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

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

or

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

For the transition period from to

Commission file number: 000-27871

GRIC COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

Yes ý No o

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

Yes o No ý

The number of shares of the registrant’s common stock outstanding as of October 31, 2003 was 26,856,130 shares.

GRIC COMMUNICATIONS, INC.

INDEX

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures

PART II OTHER INFORMATION

Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURE

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRIC COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

	Sept 30, 2003			Dec 31, 2002
	(unaudited)
ASSETS
*Current assets:*
Cash and cash equivalents	$	3,994		$	7,314
Short-term investments	19,360			15,765
Accounts receivable, net of allowances of $209 and $249 at September 30, 2003 and December 31, 2002, respectively	5,397			3,978
Prepaid expenses and other current assets	1,889			1,108
Total current assets	30,640			28,165
Property and equipment, net	1,473			1,778
Other assets	439			667
Total assets	$	32,552		$	30,610

LIABILITIES AND STOCKHOLDERS’ EQUITY
*Current liabilities:*
Accounts payable	$	5,083		$	4,331
Accrued compensation and benefits	932			596
Deferred revenue	472			276
Other current liabilities	351			343
Total current liabilities	6,838			5,546
Long-term liabilities	—			88
Commitments and contingencies
Stockholders’ equity:
Series A redeemable convertible preferred stock, $0.001 par value: 12,801 shares authorized, 4,119 and 9,036 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively	5,357			11,752
Preferred stock, 5,000 shares authorized at September 30, 2003 and December 31, 2002: no shares issued and outstanding	—			—
Common stock, $0.001 par value; 50,000 shares authorized at September 30, 2003 and December 31, 2002: 26,323 and 20,337 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively	26			20
Additional paid-in capital	149,710			141,829
Deferred stock-based compensation	—			(65		)
Accumulated deficit	(129,379		)	(128,560		)
Total stockholders’ equity	25,714			24,976
Total liabilities and stockholders’ equity	$	32,552		$	30,610

See accompanying notes

GRIC COMMUNICATIONS, INC.

Condensed Consolidated Statements of Operations

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2002			2003			2002
Revenues	$	10,694	$	9,515		$	30,043		$	25,078
Costs and expenses:
Cost of revenues	4,172		4,277			12,979			11,318
Network and operations	980		1,159			2,751			3,378
Research and development	634		658			1,833			2,226
Sales and marketing	3,828		2,810			9,837			9,266
General and administrative	947		1,262			3,572			3,893
Amortization of stock-based compensation (1)	4		41			65			127
Restructuring (benefit) charge	—		(313		)	(79		)	369
Total costs and expenses	10,565		9,894			30,958			30,577
Operating income (loss)	129		(379		)	(915		)	(5,499		)
Interest income and other, net	58		89			124			222
Interest expense	—		(9		)	—			(40		)
Income (loss) before income taxes	187		(299		)	(791		)	(5,317		)
Provision for income taxes	9		16			28			32
Net income (loss)	178		(315		)	(819		)	(5,349		)
Deemed beneficial conversion dividend on Series A Preferred Stock	—		—			—			(11,781		)
Net income (loss) attributable to common stockholders	$	178	$	(315	)	$	(819	)	$	(17,130	)

Basic net income (loss) per share	$	0.01	$	(0.02	)	$	(0.04	)	$	(0.85	)
Shares used to compute basic net income (loss) per share	24,006		20,135			21,997			20,051

Diluted net income (loss) per share	$	0.01	$	(0.02	)	$	(0.04	)	$	(0.85	)
Shares used to compute diluted net income (loss) per share	31,810		20,135			21,997			20,051

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

Network and operations	$	—	$	1	$	3	$	4
Research and development	1		2		4		8
Sales and marketing	—		1		1		2
General and administrative	3		37		57		113
Total amortization of stock-based compensation	$	4	$	41	$	65	$	127

See accompanying notes

GRIC COMMUNICATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine Months Ended
	September 30, 2003			September 30, 2002
*Cash flows from operating activities:*
Net loss	$	(819	)	$	(5,349	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	599			2,008
Amortization of stock-based compensation	65			244
Gain on sales of assets	(116		)	(347		)
Accounts receivable allowances	(5		)	150
Noncash portion of restructuring benefit	(79		)	(407		)
Noncash warrant expenses-preferred stock	—			1
Net changes in assets and liabilities:
Accounts receivable	(1,414		)	(1,568		)
Prepaid expenses and other current assets	(781		)	(254		)
Other assets	178			(13		)
Accounts payable	915			1,092
Accrued compensation and benefits	336			(1,067		)
Deferred revenue	196			181
Other current liabilities	8			(16		)
Other long-term liabilities	(88		)	(5		)
Net cash used in operating activities	(1,005		)	(5,350		)
*Cash flows from investing activities:*
Available-for-sale investments:
Purchases	(9,250		)	(20,502		)
Maturities	5,656			10,798
Proceeds from sales of assets	117			372
Capital expenditures	(330		)	(154		)
Net cash used in investing activities	(3,807		)	(9,486		)
*Cash flows from financing activities:*
Payments of capital lease obligations	—			(414		)
Proceeds from sales of common stock, net	1,167			231
Proceeds from exercise of Series A preferred stock warrants	325			—
Proceeds from sales of treasury stock	—			99
Proceeds from issuance of preferred stock, net of issuance costs	—			14,252
Net cash provided by financing activities	1,492			14,168

Net decrease in cash and cash equivalents	(3,320		)	(668		)
Cash and cash equivalents at beginning of the period	7,314			4,021
Cash and cash equivalents at end of the period	$	3,994		$	3,353

*Supplemental disclosures of cash flow information:*
Income taxes paid	$	28		$	7
Interest paid	$	—		$	37

*Supplemental disclosures of noncash financing activities:*
Conversion of Series A redeemable convertible preferred stock into common stock	$	6,395		$	—

See accompanying notes

GRIC COMMUNICATIONS, INC.

Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation

The financial information at September 30, 2003 and for the three and nine months ended September 30, 2003 and 2002 is unaudited, but includes all adjustments (consisting of normal recurring adjustments and restructuring adjustments) that GRIC Communications, Inc. (the “Company”) considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for annual financial statements. The results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for future periods.

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The following information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

2. Summary of Significant Accounting Policies

Revenue Recognition and Related Allowances. The Company derives revenues primarily from remote Internet access services provided to customers through its virtual network. These services are generally billed on a per-minute basis for usage or at a flat rate per month per user based on negotiated rates. The Company has some customers with minimum commitment arrangements. To a lesser extent, the Company derives revenues from licenses of its authentication software, related maintenance and support services, which are recognized ratably over the contractual services period or term of services, and other optional services related to its GRIC MobileOffice offering, which are recognized at the time of delivery.

Revenues are recognized when a binding agreement or purchase order from the customer has been received, the services have been delivered, the fee or price was fixed or determinable, the collection of the receivable was reasonably assured and no significant post-delivery obligations remained.

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

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

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

Long-Lived Assets. As part of the Company’s review of its property and equipment during the three months ended June 30, 2003, certain matters were identified related to prior financial reporting periods that required the recording of a net reduction in operating expenses. The Company quantified the amounts associated with certain property and equipment for which excess depreciation charges had been recorded against certain property and equipment in prior periods. The Company also identified certain leasehold improvements that were abandoned in previous periods but remained on its financial

statements. Accordingly, during the three months ended June 30, 2003 and the nine months ended September 30, 2003, the Company recorded a net reduction to operating expenses of $217,000 resulting from reduced accumulated depreciation and depreciation expense by approximately $302,000, partially offset by an impairment charge to property and equipment of approximately $85,000 that was applied against the restructuring benefit. The Company does not believe these amounts are material to the periods in which they should have been recorded, nor does it expect that the adjustment will be material to its consolidated operating results for the year ending December 31, 2003. However, if these adjustments are ultimately deemed to be material to the Company’s consolidated operating results for the year ending December 31, 2003, the Company will need to restate prior financial reporting periods including the three months ended June 30, 2003 and the nine months ended September 30, 2003. The impact would increase the net loss for the three months ended June 30, 2003 and the nine months ended September 30, 2003 by $217,000 ($0.01 per share) and decrease net loss for the year ended December 31, 2002 by $217,000 ($0.01 per share), as well as decrease accumulated deficit and increase net property and equipment by $217,000.

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

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

Weighted-average options outstanding to purchase approximately 191,000 shares of common stock for the three months ended September 30, 2002 and approximately 2.4 million and 539,000 shares of common stock for the nine months ended September 30, 2003 and 2002, respectively, were not included in the computation of diluted net loss per share because the effect would be antidilutive. However, the weighted-average options have been included for the three months ended September 30, 2003 in diluted net income per share. Such securities that have been included in the computation of diluted net income per share were based upon using the treasury stock method.

Series A redeemable convertible preferred stock (“Series A Preferred Stock”), which has not been converted to common stock, of approximately 9.0 million shares for the three and nine months ended September 30, 2002 and approximately 4.1 million for the nine months ended September 30, 2003 has not been included in the computation of diluted net loss per share because the effect would be antidilutive. However, the Series A Preferred Stock has been included for the three months ended September 30, 2003 in diluted net income per share.

Series A preferred stock warrants, which has not been converted to common stock, of approximately 2.2 million shares for the three and nine months ended September 30, 2002 and approximately 2.0 million for the nine months ended September 30, 2003 has not been included in the computation of diluted net loss per share because the effect would be antidilutive. However, the Series A Preferred Stock has been included for the three months ended September 30, 2003 in diluted net income per share.

Reclassifications. Amounts for revenues and cost of revenues in the previous quarter have been reclassified to conform to the current presentation.

Recent Accounting Pronouncements. In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principle difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. There was no impact on the Company’s consolidated financial position or results of operations from the adoption of SFAS 146 as the Company did not have any new exit or disposal activities during the nine months ended September 30, 2003.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a roll forward of the entity’s product warranty liabilities. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.

The Company has adopted the disclosure provisions and accounting requirements of FIN 45. The adoption of the disclosure provisions and accounting requirements of FIN 45 did not have a material impact on its consolidated financial position or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123.” SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim financial statement disclosure requirements of SFAS 148 are effective for interim periods beginning after December 15, 2002. The transition provisions do not currently have an impact on the Company’s consolidated financial position and results of operations as the Company has not elected to adopt the fair value method of accounting for stock-based compensation as per SFAS 123. The Company has adopted the annual and interim disclosure requirements of SFAS 148.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from other parties. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created or acquired after January 31, 2003. FIN 46 was amended as FIN 46-6 (“FIN 46-6”), FIN 46 is effective for variable interests in a VIE created or acquired before February 1, 2003 at the end of the first interim or annual period ending after December 15, 2003. FIN 46 requires certain disclosures in financial statements issued after January 31, 2003, if it is reasonably possible that the Company will consolidate or disclose information about VIEs when FIN 46 becomes effective. The Company has not invested in any VIEs created after January 31, 2003. The Company has adopted the provisions of FIN 46 and as of September 30, 2003, there were no entities identified that would require consolidation.

In March 2003, the EITF reached a consensus on Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Elements,” which addresses certain aspects of accounting for arrangements that include multiple products or services. Specifically, this issue addresses: (1) how to determine whether an arrangement that contains multiple products or services contains more than one unit of accounting, and (2) how the arrangement consideration should be measured and allocated. Accordingly, the adoption of EITF 00-21 may impact the timing of revenue recognition as well as allocation between products and services. EITF 00-21 is applicable for transactions entered into in fiscal periods beginning after June 15, 2003. The Company has adopted the guidance provided by EITF 00-21 and it did not have a material impact on its consolidated financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The provisions of SFAS 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The Company has adopted each of the provisions of SFAS 150 and it did not have a material impact on its consolidated financial position or results of operations.

3. Stock-Based Compensation

As permitted under FASB Statement No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” the Company has elected to continue to follow APB No. 25 and related interpretations in accounting for its stock-based awards to employees. Under APB No. 25, the Company generally recognizes no compensation expense with respect to such awards.

Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 148 and SFAS No. 123 and has been determined as if the Company had accounted for awards to employees under the fair value method of SFAS No. 123. The fair value of stock options under the Company’s 1999 Equity Incentive Plan and stock purchase rights under the Company’s 1999 Employee Stock Purchase Plan was estimated as of the grant date using the Black-Scholes option-pricing model.

The fair value of stock options granted during the three months ended September 30, 2003 and 2002 were estimated at the date of grant assuming no expected dividends and the following weighted average assumptions.

Stock Options

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002

Expected life (years)	2.80		1.31		2.15		2.36
Expected stock price volatility	1.35		0.87		1.76		0.95
Risk-free interest rate	2.67	%	3.35	%	2.95	%	3.57	%

Stock Purchase

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002

Expected life (years)	0.45		0.42		0.55		0.49
Expected stock price volatility	0.86		0.82		1.07		0.84
Risk-free interest rate	2.52	%	2.98	%	2.59	%	3.13	%

For purposes of pro forma disclosures, the estimated fair value of stock-based awards is amortized against pro forma net income over the stock-based awards’ vesting period for options and over the offering period for stock purchases under the Company’s 1999 Employee Stock Purchase Plan.

The Company’s pro forma information is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(in thousands, except per share amounts)
Net income (loss) attributable to common stockholders as reported	$	178		$	(315	)	$	(819	)	$	(17,130	)
Add: Amortization of stock compensation measured under APB 25	4			41			65			127
Less: Stock-based compensation expense measured under FAS 123	(1,363		)	(1,216		)	(3,564		)	(3,390		)
Pro forma net loss	$	(1,181	)	$	(1,490	)	$	(4,318	)	$	(20,393	)

Basic net income (loss) per share
As reported	$	0.01		$	(0.02	)	$	(0.04	)	$	(0.85	)
Pro forma	$	(0.05	)	$	(0.07	)	$	(0.20	)	$	(1.02	)
Diluted net income (loss) per share
As reported	$	0.01		$	(0.02	)	$	(0.04	)	$	(0.85	)
Pro forma	$	(0.05	)	$	(0.07	)	$	(0.20	)	$	(1.02	)

Calculated under SFAS No. 123, the weighted-average fair values of the employee stock options granted during the three months ended September 30, 2003 and 2002 were $3.90 and $0.53 per share, respectively.

4. Intangible Assets

The Company entered into an agreement with a wireless service provider during 2001 for the exchange of services, which resulted in a prepayment for future wireless services and the obligation by the Company to provide future Internet roaming services. The assessed value of these wireless services had been included in prepaid expenses and other current assets and in other assets in the amounts of $200,000 and $400,000, respectively. During September 2003, because these assets had not yet been utilized, the Company and the provider amended the underlying agreement to modify the scope of their business relationship and extend the term of the agreement until September 2006. As a result of this amended agreement, the Company entered into a nonmonetary transaction for the exchange of prepaid wireless services for prepaid roaming services and wireless cards. Because this nonmonetary transaction did not represent a culmination of an earnings process, no revenues or expenses have been, or will be recorded by the Company pursuant to this transaction. In addition, there was no indicated loss on this exchange of services.

5. Commitments and Contingencies

Lease Commitments. The Company leases all of its facilities under operating leases that expire at various dates through 2008. As of September 30, 2003, the Company had $2.4 million in future operating lease commitments.

Purchase Commitments. The Company has entered into certain non-cancelable purchase commitments from suppliers who provide network access, software and related services that are utilized by the Company in order to deliver its GRIC MobileOffice solution. As of September 30, 2003 the Company had $230,000 in future purchase commitments that expire at various dates through 2004.

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

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

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

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

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

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

The settlement will be presented to the Court for approval in the coming months. There can be no guarantee that the settlement will be judicially approved.

Indemnifications. The Company from time to time enters into types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (ii) agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their

employment relationship.

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make any payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet at September 30, 2003.

6. Restructuring Events

In June 2002, the Company undertook a strategic restructuring to streamline its operations in order to help reduce operating expenses. In January 2001, the Company undertook a strategic restructuring and decided to cease providing its Internet telephony settlement services, based on an analysis of the operating expenses required to support these services and the low gross margins associated with them, and on the Company’s expectation that continued Internet telephony operations would require additional cash infusions to the business. As of September 30, 2003, there were no remaining accruals from any of the Company’s strategic restructuring events.

The total restructuring benefit of $313,000 for the three months ended September 30, 2002 reflects the reversal of the June 2002 restructuring-related employee severance costs of $191,000, the June 2002 lease and other obligations of $68,000 and the January 2001 lease and facility obligations of $54,000, all as a result of final paid settlements that were less than previously estimated obligations. No adjustments were made during the three months ended September 30, 2003.

The total restructuring benefit of $79,000 for the nine months ended September 30, 2003 reflects the reversal of the June 2002 restructuring-related employee severance costs of $164,000 net of an $85,000 asset impairment charge for certain leasehold improvements that were abandoned in previous periods.

The total restructuring charge of $369,000 for the nine months ended September 30, 2002 reflects a charge to operations of approximately $1.2 million related to the June 2002 restructuring, which was partially offset by noncash benefits of $259,000 from the elimination of the June 2002 restructuring accruals, due to final paid settlements that were less than previously estimated obligations. In addition, the restructuring charge was partially offset by an unexpected gain of approximately $335,000 on Internet telephony assets that were previously written-off during the restructuring in January 2001 and by noncash benefits of $213,000 from the elimination of the January 2001 restructuring accruals, due to final paid settlements that were less than previously estimated obligations.

7. Segment Information

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

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

	Three months ended September 30,				Nine months ended September 30,
	2003		2002		2003		2002
	(in thousands)				(in thousands)
Revenue by external customers:
United States, Canada and Latin America	$	5,917	$	5,257	$	16,396	$	12,716
Japan/Korea	2,828		2,531		8,049		7,072
Asia Pacific	882		855		2,531		2,549
Europe, Middle East and Africa	1,067		872		3,067		2,741
	$	10,694	$	9,515	$	30,043	$	25,078

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

	September 30, 2003		December 31, 2002
	(in thousands)
Long-lived assets:
United States	$	1,372	$	1,554
Rest of World	101		224
	$	1,473	$	1,778

Revenue by external customer is based on the customer’s billing locations. Long-lived assets are those assets used in each geographic location. For the three months ended September 30, 2003, two customers each accounted for 10% or more of the Company’s total consolidated revenues.

8. Stockholder’s Equity

Series A Redeemable Convertible Preferred Stock. During the three and nine months ended September 30, 2003, 4.3 million and 4.9 million shares of Series A Preferred Stock were converted into common stock, respectively. No shares were converted into common stock during the three and nine months ended September 30, 2002.

Series A Preferred Stock Warrants. During the three and nine months ended September 30, 2003, warrants to purchase approximately 151,000 and 193,000 shares of Series A Preferred Stock were exercised and these shares were simultaneously converted into shares of common stock. No Series A Preferred Stock warrants were exercised and no shares of Series A Preferred Stock were converted into shares of common stock during the three and nine months ended September 30, 2002.

Stock Repurchase Program. In September 2001, the Board of Directors approved a program to expend up to $2.0 million to repurchase shares of the Company’s common stock in open market transactions. The Company purchased 110,000 shares for approximately $99,000 during 2001. The Company repurchased no additional shares during 2002 or during the three and nine months ended September 30, 2003. The Company’s management currently does not have plans to repurchase any shares in the near future.

9. Axcelerant Acquisition

On August 12, 2003, the Company entered into a definitive agreement to acquire Axcelerant, Inc. (“Axcelerant”), a privately held Delaware corporation that provides managed broadband VPN services. Under the terms of the agreement, Axcelerant stockholders will receive Company common stock and options representing approximately 9.8 million shares, or 22% of the combined company on a common equivalents basis (including Company preferred stock on an as-if converted basis), in a stock-for-stock merger. The transaction is subject to approval by the stockholders of the Company and Axcelerant and customary closing conditions. A Registration Statement on Form S-4 was filed by the Company with the Securities and Exchange Commission on September 22, 2003 and declared effective on October 24, 2003. A record date was set for October 21, 2003 for the special meetings of stockholders of GRIC and Axcelerant, which are to be held on November 25, 2003.

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

The following discussion should be read in conjunction with the selected consolidated financial information and the consolidated financial statements and notes appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements, such as statements of expected revenues and expenses that involve risks and uncertainties. We assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those detailed from time to time in our filings with the Securities and Exchange Commission and those discussed in this report, particularly in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and under “Factors That May Affect Future Results.”

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

Overview

We provide remote Internet access, managed security services — both virtual private network and remote end-point security — and mobile broadband services for customers requiring mobile office communications capabilities worldwide. Our services solution, called the GRIC Mobile Office, enables people who are working away from the office to remain productively and securely connected to their home network as if they were working in their office. Our solution is used by corporate enterprises with mobile employees and remote workforces on a global basis.

We provide services over a heterogeneous virtual network known as the GRIC TierOne Network. As of September 30, 2003, the GRIC TierOne Network included more than 35,000 wired and wireless access points in over 150 countries. We created this network by forming contractual relationships with over 300 Internet service providers and telecommunication companies. These providers, to whom we refer as the GRIC TierOne Network members, are able to share their communications networks. Our customers benefit from the resulting network, which can deliver a secure mobile Internet

access solution cost-effectively. GRIC TierOne Network members benefit because we manage this shared network and provide settlement services as a clearinghouse. To serve as a clearinghouse, we have established common technical, service and payment standards to settle charges that our customers incur when their end users access the network facilities of GRIC TierOne Network members in order to initiate Internet-based communications, such as Internet roaming. We intend to continue evolving our service offering to introduce new Internet-based mobile office communications services that may be adopted, deployed and managed on a global scale across the GRIC TierOne Network.

We have incurred substantial losses since our inception as a result of expenses associated with building the GRIC TierOne Network and related network infrastructure and with developing our software products. Although we were profitable for our combined activities during the three months ended September 30, 2003, we had an accumulated deficit of approximately $129.4 million as of September 30, 2003. See “Factors That May Affect Future Results—We have a history of net losses and may incur future losses.”

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

On August 12, 2003, we entered into a definitive agreement to acquire Axcelerant, Inc. (“Axcelerant”), a privately-held Delaware corporation that provides managed broadband VPN services. Under the terms of the agreement, Axcelerant stockholders will receive common stock and options from us representing approximately 9.8 million shares, or 22% of the combined company on a common equivalents basis (including our preferred stock on an as-if converted basis), in a stock-for-stock merger. The transaction is subject to approval by the stockholders of the Company and Axcelerant and customary closing conditions. A Registration Statement on Form S-4 was filed by us with the Securities and Exchange Commission on September 22, 2003 and declared effective on October 24, 2003. A record date was set on October 21, 2003 for the special meetings of stockholders of GRIC and Axcelerant, which are to be held on November 25, 2003. We cannot assure you that the proposed merger will be completed during the fourth calendar quarter of 2003, or at all. See “Risks Related to the Merger.”

Critical Accounting Policies and Estimates

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

Revenue Recognition and Related Allowances. We derive revenues primarily from remote Internet access services we provide to customers through our virtual network. These services are generally billed on a per-minute basis for usage or at a flat rate per month per user based on negotiated rates. We have some customers with minimum commitment arrangements. To a lesser extent, we also derive a portion of our revenues from licenses of our authentication software, related maintenance and support services, which are recognized ratably over the contractual services period or term of service, and other optional services related to our GRIC MobileOffice offering, which are recognized at the time of delivery. These other revenues amounted to five percent or less of total revenues over the last three years. Revenues are recognized when a binding agreement or purchase order from the customer has been received, the services have been delivered, the fee or price was fixed or determinable, the collection of the receivable was reasonably assured and no significant post-delivery obligations remained.

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

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

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

Long-Lived Assets. As part of our review of our property and equipment during the three months ended June 30, 2003, certain matters were identified related to prior financial reporting periods that required the recording of a net reduction in operating expenses. We quantified the amounts associated with certain property and equipment for which excess depreciation charges had been recorded against certain property and equipment in prior periods. We also identified certain leasehold improvements that were abandoned in previous periods but remained on our financial statements. Accordingly, during the three months ended June 30, 2003 and the nine months ended September 30, 2003, we recorded a net reduction to operating expenses of $217,000 resulting from reduced accumulated depreciation and depreciation expense of approximately $302,000, partially offset by an impairment charge to property and equipment of approximately $85,000 that was applied against the restructuring benefit. We do not believe these amounts are material to the periods in which they should have been recorded, nor do we expect that the adjustment will be material to our consolidated operating results for the year ending December 31, 2003. However, if these adjustments are ultimately deemed to be material to the consolidated operating results for the year ending December 31, 2003, we will need to restate prior financial reporting periods including the three months ended June 30, 2003 and nine months ended September 30, 2003. The impact would increase the net loss for the three months ended June 30, 2003 and the nine months ended September 30, 2003 by $217,000 ($0.01 per share) and decrease net loss for the year ended December 31, 2002 by $217,000 ($0.01 per share), as well as decrease accumulated deficit and increase net property and equipment by $217,000.

Intangible Assets. We entered into an agreement with a wireless service provider during 2001 for the exchange of services, which resulted in a prepayment for future wireless services and the obligation to provide future Internet roaming services. The assessed value of these wireless services had been included in prepaid expenses and other current assets and in other assets in the amounts of $200,000 and $400,000, respectively. During September 2003, because these assets had not yet been utilized, we amended the underlying agreement to modify the scope of our business relationship and extend the term of the agreement until September 2006. As a result of this amended agreement, we entered into a nonmonetary transaction for the exchange of prepaid wireless services for prepaid roaming services and wireless cards. Because this nonmonetary transaction did not represent a culmination of an earnings process, no revenues or expenses have been, or will be recorded pursuant to this transaction. In addition, there was no indicated loss on this exchange of services.

Results of Operations

Three and Nine Month Periods Ended September 30, 2003 Compared to Three and Nine Month Periods Ended September 30, 2002

Revenues. Revenues consist of amounts received from our customers for utilizing our remote Internet access services or other services from our GRIC MobileOffice offering that we provided. Total revenues increased to $10.7 million in the three months ended September 30, 2003 from $9.5 million in the three months ended September 30, 2002, representing an increase of 12%. Total revenues increased to $30.0 million in the nine months ended September 30, 2003 from $25.1 million in the nine months ended September 30, 2002, representing an increase of 20%. The increase of approximately $1.2 million and $5.0 million during the three and nine month periods ended September 30, 2003, respectively, was primarily due to increased amounts obtained for our remote Internet access services by our existing customers in the combined regions of the United States, Canada and Latin America and to a lesser degree the expansion of our global customer base. We expect 2003 revenues to grow primarily as a result of increased usage of our remote Internet access services and, to a lesser extent, reflecting increased sales of our managed security service offering and our value-added services.

Cost of Revenues. Cost of revenues consists of amounts we pay to access the Internet in order to provide remote Internet access services to our customers and amounts we pay to third parties to offer other mobile broadband services. Cost of revenues decreased to $4.2 million in the three months ended September 30, 2003 from $4.3 million in the three months

ended September 30, 2002, which represented a decrease of 2%. The decrease of approximately $105,000 during the three-month period ended September 30, 2003 was primarily due to reductions in amounts owed to providers for access services and other broadband services. Cost of revenues increased to $13.0 million in the nine months ended September 30, 2003 from $11.3 million in the nine months ended September 30, 2002, which represented an increase of 15%. The increase of $1.7 million during the nine-month period ended September 30, 2003, reflects corresponding increases in the volume of remote Internet access and the expansion of our customer base as well as the cost of adding additional products to the GRIC MobileOffice solution offering. As remote Internet access revenues increase we expect that the cost of revenues in 2003 will increase in absolute dollars when compared to 2002, but decline as a percentage of total revenues.

Network and Operations. Network and operations expenses include salaries and benefits, allocated facility and management information systems expenses, depreciation on network equipment, administrative expenses, costs of co-location of network equipment and leased telecommunication lines and other related costs. Network and operations expenses decreased to $980,000 in the three months ended September 30, 2003 from $1.2 million in the three months ending September 30, 2002, representing a decrease of 15%. The decrease of approximately $179,000 reflects reductions of approximately $95,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes, a reduction of approximately $58,000 in telecommunications expense based on lower rates from a new provider and reductions of approximately $49,000 in compensation-related expenses that were primarily due to lower staffing levels and the elimination of compensation programs. Network and operations expenses decreased to $2.8 million in the nine months ended September 30, 2003 from $3.4 million in the nine months ending September 30, 2002, representing a decrease of 19%. The decrease of approximately $627,000 reflects reductions of approximately $372,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes, reductions of approximately $173,000 in compensation-related expenses that were primarily due to lower staffing levels and the elimination of compensation programs and a reduction of approximately $92,000 in telecommunications expense based on lower rates from a new provider. We expect the amount of network and operations expenses in 2003 to be less than total expenses in 2002 as we maintain current staffing levels and utilize the existing network infrastructure.

Research and Development. Research and development expenses consist of quality assurance, salaries and benefits, allocated facility and management information systems, facilities costs, depreciation costs, outside consultants, administration and other related costs. Research and development expenses decreased to $634,000 in the three months ended September 30, 2003 from $658,000 in the three months ended September 30, 2002, representing a decrease of 4%. The decrease of approximately $24,000 reflects reductions of approximately $28,000 for third-party software product subscription not renewed in 2003, reductions of approximately $21,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes, offset by approximately $36,000 of increased compensation related expenses due to adding additional staffing in India. Research and development expenses decreased to $1.8 million in the nine months ended September 30, 2003 from $2.2 million in the nine months ended September 30, 2002, representing a decrease of 18%. The decrease of approximately $393,000 reflects lower professional fees of approximately $116,000 due to the decreased use of outside services and approximately $102,000 due to reduced depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes and approximately $87,000 due to property and equipment adjustments that related to prior periods and reductions of approximately $91,000 in compensation-related expenses primarily due to shifting staff from our U.S. headquarters to our development center in India. We expect research and development expenses to be lower in 2003 as compared to 2002 due to our utilization of existing assets and resources in our development center in India.

Sales and Marketing. Sales and marketing expenses consist of salaries and benefits, costs for marketing and promotional programs, allocated facility and management information systems costs, travel and entertainment costs, outside consultant fees, costs associated with domestic and international sales offices, administrative expenses and other related costs. Sales and marketing expenses increased to $3.8 million in the three months ended September 30, 2003 from $2.8 million in the three months ended September 30, 2002, representing an increase of 36%. The increase of approximately $1.0 million was due to an increase in compensation expense of approximately $591,000 primarily due to higher compensation-related expenses pertaining to our increased sales force and an increase of approximately $463,000 in advertising and promotion costs to increase GRIC’s brand recognition and increase sales leads. Sales and marketing expenses increased to $9.8 million in the nine months ended September 30, 2003 from $9.3 million in the nine months ended September 30, 2002, representing a increase of 6%. The increase of approximately $571,000 principally reflects increase in compensation expense of approximately $459,000 primarily due to higher compensation-related expenses pertaining to our increased sales force and an increase of approximately $180,000 in advertising and promotion costs offset by a reduction approximately $105,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes. We expect the overall amount of sales and marketing expenses to significantly increase during the remainder of 2003 and to be greater than total expense in 2002 as we evolve our business strategy to employ not only an indirect sales channel, but also a direct sales channel and to increase our marketing presence by investing in marketing programs.

General and Administrative. General and administrative expenses consist of salary, benefits and related costs for executive, finance, legal, administrative, human resources, investor relations and management information systems functions, general corporate and facility costs and provisions for uncollectable receivables. General and administrative expenses decreased to $947,000 in the three months ended September 30, 2003 from $1.3 million in the three months ended September 30, 2002, representing a decrease of 25%. The decrease of approximately $315,000 reflects a reduction of approximately $140,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes, approximately $109,000 in lower facility costs due to continued efforts to streamline our operations in 2003 and a one-time worker’s compensation refund for $85,000 received during the three months ended September 30, 2003. General and administrative expenses decreased to $3.6 million in the nine months ended September 30, 2003 from $3.9 million in the nine months ended September 30, 2002, representing a decrease of 8%. The decrease of approximately $321,000 reflects a decrease of approximately $487,000 in depreciation expense primarily associated with older assets that are still in use, but have reached the end of their estimated lives for accounting purposes and approximately $303,000 in lower facility costs due to continued efforts to streamline our operations in 2003, offset by an increase of approximately $408,000 for one-time costs related to payments made in connection with the resignation of our former Chief Executive Officer during the first quarter of 2003. We expect the total amount of general and administrative expenses to remain consistent for the remainder of 2003 and to be only slightly higher than total expenses in 2002.

Amortization of Stock-Based Compensation. Some stock options granted through December 14, 1999 were considered compensatory because the deemed fair value for accounting purposes was higher than the stock option exercise price as determined by the board of directors on the date of grant. As a result, we recorded amortization of deferred compensation expense of $4,000 and $41,000 in the three months ended September 30, 2003 and 2002, respectively, and we recorded amortization of deferred compensation expense of $65,000 and $127,000 in the nine months ended September 30, 2003 and 2002, respectively. As of September 30, 2003, we had no deferred compensation remaining to be amortized. Deferred compensation is amortized on a straight-line basis over the vesting period of the options.

Restructuring Charge. In June 2002, we undertook a strategic restructuring to streamline our operations in order to help reduce operating expenses. In January 2001, we undertook a strategic restructuring and decided to cease providing our Internet telephony settlement services, based on an analysis of the operating expenses required to support these services and the low gross margins associated with them, and on our expectation that continued Internet telephony operations would require additional cash infusions to the business.

The total restructuring charge of $369,000 for the nine months ended September 30, 2002 reflects a charge to operations of approximately $1.2 million related to the June 2002 restructuring, which was partially offset by noncash benefits of $259,000 from the elimination of the June 2002 restructuring accrual, due to final paid settlements that were less than previously estimated obligations. In addition, the restructuring charge was partially offset by an unexpected gain of approximately $335,000 on Internet telephony assets that were previously written-off during the restructuring in January 2001 and by noncash benefits of $123,000 from the elimination of the January 2001 restructuring accruals, due to final paid settlements that were less than previously estimated obligations.

Interest Income and Other, Net. Interest income and other, net, primarily consists of interest income on cash balances and on short-term investments, gain on disposition of assets and sales, use and value-added tax. Interest income and other, net, was $58,000 for the three months ended September 30, 2003 as compared to $89,000 for the three months ended September 30, 2002. The decrease of approximately $31,000 primarily reflects a decrease in interest income of $35,000 due to lower interest rate yields. Interest income and other, net, was $124,000 for the nine months ended September 30, 2003 as compared to $222,000 for the nine months ended September 30, 2002. The decrease of approximately $98,000 primarily reflects higher sales, use and value-added tax on equipment for approximately $165,000 and a decrease of approximately $42,000 due to lower interest rate yields partially offset by a gain on the sale of assets of $103,000.

Interest Expense. Interest expense consists of interest expense associated with capital leases and amortization of the fair value of warrants issued in connection with our financing activities. There was no interest expense or amortization of the fair value of warrants in the three and nine months ended September 30, 2003, as we paid our remaining debt balance from our capital lease obligations and fully amortized our warrants in 2002. Total interest expense was $9,000 and $40,000 for the three and nine months ended September 30, 2002, respectively.

Income Taxes. The provision for income taxes was $9,000 and $28,000 for the three and nine months ended for September 30, 2003, respectively, as compared to $16,000 and $32,000 the three and nine months ended for September 30, 2002, respectively. The provision for income taxes consists of foreign tax provisions.

Liquidity and Capital Resources

	September 30, 2003			September 30, 2002
	(in thousands)
Cash and cash equivalents	$	3,994		$	3,353
Net cash used in operating activities	(1,005		)	(5,350		)
Net cash provided by (used in) investing activities	(3,807		)	(9,486		)
Net cash provided by (used in) financing activities	1,492			14,168

Cash and cash equivalents. Our principal source of liquidity is our cash, cash equivalents and short-term investments. As of September 30, 2003, in addition to our cash and cash equivalents balance of approximately $4.0 million we had a short-term investment balance of approximately $19.4 million.

Operating activities. Net cash used in operating activities was $1.0 million in the nine months ended September 30, 2003, and $5.4 million in the nine months ended September 30, 2002. Net cash used in operating activities in the nine months ended September 30, 2003 reflects higher accounts receivable balances of approximately $1.4 million due to increased revenues and higher prepaid, net operating losses of $819,000 and other current asset balances of $781,000 due primarily to the payment and accrual of costs related to our intended acquisition of Axcelerant. These amounts were partially offset by higher accounts payable balances of $915,000, which include obligations pertaining to the merger activities, and depreciation and amortization of property and equipment of $599,000. Net cash used in operating activities in the nine months ended September 30, 2002 reflects net operating losses of $5.3 million, higher accounts receivable balances of approximately $1.6 million due to increased revenues, lower accrued compensation and benefit payable balances of $1.1 million principally due to the elimination of our 2002 bonus plan. These amounts were partially offset by depreciation and amortization of property and equipment of $2.0 million and higher accounts payable balances of approximately $1.1 million due primarily to amounts accrued for our June 2002 restructuring and amounts owed to our providers that correspond to higher revenues from internet access and mobile broadband services.

Investing activities. Net cash used in investing activities was $3.8 million in the nine months ended September 30, 2003 and $9.5 million in the nine months ended September 30, 2002. Net cash used in investing activities in the nine-month periods ended September 30, 2003 and 2002 primarily reflects purchases of short-term investments.

Financing activities. Net cash provided by financing activities was $1.5 million in the nine months ended September 30, 2003 and $14.2 million in the nine months ended September 30, 2002. The net cash provided by financing activities in the nine months ended September 30, 2003 was principally due to proceeds received from the sale of common stock through our incentive stock option and employee stock purchase plans and the exercise of warrants to purchase shares of Series A Preferred Stock that were simultaneously converted to shares of common stock. The net cash provided by financing activities in the nine months ended September 30, 2002 was primarily the result of proceeds from the issuance of our Series A Preferred Stock.

Commitments. We lease all of our facilities under operating leases that expire at various dates through 2008. As of September 30, 2003, we had $2.4 million in future operating lease commitments. We have entered into certain non-cancelable purchase commitments from suppliers who provide network access, software and related services that are utilized by us in order to deliver our GRIC MobileOffice solution. We have $230,000 in future purchase commitments that expire at various dates through 2004.

Summary of Liquidity. At September 30, 2003, we had an accumulated deficit of $129.4 million and we incurred a net loss of approximately $819,000 for the nine months ended September 30, 2003, although we were profitable for the three months ended September 30, 2003.

We believe that our available cash, cash equivalents and short-term investments of $23.4 million at September 30, 2003, and cash expected to be generated by operations during the next twelve months, will fund planned operations for at least the next twelve months. Our current business model does not require a substantial investment in capital equipment. Although a large portion of our property and equipment have reached the end of their useful lives for accounting purposes, we expect spending levels for capital assets in the near-term to remain consistent with levels in recent quarters.

We plan to invest in expanding our Internet roaming and related services on a global basis by continuing to build strategic partnering relationships. This will require us to maintain market acceptance and to grow our Internet roaming and related services offerings in order for us to continue our research and development activities and fund planned operating expense growth such as increasing our sales force and marketing presence. There can be no assurance that our Internet roaming product offerings will maintain market acceptance, growth and operating margins.

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

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146 (‘‘SFAS 146’’), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principle difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost, as defined in EITF 94-3, was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. There was no impact on our consolidated financial position or results of operations from the adoption of SFAS 146, as we did not have any new exit or disposal activities during the three months ended September 30, 2003.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a roll forward of the entity’s product warranty liabilities. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. We have adopted the disclosure provisions of FIN 45. The adoption of the disclosure provisions and accounting requirements of FIN 45 did not have a material impact on our consolidated financial position or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123.” SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim financial statement disclosure requirements of SFAS 148 are effective for interim periods beginning after December 15, 2002. The transition provisions do not currently have an impact on our consolidated financial position and results of operations, as we have not elected to adopt the fair value based method of accounting for stock-based compensation as per SFAS 123. We have adopted the annual and interim disclosure requirements of SFAS 148.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from other parties. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created or acquired after January 31, 2003. FIN 46 was amended as FIN 46-6 (“FIN 46-6”), FIN 46 is effective for variable interests in a VIE created or acquired before February 1, 2003 at the end of the first interim or annual period ending after December 15, 2003. FIN 46 requires certain disclosures in financial statements issued after January 31, 2003, if it is reasonably possible to consolidate or disclose information about VIEs when FIN 46 becomes effective. We have not invested in any VIEs created

after January 31, 2003. We have adopted the provisions of FIN 46 and as of September 30, 2003, there were no entities identified that would require consolidation.

In March 2003, the EITF reached a consensus on Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Elements,” which addresses certain aspects of accounting for arrangements that include multiple products or services. Specifically, this issue addresses: (1) how to determine whether an arrangement that contains multiple products or services contains more than one unit of accounting, and (2) how the arrangement consideration should be measured and allocated. Accordingly, the adoption of EITF 00-21 may impact the timing of revenue recognition as well as allocation between products and services. EITF 00-21 is applicable for transactions entered into in fiscal periods beginning after June 15, 2003. We adopted the guidance provided by EITF No. 00-21 and it did not have a material impact on our consolidated financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The provisions of SFAS 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. We adopted of the provisions of SFAS 150 and it did not have a material impact on our consolidated financial position or results of operations.

Factors That May Affect Future Results

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

If we cannot complete our proposed merger with Axcelerant and effectively integrate the operations of both companies, we will not realize the potential benefits of the merger.

The integration of Axcelerant into our company will be a time consuming and expensive process and may disrupt our operations if it is not completed in a timely and efficient manner. If this integration effort is not successful, our results of operations could be harmed, employee morale could decline, key employees could leave and customers could cancel existing orders or choose not to place new ones. In addition, we may not achieve anticipated synergies or other benefits of the merger. Following the merger, we must operate a single organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices. We may encounter the following difficulties, costs and delays involved in integrating Axcelerant’s operations into our operations:

• failure to successfully manage relationships with customers and other important relationships;

• failure of customers to accept new services or to continue using the products and services of the combined company;

• potential difficulties in successfully integrating the management teams and employees of GRIC and Axcelerant;

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

• perceived adverse changes in business focus;

• the loss of key employees and diversion of the attention of management from other ongoing business concerns;

• potential incompatibility of technologies and systems; and

• potential incompatibility of business cultures.

If our operations after the merger do not meet the expectations of our or Axcelerant’s existing customers, then these customers may cease doing business with the company altogether.

We may not realize anticipated benefits of the acquisition of Axcelerant.

We cannot assure you that we will achieve the benefits that we expect from the acquisition of Axcelerant. For example, the combined service offerings after the acquisition may be more complex for customers than we anticipate, which could make those services more difficult to market and sell and ultimately reduce our revenue. Integrating our operations may be more difficult or take longer than we expect, and cost savings may be smaller than we anticipate, or deferred longer. We may encounter unexpected difficulties integrating management personnel and experience damaging management attrition, which could disrupt our operations and impose new costs on us.

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

In the past, the price of our common stock has experienced large swings up and down. This volatility might occur in the future, which could contribute to our common stock being worth less after the merger than before it. Volatility can arise particularly in response to quarter-to-quarter variations in the actual or anticipated financial results of us or our customers or competitors, and announcements that we or our competitors make regarding new product and service introductions. The market price of our common stock can also fluctuate in response to price and volume fluctuations in the stock market, particularly those that affect the market prices of technology stocks.

In addition, the market price of our common stock is subject to decline if the integration of Axcelerant with our company is unsuccessful, or if we do not achieve the expected benefits of the merger as quickly as anticipated or the costs of or operational difficulties arising from the merger are greater than anticipated.

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

We have incurred significant losses to date and we expect to continue to incur losses for some period of time. Although we reported net income of $178,000 for the three months ended September 30, 2003, we incurred net losses of approximately $819,000 for the nine months ended September 30, 2003, $5.0 million for 2002, $31.6 million for 2001, and $32.4 million for 2000. As of September 30, 2003, we had an accumulated deficit of $129.4 million

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

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

Our business strategy has changed over time. For example, we abandoned our earlier Internet Service Provider business, as well as our Internet telephony services business. We have pursued our current business – remote access, managed security and mobile broadband services – for a relatively brief period and in markets that are rapidly changing. There can be no assurance that we will succeed in our efforts to make our current business profitable, and there can be no assurance that the acquisition of Axcelerant will make us more likely to succeed.

Any strategic acquisitions or investments we engage in could dilute our stockholders and/or result in the assumption of additional liabilities, loss of sales and disruption of our business.

We expect that we will consider future acquisitions of, or investments in, complementary businesses, products or technologies. We may encounter difficulties in identifying and acquiring suitable candidates on reasonable terms.

In the event of any future acquisitions, we could:

• issue stock that would dilute our current stockholders’ percentage ownership;

• incur debt that will give rise to interest charges and may impose material restrictions on the manner in which we operate our business;

• assume liabilities;

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

• incur large write-offs.

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

• problems combining the acquired operations, technologies, products or personnel;

• unanticipated costs;

• diversion of management time and attention from our existing business;

• adverse effects on existing business relationships with our suppliers and customers;

• risks associated with entering markets in which we have no or limited prior experience; and

• potential loss of key employees, particularly those of acquired companies.

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

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

We are aware of many companies in related markets that address particular aspects of the features and functions that our products provide and Axcelerant’s products provide. Currently, we compete directly with iPass and Fiberlink in the market for Internet roaming and related settlement services, and each of iPass and Fiberlink has a network that competes with the GRIC TierOne Network. Large communications service providers such as AT&T, Equant and WorldCom/UUNET also have the ability and resources to compete with us in the Internet-based mobile office communications services market. Axcelerant’s primary competitors include Fiberlink, Megapath, ePresence, TManage and Netifice. These competitors present significant challenges to our business after the merger. For example, many of our competitors have longer operating histories, greater name recognition or larger customer bases, which they may leverage in order to obtain more favorable volume discounts. In addition, these competitors may be able to undertake more extensive marketing efforts, adopt more aggressive pricing policies and provide more customer financing than we can, which could limit our opportunities to obtain new customers or cause us to lose our existing customers.

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

If our cash proves to be insufficient to fund our operations, we may need to raise additional funds at some point in the future. If we raise additional funds by selling equity or convertible debt securities, our stockholders may experience additional dilution and these new securities may have powers, preferences and rights that are senior to those of the rights of our common stock. For example, as a result of the April 2002 sale of our Series A Preferred Stock, the investors in our Series A Preferred Stock control a significant portion of our outstanding capital stock, and the owners of the Series A Preferred Stock have rights that are senior to those of holders of the common stock in the event of a bankruptcy or liquidation, and the issuance of the Series A Preferred Stock has substantially diluted the ownership interest of the common stockholders. We cannot predict whether additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to fund our business operations, promote our brand identity, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures. Any inability to do so could have a negative effect on our business, revenues, financial condition and results of operations.

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

Historically, a significant portion of our revenues was derived from smaller companies in the Internet marketplace, but in recent periods we have attempted to focus our sales and marketing efforts on larger corporate and enterprise-level customers. This strategy places new demands on our business, such as the longer sales cycles and higher levels of service and support that larger accounts generally require. If we fail in this strategy, or if we have underestimated the costs of this strategy, we will likely miss our revenue and profitability goals.

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

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

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

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

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

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

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

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

• redesign the products and services that use that technology.

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

If we are unable to develop and manage our international operations after the merger, our business could be harmed.

We generate most of our revenues from business conducted internationally, so it is subject to special risks. We expect that we will continue to expand our international operations in the future. The successful management and expansion of our international operations, including the development of sales and support channels, will require significant human and financial resources. Some of the risks that we face as a result of our international operations include:

• foreign customers often take longer to pay for services;

• business activity is often slow in some region or another, negatively impacting overall results;

• recruitment and retention of experienced senior management and staff for international operations is difficult and costly;

• compliance with a variety of foreign laws, tariffs and trade barriers is costly and inefficient for a small company;

• compliance with telecommunications and other Internet-related regulations in foreign jurisdictions is expensive and difficult; and

• general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships, can have a significant impact on our business.

Any of these factors could harm our existing international operations and business or impair our ability to continue expanding into international markets.

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

Our success after the merger will depend in large part upon our ability to identify, attract and retain qualified sales individuals. Competition for these individuals is often intense, and we may not be able to hire the type and number of sales personnel it needs. Moreover, even after we hire salespersons, they require extensive training in our combined products and services. This training typically covers six to eight weeks of formal in-class and on-the-job instruction. If we are unable to continue to retain our current employees and train new sales personnel as rapidly as necessary, we may not be able to increase market awareness and sales of our services, which may prevent us from generating revenue and may negatively impact our ability to maintain customer relationships.

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

Our customers are generally free to use competing products and services, so we could face significant customer losses, at unpredictable times. We had four customers in 2002 that each accounted for more than ten percent of our stand-alone revenues. In the first half of 2003, Axcelerant had two customers that each accounted for more than ten percent of its stand-alone revenues. Losing any of these customers would mean a significant revenue shortfall for us on a combined basis after the merger. These factors make it difficult to anticipate the level of our future revenues from existing customers. In addition, our success after the merger depends on our ability to expand our customer base. If we are unable to expand our customer base after the merger and to increase our average revenues per customer, our business success will be less likely.

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

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

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

Our business depends in part on the efforts and success of our Internet service provider and telecommunications service customers in marketing Internet-based communications services to their end users. We have little ability to promote our services, or to promote demand for our reseller customers’ services generally. The use of the Internet as a medium for communications services remains unproven. If our reseller customers fail to market their Internet-based communications services effectively, our revenues will be reduced. Similarly, if the market for Internet-based communications services fails to grow, or expands more slowly than anticipated, our revenues will be lower than expected. The Internet-based services we provide are relatively new and have not achieved widespread market acceptance. Network service providers and communication solutions providers may be reluctant to promote or rely upon our services until they gain greater commercial acceptance, which may never occur.

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

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

• the volume of transaction-based revenues;

• the timing of deployment of services by our customers;

• competitive pricing pressure;

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

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

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

• regulation, domestically and internationally.

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

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

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

Because much of our business is conducted internationally, we encounter special difficulties, which may impede our efforts to remain profitable and harm the trading price of our common stock.

We generate most of our revenues from business conducted internationally, so we are subject to special risks. It is costly to maintain international facilities and operations, promote our brand internationally and develop localized systems and support centers. In some regions revenues may not offset the expense of maintaining operations there. Some of the risks that we face as a result of our international operations include:

• foreign customers often take longer to pay for services;

• business activity is often slow in some region or another, negatively impacting overall results;

• foreign currency exchange rates fluctuate and can impact our results;

• recruitment and retention of experienced senior management and staff for our international operations is costly;

• compliance with a variety of foreign laws, tariffs and trade barriers is costly and inefficient for a small company such as ours;

• compliance with telecommunications and other Internet-related regulations in foreign jurisdictions is expensive and difficult; and

• general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships, can have a significant impact on our business.

If SARS re-emerges, business travelers could restrict their travel to and from Asia, which could harm our revenues.

Severe Acute Respiratory Syndrome, which is generally known as SARS, is a highly communicable disease that emerged in Asia earlier this year. Concerns about the spread of SARS led to quarantines and travel restrictions being imposed on individuals with suspected symptoms in some countries, and some companies restricted or banned nonessential travel to and from certain parts of Asia. If business travel to Asia or elsewhere were to decline for a sustained period of time due to the re-emergence of SARS-related issues or other health concerns, the level of demand for our services is also likely to decline which could result in reduced revenues.

The economic downturn could adversely affect our revenue, gross margins and expenses.

Our revenue and gross margins depend in part on the overall demand for information technology products and services, particularly in the product and service segments in which we compete. Softening demand for our products and services caused by the ongoing economic downturn has resulted in decreased revenue growth rates, and may in the future result in decreased revenue, earnings or growth rates and problems with our ability to realize customer receivables. The global economy has weakened and market conditions continue to be challenging. As a result, companies are delaying or reducing expenditures, including those for information technology. In addition, if our customers experience financial difficulties, we could suffer losses associated with the outstanding portion of accounts receivable. The global economic downturn has contributed to reported declines in our revenue growth during fiscal 2002 and in the nine months of 2003. Further delays or reductions in information technology spending could have a material adverse effect on demand for our products and services and consequently our results of operations, prospects and stock price.

The concentration of our capital stock ownership with insiders will likely limit the ability of other stockholders to influence corporate matters.

As of October 31, 2003, our executive officers and directors, and their related entities, owned a majority of our outstanding common stock and common stock equivalents, including the effect of a voting agreement that covers elections of directors, to which some of our stockholders are parties. As a result, these stockholders will be able to exercise control over all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership might also have the effect of delaying or preventing a change in control of the Company that might be viewed as beneficial by other stockholders.

The interests of some of these stockholders may not be aligned with the interests of the common stockholders. The holders of our Series A Preferred Stock have special rights, preferences and privileges, including liquidation preferences that are senior to those of the holders of our common stock in the event of a bankruptcy or liquidation.

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

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

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

• prohibit cumulative voting in the election of directors;

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

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

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

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

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

Government regulations and legal uncertainties regarding the Internet could harm our business.

We are not currently subject to federal or state regulations imposed on telecommunications service providers, and we do not believe that we are subject to local regulation or laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally.

United States. We believe that, under United States law, the Internet-related services that we provide constitute information services or other non-telecommunications services, and do not constitute regulated telecommunications services. Therefore our services are not currently subject to regulation by the Federal Communications Commission, and, by operation of federal preemption law, are also exempt from regulation by state agencies charged with regulating telecommunications carriers. We do not know the extent to which our Internet-related services may be subject to regulation by the Federal Communications Commission or state telecommunications authorities in the future.

The Federal Communications Commission has initiated several proceedings that may change the regulatory and legal framework for the provision of broadband and Internet services. Recently, the Federal Communications Commission determined that cable modem services constitute unregulated information services. This decision is currently under appeal in the Court of Appeals for the Ninth Circuit. In addition, the industry and policy makers continue to debate the obligation of cable operators to provide ISPs non-discriminatory access to cable broadband platforms. The Federal Communications Commission also has recently issued new rules in its Triennial Review proceeding relieving incumbent local exchange carriers of certain regulatory obligations in the provision of broadband services, including requirements that they provide certain types of network access services on an unbundled and discounted basis to competitors. The Federal Communications Commission is also considering whether incumbent local exchange carriers should be treated as non-dominant in the provision of broadband services as well as whether facilities-based broadband Internet access providers should be required to contribute to the universal service fund, which is used to subsidize the universal availability of telecommunications services. If adopted, these regulatory measures may lessen some of the regulatory burdens on existing providers of broadband services, particularly incumbent local exchange carriers, but may increase barriers to entry for new providers and may result in increased costs to customers of such services. We cannot be certain of the impact that any of these measures would have on our business.

The regulatory status and treatment of various configurations of voice over Internet protocol (“VoIP”) service is also under consideration by the Federal Communications Commission as well as certain state regulatory commissions. We cannot determine the impact that any changes in the regulatory treatment of VoIP may have on our business.

Federal rules and regulations governing inter-carrier compensation are also currently under review at the Federal Communications Commission and the U.S. Court of Appeals for the District of Columbia Circuit. To the extent that our U.S. customers are adversely affected by the combination of increased costs of Internet access and transport services and decreased revenues from inter-carrier compensation, we cannot be certain that our business will not be adversely affected as well.

Congress has adopted legislation addressing certain other aspects of the Internet, including intellectual property protection, child privacy protection, Internet spamming, privacy, taxes, Internet fraud, security and broadband deployment in rural areas. Various states also have adopted and are considering Internet-related legislation. Increased U.S. restriction of the

Internet or Internet-related services may slow our growth, particularly if other governments follow suit, which may negatively impact the cost of doing business over the Internet and materially adversely affect our business, prospects, results of operations and financial condition.

International. Foreign regulatory frameworks affecting the Internet vary from country to country. However, as is the case in the U.S., most countries currently do not impose telecommunications licensing or other regulatory requirements on the information and other non-telecommunications services that we provide. Increased regulation of the Internet and Internet-related services, or the imposition of other restrictions, could materially adversely affect our business, prospects, operating results and financial condition.

In particular, the European Union has enacted several directives concerning the Internet and Internet-related activities. The European Union has, for example, adopted a directive that requires Member States to impose restrictions on the collection and processing of personal data and to prevent transmission outside of Europe of personal data, which can include customer and billing information as well as human resource data, except to countries that provide adequate protection of such data. In response to the European Union directive, the U.S. negotiated with the European Union the establishment of certain “Safe Harbor” principles, effective as of November 2000, which provide U.S. companies choosing to adhere to them a presumption of adequate protection of privacy. Companies complying with the Safe Harbor principles must provide notice to users of personal data collection, provide choices to users regarding certain uses, including the transfer of information to third parties, guarantee the security and integrity of personal data collected, provide users with the ability to access, correct and delete personal information that is being stored, and provide for user enforcement and redress in the event of violation of the principles. These principles are more restrictive than other applicable U.S. laws and may impose additional cost on companies that decide to comply. Currently, the Safe Harbor principles are voluntary and are intended to be implemented through self-regulation and industry self-certification. In the future, however, the requirements embodied in the principles may become mandatory. To date, we have not certified that we will operate under the Safe Harbor principles.

Although we do not engage in the collection of data for purposes other than routing our services and billing for our services, the directive is broad and the European Union privacy standards are stringent. Accordingly, the potential effect on us is uncertain. In conducting our business internationally, we must comply with privacy laws directly applicable to our activities in Europe and similar privacy and data protection rules in other countries in which we do business. Any such requirements may adversely affect our ability to collect demographic and personal information from users, which could have an adverse effect on our ability to provide targeted advertisements. Although we will endeavor to meet the requirements of the European Union directive and any U.S. regulations, we cannot guarantee that adequacy of our compliance will not be subject to challenge.

As our services are made available in foreign countries, and as we facilitate sales by our customers and affiliates to end users located in foreign countries, these countries may claim that we or our customers are required to qualify to do business in the particular foreign country, that we are otherwise subject to regulation, including requirements to obtain authorization, or that we or our customers are prohibited in all cases from conducting business as currently conducted in that foreign country. Our failure to qualify as a foreign corporation in a jurisdiction in which we are required to do so or to comply with foreign laws and regulations could subject us to taxes and penalties or preclude us from, or limit our ability in, enforcing contracts in these jurisdictions, which could materially adversely affect our business, prospects, operating results and financial condition.

Our customers and affiliates may also currently be, or in the future may become, subject to requirements to qualify to do business in a particular foreign country, to comply with regulations, including requirements to obtain authorization, or to cease from conducting their business as conducted in that foreign country. We cannot be certain that our customers and affiliates are currently in compliance with any of these requirements, will be able to comply with any of these requirements, or will continue in compliance with any of these requirements. The failure of our customers and affiliates to comply with these requirements could materially adversely affect our business, prospects, operating results and financial condition.

Compliance with new rules and regulations concerning corporate governance may be costly and could harm our business.

The Sarbanes-Oxley Act, which was signed into law in July 2002, mandates, among other things, that companies adopt new corporate governance measures and imposes comprehensive reporting and disclosure requirements, sets stricter independence and financial expertise standards for audit committee members and imposes increased civil and criminal penalties for companies, their chief executive officers and chief financial officers and directors for securities law violations. In addition, The Nasdaq National Stock Market, on which our common stock is listed, is also considering the adoption of additional comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations. We also expect these developments to

make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

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

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

Recent actions and public comments from the Securities and Exchange Commission have focused on the integrity of financial reporting generally. In addition, the FASB and other regulatory accounting agencies have recently introduced several new or proposed accounting standards, or are developing new proposed standards, such as accounting for guarantees, restructuring charges and stock options, some of which would represent a significant change from current industry practices. While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, we cannot predict the impact of the adoption of any such proposals on our financial statements going forward.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk. Our exposure to interest rate risk relates primarily to our investment portfolio and debt obligations. Interest rate risk occurs when we cannot hold a purchased investment to its maturity. The weighted-average maturity of our investment portfolio, when taking into account the reset feature of floating rate municipal bonds, is limited to 90 days. We intend to hold our securities until maturity and, therefore, do not expect to recognize an adverse impact on income or cash flows, although there can be no assurance of this. We have established policies and business practices regarding our investment portfolio to preserve principal while obtaining reasonable rates of return without significantly increasing risk. We place investments with high credit quality issuers according to our investment policy. We do not use derivative financial instruments in our investment portfolio. All investments are carried at fair market value at September 30, 2003. Due to the short-term nature of our investments and the immaterial amount of our debt obligation, we believe that there is no material exposure to interest fluctuation. Therefore, no accompanying table has been provided.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and our Chief Financial Officer, based on their evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, concluded that our disclosure controls and procedures were effective for this purpose.

Changes in Internal Controls. During the period covered by this report, there has been no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

In July and August 2001, we and certain of our officers were named as defendants in five purported securities class action lawsuits filed in the United States District Court, Southern District of New York, captioned as In re GRIC Communications, Inc. Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), and consolidated with more than three hundred substantially identical proceedings as In re Initial Public Offering Securities Litigation, Master File No. 21 MC

92 (SAS). The Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws (“Consolidated Complaint”) was filed on or about April 19, 2002, and alleges claims against certain of our officers and against CIBC World Markets Corp., Prudential Securities Incorporated, DB Alex. Brown, as successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of our December 14, 1999 initial public offering (“underwriter defendants”), under Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended.

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

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

For several months, we participated in settlement negotiations with a committee of Issuers’ litigation counsel, plaintiffs’ executive committee and representatives of various insurance companies (the “Insurers”) regarding the remaining Section 11 claim against us. Our Insurers were actively involved in the settlement negotiations, and strongly supported a settlement proposal presented to us for consideration in early June 2003. The settlement proposed by the plaintiffs would be paid for by the Insurers and would dispose of all remaining claims against us.

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

The settlement will be presented to the Court for approval in the coming months. There can be no guarantee that the settlement will be judicially approved.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit

Incorporated by Reference

Filed or Furnished

Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

31.01

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of

2002 of the Registrant’s Chief Executive Officer, dated November 14, 2003.

31.02

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Registrant’s Chief Financial Officer, dated November 14, 2003.

32.01*

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Registrant’s Chief Executive Officer, dated November 14, 2003.

32.02*

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Registrant’s Chief Financial Officer, dated November 14, 2003.

* These certifications accompany GRIC’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003. These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of GRIC under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

(b) Reports on Form 8-K

Date Filed or Furnished	Item(s)	Description
7/28/03	5,12	In July 2003, we filed a Form 8-K furnishing information related to a press release announcing our financial results for the quarter ended June 30, 2003 and announcing the naming of our Chief Executive Officer.

8/13/03	5	In August 2003, we filed a Form 8-K announcing that we had entered into a definitive agreement to acquire Axcelerant, Inc.

9/22/03	5	In September 2003, we filed a form 8-K announcing the resignation of two members of the Board of Directors.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 2003.

	GRIC COMMUNICATIONS, INC.


	/s/ KIM S. SILVERMAN
	Kim S. Silverman
	Vice President and Chief Financial Officer
	(principal financial officer and duly authorized officer)

For the quarterly period ended September 30, 2003

For the transition period from to

Stock Options

Lease Commitments. The Company leases all of its facilities under operating leases that expire at various dates through 2008. As of September 30, 2003, the Company had $2.4 million in future operating lease commitments.

Any strategic acquisitions or investments we engage in could dilute our stockholders and/or result in the assumption of additional liabilities, loss of sales and disruption of our business.