued and
outstanding as of March 20, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive proxy
statement to be filed in connection with the registrant's 2002 annual meeting of
stockholders.
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PART I

ITEM 1. BUSINESS

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

THE @ROAD SOLUTION

We integrate Global Positioning System technology, wireless communications
and the Internet to enable companies to efficiently manage their mobile
resources with location-relevant and time-sensitive information. Our service is
an easy-to-use, cost-effective, Internet-based service for mobile resource
management that provides location, reporting, dispatch, messaging, and other
management services. Our service allows customers to use our website to monitor
the activities of their employees, vehicles, and goods and services, and
provides for two-way messaging between our customers and their mobile workers.
Our service also allows customers to conduct business operations such as event
confirmation, signature verification and forms processing while in the field. We
believe our service provides significant value to our customers by reducing the
costs and increasing the efficiency of their operations.

Our service includes a proprietary hardware device embedded with software,
our platform, that integrates wireless Internet connectivity with a Global
Positioning System receiver. Our basic hardware product is called the Internet
Location Manager. Two-way text messaging and business operations are enabled
with either the addition of Internet Data Terminal hardware or the addition of a
ruggedized personal digital assistant. Customers can use our service to manage
any number or type of mobile resources, including delivery people, such as those
in wholesale or retail; construction workers, such as electricians, plumbers,
and carpenters; service providers, such as maintenance workers and
exterminators; and drivers, such as limousine drivers and school bus drivers.

The service is enabled with the installation of our Internet Location
Manager in any type of vehicle, including cars, rental cars, buses, school
buses, vans, trucks, limousines or heavy equipment. The Internet Location
Manager receives signals transmitted from Global Positioning System satellites
to determine the location, velocity and orientation of the vehicle in which it
is installed. These data are transmitted to the @Road Wireless Applications
Processing Center, our network of secure servers, using wireless networks and
the Internet. Our customers can then retrieve the information using an Internet
browser or wired or mobile telephone. Customers can send and receive messages to
and from a vehicle and enable business operations in the field by purchasing and
installing in each vehicle an Internet Data Terminal or by connecting a
ruggedized personal digital assistant to the Internet Location Manager. Because
the customer data and solution software reside at our Wireless Applications
Processing Center, our customers do not need to make a substantial investment in
acquiring and supporting capital equipment, such as proprietary hardware,
software and data networking equipment, to use our service.

We have entered into strategic relationships with ALLTEL, AT&T Wireless,
Cingular Wireless, Nextel Communications, Nextel Partners, Southern LINC, TELUS
Mobility and Verizon Wireless to provide wireless data connectivity between
@Road-enabled mobile resources and the Internet over these companies' Cellular
Digital Packet Data networks and Integrated Digital Enhanced Networks. We have
also entered into a strategic relationship with Hitachi Software Engineering to
provide our service in Japan over additional wireless networks.

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Customers who subscribe to our service find a variety of compelling
benefits. Many of these benefits translate into competitive advantages for our
customers. Benefits of our service include the following:

- Productivity enhancement. Customers can use our service to monitor,
message and manage their mobile resources more effectively and
efficiently. Customers can achieve enhanced productivity from their
mobile resources by closely monitoring their locations, routing more
efficiently, reducing downtime, and increasing the number of jobs or
revenue per mobile resource. Our service enables customers to initiate
and complete business operations in the field, including workflow and job
status forms, credit card verification, and signature capture
confirmation.

- Differentiated service. Our customers can be more responsive to their
customers by more effectively managing their mobile resources. Because
our customers are able to monitor the location of each mobile resource,
they are able to provide their customers with more detailed information
on the status and location of products and services. At the same time,
our customers can allocate their limited resources more efficiently to
reduce wait times experienced by their customers. They can also provide
better customer service because we provide our customers with records
relating to the status and activity of their mobile resources as well as
audit trails of messages between our customer and its mobile resources.

- Ease of implementation. The installation of the Internet Location
Manager, the optional Internet Data Terminal and the optional ruggedized
personal digital assistant, into a vehicle takes less than an hour. Once
installed, our customers can manage all their vehicles through an
Internet browser. Because we manage the software services and customer
data at our Wireless Applications Processing Center, the customer does
not incur incremental information technology costs associated with the
use of our services. As our customers grow, our services are scaleable by
installing our platform in additional vehicles. Additionally, we
implement software upgrades centrally on our server and remotely over a
wireless connection to the vehicle. Therefore, customers benefit from
these enhancements to our service without removing the vehicle from
operation.

STRATEGY

Our objective is to be the leading provider of mobile resource management
services and solutions to businesses and organizations with field operations.
Our service enables us to deliver information and services that take advantage
of the location and movement of the vehicles, and the time when the mobile
workers are at particular locations. Key elements of our strategy include:

- Establish @Road as the market leader in mobile resource management
services. We believe our competitive advantages will establish us as the
market leader in providing mobile resource management services to
businesses and organizations. Establishing this leadership position is a
key element in successfully penetrating new markets, creating new sources
of revenues and growing our overall business. We are one of the first
companies to enter the mobile resource management services market with a
comprehensive turnkey solution at a low cost. We intend to aggressively
grow our customer base and market additional services to our existing
customer base. We expect to expand our existing distribution channels to
continue to focus on small to mid-size customers and use our direct sales
force to target customers with thousands of mobile workers. Moreover, as
wireless network coverage increases and new wireless networks are
deployed, we expect to increase our selling efforts into the worldwide
market.

- Increase the value of our solution by expanding the range of services we
provide. We will continue to add new features and functionality to our
service to enhance its value. We expect to continue to offer services
that synthesize the information currently retrieved by our service. For
example, we have released a value-added service whereby customers can
retrieve mobile worker information from any wired or mobile telephone,
thereby enabling managers to use our service while they are in the field.
In addition, we are continuing to develop an open platform architecture,
with application program interfaces and enhanced web site features to
allow our partners to integrate their applications with our services.
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- Leverage partnerships to accelerate market acceptance. We believe that
leveraging the market presence, brand recognition, and distribution
resources of established vendors and wireless carriers will help us to
establish broad business and consumer awareness and acceptance of our
services. We intend to continue to partner with wireless carriers;
suppliers of business services; wireless telephone and personal digital
assistant manufacturers; providers of vehicle maintenance and support
services; and other suppliers of goods and services. We believe that the
successful design and implementation of our partnership strategy will
facilitate the extension of our services to new markets such as the
white-collar mobile worker and mobile device markets.

- Penetrate new markets and applications. We intend to use our core
competencies and relationships with key partners and customers to develop
services for additional markets. We believe our technology is well suited
to many applications that can leverage location-relevant, time-sensitive
information and two-way messaging using wireless communications and the
Internet. To address expanding market opportunities, we have designed our
services to be carrier- and connectivity-independent. These features
allow us to rapidly deploy our services in additional geographic markets
as coverage of digital wireless packet-based data networks increases.

- Maintain technology leadership. We have developed and patented
technology that integrates Global Positioning System technology, wireless
communications and the Internet. We also have substantial experience in
the design and deployment of products and services incorporating these
technologies. We believe that our existing intellectual property,
technological experience and expected continued investment in research
and development will provide us with significant competitive advantages,
enabling us to maintain our technological leadership position.

SERVICES

Our service integrates the Global Positioning System, wireless
communications and the Internet to provide location, reporting, dispatch,
messaging, and other management services to our customers for managing their
mobile resources. Our service provides two-way messaging between managers and
field workers. Our service also enables customers to conduct business operations
in the field. We believe that our service provides significant value to our
customers by reducing the costs and increasing the efficiency of their
operations. We have initially targeted companies with commercial vehicles.

The following features and benefits of our service give it a competitive
advantage over existing solutions:

- Cost-effective. Our service is cost-effective for our customers because
we pass on to them the efficiencies we gain by using the Internet and
wireless networks developed by other companies and Global Positioning
System technology developed by the U.S. government. Our customers are not
required to make a substantial capital investment because the customer
data and our software reside at our Wireless Applications Processing
Center, and the service is accessible through the Internet.

- Ease of implementation and use. The Internet Location Manager, Internet
Data Terminal and ruggedized personal digital assistant are shipped to
the customer fully configured and ready to install, which typically takes
an authorized technician less than one hour. Once these devices are
installed, our customers can use our service by logging on to our web
site. The user interface is intuitive to use, requires minimal training
and can be personalized to meet the requirements of our customers. Our
service is designed to be available to our customers through the Internet
24 hours a day, seven days a week, with the exception of scheduled
maintenance. Additionally, our platform software is designed to be
updated wirelessly, minimizing vehicle downtime.

- Robust reporting capabilities. Our service offers customers
comprehensive, detailed reporting of activity, either individually or for
all or a selected group of a customer's mobile resources. Reports can be
personalized by customers and downloaded for additional sorting and
analysis. A customer's preferences are stored in our Wireless
Applications Processing Center and can be altered by it at

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any time to meet its changing needs. Reports can also be used to help our
customers to manage the maintenance requirements of their vehicles. The
location of each mobile resource enabled by our service can be displayed
on a map, making monitoring simple. Map views can be personalized by
customers to graphically display different information about their mobile
resources, including locating positions on maps by address or
customer-defined landmarks. Moreover, customer data is stored at our
Wireless Applications Processing Center, allowing managers of mobile
resources to monitor activities over time.

- Return on investment. Our service results in a wide variety of cost
savings and revenue enhancements to our customers that can give our
customers a rapid return on their investments in our service. Our
customers can use our service to determine the location of their mobile
resources at particular times and send the most appropriate resource to
the next job. In addition, customers can increase their productivity by
actively using reports, maps and messaging with their mobile resources.
Effective managing, routing and dispatching of mobile resources saves
fuel and time, decreases our customers' costs and increases their
customers' satisfaction. By estimating mileage data and providing
maintenance scheduling services, we assist our customers in optimizing
maintenance activities, timing their vehicle downtime cost-effectively
and offering opportunities to purchase vehicle maintenance goods and
services in bulk. When we provide our customers with messaging
capabilities using Internet Data Terminals, which bundles two-way
communications for a flat rate, our customers can reduce their
communications costs, including cellular telephone fees, which are often
usage-based. Customers can also use our ruggedized personal digital data
assistant to conduct business operations in the field, allowing them to
create a paperless trail of transactions and accelerate their billing
process.

- Scaleability. Our platform and software architecture are designed to
serve a growing number of users with increasing data transmission volumes
without compromising performance, delivery times or data accuracy of our
services. Because the three technology components of our solution are
designed to accommodate a practically unlimited number of users, as in
the case of the Global Positioning System, or can be expanded to
accommodate additional users, as in the case of wireless networks or the
Internet, we believe that we can support a significantly expanding
customer base.

- Location by Global Positioning System. Our service uses the Global
Positioning System to determine location. This technology enables
reliable, accurate and cost-effective location and monitoring of our
customers' mobile resources. We believe Global Positioning System
technology is more reliable than other positioning technologies because
of its proven accuracy, the large number of deployed satellites and its
ability to determine location regardless of velocity and altitude. The
Global Positioning System uses pre-existing infrastructure developed by
the U.S. government, which reduces the cost of our service.

- Wireless data connectivity. Our service currently uses the Cellular
Digital Packet Data protocol or the Integrated Digital Enhanced Network
protocol to transmit data to and from mobile resources. We have
agreements with five major wireless carriers to provide Cellular Digital
Packet Data service to our customers and agreements with three major
wireless carriers to provide Integrated Digital Enhanced Network service
to our customers. Our total wireless coverage includes more than 200
metropolitan areas in the U.S. and Canada. Our service is designed to be
tolerant of network difficulties, with the ability to confirm receipt of
data and retransmit data if errors are detected. Additionally, if a
customer's vehicle is out of wireless coverage, the Internet Location
Manager records up to two days of information, which is then transmitted
to our Wireless Applications Processing Center when the vehicle returns
to wireless coverage.

- Messaging capabilities. Our customers may enhance our service by
purchasing an optional two-way messaging service, the Internet Data
Terminal, that uses the Internet and wireless networks to enable our
customers to communicate regularly with their vehicles. Our customers can
pre-program each Internet Data Terminal with a specific set of reply
messages that can be sent with the press of a button, minimizing driver
distraction. An audit trail of messages, including the

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driver's acknowledgment that a message was received, is stored at our
Wireless Applications Processing Center for fourteen days.

- MobileForms. Our customers may enhance our service by purchasing our
MobileForms service for use with a ruggedized personal digital assistant
manufactured by Symbol Technologies. This service enables mobile workers
to conduct transactions while in the field, including completing and
sending business process forms, signature verification and credit card
confirmation. This service allows our customers to conduct aspects of
their business more quickly and efficiently and with fewer data entry or
paperwork errors.

- Voice-enabled data messaging. Our customers may enhance our service by
purchasing an optional voice-based management tool. Using speech-to-text
and text-to-speech technologies integrated into our Wireless Applications
Processing Center, managers can orally locate and conduct two-way text
messaging using any wired or mobile telephone. This service is valuable
to managers that are not always connected to the Internet, such as when
managers are themselves in the field or responding to incidents outside
of office hours.

- StatASAP. Our customers may enhance our service by purchasing connecting
sensors for additional reporting functions. StatASAP allows the Internet
Location Manager to report the status of an event on the vehicle. For
example, a sensor attached to a school bus door reports to the Internet
Location Manager whether the door was opened or closed, at what location
and for how long.

- Sturdy construction. The Internet Location Manager, the Internet Data
Terminal and ruggedized personal digital assistant are designed and
tested to withstand the harsh environment of commercial vehicles,
including off-road vehicles, for example with respect to vibration, shock
and extreme temperatures.

CUSTOMERS

We market and sell our service to a broad range of customers that vary in
size, geographic location and industry. The number of mobile resources enabled
with our service has grown from 135 as of December 31, 1998 to approximately
66,000 as of December 31, 2001. The number of subscribers associated with a
single customer ranges from two to over 2,000. Currently we have customers in
the following industries:

- Telecommunications
- Security services
- Trucking
- Construction and home improvement
- Waste management
- Delivery services
- Vehicle repair
- Industrial machinery
- Furniture delivery
- - Courier services
- - Taxi cabs and limousines
- - Public works
- - Commercial buses
- - Plumbing
- - Landscaping
- - Food and beverage distribution
- - Equipment rental
- - School buses

RESEARCH AND DEVELOPMENT

We concentrate our research and development activities on services and
platform engineering. To enhance our existing services and to introduce new
services to our existing and potential customers, we focus on the following key
areas:

- Services. We intend to continue to develop our service by offering new
features while enhancing existing features. For example, in October 2001
we launched a service enabling customers to use a wired or mobile
telephone to monitor and conduct two-way messaging with speech-to-text
and text-to-speech technology. In November 2001, we launched a mobile
forms service enabling customers

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to complete and send business forms and signature capture confirmation
from the field. We intend to continue to dedicate substantial resources
to expand our service development activities.

- Platform. We intend to continue to develop and release platform upgrades
to add new service features as well as to enhance existing features. For
example, in November 2001 we introduced a ruggedized personal digital
assistant manufactured by Symbol Technologies for use with our Internet
Location Manager. We also intend to continue to work with component
suppliers, contract manufacturers and wireless network carriers to
integrate our platform into other devices and develop our platform as a
leading technology in the mobile resource management market.

As of December 31, 2001, we had 72 employees and consultants in research
and development.

TECHNOLOGY

Our technology efforts focus on enhancing reliability, availability and
features in our service solution while maintaining scalability. Our proprietary
technologies are designed to work with technologies from other companies,
including our partners, competitors, and other third parties. Although our
current service utilizes our patented Global Positioning System chipset, our
service has been designed to work with other location technologies. Similarly,
although we offer an embedded wireless modem in our platform and a platform
tethered to a Nextel Communications cellular telephone, our service is designed
to work with a wide range of wireless communications devices. Additionally,
while our service is currently based on delivering information through the
Internet from our Wireless Applications Processing Center, the service is
designed to provide any content available from the Internet. We expect to
continue to develop additional proprietary technology where feasible and to
purchase or license technology where cost-effective. Our technology efforts
focus on the following areas:

- Location Technology. The Global Positioning System is a worldwide
radio-navigation system formed from a constellation of satellites and
ground systems that are used as reference points to calculate positions.
We have designed a patented Global Positioning System chipset and
algorithm with four times the processing power of most other commercial
Global Positioning System receivers. As a result, our platform determines
its location in approximately half the time required by most other
commercial receivers.

- Wireless Technology. Our service currently operates over Cellular
Digital Packet Data networks and Integrated Digital Enhanced Networks. We
also have laboratory-tested different versions of our platform that are
compatible with other wireless technologies and protocols. Our goal is to
bring to market a platform that is independent of wireless connectivity
protocols and hardware, allowing our customers to connect wirelessly to
our Wireless Applications Processing Center using various protocols and
wireless carriers, using our platform, the customer's existing wireless
telephone, or other wireless devices.

- Internet Technology. Although our service involves complex aggregation
and processing of customer data, the customer can access all the
functionality of our service through an Internet browser. Because our
application, reporting and customer data software are independent of one
another, each can be modified or upgraded without affecting the others.
In order to expand the services we provide to our customers, we have
developed an application-programming interface that enables our customers
to integrate the location and activity of mobile resources into their
applications. We also expect to develop additional application
programming interfaces that will enable our customers to integrate our
service into their applications.

- Information Technology. We have an information technology organization
dedicated to building and maintaining our Wireless Applications
Processing Center. By managing our service at our Wireless Applications
Processing Center, we relieve our customers of the technology and
operations burden of managing the integration of complex Global
Positioning System, wireless data and Internet systems. Our Wireless
Applications Processing Center is composed of servers located in Fremont,
California and Philadelphia, Pennsylvania. From our Wireless Applications
Processing

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Center, we maintain variable-speed capacity connections to the Internet
and dedicated connections to the wireless networks we use. In the event
of a power failure, our systems would be powered by a backup power
supply.

KEY ALLIANCES AND RELATIONSHIPS

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

- Wireless Carriers. We have established strategic relationships with
ALLTEL, AT&T Wireless, Cingular Wireless, Nextel Communications, Nextel
Partners, Southern LINC, TELUS Mobility and Verizon Wireless to provide
wireless connectivity between @Road-enabled mobile resources and the
Internet. We contract directly with ALLTEL, AT&T Wireless and TELUS
Mobility for the provision of wireless communications, which are bundled
with our service. With Cingular Wireless, Nextel Communications, Nextel
Partners and Southern LINC, our customers have separate contracts for
wireless communications with their carrier. With Verizon Wireless, we
contract directly in some geographic areas and in others our customers
have separate contracts for wireless communications.

- Manufacturers. Symbol Technologies manufactures the ruggedized personal
digital assistant for use with our service. In addition, one of our
investors, Orient Semiconductor Electronics, manufactures and tests our
Internet Location Manager.

- International Partner. We have established a strategic relationship with
Hitachi Software Engineering to provide our service in Japan over
wireless networks other than Cellular Digital Packet Data networks or the
Integrated Digital Enhanced Network.

SALES AND MARKETING

Our sales and marketing objective is to achieve broad market penetration
through vertical marketing and targeted sales activities. As of December 31,
2001, our sales and marketing team consisted of 85 employees. We currently
market and sell our solution through a number of sales channels, including
direct sales, wireless carrier partners and agents.

- Direct sales force. We have deployed our direct sales force throughout
the U.S. in major Cellular Digital Packet Data network and Integrated
Digital Enhanced Network markets. In the fourth quarter of 2000, we
created a strategic direct sales force to focus additional effort on
large customer acquisitions. In addition to calling on potential
customers, our direct sales force works with our wireless carrier
partners and independent sales agents to increase our customer base.

- Wireless carrier partners. Our wireless carrier partners are ALLTEL,
AT&T Wireless, Cingular Wireless, Nextel Communications, Nextel Partners,
Southern LINC, TELUS Mobility and Verizon Wireless. These partners market
and facilitate sales of our service through their own sales channels as
part of their service offerings.

- Agent sales program. Our agent sales program is designed to build a
network of independent sales agents throughout the U.S. to sell our
service. The program provides fees to independent sales organizations for
the sale, installation and ongoing support of our platform and service.

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

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COMPETITION

We compete with companies that provide location-based mobile resource
management services to businesses and organizations with field operations. We
also compete with alternative means of communication between vehicles and their
managers, including wireless telephones, two-way radios, and pagers. We compete
primarily on the basis of functionality, ease of use, quality, geographic
coverage of our services and corporate financial strength. As the demand by
businesses for mobile resource management services increases, we anticipate that
quality, functionality and breadth of competitors' products and services will
improve and that new competitors will enter our market. In addition, the
widespread adoption of industry standards may make it easier for new market
entrants or existing competitors to improve existing services or offer some or
all of the services we offer or may offer in the future. It is unclear to what
extent network infrastructure developers and key network operators will seek to
provide integrated Global Positioning System, wireless data and Internet
solutions, including access devices developed internally or through captive
suppliers.

The market for our services is competitive and is expected to become even
more competitive in the future. If we are unable to compete successfully in
these areas, competitive pressures may harm our business, resulting in a loss of
market share and revenues. Our current and potential competitors include: other
providers of vehicle-location services, such as QUALCOMM, whose OmniTRACS
service uses satellite communication technology to manage fleets of trucks that
travel long distances; other wireless Internet companies, such as Openwave,
Research in Motion and Aether Systems; companies working on emergency-911
solutions, such as True Position; companies with solutions that integrate
location, wireless communications and call centers, such as General Motors; and
companies that provide wireless, location-relevant applications, such as
SignalSoft.

INTELLECTUAL PROPERTY

We rely on a combination of patent, trade secret, trademark and copyright
laws, and nondisclosure and other contractual restrictions to protect our
proprietary technology. We possess four patents, which cover our Global
Positioning System chipset technology and the method and structure for
distributing information over a network. We have filed numerous additional
patent applications to further protect and extend our technology leadership
position. Although we have applied for patent protection primarily in the U.S.,
we have filed and intend to continue to file patent applications in other
countries where there is a strategic technological or business justification. As
part of our confidentiality procedures, we generally enter into nondisclosure
agreements with our employees, consultants, distributors and corporate partners
and limit access to and distribution of our software, documentation and other
proprietary information.

EMPLOYEES

As of December 31, 2001, we had 275 employees, 248 of whom were located in
the U.S. and 27 of whom were located in Chennai, India. We believe relationships
with our employees are good.

ITEM 2. PROPERTIES

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

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ITEM 3. LEGAL PROCEEDINGS

We are not currently involved in any material legal proceedings. We may,
however, from time to time, become a party to various legal proceedings that
arise in the ordinary course of business.

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

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

At December 31, 2001, there were approximately 184 holders of record of our
common stock. This does not include the number of persons whose stock is in
nominee or "street name" accounts through brokers.

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

DIVIDEND POLICY

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

USE OF PROCEEDS

On September 28, 2000, in connection with our initial public offering, a
Registration Statement on Form S-1 (No. 333-41372) was declared effective by the
SEC, pursuant to which 7.0 million shares of our common stock were offered and
sold for our account at a price of $9.00 per share, generating aggregate gross
proceeds of $63.0 million for our account. The offering was closed on October 4,
2001. The managing underwriters of the offering were Credit Suisse First Boston
Corporation, JP Morgan Chase and Company (formerly Chase H&Q) and U.S. Bancorp
Piper Jaffray.

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We incurred the following expenses in connection with the offering:

Underwriting discounts and commissions...................... $4,400,000
Other expenses.............................................. 1,600,000
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Total expenses.............................................. $6,000,000
==========

All of such expenses were direct or indirect payments to others.

The net offering proceeds to us after deducting the total expenses above
were approximately $57.0 million. From the closing of the offering through the
year ended December 31, 2001, we used such net offering proceeds, in direct or
indirect payments to others, as follows:

Investments in cash, cash equivalents and short-term,
interest bearing securities............................... $43,000,000
Other working capital....................................... 14,000,000
-----------
Total....................................................... $57,000,000
===========

Each of such amounts is a reasonable estimate of the application of the net
offering proceeds. This use of proceeds does not represent a material change in
the use of proceeds described in the prospectus of our Registration Statement.

10

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

We integrate Global Positioning System technology, wireless communications
and the Internet to enable companies to efficiently manage their mobile
resources with location-relevant and time-sensitive information. Our service is
an easy-to-use, cost-effective, Internet-based service for mobile resource
management that provides location, reporting, dispatch, messaging, and other
management services. Our service allows customers to use our website to monitor
the activities of their employees, vehicles and goods and services, and provides
for two-way messaging between our customers and their mobile workers. Our
service also allows customers to conduct business operations such as event
confirmation, signature verification and forms processing while in the field. We
believe our service provides significant value to our customers by reducing the
costs and increasing the efficiency of their operations.

From July 1996 through June 1998, our operations consisted primarily of
various start-up activities relating to our current business, including
development of Global Positioning System technologies, recruiting personnel and
raising capital. We did not recognize any revenues prior to June 1998, and our
expenses consisted of research and development, sales and marketing and general
and administrative expenses. In 1998, we expanded our strategy and redirected
our focus to provide location-relevant and time-sensitive information services
and solutions to companies managing mobile resources. In the second half of
1998, we introduced FleetASAP, a service that leverages existing infrastructure,
including the Global Positioning System, wireless networks and the Internet to
enable companies to efficiently manage their mobile resources. Our service
includes a proprietary hardware device embedded with software, our platform,
that integrates wireless Internet connectivity with a Global Positioning System
receiver. The platform is installed in any type of vehicle and receives signals
transmitted from Global Positioning System satellites to determine the location,
velocity and orientation of the vehicle. These data are transmitted over
wireless networks and the Internet to our Wireless Applications Processing
Center. Our customers can retrieve the information using an Internet browser or
wired or mobile telephone. Because the customer data and solution software
reside at our Wireless Applications Processing Center, our customers do not need
to make a substantial investment in acquiring and supporting capital equipment,
such as proprietary hardware, software and data networking equipment, to use our
service.

Since 1998, we have derived substantially all of our revenues from the sale
of our service and the associated product hardware. Our service revenue is
composed of monthly fees. Our customers can contract to receive our service for
terms of one, two or three years and can purchase enhanced service features for
additional fees. As more customers use our service, the impact on our service
revenue is compounded. Our product revenue consists of sales of the Internet
Location Manager, the Internet Data Terminal and ruggedized personal digital
assistant. We defer product revenue from our platform at installation and
recognize it ratably over the minimum service contract period. Product costs not
in excess

12

of related product revenue are deferred at the time of shipment and amortized
ratably over the minimum service contract period. Where the selling prices of
our products are below our costs, we expense the difference at the time of
shipment of the related products. Allowances for sales returns are recorded at
the time product revenue is recognized.

We recognize revenue when earned in accordance with applicable accounting
standards including American Institute of Certified Public Accountants (AICPA)
Statement of Position No. 97-2, Software Revenue Recognition, as amended. Our
service is only available through use of our platform. Accordingly, service
revenue is recognized ratably over the minimum service contract period, which
commences upon the installation of the platform. In addition, we defer product
revenue from our platform at installation and recognize it ratably over the
minimum service contract period. Allowances for sales returns are recorded at
the time product revenue is recognized.

To date, we have not sold our service outside the U.S. and Canada; however,
we intend to expand our service offerings to additional countries in the future.
We do not expect that revenues from international sales will be material in
2002.

We will incur substantial stock compensation expense in current and future
periods, which represents non-cash charges incurred as a result of the issuance
of stock options to employees and consultants. The charge related to options
granted to employees is recorded based on the difference between the deemed fair
value of the common stock and the option exercise price of such options at the
date of grant, which is amortized over the option-vesting period. The charge
related to options granted to consultants is calculated at the end of each
reporting period using the Black-Scholes model, which approximates fair value
and is amortized based on the term of the consulting agreement or service
period. The amount of the charge in each period can fluctuate depending on our
stock price and volatility. See "Stock Compensation Expense."

Since inception, we have invested substantially in research and
development, marketing, the building of sales channels, and our overall
infrastructure. We anticipate that such investments will continue to grow in the
near future. We have incurred losses in each year since inception and expect to
incur net losses in the foreseeable future. At December 31, 2001, we had an
accumulated deficit of $103.6 million. Our limited operating history makes it
difficult to forecast future operating results. Even if we were to achieve
profitability in any period, we may not sustain or increase profitability on a
quarterly or annual basis.

CRITICAL ACCOUNTING POLICIES

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

REVENUE RECOGNITION

In accordance with applicable accounting standards, including American
Institute of Certified Public Accountants (AICPA) Statement of Position No.
97-2, Software Revenue Recognition, as amended, we recognize revenue when
earned. Specifically, we recognize revenue when the price is fixed and
determinable, upon persuasive evidence of an agreement, our fulfillment of our
obligations under any such agreement and a determination that collection is
probable.

Our service is only available through the use of our platform. Accordingly,
service revenue, which is composed of monthly fees, is recognized ratably over
the minimum service contract period, which commences upon the installation of
the platform.

Our product revenue primarily consists of sales of the Internet Location
Manager, Internet Data Terminal and ruggedized personal digital assistant. We
defer product revenue at installation and recognize it ratably over the minimum
service contract, which is generally a two or three year period. Our service
renewal rates are not considered to be priced at a bargain in comparison to the
initial product selling
13

prices (as described in Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements). Changes to the pricing of our products and services in
the future could result in the recognition of product revenue over periods that
extend beyond the minimum service contract period. Allowances for sales returns
are recorded at the time product revenue is recognized.

In 1999, 2000 and to a lesser degree in 2001, the selling prices of our
products were often at or below our costs. Product costs not in excess of
related product revenue are deferred at the time of shipment and amortized
ratably over the minimum service contract period. Where the selling prices of
our products are below our costs, we expense the difference at the time of
shipment of the related products.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

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

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

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

RESULTS OF OPERATIONS FOR THE YEARS ENDING DECEMBER 31, 1999, 2000, AND 2001

SERVICE REVENUE

Service revenue, which is composed of monthly fees, increased to $20.2
million in 2001 from $7.9 million and $612,000 in 2000 and 1999, respectively,
as a direct result of the growth in our installed base of subscribers. The
increase in subscriber base during 2001, 2000 and 1999 is attributed to the
release of our mobile resource management service. Initial product installation
and service delivery began at the end of l998. The number of subscribers using
our service totaled approximately 7,000, 35,000 and 66,000 at December 31, 1999,
2000 and 2001, respectively.

PRODUCT REVENUE

Product revenue increased to $7.3 million in 2001 from $2.7 million and
$294,000 in 2000 and 1999, respectively, and is consistent with the growth in
our installed base of subscribers and the commercial release of our service.

COST OF SERVICE REVENUE

Cost of service revenue consists of employee salaries and expenses related
to the delivery and support of our services, costs and expenses associated with
connecting our services to wireless networks and the Internet, and depreciation
of our Wireless Applications Processing Center. Cost of service revenue
increased to $12.7 million in 2001 from $6.4 million and $681,000 in 2000 and
1999, respectively. The increase in cost of service revenue resulted from the
associated increase in service revenue and related information technology
infrastructure and personnel costs.

14

COST OF PRODUCT REVENUE

Cost of product revenue consists of the cost of the Internet Location
Manager, Internet Data Terminal, ruggedized personal digital assistant, related
parts, costs associated with the final assembly, test, provisioning, delivery
and installation of our products and other costs such as provisions for
inventory and repair costs. In 1999, 2000 and to a lesser degree in 2001, the
selling prices of our products were often at or below our costs. Product costs
not in excess of related product revenue are deferred at the time of shipment
and amortized ratably over the minimum service contract period. Where the
selling prices of our products are below our costs, we expense the difference at
the time of shipment of the related products. Generally, we expect the selling
prices of our products to be approximately equal to or exceed the product costs
in future periods. The impact of selling products below costs on future cash
flow from operations is expected to be minimal as our service revenue stream
expands and is renewed. Cost of product revenue increased to $13.5 million in
2001 from $7.9 million and $1.8 million in 2000 and 1999, respectively. The
increases in cost of product revenue were attributed primarily to the commercial
release of our service and the resulting increase in the number of subscribers
using our service.

SALES AND MARKETING EXPENSES

Sales and marketing expenses consist of employee salaries, sales
commissions, and marketing and promotional expenses. Sales and marketing
expenses increased to $17.3 million in 2001 from $15.5 million and $3.5 million
in 2000 and 1999, respectively. The increases reflect personnel costs, expansion
of sales channels and activities related to the development of market awareness
of our services in 2001 and 2000. In 2001, cost reductions associated with the
reduction in force were offset as a result of average headcount levels being
higher in 2001. Sales and marketing headcount decreased to 85 at December 31,
2001 from 96 at December 31, 2000, as a result of a reduction in force
undertaken in June 2001. Sales and marketing headcount increased to 96 at
December 31, 2000 from 39 at December 31, 1999. Related increases in salaries
and other compensation, sales commissions and marketing awareness campaigns
comprised the majority of the increases in 2000. We expect that sales and
marketing expenses will continue to increase as we expand our sales and
marketing efforts and pay sales commissions.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of employee salaries and expenses
related to development personnel and consultants, as well as expenses associated
with software and hardware development. Research and development expenses
decreased to $7.6 million in 2001 from $8.9 million in 2000, primarily due to a
decrease in headcount from 85 at December 31, 2000 to 72 at December 31, 2001.
The decrease in headcount was primarily due to a reduction in force undertaken
in June 2001. Research and development expenses increased to $8.9 million in
2000 from $2.1 million in 1999. The increase in 2000 was primarily attributed to
headcount growth to 85 at December 31, 2000 from 30 at December 31, 1999.

In accordance with American Institute of Certified Public Accountants
Statement of Position 98-1, or SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, we capitalize qualifying
computer software costs that are incurred during the application development
stage and amortize them over the software's estimated useful life. We
capitalized approximately $869,000 and $242,000 of costs related to internally
developed software systems in 2000 and 1999, respectively. During 2001, no
research and development costs were capitalized in accordance with SOP 98-1.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist of employee salaries and
related expenses for executive and administrative, accounting and professional
fees, recruiting and provisions for doubtful accounts. General and
administrative expenses increased to $12.7 million in 2001 from $10.9 million
and $2.1 million in 2000 and 1999, respectively. The increase in 2001 to $12.7
million was primarily due to increases in compensation resulting from a higher
average headcount during 2001, provision for doubtful accounts and insurance
expenses. The increase in 2000 was due to our growth in headcount, increases in

15

our provision for doubtful accounts and costs of operating as a public company.
General and administrative headcount totaled 47, 57 and 15 at December 31, 2001,
2000, and 1999, respectively.

RESTRUCTURING CHARGES

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

INTANGIBLES AMORTIZATION

Intangibles amortization relates to the intangible assets purchased from
Differential Corrections, Inc. in April 2000, which are being amortized over an
estimated useful life of three years.

STOCK COMPENSATION EXPENSE

Deferred stock compensation related to the granting of stock options to
employees and consultants was $2.3 million as of December 31, 2001. Stock
compensation expense decreased to $3.0 million in 2001 from $11.7 million in
2000 and $5.0 million in 1999 and represents the amortization of deferred stock
compensation over the vesting periods of related options granted in 2000 and
1999.

INTEREST INCOME, NET

Net interest income is composed primarily of interest earned on cash, cash
equivalents, and short-term investments. Net interest income decreased to $2.6
million in 2001 from $3.2 million in 2000 due to lower balances available to
invest and lower interest rates during 2001 compared to 2000. Net interest
income increased to $3.2 million in 2000 from $804,000 in 1999, due to
investment in debt securities of the proceeds from our initial public offering
of common stock on September 28, 2000 and convertible preferred stock financings
completed in June and December 1999 and January and June 2000.

OTHER EXPENSE, NET

In 2001, other expense consisted primarily of net foreign exchange losses
related to our subsidiary in India. In 2000, other expense is composed of
amounts paid to underwriters for expenses not associated with the initial public
offering, offset in part by gains on disposal of property and equipment.

INCOME TAXES

Since inception, we have incurred net losses for federal and state tax
purposes and except for only minimum state income and franchise taxes have not
recognized any tax provision or benefit.

NET LOSS

Net loss decreased to $38.6 million in 2001 from $48.8 million in 2000.
This decrease was primarily attributed to an increase in revenue and its
associated margins and reduced stock compensation and research and development
expenses. Net loss increased to $48.8 million in 2000 from $13.5 million in 1999
as a result of costs associated with developing our technology, building our
infrastructure and increasing installed subscriber base.

CHANGING PRICES

We conduct operations primarily within the U.S. where inflation during
2001, 2000 and 1999 has been low and has not materially impacted our operating
results. Foreign currency exchange losses resulting from transactions with our
wholly-owned subsidiary in India, which began business in 1999, were not
material during 2001, 2000 and 1999 and were expensed as incurred.
16

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth our consolidated operating results for each
of the eight quarters ended December 31, 2001. This data has been derived from
unaudited consolidated financial statements that, in the opinion of our
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information when read in
conjunction with our annual audited consolidated financial statements and notes
thereto appearing elsewhere in this Report. The operating results are not
necessarily indicative of results of any future period.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed operations primarily through sales of
our stock, which totaled $142.6 million in aggregate net proceeds through
December 31, 2001. As of December 31, 2001, we had $40.2 million of cash and
cash equivalents, $2.2 million of restricted short-term investments and working
capital of $51.3 million. We currently have a $2.0 million revolving line of
credit facility against which there were no borrowings or letters of credit
outstanding as of December 31, 2001. The line, against which letters of credit
may be issued, is collateralized by a restricted certificate of deposit of $2.0
million. This credit facility expires in December 2002.

Net cash used for operating activities was $34.6 million, $39.4 million and
$8.2 million in 2001, 2000 and 1999, respectively. In 2001, cash used for
operating activities was attributable primarily to net losses, an increase in
inventory and decreases in accounts payable and accrued expenses, offset by
depreciation and amortization and amortization of deferred stock compensation.
In 2000 and 1999, cash used for operating activities was attributable primarily
to net losses and increases in accounts receivable, inventory, and deferred
product costs, offset in part by depreciation and amortization and amortization
of deferred stock compensation, increases in accounts payable, accrued
liabilities, and deferred revenues. As of December 31, 2001, approximately $3.6
million of our accounts receivable were over 90 days old. We believe we have
adequately provided allowances as of December 31, 2001 for any such amounts that
may ultimately become uncollectible.

17

We defer product costs at time of shipment and expense any amounts in
excess of the related product revenue at that time. We record accounts
receivable from our customers and defer related product revenue upon
installation. Both deferred product costs and revenue are recognized ratably
over the minimum service period. Deferred product costs are recorded at the time
of shipment and deferred product revenue is recorded at the time of
installation. As a result, deferred product costs will generally exceed deferred
product revenue as we grow our business. At December 31, 2001, total deferred
product costs of $13.7 million exceeded total deferred product revenue by $3.1
million, and included $1.9 million related to products shipped but not yet
installed.

Net cash provided by investing activities in 2001 resulted from sales of
short-term investments of $5.2 million, offset in part by purchases of equipment
of $763,000. Net cash used for investing activities in 2000 was $3.7 million,
primarily resulting from purchases of property and equipment of $7.5 million,
purchases of short-term investments of $6.5 million, cash paid for acquisitions
of $3.4 million and increases in other assets of $1.7 million, offset by
proceeds from maturities of short-term investments of $15.3 million. Net cash
used for investing activities in 1999 was $17.7 million, primarily resulting
from the purchase of restricted and unrestricted short-term investments of $20.0
million, purchases of property and equipment of $1.6 million offset by proceeds
from maturities of short-term investments of $4.0 million.

Net cash provided by financing activities was $1.2 million, $89.7 million
and $43.3 million in 2001, 2000 and 1999, respectively. Cash provided by
financing activities in each period was attributable to proceeds from the
issuance of our stock.

Our capital expenditures in 2001 were approximately $763,000, a decrease of
$6.8 million from 2000 and consistent with our anticipated needs in operations,
infrastructure and personnel. We have no material commitments for capital
expenditures, although we anticipate increases in capital expenditures and lease
commitments with our expected growth in operations and infrastructure. We also
may establish additional operations as we expand globally.

We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for operating expenses, working capital and
capital expenditures for at least the next 12 months. If cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek to
sell additional equity or debt securities or to obtain a larger credit facility.
If additional funds are raised through the issuance of debt securities, holders
of these securities could have certain rights, preferences and privileges senior
to holders of our common stock, and the terms of this debt could restrict our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our existing stockholders, and we cannot be
certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain additional financing, we
may be required to reduce the scope of our operations, which could harm our
business, financial condition and operating results.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. We do not expect the
adoption of SFAS No. 141 to have a material impact on our consolidated financial
position, results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be tested at least
annually for impairment. We have adopted SFAS No. 142 for our fiscal year
beginning

18

January 1, 2002. We do not expect the adoption of SFAS No. 142 to have a
material effect on our consolidated financial position, results of operations or
cash flows.

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for Impairment of Long-Lived Assets. SFAS No. 144 supercedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. We have adopted
SFAS No. 144 as of January 1, 2002. The adoption of this statement is not
expected to have a material impact on our consolidated financial position or
results of operations.

RISK FACTORS

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

DUE TO OUR LIMITED OPERATING HISTORY IT IS DIFFICULT TO PREDICT FUTURE OPERATING
RESULTS OR OUR STOCK PRICE.

An evaluation of our business is difficult because we have a limited
operating history. We commenced operations in July 1996 and commercially offered
our first services in the second half of 1998. We may not achieve profitability
or continue to grow. We face a number of risks encountered by early-stage
companies in the Global Positioning System, wireless communications and Internet
information industries, including:

- our need to introduce reliable and robust products and services that meet
the demanding needs of customers;

- our need to expand our marketing, sales and support organizations, as
well as our distribution channels;

- our ability to anticipate and respond to market competition and
technological change;

- the uncertainty of market acceptance of our services;

- our need to manage expanding operations;

- our dependence on wireless carriers;

- limited coverage of wireless networks; and

- migration to new networks, which could cause our products to be
incompatible or out of date.

Our business strategy may not be successful, and we may not successfully address
these risks.

WE HAVE HISTORICALLY INCURRED LOSSES AND THESE LOSSES MAY INCREASE IN THE
FUTURE.

We have never been profitable. As of December 31, 2001, we had an
accumulated deficit of $103.6 million. In order to become profitable and sustain
profitability, we will need to generate significant revenues to offset our cost
of revenues, sales and marketing, research and development and general and
administrative expenses. We may not achieve or sustain our revenue or profit
goals and our losses may increase in the future. In order to facilitate the sale
of our services, we have sold and may sell our hardware below our costs. As a
result, we have experienced, and expect to continue to experience, negative
gross margins on the sale of our hardware. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."

19

IF WE DO NOT INCREASE REVENUE FROM THE SALE OF OUR SERVICES TO NEW AND EXISTING
CUSTOMERS, OUR BUSINESS MAY NOT BE SUCCESSFUL.

Our success depends on our ability to increase revenue from the sale of our
services to new and existing customers and on market acceptance of our services.
We may not be able to achieve widespread adoption of our services. Furthermore,
changes such as increases in our pricing for products and services may harm our
ability to increase sales of our products and services to new and existing
customers. If we are not able to expand our customer base and increase our
revenue from new and existing customers, our business will be seriously harmed.

WE DEPEND ON WIRELESS NETWORKS OWNED AND CONTROLLED BY OTHERS. IF OUR CUSTOMERS
DO NOT HAVE CONTINUED ACCESS TO SUFFICIENT CAPACITY ON RELIABLE NETWORKS, WE MAY
BE UNABLE TO DELIVER SERVICES AND OUR REVENUES COULD DECREASE.

Our ability to grow and achieve profitability depends on the ability of
wireless carriers to provide sufficient network capacity, reliability and
security to our customers. Even where wireless carriers provide coverage to
entire metropolitan areas, there are occasional lapses in coverage, for example
due to tall buildings blocking the transmission of data to and from vehicles.
These effects could make our services less reliable and less useful, and
customer satisfaction could suffer. Our financial condition could be seriously
harmed if our wireless carriers were to increase the prices of their services,
or to suffer operational or technical failures. If wireless carriers do not
expand coverage, we may be unable to offer our service to additional areas.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, AND OUR STOCK PRICE
MAY DECLINE IF WE DO NOT MEET THE EXPECTATIONS OF INVESTORS AND ANALYSTS.

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

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

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

- changes in or cancellations of our agreements with wireless carriers;

- introduction of new services by us or our competitors;

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

- changes in our mix of sources of revenues;

- changes in the productivity of our distribution channels;

- changes in accounting standards, including standards relating to revenue
recognition, business combinations and stock-based compensation;

- wireless data and Internet market conditions; and

- general economic and political conditions.

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

20

IF ONE OR MORE OF THE AGREEMENTS WE HAVE WITH WIRELESS CARRIERS IS TERMINATED,
WE MAY BE UNABLE TO OFFER OUR SERVICES TO OUR CUSTOMERS WITHIN THE CARRIER'S
COVERAGE AREA.

Wireless carriers offering services compatible with our service have little
overlap in their primary service coverage areas. Our existing agreements with
wireless carriers may be terminated upon as little as fifteen-day written notice
or immediately upon the occurrence of certain conditions. If one or more of our
wireless carriers decides to terminate or not to renew its contract with us, we
may incur additional costs relating to obtaining alternate coverage from another
wireless carrier outside of its primary coverage area, or we may be unable to
replace the coverage at all, causing a complete loss of service to our customers
in that coverage area.

OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND OUR SALES CHANNELS.

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

WE HAVE LIMITED RESOURCES AND MAY BE UNABLE TO MANAGE OUR ANTICIPATED GROWTH IN
OPERATIONS.

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

IF WE CANNOT DELIVER THE FEATURES AND FUNCTIONALITY OUR CUSTOMERS DEMAND, WE
WILL BE UNABLE TO RETAIN OR ATTRACT NEW CUSTOMERS.

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

WE DEPEND ON A LIMITED NUMBER OF THIRD PARTIES TO MANUFACTURE AND SUPPLY
CRITICAL COMPONENTS FOR OUR SERVICES.

If these parties do not perform their obligations, we may be unable to find
other suppliers or operate our business. A subscriber requires an Internet
Location Manager to use our service. To use our service with two-way messaging,
a subscriber requires an Internet Location Manager and either an Internet Data
Terminal or a ruggedized personal digital assistant. The Internet Location
Manager, which we install in each subscribing vehicle, determines the vehicle's
location, velocity and orientation and gathers other information about the
vehicle. The Internet Data Terminal, when installed in subscriber's vehicle,
adds the incremental ability to send and receive messages to and from the
vehicle. We cannot be sure that

21

alternative sources for key components used in the Internet Location Manager and
the Internet Data Terminal will be available when needed, or if available, that
these components will be available on commercially reasonable terms. We rely on
sole suppliers and manufacturers for a number of key components for these
products and do not have long-term agreements with any of these suppliers and
manufacturers. Our sole suppliers and manufacturers of key components include:

- Taiwan Semiconductor Manufacturing Company, our sole manufacturer of
Global Positioning System receiver chips;

- Conexant Systems (formerly Philsar Electronics), our sole manufacturer of
radio frequency chips;

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

- Micronet, our sole supplier of Internet Data Terminals; and

- Symbol Technologies, our sole supplier of ruggedized personal digital
assistants.

Additionally, our sole manufacturer of radio frequency chips, Conexant
Systems, has notified us that it will discontinue manufacturing our radio
frequency chips. We believe that at the termination of our relationship with
Conexant Systems, we will have sufficient quantities of radio frequency chips to
meet our needs through 2002. We are in the process of qualifying alternative
sources for this component. We cannot be sure, however, that alternative sources
of radio frequency chips will be available when needed, or if available, that
the component will be available on commercially reasonable terms.

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

WE DEPEND ON RECRUITING AND RETAINING QUALIFIED PERSONNEL AND OUR INABILITY TO
DO SO WOULD SERIOUSLY HARM OUR BUSINESS.

Because of the technical nature of our services and the market in which we
compete, our success depends on the continued services of our current executive
officers and our ability to attract and retain qualified personnel with Global
Positioning System, wireless communications and Internet software expertise.
Competition for qualified personnel in these industries is intense, particularly
in the San Francisco Bay Area. Competitors and others have in the past, and may
in the future, attempt to recruit our employees. In addition, new employees
generally require substantial training, which requires significant resources and
management attention. Even if we invest significant resources to recruit, train
and retain qualified personnel, we may not be successful in our efforts.

WE FACE COMPETITION FROM EXISTING AND POTENTIAL COMPETITORS, WHICH COULD REDUCE
OUR MARKET SHARE AND REVENUES.

The market for our services is competitive and is expected to become even
more competitive in the future. Our customers choose our services primarily on
the basis of the functionality, ease of use, quality, geographic coverage of our
services and corporate financial strength. If we are unable to compete
successfully in these areas, competitive pressures may harm our business,
resulting in a loss of market share and revenues. Our current and potential
competitors include:

- other providers of vehicle-location services, such as QUALCOMM, whose
OmniTRACS service uses satellite communication technology to manage
fleets of trucks that travel long distances;

- other wireless Internet companies, such as Openwave, Research in Motion
and Aether Systems;

- companies working on emergency-911 solutions, such as True Position;

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- companies with solutions that integrate location, wireless communications
and call centers, such as General Motors; and

- companies that provide wireless, location-relevant applications, such as
SignalSoft.

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

Our services also compete with alternative means of communication between
mobile workers and their managers, including wireless telephones, two-way radios
and pagers. In addition, we expect that new competitors will enter the market
for location-relevant wireless information as businesses and consumers
increasingly demand information when they are mobile. Furthermore, the
widespread adoption of industry standards may make it easier for new market
entrants or existing competitors to offer the services we offer or may offer in
the future.

OUR SUCCESS AND ABILITY TO COMPETE DEPENDS UPON OUR ABILITY TO SECURE AND
PROTECT PATENTS, TRADEMARKS AND OTHER PROPRIETARY RIGHTS.

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

A DISRUPTION OF OUR SERVICES DUE TO ACCIDENTAL OR INTENTIONAL SECURITY BREACHES
MAY HARM OUR REPUTATION, MAY CAUSE A LOSS OF REVENUES AND INCREASE OUR EXPENSES.

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

SYSTEM OR NETWORK FAILURES COULD REDUCE OUR SALES, INCREASE COSTS OR RESULT IN
LIABILITY CLAIMS AND SERIOUSLY HARM OUR BUSINESS.

Any disruption to our services, information systems or communications
networks or those of third parties could result in the inability of our
customers to receive our services for an indeterminate period of time. Our
services may not function properly if our systems fail, or if there is an
interruption in the supply of power, or if there is an earthquake, fire, flood
or other natural disaster, or an act of war or terrorism. Any disruption to our
services could cause us to lose customers or revenue, or face litigation,
customer service or repair work that would involve substantial costs and
distract management from operating our business. We currently do not have fully
redundant systems for our services at an alternate site. Our operations depend
upon our ability to maintain and protect our computer systems in our principal
facilities in Fremont, California, which are on or near earthquake fault zones,
and Philadelphia, Pennsylvania.
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WE DEPEND ON GLOBAL POSITIONING SYSTEM TECHNOLOGY OWNED AND CONTROLLED BY
OTHERS. IF WE DO NOT HAVE CONTINUED ACCESS TO GLOBAL POSITIONING SYSTEM
TECHNOLOGY AND SATELLITES, WE WILL BE UNABLE TO DELIVER OUR SERVICES AND
REVENUES WILL DECREASE.

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

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

OUR GLOBAL POSITIONING SYSTEM TECHNOLOGY DEPENDS ON THE USE OF RADIO FREQUENCY
SPECTRUM CONTROLLED BY OTHERS.

Global Positioning System technology is dependent on the use of radio
frequency spectrum. An international organization known as the International
Telecommunications Union controls the assignment of spectrum. If the
International Telecommunications Union reallocates radio frequency spectrum, our
services may become less useful or less reliable. This would, in turn, harm our
business. In addition, emissions from mobile satellites and other equipment
using other frequency bands may adversely affect the utility and reliability of
our services.

DEFECTS OR ERRORS IN OUR SERVICES COULD RESULT IN THE CANCELLATION OR DELAYS OF
OUR SERVICES, WHICH WOULD DAMAGE OUR REPUTATION AND HARM OUR FINANCIAL
CONDITION.

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

THE REPORTING OF INACCURATE LOCATION-RELEVANT INFORMATION COULD CAUSE THE LOSS
OF CUSTOMERS AND EXPOSE US TO LEGAL LIABILITY.

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

CLAIMS THAT WE INFRINGE THIRD-PARTY PROPRIETARY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO PROVIDE OUR SERVICES.

Third parties may claim that our current or future products or services
infringe their proprietary rights or assert other claims against us. As the
number of entrants into our market increases, the possibility of an intellectual
property or other claim against us grows. Any intellectual property or other
claim, with or without merit, would be time-consuming and expensive to litigate
or settle and could divert management attention from focusing on our core
business. As a result of such a dispute, we may have to pay damages, incur
substantial legal fees, develop costly non-infringing technology, if possible,
or enter into license agreements, which may not be available on terms acceptable
to us, if at all. This would increase our
24

expenses and could decrease the functionality of our service, which would make
our services less attractive to our current or potential customers. We have
agreed in some of our agreements, and may agree in the future, to indemnify
other parties for any expenses or liabilities resulting from claimed
infringements of the proprietary rights of third parties.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US.

We may be subject to claims for damages related to errors and malfunctions
of our hardware components or their installation. A product liability claim
could seriously harm our business because of the costs of defending against this
type of lawsuit, diversion of employees' time and attention, and potential
damage to our reputation. Some of our agreements with our customers contain
provisions designed to limit exposure to potential product liability claims.
Limitation of liability provisions contained in our agreements may not be
enforceable under the laws of some jurisdictions. As a result, we could be
required to pay substantial amounts of damages in settlement or upon the
determination of any of these types of claims.

WE MAY ESTABLISH ALLIANCES OR ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE,
WHICH COULD RESULT IN THE DILUTION OF OUR STOCKHOLDERS AND DISRUPTION OF OUR
BUSINESS.

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

- diversion of management's attention from our core business objective and
other business concerns;

- failure to integrate the acquired company into our pre-existing business;

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

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

- assumption of liabilities of the acquired company.

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

WE MAY NEED AND MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL, WHICH COULD
PREVENT US FROM CARRYING OUT OUR BUSINESS STRATEGY.

We anticipate that our available cash resources will be sufficient to fund
our operating needs for at least the next 12 months, including the expansion of
sales and marketing and research and development programs during that period.
Thereafter, we may require additional financing in an amount that we cannot
determine at this time. If our plans or assumptions change or are inaccurate, we
may be required to seek capital sooner than anticipated. We may need to raise
funds through public or private debt or equity financings. If we need to raise
additional funds, we may not be able to do so on commercially reasonable terms,
or at all, and may not be able to continue to fund our operations.

IF OUR WIRELESS CARRIERS DECIDE TO ABANDON CELLULAR DIGITAL PACKET DATA OR
INTEGRATED DIGITAL ENHANCED NETWORK TECHNOLOGIES OR DO NOT CONTINUE TO EXPAND
THEIR CELLULAR DIGITAL PACKET DATA OR INTEGRATED DIGITAL ENHANCED NETWORK
SYSTEMS, WE MAY BE UNABLE TO DELIVER OUR SERVICES AND OUR SALES COULD DECREASE.

Our services function only on Cellular Digital Packet Data networks or
Integrated Digital Enhanced Networks. These protocols cover only portions of the
U.S. and Canada and may not gain widespread market acceptance. If wireless
carriers decide to abandon these protocols in favor of other types of wireless
technology, we may not be able to provide our current services to our customers.
In addition, if wireless carriers do not expand their coverage areas, we will be
unable to meet the needs of customers who wish to use our services outside the
current coverage area.

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FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN INCREASED
PRODUCT COSTS AND OPERATING EXPENSES.

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

OUR BUSINESS WILL BE HARMED IF THE DEMAND FOR THE SERVICES BASED ON WIRELESS
COMMUNICATIONS DOES NOT GROW.

The markets for wireless data services and related products and services
are still emerging, and continued growth in demand for, and acceptance of, these
services remains uncertain. Current barriers to market acceptance of these
services include quality, functionality and ease of use. We cannot be certain
that these barriers will be overcome. Since the market for our services is new
and evolving, it is difficult to predict the size of this market or its growth
rate. Our financial performance will depend in large part upon the continued
demand for mobile resource management services through wireless technologies. We
cannot assure you that a sufficient volume of customers will demand these or
other services based on these technologies. If the market for wireless on-line
mobile resource management and other services grows more slowly than we
currently anticipate, our revenues may not grow.

IF THE USE OF THE INTERNET BY BUSINESSES DOES NOT CONTINUE TO GROW, OUR BUSINESS
WILL BE HARMED.

Our future success is dependent on continued growth in the use of the
Internet by businesses. The use and acceptance of the Internet by businesses may
not increase for a number of reasons, including the cost and availability of
Internet access and concerns about privacy, security and reliability.

Capacity constraints caused by growth in the use of the Internet may impede
further development of the Internet to the extent that users experience delays,
transmission errors and other difficulties. If the necessary infrastructure,
products, services or facilities are not developed, or if the Internet does not
become a viable and widespread commercial medium, we may not be able to grow our
business.

GOVERNMENT REGULATIONS AND STANDARDS MAY HARM OUR BUSINESS AND COULD INCREASE
OUR COSTS OR REDUCE OUR OPPORTUNITIES TO EARN REVENUES.

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

26

OUR PLATFORM CONTAINS ENCRYPTION TECHNOLOGY WHOSE EXPORT IS RESTRICTED BY LAW,
WHICH MAY SLOW OUR GROWTH OR RESULT IN SIGNIFICANT COSTS.

The U.S. government generally limits the export of encryption technology,
which our services incorporate. Foreign countries may impose similar regulatory
requirements. If any export approval that we receive is revoked or modified, if
our technology is unlawfully exported or if the U.S. government adopts new
legislation or regulations restricting export of our services and encryption
technology, we may not be able to distribute our services to potential customers
outside the U.S., which may seriously harm our business. We may need to incur
significant costs and divert resources to develop replacement technologies or
may need to adopt inferior substitute technologies to satisfy these export
restrictions. These replacement or substitute technologies may not be the
preferred security technologies of our customers, in which case our business may
not grow. In addition, we may suffer similar consequences if the laws of any
other country limit the ability of third parties to sell encryption technologies
to us.

OUR STOCK PRICE IS VOLATILE, WHICH MAY CAUSE YOU TO LOSE MONEY AND RESULT IN
COSTLY LITIGATION THAT COULD DIVERT OUR RESOURCES.

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

- announcements of technological or competitive developments;

- acquisitions or strategic alliances by us or our competitors;

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

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

- security breaches; and

- disposition of shares of our common stock held by large investors.

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

OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND STATE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER.

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

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

- authorizing the board to issue preferred stock;

- prohibiting cumulative voting in the election of directors;

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

- prohibiting stockholder action by written consent; and

- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
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We have adopted a certificate of incorporation that permits our board to
issue shares of preferred stock without stockholder approval, which means that
our board could issue shares with special voting rights or other provisions that
could deter a takeover. In addition to delaying or preventing an acquisition,
the issuance of a substantial number of shares of preferred stock could
adversely affect the price of our common stock and dilute existing stockholders.

A LIMITED NUMBER OF STOCKHOLDERS COLLECTIVELY CONTINUE TO OWN A MAJORITY OR OUR
STOCK AND MAY ACT, OR PREVENT CERTAIN TYPES OF CORPORATE ACTIONS, TO THE
DETRIMENT OF OTHER STOCKHOLDERS.

Our directors, officers and greater than 5 percent stockholders own
approximately 60 percent of our outstanding common stock. Accordingly, these
stockholders may, if they act together, exercise significant influence over all
matters requiring stockholder approval, including the election of a majority of
the directors and the determination of significant corporate actions. This
concentration could also have the effect of delaying or preventing a change in
control that could otherwise be beneficial to