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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31, 2004                                                 
| 
|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 000-50327





iPass Inc.


(Exact name of Registrant as specified in its charter)





|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 93-1214598                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

3800 Bridge Parkway


Redwood Shores, California 94065


(Address, including zip code, of principal executive
offices)


(650) 232-4100


(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 Par Value


þ o


o


þ o














---



iPASS INC.


FORM 10-K


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004


TABLE OF CONTENTS







|              |  |                                                                                                                      |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                      |    | Page |   
|              |  |                                                                                                                      |    |      |   
|PART I.      
|Item 1.       |  | Business                                                                                                             |    |      | 3  | 
|Item 2.       |  | Properties                                                                                                           |    |      | 12 | 
|Item 3.       |  | Legal Proceedings                                                                                                    |    |      | 12 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 13 | 
|             
|PART II.     
|Item 5.       |  | Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 13 | 
|Item 6.       |  | Selected Financial Data                                                                                              |    |      | 14 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 14 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 30 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 31 | 
|Item 9.       |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |    |      | 31 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |    |      | 31 | 
|Item 9B.      |  | Other Information                                                                                                    |    |      | 32 | 
|             
|PART III.    
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 32 | 
|Item 11.      |  | Executive Compensation                                                                                               |    |      | 33 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |      | 33 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 33 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                               |    |      | 33 | 
|             
|PART IV.     
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 33 | 
|SIGNATURES    |  |                                                                                                                      | 59 |     
|EXHIBIT INDEX |  |                                                                                                                      | 61 |     
|EXHIBIT 2.1  
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



1



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Disclosure Regarding Forward-Looking Statements




2



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PART I







|        |         
|------- | --------
|Item 1. | Business

Overview








Our Strategy




Expand our Customer Base.


Increase Penetration within our Existing Customer Base.


Expand our Wired and Wireless Broadband Service
Offerings.


3



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Continue to Enhance our Virtual Network.


Leverage and Extend our Policy Management Capabilities.


Our Core Capabilities






Global Virtual Network.


Redundant and Scalable Virtual Network.




Secure Connectivity.




4



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Robust Policy Management Software.


Centralized Billing and Reporting.




Integration of New Technologies.


Services




| |                       
| | ----------------------
| | iPass Corporate Access

tm


5



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. The iPassConnect universal client software installed on
    a mobile workers laptop computer or other electronic
    device enables the mobile worker to connect to our virtual
    network. The mobile worker indicates the city in which he or she
    is located, and then selects a local network access point
    (dial-up, ISDN, wired high-speed internet, Wi-Fi wireless
    broadband, GSM, or 3G) or has the client software select one
    automatically. The client software automatically detects and
    displays any available Wi-Fi hotspots or mobile data services.
    It can also be used to connect via the users home
    broadband connection. A feature called SecureConnect allows the
    enterprise to set policies that detect whether the users
    personal firewall or anti-virus software is active, auto-launch
    this software if it is not, and disallow the connection attempt
    if the proper software cannot be launched.
|
| | 2. The iPass NetServer software, installed in a network
    service providers network, provides the interface between
    the network service provider and the iPass network. The
    NetServer recognizes that the end user belongs to the iPass
    network and securely transmits the username and password to the
    nearest iPass transaction center using 128-bit SSL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | 3. The transaction center to which the authentication
    request is routed looks up the enterprise to which the user
    belongs and securely transmits the user name and password to the
    iPass RoamServer software residing on the enterprises
    servers. Our ten transaction centers are located in California,
    New York, Georgia, Hong Kong, Australia, the United Kingdom,
    Germany, The Netherlands, Japan and Brazil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 4. The RoamServer receives the request from the transaction
    center, converts it to the local authentication protocol used at
    the enterprise, and passes it to the enterprise authentication
    database. Enterprises can manage their own user lists and
    authentication databases and control users access to their
    internal network through the authentication system of their
    choice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 5. The enterprise authentication database then grants or
    denies authorization. The RoamServer securely sends a yes/no
    response back to the network service provider via a transaction
    center.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 6. Once we authorize the network service provider to allow
    access to the Internet, the iPassConnect universal client
    software can invoke the Endpoint Policy Management services to
    assess and remediate the mobile device before the end user can
    continue with accessing the Internet or attaching to the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

6



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | corporate LAN. Once remediation is complete, iPassConnect can
    automatically launch the users VPN to securely connect to
    the enterprise network.                                                                                                                                                                                                                                                                                                                                 
|
| | 7. When the mobile worker terminates the Internet session,
    the VPN connection is also terminated and a record of the
    transaction is forwarded to the iPass clearinghouse. The
    enterprise receives one or more detailed monthly invoices, as
    requested. Using the Auto-Teardown feature, the enterprise can
    also set policies to disconnect the internet usage session if
    the VPN, personal firewall, or anti-virus software is terminated
    during the session.



| |                    
| | -------------------
| | Additional Services



iOQ.


ExpressConnect.


Wireless LAN Roaming.


Device ID.


Endpoint Policy Management  Online.


Mobile Lifecycle Management Suite.






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | allows IT to discover all mobile assets by gathering detailed
    hardware and software inventory on all mobile devices.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provides high-performance, policy-driven distribution of new
    software and updates to remote and mobile devices, automatically
    distributing software applications and system updates to all PCs
    and handheld devices via LAN, WAN and wireless networks.                                                                                                                                                    
|
| |  | patch automation features that speed the process of deploying
    Microsoft Windows OS and application patches across large
    populations of remote and mobile devices. IT staffs receive
    patches directly from Microsoft and apply them with no
    intermediate handling during the process. This minimizes the
    risk of inadvertent or intentional tampering with a patch,
    avoiding potential problems.
|
| |  | a Web-based view of user configurations and inventory
    information for rapid call resolution, all integrated with a
    customers existing Windows NT Domain, NDS or Active
    Directory security system.                                                                                                                                                                                                         

Technology




| |                     
| | --------------------
| | Principal Components



iPassConnect Universal Client.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Intuitive User Interface. iPassConnect universal client
    was designed with over five years of experience and customer
    feedback, resulting in a user-friendly interface with many
    features.                                                                                                                                                                                                                                                
|
| |  | Automatic Updates. iPassConnect universal client also
    provides enterprises with the ability to schedule periodic
    software modifications or updates to their end users without
    handling each end user device separately. These upgrades are
    securely downloaded to the users computer or other
    electronic device when the user logs in, at no additional cost
    to the customer.                                               
|
| |  | Central Policy Control. iPassConnect universal client
    enables an enterprise to define a set of criteria, such as
    length of session or idle timeouts, once and apply those
    criteria to manage its remote access policies across its entire
    workforce.                                                                                                                                                                                 
|
| |  | Dynamic Phonebook. iPassConnect universal client enables
    enterprises to adjust the order of narrowband access points that
    are displayed to the end user, based on service quality.
    Customers also have the flexibility of integrating in-house
    access numbers with iPass access points in cases where
    both networks are being utilized.                                                                                         
|
| |  | Third Party Application Integration. iPassConnect
    universal client can be configured to automatically launch a
    variety of third party VPNs upon successful connection to the
    Internet.                                                                                                                                                                                                                                                   
|
| |  | Support for multiple operating systems and languages.
    iPassConnect universal client supports a wide range of computer
    operating systems, including Windows 95, 98, NT, 2000, Me, XP,
    CE, Mac OS 8.x, 9.x, 10.x, Pocket PC2000, Pocket PC2002 and Palm
    OS. Additionally, iPassConnect is localized in Brazilian
    Portuguese, Simplified Chinese, Traditional Chinese, French,
    German, Japanese, Korean, Portuguese and Spanish.

Distributed Authentication System.


8



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iPass Clearinghouse.


Service Quality Management.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Client-Side SQM. Client-side SQM captures detailed status
    and usage information from connection attempts and uploads this
    information to a central iPass database when a successful
    connection is made. SQM records and reports access points from
    which connections are made, client configuration, error codes,
    connection speeds, time to authenticate and other information
    important in diagnosing network health. Our SQM software is
    deployed on networks worldwide to gather data on local access
    points and network conditions and allows us to monitor our
    virtual network from a customers point of view.
|
| |  | SQM Reporting. Our SQM infrastructure enables our iOQ
    service and provides information such as detailed access point
    performance, individual and corporate connection success rates,
    and other connection data to our customers and to us. With this
    data, our customer support and development teams can monitor
    service quality and continue to improve the reliability and
    performance of our service offering. Through our iOQ service,
    our customers benefit from this SQM technology because it
    enables them to diagnose problems their users are experiencing.                                                    
|
| |  | Phonebook. Based on input from the SQM infrastructure,
    the phonebook tool within the iPassConnect universal client
    places the highest quality access point at the top of the
    directory in order to enhance the experience for our
    customers end users.                                                                                                                                                                                                                                                                                                                                                                                  



| |                       
| | ----------------------
| | Co-location Facilities



9



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Customers








Agreements with Network Service Providers




Sales and Marketing






10



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Competition










Research and Development




Intellectual Property


tm tm tm tm tm tm


11



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Employees




Trademarks


tm tm tm tm tm tm tm tm tm tm


Available Information











|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Palumbo v.
iPass, Inc., et al.,


12



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Price Range of Common Stock






|                                     |                |                |   |       |                 |  |   |       | 
|------------------------------------ | -------------- | -------------- | - | ----- | --------------- |  | - | ----- | 
|                                     |                | Low Sale Price |   |       | High Sale Price | 
|                                     |                |                |   |       |                 | 
|Fiscal year ended December 31, 2004: |                |                |   |       |                 |  |   |      
|                                     | First Quarter  |                | $ | 10.70 |                 |  | $ | 16.25 | 
|                                     | Second Quarter |                |   | 9.86  |                 |  |   | 13.37 | 
|                                     | Third Quarter  |                |   | 4.78  |                 |  |   | 6.91  | 
|                                     | Fourth Quarter |                |   | 5.75  |                 |  |   | 7.77  | 
|Fiscal year ended December 31, 2003: |                |                |   |       |                 |  |   |      
|                                     | Third Quarter  |                | $ | 17.60 |                 |  | $ | 28.22 | 
|                                     | Fourth Quarter |                |   | 15.25 |                 |  |   | 26.90 | 



Dividend Policy




Recent Sales of Unregistered Securities




13



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                             |         |                                       |         |      |      |   |         |      |  |   |        |      |  |      |         |       |   |   |         |       |  
|---------------------------- | ------- | ------------------------------------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------ | ---- |  | ---- | ------- | ----- | - | - | ------- | ----- | -
|                             |         | Year Ended December 31,               |        
|                             |         |                                       |        
|                             |         | 2004                                  |         |      | 2003 |   |         | 2002 |  |   | 2001   |      |  | 2000 |        
|                             |         |                                       |         |      |      |   |         |      |  |   |        |      |  |      |        
|                             |         | (In thousands, except per share data) |        
|Statement of Operations Data |         |                                       |         |      |      |   |         |      |  |   |        |      |  |      |         |       |   |   |         |      
|Revenues                     |         | $                                     | 166,319 |      |      | $ | 136,078 |      |  | $ | 92,830 |      |  | $    | 53,164  |       |   | $ | 35,281  |      
|Total operating expenses     |         |                                       | 137,353 |      |      |   | 113,721 |      |  |   | 86,178 |      |  |      | 80,898  |       |   |   | 69,316  |      
|Operating income (loss)      |         |                                       | 28,966  |      |      |   | 22,357  |      |  |   | 6,652  |      |  |      | (27,734 | )     |   |   | (34,035 | )    
|Net income (loss)            |         |                                       | 19,068  |      |      |   | 13,902  |      |  |   | 29,759 | (1)  |  |      | (27,801 | )     |   |   | (34,964 | )    
|Net income (loss) per share: |         |                                       |         |      |      |   |         |      |  |   |        |      |  |      |         |       |   |   |         |      
|                             | Basic   |                                       |         | 0.31 |      |   |         | 0.26 |  |   |        | 2.34 |  |      |         | (2.43 | ) |   |         | (3.60 | )
|                             | Diluted |                                       |         | 0.29 |      |   |         | 0.23 |  |   |        | 0.57 |  |      |         | (2.43 | ) |   |         | (3.60 | )






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Of this amount, $24.3 million was due to a tax benefit,
    resulting from the reversal of deferred tax valuation allowances.

|                                 |  |                                       |         |  |      |   |         |      |  |   |        |  |  |      |        |  |  |   |        | 
|-------------------------------- |  | ------------------------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                 |  | As of December 31,                    |        
|                                 |  |                                       |        
|                                 |  | 2004                                  |         |  | 2003 |   |         | 2002 |  |   | 2001   |  |  | 2000 |       
|                                 |  |                                       |         |  |      |   |         |      |  |   |        |  |  |      |       
|                                 |  | (In thousands, except per share data) |        
|Balance Sheet Data               |  |                                       |         |  |      |   |         |      |  |   |        |  |  |      |        |  |  |   |        | 
|Total assets                     |  | $                                     | 230,513 |  |      | $ | 190,117 |      |  | $ | 75,442 |  |  | $    | 37,421 |  |  | $ | 52,232 | 
|Line of credit and loans payable |  |                                       |        |  |      |   |        |      |  |   | 10,375 |  |  |      | 8,932  |  |  |   | 2,726  | 
|Total stockholders equity       |  |                                       | 207,222 |  |      |   | 171,722 |      |  |   | 49,600 |  |  |      | 16,262 |  |  |   | 38,294 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Company Overview




Overview of 2004






14



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Sources of Revenues










Critical Accounting Policies and Estimates








| |                    
| | -------------------
| | Revenue Recognition



| |                  
| | -----------------
| | Services and Fees



15



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| |                        
| | -----------------------
| | License and Maintenance











| |                            
| | ---------------------------
| | Accounting for Income Taxes



16



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| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts



RESULTS OF OPERATIONS


Revenue


|              |  |                                    |         |        |   |   |        |   |        |  |      |   |  |   |         |  |   |   |        |      |  |  |      |   |  |   |        | 
|------------- |  | ---------------------------------- | ------- | ------ | - | - | ------ | - | ------ |  | ---- | - |  | - | ------- |  | - | - | ------ | ---- |  |  | ---- | - |  | - | ------ | 
|              |  | December 31,                       |        
|              |  |                                    |        
|              |  |                                    |         | Change |   |   |        |   | Change |  |      |  
|              |  |                                    |         |        |   |   |        |   |        |  |      |  
|              |  | 2004                               |         |        | $ |   |        | % |        |  | 2003 |   |  | $ |         |  | % |   |        | 2002 | 
|              |  |                                    |         |        |   |   |        |   |        |  |      |   |  |   |         |  |   |   |        |      | 
|              |  | (In thousands, except percentages) |        
|Total Revenue |  | $                                  | 166,319 |        |   | $ | 30,241 |   |        |  | 22.2 | % |  | $ | 136,078 |  |   | $ | 43,248 |      |  |  | 46.6 | % |  | $ | 92,830 | 







17



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Operating Expenses




| |               
| | --------------
| | Network Access



|                        |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      |  |  |      |    |  |   |        |  
|----------------------- |  | ---------------------------------- | ------ | ------ | - | - | ----- | - | ------ |  | ---- | - |  | - | ------ | - | - | - | ----- | ---- |  |  | ---- | -- |  | - | ------ | -
|                        |  | December 31,                       |       
|                        |  |                                    |       
|                        |  |                                    |        | Change |   |   |       |   | Change |  |      |  
|                        |  |                                    |        |        |   |   |       |   |        |  |      |  
|                        |  | 2004                               |        |        | $ |   |       | % |        |  | 2003 |   |  | $ |        |   | % |   |       | 2002 | 
|                        |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      | 
|                        |  | (In thousands, except percentages) |       
|Network access expenses |  | $                                  | 37,339 |        |   | $ | 7,218 |   |        |  | 24.0 | % |  | $ | 30,121 |   |   | $ | 6,798 |      |  |  | 29.1 | %  |  | $ | 23,323 |  
|As a percent of revenue |  |                                    | 22.5   | %      |   |   |      |   |        |  | 0.4  | % |  |   | 22.1   | % |   |   |      |      |  |  | (3.0 | )% |  |   | 25.1   | %







| |                   
| | ------------------
| | Network Operations



|                            |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      |  |  |      |    |  |   |        |  
|--------------------------- |  | ---------------------------------- | ------ | ------ | - | - | ----- | - | ------ |  | ---- | - |  | - | ------ | - | - | - | ----- | ---- |  |  | ---- | -- |  | - | ------ | -
|                            |  | December 31,                       |       
|                            |  |                                    |       
|                            |  |                                    |        | Change |   |   |       |   | Change |  |      |  
|                            |  |                                    |        |        |   |   |       |   |        |  |      |  
|                            |  | 2004                               |        |        | $ |   |       | % |        |  | 2003 |   |  | $ |        |   | % |   |       | 2002 | 
|                            |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      | 
|                            |  | (In thousands, except percentages) |       
|Network operations expenses |  | $                                  | 19,041 |        |   | $ | 4,735 |   |        |  | 33.1 | % |  | $ | 14,306 |   |   | $ | 3,847 |      |  |  | 36.8 | %  |  | $ | 10,459 |  
|As a percent of revenue     |  |                                    | 11.4   | %      |   |   |      |   |        |  | 0.9  | % |  |   | 10.5   | % |   |   |      |      |  |  | (0.8 | )% |  |   | 11.3   | %





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| |                         
| | ------------------------
| | Research and Development



|                                  |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |       |   |   |   |       |      |  |  |      |    |  |   |       |  
|--------------------------------- |  | ---------------------------------- | ------ | ------ | - | - | ----- | - | ------ |  | ---- | - |  | - | ----- | - | - | - | ----- | ---- |  |  | ---- | -- |  | - | ----- | -
|                                  |  | December 31,                       |       
|                                  |  |                                    |       
|                                  |  |                                    |        | Change |   |   |       |   | Change |  |      |  
|                                  |  |                                    |        |        |   |   |       |   |        |  |      |  
|                                  |  | 2004                               |        |        | $ |   |       | % |        |  | 2003 |   |  | $ |       |   | % |   |       | 2002 | 
|                                  |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |       |   |   |   |       |      | 
|                                  |  | (In thousands, except percentages) |       
|Research and development expenses |  | $                                  | 13,804 |        |   | $ | 3,860 |   |        |  | 38.8 | % |  | $ | 9,944 |   |   | $ | 2,874 |      |  |  | 40.7 | %  |  | $ | 7,070 |  
|As a percent of revenue           |  |                                    | 8.3    | %      |   |   |      |   |        |  | 1.0  | % |  |   | 7.3   | % |   |   |      |      |  |  | (0.3 | )% |  |   | 7.6   | %







| |                    
| | -------------------
| | Sales and Marketing



|                             |  |                                    |        |        |   |   |       |   |        |  |      |    |  |   |        |   |   |   |       |      |  |  |      |    |  |   |        |  
|---------------------------- |  | ---------------------------------- | ------ | ------ | - | - | ----- | - | ------ |  | ---- | -- |  | - | ------ | - | - | - | ----- | ---- |  |  | ---- | -- |  | - | ------ | -
|                             |  | December 31,                       |       
|                             |  |                                    |       
|                             |  |                                    |        | Change |   |   |       |   | Change |  |      |   
|                             |  |                                    |        |        |   |   |       |   |        |  |      |   
|                             |  | 2004                               |        |        | $ |   |       | % |        |  | 2003 |    |  | $ |        |   | % |   |       | 2002 | 
|                             |  |                                    |        |        |   |   |       |   |        |  |      |    |  |   |        |   |   |   |       |      | 
|                             |  | (In thousands, except percentages) |       
|Sales and marketing expenses |  | $                                  | 46,580 |        |   | $ | 5,531 |   |        |  | 13.5 | %  |  | $ | 41,049 |   |   | $ | 8,118 |      |  |  | 24.7 | %  |  | $ | 32,931 |  
|As a percent of revenue      |  |                                    | 28.0   | %      |   |   |      |   |        |  | (2.2 | )% |  |   | 30.2   | % |   |   |      |      |  |  | (5.3 | )% |  |   | 35.5   | %





19



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| |                           
| | --------------------------
| | General and Administrative



|                                    |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      |  |  |      |   |  |   |       |  
|----------------------------------- |  | ---------------------------------- | ------ | ------ | - | - | ----- | - | ------ |  | ---- | - |  | - | ------ | - | - | - | ----- | ---- |  |  | ---- | - |  | - | ----- | -
|                                    |  | December 31,                       |       
|                                    |  |                                    |       
|                                    |  |                                    |        | Change |   |   |       |   | Change |  |      |  
|                                    |  |                                    |        |        |   |   |       |   |        |  |      |  
|                                    |  | 2004                               |        |        | $ |   |       | % |        |  | 2003 |   |  | $ |        |   | % |   |       | 2002 | 
|                                    |  |                                    |        |        |   |   |       |   |        |  |      |   |  |   |        |   |   |   |       |      | 
|                                    |  | (In thousands, except percentages) |       
|General and administrative expenses |  | $                                  | 17,790 |        |   | $ | 3,558 |   |        |  | 25.0 | % |  | $ | 14,232 |   |   | $ | 4,602 |      |  |  | 47.8 | % |  | $ | 9,630 |  
|As a percent of revenue             |  |                                    | 10.7   | %      |   |   |      |   |        |  | 0.2  | % |  |   | 10.5   | % |   |   |      |      |  |  | 0.1  | % |  |   | 10.4  | %







| |                                         
| | ----------------------------------------
| | Amortization of Stock-Based Compensation



|                                                 |  |                                    |       |        |   |   |        |   |        |  |       |    |  |   |       |   |   |   |       |      |  |  |      |   |  |   |       |  
|------------------------------------------------ |  | ---------------------------------- | ----- | ------ | - | - | ------ | - | ------ |  | ----- | -- |  | - | ----- | - | - | - | ----- | ---- |  |  | ---- | - |  | - | ----- | -
|                                                 |  | December 31,                       |      
|                                                 |  |                                    |      
|                                                 |  |                                    |       | Change |   |   |        |   | Change |  |       |   
|                                                 |  |                                    |       |        |   |   |        |   |        |  |       |   
|                                                 |  | 2004                               |       |        | $ |   |        | % |        |  | 2003  |    |  | $ |       |   | % |   |       | 2002 | 
|                                                 |  |                                    |       |        |   |   |        |   |        |  |       |    |  |   |       |   |   |   |       |      | 
|                                                 |  | (In thousands, except percentages) |      
|Amortization of stock-based compensation expense |  | $                                  | 2,342 |        |   | $ | (1,727 | ) |        |  | (42.4 | )% |  | $ | 4,069 |   |   | $ | 1,304 |      |  |  | 47.2 | % |  | $ | 2,765 |  
|As a percent of revenue                          |  |                                    | 1.4   | %      |   |   |       |   |        |  | (1.6  | )% |  |   | 3.0   | % |   |   |      |      |  |  |     |   |  |   | 3.0   | %



Non-Operating Expenses




| |                            
| | ---------------------------
| | Other Income (Expense), Net





20



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##### Table of Contents









| |                                          
| | -----------------------------------------
| | Provision for (benefit from) Income Taxes





Liquidity and Capital Resources










21



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##### Table of Contents









| |            
| | -----------
| | Commitments





|                         |      |   |       |       | 
|------------------------ | ---- | - | ----- | ----- | 
|Year ending December 31: |      |   |       |      
|                         | 2005 |   | $     | 3,042 | 
|                         | 2006 |   |       | 208   | 
|                         |      |   |      
|                         |      | $ | 3,250 |      
|                         |      |   |      



|                         |      |   |        |       | 
|------------------------ | ---- | - | ------ | ----- | 
|Year ending December 31: |      |   |        |      
|                         | 2005 |   | $      | 3,799 | 
|                         | 2006 |   |        | 3,927 | 
|                         | 2007 |   |        | 4,055 | 
|                         | 2008 |   |        | 4,183 | 
|                         | 2009 |   |        | 4,311 | 
|                         | 2010 |   |        | 1,453 | 
|                         |      |   |       
|                         |      | $ | 21,728 |      
|                         |      |   |       



| |                                              
| | ---------------------------------------------
| | Tabular Disclosure of Contractual Obligations

|                            |                               |                        |        |           |      |   |       |           |           |   |           |       |  |       |       |       |  |   |       |       | 
|--------------------------- | ----------------------------- | ---------------------- | ------ | --------- | ---- | - | ----- | --------- | --------- | - | --------- | ----- |  | ----- | ----- | ----- |  | - | ----- | ----- | 
|                            |                               | Payments Due By Period |       
|                            |                               |                        |       
|                            |                               |                        |        | Less than |      |   |       |           | More than |  
|Contractual Obligations     |                               | Total                  |        |           | 1 Yr |   |       | 1-3 Years |           |   | 3-5 Years |       |  | 5 Yrs |      
|                            |                               |                        |        |           |      |   |       |           |           |   |           |       |  |       |      
|Operating Lease Obligations |                               | $                      | 21,728 |           |      | $ | 3,799 |           |           | $ | 7,982     |       |  | $     | 8,494 |       |  | $ | 1,453 |      
|Purchase Obligations        |                               |                        | 3,250  |           |      |   | 3,042 |           |           |   | 208       |       |  |       |      |       |  |   |      |      
|                            |                               |                        |        |           |      |   |       |           |           |   |           |       |  |       |      
|                            | Total Contractual Obligations |                        | $      | 24,978    |      |   | $     | 6,841     |           |   | $         | 8,190 |  |       | $     | 8,494 |  |   | $     | 1,453 | 
|                            |                               |                        |        |           |      |   |       |           |           |   |           |       |  |       |      

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##### Table of Contents



FACTORS AFFECTING OPERATING RESULTS


Set forth below and elsewhere in this report are risks and
uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking
statements contained in this report.


Risks Relating to Our Business




| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | If we are unable to meet the challenges posed by broadband
    access, our ability to grow our business will be
    impaired.



The broadband access market is at an early stage of
development.


The broadband service provider market is highly
fragmented.


We do not generate revenues from broadband home access.




23



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| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our customers require a high degree of reliability in our
    services, and if we cannot meet their expectations, demand for
    our services will decline.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | We face strong competition in our market, which could make
    it difficult for us to succeed.



Many of our competitors can compete on price.


Many of our competitors offer additional services that we do
not, which enables them to compete favorably against us.


Our potential customers may have other business relationships
with our competitors and consider those relationships when
deciding between our services and those of our competitors.




| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our security measures are breached and unauthorized
    access is obtained to a customers internal network, our
    virtual network may be perceived as not being secure and
    enterprises may curtail or stop using our services.



24



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##### Table of Contents







| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If enterprise connectivity demand does not continue to
    expand, we may experience a shortfall in revenues or earnings or
    otherwise fail to meet public market expectations.





| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | the willingness of enterprises to make additional information
    technology expenditures;          
|
| |  | the availability of security products necessary to ensure data
    privacy over the public networks;
|
| |  | the quality, cost and functionality of these services and
    competing services;                   
|
| |  | the increased adoption of wired and wireless broadband access
    methods; and                      
|
| |  | the proliferation of electronic devices and related applications.                                   



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to meet the challenges related to the
    market acceptance and provision of our policy management
    services, our ability to grow the business may be harmed.





| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Our long sales and service deployment cycles require us to
    incur substantial sales costs that may not result in related
    revenues.



25



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##### Table of Contents





| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There are approximately 29 countries in which we provide
    dial-up access only through Equant. The loss of Equant as a
    dial-up network service provider would substantially diminish
    our ability to deliver global network access.





| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our channel partners do not successfully market our
    services to their customers or corporate end users, then our
    revenues and business may be adversely affected.





| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to address evolving standards and technological
    changes in the enterprise connectivity and policy management
    services industry, our business could be harmed.





| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The telecommunications industry has experienced a dramatic
    decline, which may cause consolidation among network service
    providers and impair our ability to provide reliable, redundant
    service coverage and negotiate favorable network access
    terms.



26



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##### Table of Contents







| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Our software is complex and may contain errors that could
    damage our reputation and decrease usage of our services.





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Because much of our business is international, we
    encounter additional risks, which may reduce our
    profitability.





| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | longer payment cycles for foreign customers, including delays
    due to currency controls and fluctuations;
|
| |  | the impact of changes in foreign currency exchange rates on the
    attractiveness of our pricing;          
|
| |  | high taxes in some foreign jurisdictions;                                                                   
|
| |  | difficulty in complying with Internet-related regulations in
    foreign jurisdictions;                     
|
| |  | difficulty in staffing and managing foreign operations; and                                                 
|
| |  | difficulty in enforcing intellectual property rights and weaker
    laws protecting these rights.           





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Completed or future acquisitions or investments could
    dilute the ownership of our existing stockholders, cause us to
    incur significant expenses or harm our operating results.





| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | If we are unable to effectively manage future expansion,
    our business may be adversely impacted.



27



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##### Table of Contents







| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | managing our research and development efforts for new and
    evolving technologies;                              
|
| |  | expanding the capacity and performance of our network and
    software infrastructure;                            
|
| |  | developing our administrative, accounting and management
    information systems and controls; and                
|
| |  | effectively maintaining coordination among our various
    departments, particularly as we expand internationally.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | We currently are, and in the future may be, subject to
    securities class action lawsuits due to decreases in our stock
    price.





| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Litigation arising from disputes involving third parties
    could disrupt the conduct of our business.





| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If licenses to third party technologies, including our
    license with RSA Security, do not continue to be available to us
    at a reasonable cost, or at all, our business and operations may
    be adversely affected.





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Litigation arising out of intellectual property
    infringement could be expensive and disrupt our business.



28



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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | New and Potential New Accounting Pronouncements May Impact
    Our Future Financial Position and Results of Operations.



Risks Relating to Our Industry




| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Security concerns may delay the widespread adoption of the
    Internet for enterprise communications, or limit usage of
    Internet-based services, which would reduce demand for our
    products and services.





| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Financial, political or economic conditions could
    adversely affect our revenues.





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Government regulation of, and legal uncertainties
    regarding, the Internet could harm our business.



29



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##### Table of Contents










|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Foreign Currency




Interest Rate Sensitivity








|                         |       |                        |        |        |            |   |               |        |  |   |                  |         |  |   |         |         | 
|------------------------ | ----- | ---------------------- | ------ | ------ | ---------- | - | ------------- | ------ |  | - | ---------------- | ------- |  | - | ------- | ------- | 
|                         |       | Expected Maturity Date |        |        |            |   |              
|                         |       | for Par Value Amounts  |        |        |            |   |              
|                         |       | For the Year Ended     |        |        |            |   | As of         |       
|                         |       | December 31,           |        |        |            |   | Dec. 31, 2004 |       
|                         |       |                        |        |        | Total Cost |   |               |        | 
|                         |       | 2005                   |        |        | 2006       |   |               | Value  |  |   | Total Fair Value |        
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        
|U.S. Government agencies |       | $                      | 59,600 |        |            | $ | 43,500        |        |  | $ | 103,357          |         |  | $ | 102,989 |        
|Corporate notes          |       |                        |       |        |            |   | 14,415        |        |  |   | 15,007           |         |  |   | 14,951  |        
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        
|                         | Total |                        | $      | 59,600 |            |   | $             | 57,915 |  |   | $                | 118,364 |  |   | $       | 117,940 | 
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        



30



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Financial Statements




Supplementary Data




|                             |  |               |        |  |         |   |        |              |  |   |             |  |  |   |        | 
|---------------------------- |  | ------------- | ------ |  | ------- | - | ------ | ------------ |  | - | ----------- |  |  | - | ------ | 
|                             |  | Quarter Ended |       
|                             |  |               |       
|                             |  | March 31      |        |  | June 30 |   |        | September 30 |  |   | December 31 | 
|                             |  |               |        |  |         |   |        |              |  |   |             | 
|Year Ended December 31, 2004 |  |               |        |  |         |   |        |              |  |   |             |  |  |   |        | 
|Revenues                     |  | $             | 40,695 |  |         | $ | 40,394 |              |  | $ | 41,912      |  |  | $ | 43,318 | 
|Operating income             |  |               | 7,140  |  |         |   | 7,194  |              |  |   | 7,950       |  |  |   | 6,682  | 
|Net income                   |  |               | 4,697  |  |         |   | 4,489  |              |  |   | 5,206       |  |  |   | 4,676  | 
|Basic net income per share   |  | $             | 0.08   |  |         | $ | 0.07   |              |  | $ | 0.08        |  |  | $ | 0.08   | 
|Diluted net income per share |  | $             | 0.07   |  |         | $ | 0.07   |              |  | $ | 0.08        |  |  | $ | 0.07   | 

|                             |  |               |        |  |         |   |        |              |  |   |             |  |  |   |        | 
|---------------------------- |  | ------------- | ------ |  | ------- | - | ------ | ------------ |  | - | ----------- |  |  | - | ------ | 
|                             |  | Quarter Ended |       
|                             |  |               |       
|                             |  | March 31      |        |  | June 30 |   |        | September 30 |  |   | December 31 | 
|                             |  |               |        |  |         |   |        |              |  |   |             | 
|Year Ended December 31, 2003 |  |               |        |  |         |   |        |              |  |   |             |  |  |   |        | 
|Revenues                     |  | $             | 30,498 |  |         | $ | 33,103 |              |  | $ | 34,989      |  |  | $ | 37,488 | 
|Operating income             |  |               | 4,390  |  |         |   | 5,638  |              |  |   | 6,163       |  |  |   | 6,166  | 
|Net income                   |  |               | 2,310  |  |         |   | 2,952  |              |  |   | 4,461       |  |  |   | 4,179  | 
|Basic net income per share   |  | $             | 0.17   |  |         | $ | 0.21   |              |  | $ | 0.08        |  |  | $ | 0.07   | 
|Diluted net income per share |  | $             | 0.04   |  |         | $ | 0.05   |              |  | $ | 0.07        |  |  | $ | 0.06   | 






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Controls and Procedures




31



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##### Table of Contents





Managements Report on Internal Control Over Financial
Reporting




Changes in Internal Control Over Financial Reporting











|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant





Code of Ethics


http://www.ipass.com




| |                                                           
| | ----------------------------------------------------------
| | 1. From our main Web page, first click on
    Investors.
|
| | 2. Next, click on Corporate Governance.                 

32



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##### Table of Contents





| |                                                   
| | --------------------------------------------------
| | 3. Then, click on Code of Conduct.              
|
| | 4. Finally, click on Code of Conduct and Ethics.








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters










|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

(a)




|   |                     
|-- | --------------------
|1. | Financial Statements

|                                                             |                                                                                                                          |      |    |    | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | ---- | -- | -- | 
|                                                             |                                                                                                                          | Page
|                                                             |                                                                                                                          |     
|Reports of Independent Registered Public
    Accounting Firm |                                                                                                                          |      | 36 |   
|Consolidated Financial Statements:                           |                                                                                                                          |      |    |   
|                                                             | Balance Sheets as of December 31, 2004
    and 2003                                                                      |      |    | 38 | 
|                                                             | Statements of Operations for the years
    ended December 31, 2004, 2003 and 2002                                        |      |    | 39 | 
|                                                             | Statements of Stockholders Equity and
    Comprehensive Income for the years ended December 31, 2004,
    2003 and 2002 |      |    | 40 | 
|                                                             | Statements of Cash Flows for the years
    ended December 31, 2004, 2003 and 2002                                        |      |    | 41 | 
|                                                             | Notes to Consolidated Financial
    Statements                                                                           |      |    | 42 | 

33



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##### Table of Contents





|   |                              
|-- | -----------------------------
|2. | Financial Statement Schedules





|   |         
|-- | --------
|3. | Exhibits

|        |    |                         |  |                                                                                                                                                                                                                   
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 2  | .1                      |  | Agreement and Plan of Merger dated October 26, 2004 by and
    among iPass Inc., Montage Acquisition Corp., Mobile Automation,
    Inc. and David Strohm, as Stockholders Agent.                                 
|        | 3  | .1                      |  | Amended and Restated Certificate of Incorporation.(1)                                                                                                                                                             
|       
|        | 3  | .2                      |  | Bylaws, as amended.(1)                                                                                                                                                                                            
|       
|        | 4  | .1                      |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                        
|       
|        | 4  | .2                      |  | Specimen stock certificate.(1)                                                                                                                                                                                    
|       
|        | 10 | .1                      |  | 2003 Equity Incentive Plan and form of related agreements, as
    amended.(1)                                                                                                                                     
|       
|        | 10 | .2                      |  | 2003 Non-Employee Directors Plan.(1)                                                                                                                                                                              
|       
|        | 10 | .3                      |  | 1999 Stock Option Plan and form of related agreements.(1)                                                                                                                                                         
|       
|        | 10 | .4                      |  | 1997 Stock Option Plan and form of related agreements.(1)                                                                                                                                                         
|       
|        | 10 | .5                      |  | Interim 1999 Stock Option Plan.(1)                                                                                                                                                                                
|       
|        | 10 | .6                      |  | Restricted Stock Purchase Agreement by and between the
    Registrant and Anurag Lal dated November 8, 1999.(1)                                                                                                   
|       
|        | 10 | .7                      |  | 2003 Employee Stock Purchase Plan and form of related
    agreements, as amended.(1)                                                                                                                              
|       
|        | 10 | .8                      |  | Lease Agreement, dated October 26, 1999 between Registrant
    and Westport Joint Venture (as amended).(1)                                                                                                        
|       
|        | 10 | .9                      |  | Amended and Restated Investor Rights Agreement dated
    August 8, 2000 between Registrant, founders and holders of
    the Registrants Preferred Stock.(1)                                                      
|       
|        | 10 | .10                     |  | Form of Indemnity Agreement.(1)                                                                                                                                                                                   
|       
|        | 10 | .11                     |  | Employment Agreement, dated November 13, 2001 between
    Registrant and Kenneth D. Denman.(1)                                                                                                                    
|       
|        | 10 | .12                     |  | Form of Offer Letter to Executive Officers.(1)                                                                                                                                                                    
|       
|        | 10 | .13                     |  | OEM Service Provider License Agreement, dated February 29,
    2000, between RSA Security, Inc. and the Registrant, and
    amendments thereto.(1)(3)                                                             
|       
|        | 10 | .14                     |  | Support Agreement, dated February 29, 2000, by and between
    RSA Security, Inc. and the Registrant.(1)(3)                                                                                                       
|       
|        | 10 | .15                     |  | Managed Data Network Services Agreement, dated
    September 17, 1996, between Equant, (formerly Scitor
    International Telecommunication Services, Inc.), and the
    Registrant, and amendments thereto.(1)(3)
|       
|        | 10 | .16                     |  | Loan and Security Agreement dated September 4, 2001 between
    Silicon Valley Bank and the Registrant and modifications
    thereto.(1)                                                                          
|       
|        | 10 | .17                     |  | Internet Service Agreement dated April 25, 2001, by and
    between UUNET Technologies, Inc. and the Registrant, and
    amendment thereto.(1)(3)                                                                 
|       
|        | 10 | .18                     |  | Virtual Internet Provider (VIP) Agreement dated January 9,
    1997, by and between UUNET Technologies, Inc. and the Registrant
    and amendments thereto.(1)(3)                                                 
|       
|        | 10 | .19                     |  | Management Bonus Structure 2005 Plan (4)                                                                                                                                                                          
|       
|        | 10 | .20                     |  | Outside Director Compensation Arrangement (5)                                                                                                                                                                     
|       
|        | 10 | .21                     |  | Executive Officer Cash Compensation Arrangement (6)                                                                                                                                                               
|       
|        | 21 | .1                      |  | Subsidiaries of the Registrant.                                                                                                                                                                                   
|       
|        | 23 | .1                      |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                         
|       
|        | 24 | .1                      |  | Power of Attorney.(reference is made to the signature page of
    this Form 10-K)                                                                                                                                 

34



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##### Table of Contents



|        |    |    |                         |                                                                                                                                                             
|------- | -- | -- | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |                        
|Number  |    |    | Description of Document
|        |    |    |                        
|       
|        | 31 | .1 |                         | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                  
|       
|        | 31 | .2 |                         | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                  
|       
|        | 32 | .1 |                         | Certification of the Chief Executive Officer pursuant to 18
    U.S.C Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002
|       
|        | 32 | .2 |                         | Certification of the Chief Financial Officer pursuant to 18
    U.S.C Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002






|    |                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as the like-numbered exhibit to our
    Registration Statement on Form S-1, as amended, originally
    filed with the Securities and Exchange Commission on
    January 24, 2003, as amended, and incorporated by reference
    herein.
|   
|(2) | Previously filed as the like-numbered exhibit to our Quarterly
    Report on Form 10-Q filed with the Securities and Exchange
    Commission on November 13, 2003, and incorporated by
    reference herein.                                            
|   
|(3) | Confidential treatment has been grated for a portion of the
    exhibit. The information omitted pursuant to such confidential
    treatment order had been filed separately with the Securities
    and Exchange Commission.                           
|   
|(4) | Previously filed as the file-numbered exhibit on our Current
    Report on Form 8-K filed with the Securities and Exchange
    Commission on February 17, 2005, and incorporated by
    reference herein.                                               
|   
|(5) | Previously disclosed under the caption Compensation of
    Directors in our Definitive Proxy Statement on Schedule
    14A filed with the Securities and Exchange Commission on
    April 26, 2004, and incorporated by reference herein.             
|   
|(6) | Previously disclosed under the caption Compensation of
    Executive Officers in our Definitive Proxy Statement on
    Schedule 14A filed with the Securities and Exchange Commission
    on April 26, 2004, and incorporated by reference herein.    

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |             
| | ------------
| | /S/ KPMG LLP





36



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





















| |             
| | ------------
| | /S/ KPMG LLP





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iPASS INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                           |                                            |        |         |         |  |       |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- |  | ----- | ------- | ------- | 
|                                     |                                                                                                                                                                           | As of December 31,                         |       
|                                     |                                                                                                                                                                           |                                            |       
|                                     |                                                                                                                                                                           | 2004                                       |        |         | 2003    | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | (In thousands, except                      |       
|                                     |                                                                                                                                                                           | share and per share                        |       
|                                     |                                                                                                                                                                           | amounts)                                   |       
|ASSETS                              
|Current assets:                      |                                                                                                                                                                           |                                            |        |         |         |  |       |        
|                                     | Cash and cash equivalents                                                                                                                                                 |                                            | $      | 34,395  |         |  | $     | 45,646  |        
|                                     | Short-term investments                                                                                                                                                    |                                            |        | 117,940 |         |  |       | 93,639  |        
|                                     | Accounts receivable, net of allowance for doubtful accounts of
    $2,071 and $2,348, respectively                                                                        |                                            |        | 23,884  |         |  |       | 20,658  |        
|                                     | Prepaid expenses and other current assets                                                                                                                                 |                                            |        | 3,161   |         |  |       | 3,310   |        
|                                     | Deferred income tax assets                                                                                                                                                |                                            |        | 8,642   |         |  |       | 17,341  |        
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total current assets                       |        |         | 188,022 |  |       |         | 180,594 | 
|Property and equipment, net          |                                                                                                                                                                           |                                            | 10,111 |         |         |  | 8,288 |        
|Other assets                         |                                                                                                                                                                           |                                            | 1,224  |         |         |  | 1,235 |        
|Acquired intangibles, net            |                                                                                                                                                                           |                                            | 11,143 |         |         |  |      |        
|Goodwill                             |                                                                                                                                                                           |                                            | 20,013 |         |         |  |      |        
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total assets                               |        | $       | 230,513 |  |       | $       | 190,117 | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                           |                                            |        |         |         |  |       |        
|                                     | Accounts payable                                                                                                                                                          |                                            | $      | 9,154   |         |  | $     | 7,421   |        
|                                     | Accrued liabilities                                                                                                                                                       |                                            |        | 14,137  |         |  |       | 10,974  |        
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total current liabilities                  |        |         | 23,291  |  |       |         | 18,395  | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total liabilities                          |        |         | 23,291  |  |       |         | 18,395  | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|Commitments (Note 9)                 |                                                                                                                                                                           |                                            |        |         |         |  |       |        
|Stockholders equity:                |                                                                                                                                                                           |                                            |        |         |         |  |       |        
|                                     | Common stock, $.001 par value; authorized 250,000,000 and
    120,000,000 shares, respectively; issued and outstanding
    62,756,718 and 60,483,432 shares, respectively |                                            |        | 63      |         |  |       | 60      |        
|                                     | Additional paid-in capital                                                                                                                                                |                                            |        | 240,629 |         |  |       | 229,026 |        
|                                     | Notes receivable from stockholders                                                                                                                                        |                                            |        |        |         |  |       | (2,831  | )      
|                                     | Deferred stock-based compensation                                                                                                                                         |                                            |        | (1,782  | )       |  |       | (4,326  | )      
|                                     | Accumulated other comprehensive income (loss)                                                                                                                             |                                            |        | (424    | )       |  |       | 125     |        
|                                     | Accumulated deficit                                                                                                                                                       |                                            |        | (31,264 | )       |  |       | (50,332 | )      
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total stockholders equity                 |        |         | 207,222 |  |       |         | 171,722 | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 
|                                     |                                                                                                                                                                           | Total liabilities and stockholders equity |        | $       | 230,513 |  |       | $       | 190,117 | 
|                                     |                                                                                                                                                                           |                                            |        |         |         | 



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iPASS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                          |                                             |                                           |                                                |            |         |       |         |            |         |       |         |            |        |       | 
|--------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ---------------------------------------------- | ---------- | ------- | ----- | ------- | ---------- | ------- | ----- | ------- | ---------- | ------ | ----- | 
|                                                          |                                             | For the Year Ended December 31,           |                                               
|                                                          |                                             |                                           |                                               
|                                                          |                                             | 2004                                      |                                                |            | 2003    |       |         | 2002       |        
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|                                                          |                                             | (In thousands, except share and per share |                                               
|                                                          |                                             | amounts)                                  |                                               
|Revenues                                                  |                                             | $                                         | 166,319                                        |            |         | $     | 136,078 |            |         | $     | 92,830  |           
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|Operating expenses:                                       |                                             |                                           |                                                |            |         |       |         |            |         |       |         |           
|                                                          | Network access                              |                                           |                                                | 37,339     |         |       |         | 30,121     |         |       |         | 23,323     |       
|                                                          | Network operations                          |                                           |                                                | 19,041     |         |       |         | 14,306     |         |       |         | 10,459     |       
|                                                          | Research and development                    |                                           |                                                | 13,804     |         |       |         | 9,944      |         |       |         | 7,070      |       
|                                                          | Sales and marketing                         |                                           |                                                | 46,580     |         |       |         | 41,049     |         |       |         | 32,931     |       
|                                                          | General and administrative                  |                                           |                                                | 17,790     |         |       |         | 14,232     |         |       |         | 9,630      |       
|                                                          | Amortization of stock-based compensation(1) |                                           |                                                | 2,342      |         |       |         | 4,069      |         |       |         | 2,765      |       
|                                                          | Amortization of intangibles                 |                                           |                                                | 457        |         |       |         |           |         |       |         |           |       
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|                                                          |                                             | Total operating expenses                  |                                                |            | 137,353 |       |         |            | 113,721 |       |         |            | 86,178 |      
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|                                                          |                                             | Operating income                          |                                                |            | 28,966  |       |         |            | 22,357  |       |         |            | 6,652  |      
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|Other income (expense):                                   |                                             |                                           |                                                |            |         |       |         |            |         |       |         |           
|                                                          | Interest income and other                   |                                           |                                                | 2,298      |         |       |         | 1,133      |         |       |         | 440        |       
|                                                          | Interest expense                            |                                           |                                                |           |         |       |         | (620       | )       |       |         | (1,026     | )     
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|                                                          |                                             | Total other income (expense)              |                                                |            | 2,298   |       |         |            | 513     |       |         |            | (586   | )    
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|Income before income taxes                                |                                             |                                           | 31,264                                         |            |         |       | 22,870  |            |         |       | 6,066   |           
|Provision for (benefit from) income taxes                 |                                             |                                           | 12,196                                         |            |         |       | 8,968   |            |         |       | (23,693 | )         
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|Net income                                                |                                             | $                                         | 19,068                                         |            |         | $     | 13,902  |            |         | $     | 29,759  |           
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|Net income per share:                                     |                                             |                                           |                                                |            |         |       |         |            |         |       |         |           
|                                                          | Basic                                       |                                           | $                                              | 0.31       |         |       | $       | 0.26       |         |       | $       | 2.34       |       
|                                                          | Diluted                                     |                                           | $                                              | 0.29       |         |       | $       | 0.23       |         |       | $       | 0.57       |       
|Number of shares used in per share calculations:          |                                             |                                           |                                                |            |         |       |         |            |         |       |         |           
|                                                          | Basic                                       |                                           |                                                | 60,770,680 |         |       |         | 53,474,537 |         |       |         | 12,742,068 |       
|                                                          | Diluted                                     |                                           |                                                | 65,645,757 |         |       |         | 60,622,040 |         |       |         | 51,873,067 |       
|(1) Amortization of stock-based compensation consists of: |                                             |                                           |                                                |            |         |       |         |            |         |       |         |           
|                                                          | Network operations                          |                                           | $                                              | 335        |         |       | $       | 551        |         |       | $       | 302        |       
|                                                          | Research and development                    |                                           |                                                | 352        |         |       |         | 468        |         |       |         | 219        |       
|                                                          | Sales and marketing                         |                                           |                                                | 554        |         |       |         | 984        |         |       |         | 571        |       
|                                                          | General and administrative                  |                                           |                                                | 1,101      |         |       |         | 2,066      |         |       |         | 1,673      |       
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        
|                                                          |                                             |                                           | Total amortization of stock-based compensation |            | $       | 2,342 |         |            | $       | 4,069 |         |            | $      | 2,765 | 
|                                                          |                                             |                                           |                                                |            |         |       |         |            |        



39



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iPASS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME


|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        |  |   |      |   |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------- | ------- | - | ------------ | - | --- | ---------- | ---------- | ----- | ------ | - |  | ----------- | -- |  | ----------- | ----- | ----------- | ------------- |  | ------ | -------- | - |  | ------------- | ------ | - | ------ | - | ------- | ------ |  | - | ---- | - |  | - | ------- | - |  | - | ------ | -
|                                                                                          |  |                 |         |   |              |   |     |            |            | Notes |        |   |  |             |    |  |             |       |             |               | 
|                                                                                          |  | Convertible     |         |   |              |   |     |            | Receivable |       |        |   |  |             |    |  |             | Total |             |               | 
|                                                                                          |  | Preferred Stock |         |   | Common Stock |   |     | Additional |            |       | from   |   |  | Deferred    |    |  |             |       | Accumulated |               |  | Stock- |          |   | 
|                                                                                          |  |                 |         |   |              |   |     | Paid-In    |            |       | Stock- |   |  | Stock-Based |    |  | Accumulated |       |             | Comprehensive |  |        | holders |   |  | Comprehensive |       
|                                                                                          |  | Shares          |         |   | Amount       |   |     | Shares     |            |       | Amount |   |  | Capital     |    |  | holders     |       |             | Compensation  |  |        | Deficit  |   |  | Income (Loss) |        |   | Equity |   |         | Income | 
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|                                                                                          |  | (In thousands)  |        
|Balances, December 31, 2001                                                               |  |                 | 35,273  |   |              | $ | 35  |            |            |       | 13,191 |   |  | $           | 13 |  |             | $     | 115,870     |               |  | $      | (1,785   | ) |  | $             | (3,878 | ) |        | $ | (93,993 | )      |  |   |     |   |  | $ | 16,262  |   |  |   |       |  
|Exercise of stock options                                                                 |  |                 |        |   |              |   |    |            |            |       | 3,240  |   |  |             | 3  |  |             |       | 1,673       |               |  |        | (1,485   | ) |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 191     |   |  |   |       |  
|Payment of stockholder notes receivable                                                   |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        | 625      |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 625     |   |  |   |       |  
|Repurchase of unvested common stock                                                       |  |                 |        |   |              |   |    |            |            |       | (418   | ) |  |             |   |  |             |       | (109        | )             |  |        | 87       |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | (22     | ) |  |   |       |  
|Warrants                                                                                  |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 46          |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 46      |   |  |   |       |  
|Interest earned on stockholder note receivable                                            |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        | (86      | ) |  |               |       |   |        |   |        |        |  |   |     |   |  |   | (86     | ) |  |   |       |  
|Cancellation of unvested stock options                                                    |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | (572        | )             |  |        |         |   |  |               | 572    |   |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Deferred stock- based compensation                                                        |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 2,300       |               |  |        |         |   |  |               | (2,300 | ) |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Amortization of stock-based compensation                                                  |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               | 2,765  |   |        |   |        |        |  |   |     |   |  |   | 2,765   |   |  |   |       |  
|Fair value of options for accelerated vesting                                             |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 44          |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 44      |   |  |   |       |  
|Fair value of options issued to non-employees                                             |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 16          |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 16      |   |  |   |       |  
|Net income                                                                                |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   | 29,759  |        |  |   |     |   |  |   | 29,759  |   |  |   | 29,759 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|Balances, December 31, 2002                                                               |  |                 | 35,273  |   |              |   | 35  |            |            |       | 16,013 |   |  |             | 16 |  |             |       | 119,268     |               |  |        | (2,644   | ) |  |               | (2,841 | ) |        |   | (64,234 | )      |  |   |     |   |  |   | 49,600  |   |  | $ | 29,759 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|Issuance of common stock in initial public offering, net of
    issuance costs of $10,043 |  |                 |        |   |              |   |    |            |            |       | 8,050  |   |  |             | 8  |  |             |       | 102,649     |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 102,657 |   |  |   |       |  
|Conversion of convertible preferred stock into common stock                               |  |                 | (35,273 | ) |              |   | (35 | )          |            |       | 35,273 |   |  |             | 35 |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Exercise of stock options                                                                 |  |                 |        |   |              |   |    |            |            |       | 662    |   |  |             | 1  |  |             |       | 962         |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 963     |   |  |   |       |  
|Exercise of warrants                                                                      |  |                 |        |   |              |   |    |            |            |       | 485    |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Interest earned on stockholder note receivable                                            |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        | (187     | ) |  |               |       |   |        |   |        |        |  |   |     |   |  |   | (187    | ) |  |   |       |  
|Cancellation of unvested stock options                                                    |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | (282        | )             |  |        |         |   |  |               | 282    |   |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Deferred stock- based compensation                                                        |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 5,836       |               |  |        |         |   |  |               | (5,836 | ) |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Amortization of stock-based compensation                                                  |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               | 4,069  |   |        |   |        |        |  |   |     |   |  |   | 4,069   |   |  |   |       |  
|Fair value of options issued to non-employees                                             |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 392         |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 392     |   |  |   |       |  
|Tax benefit from employee stock option plans                                              |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 201         |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 201     |   |  |   |       |  
|Unrealized gain on available-for-sale investments, net                                    |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   | 125  |   |  |   | 125     |   |  |   | 125    |  
|Net income                                                                                |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   | 13,902  |        |  |   |     |   |  |   | 13,902  |   |  |   | 13,902 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|Balances, December 31, 2003                                                               |  |                 |        |   |              |   |    |            |            |       | 60,483 |   |  |             | 60 |  |             | $     | 229,026     |               |  | $      | (2,831   | ) |  | $             | (4,326 | ) |        | $ | (50,332 | )      |  | $ | 125  |   |  | $ | 171,722 |   |  | $ | 14,027 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|Exercise of stock options                                                                 |  |                 |        |   |              |   |    |            |            |       | 1,886  |   |  |             | 2  |  |             |       | 5,239       |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 5,241   |   |  |   |       |  
|Employee stock purchase plan  common stock issued                                        |  |                 |        |   |              |   |    |            |            |       | 388    |   |  |             | 1  |  |             |       | 2,735       |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 2,736   |   |  |   |       |  
|Payment of stockholder notes receivable                                                   |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        | 2,887    |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 2,887   |   |  |   |       |  
|Interest earned on stockholder note receivable                                            |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        | (56      | ) |  |               |       |   |        |   |        |        |  |   |     |   |  |   | (56     | ) |  |   |       |  
|Cancellation of unvested stock options                                                    |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | (202        | )             |  |        |         |   |  |               | 202    |   |        |   |        |        |  |   |     |   |  |   |        |   |  |   |       |  
|Amortization of stock-based compensation                                                  |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               | 2,342  |   |        |   |        |        |  |   |     |   |  |   | 2,342   |   |  |   |       |  
|Tax benefit from employee stock option plans                                              |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       | 3,831       |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   |     |   |  |   | 3,831   |   |  |   |       |  
|Unrealized loss on available-for-sale investments, net                                    |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   |        |        |  |   | (549 | ) |  |   | (549    | ) |  |   | (549   | )
|Net income                                                                                |  |                 |        |   |              |   |    |            |            |       |       |   |  |             |   |  |             |       |            |               |  |        |         |   |  |               |       |   |        |   | 19,068  |        |  |   |     |   |  |   | 19,068  |   |  |   | 19,068 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 
|Balances, December 31, 2004                                                               |  |                 |        |   |              |   |    |            |            |       | 62,757 |   |  |             | 63 |  |             | $     | 240,629     |               |  |        |         |   |  | $             | (1,782 | ) |        | $ | (31,264 | )      |  | $ | (424 | ) |  | $ | 207,222 |   |  | $ | 18,519 |  
|                                                                                          |  |                 |         |   |              |   |     |            |            |       |        |   |  |             |    |  |             |       |             |               |  |        |          |   |  |               |        |   |        |   |         |        | 



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iPASS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |         |        |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------ | -------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------ | -
|                                                                                      |                                                                                            | For the Year Ended December 31,                      |       
|                                                                                      |                                                                                            |                                                      |       
|                                                                                      |                                                                                            | 2004                                                 |        |          | 2003    |   |        | 2002    |        
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|                                                                                      |                                                                                            | (In thousands)                                       |       
|Cash flows from operating activities:                                                 |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|Net income                                                                            |                                                                                            | $                                                    | 19,068 |          |         | $ | 13,902 |         |         | $ | 29,759 |        
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Amortization of stock-based compensation for employees                                     |                                                      |        | 2,342    |         |   |        | 4,069   |         |   |        | 2,765   |       
|                                                                                      | Amortization of warrants issued                                                            |                                                      |        |         |         |   |        | 8       |         |   |        | 64      |       
|                                                                                      | Amortization of acquired intangibles                                                       |                                                      |        | 457      |         |   |        |        |         |   |        |        |       
|                                                                                      | Depreciation and amortization                                                              |                                                      |        | 4,386    |         |   |        | 3,810   |         |   |        | 3,549   |       
|                                                                                      | Stock-based compensation                                                                   |                                                      |        |         |         |   |        | 392     |         |   |        | 60      |       
|                                                                                      | Tax benefit from employee stock option plans                                               |                                                      |        | 3,831    |         |   |        | 201     |         |   |        |        |       
|                                                                                      | Deferred income taxes                                                                      |                                                      |        | 6,473    |         |   |        | 6,958   |         |   |        | (24,299 | )     
|                                                                                      | Interest on shareholder notes receivable                                                   |                                                      |        | (56      | )       |   |        | (187    | )       |   |        | (86     | )     
|                                                                                      | Provision for doubtful accounts                                                            |                                                      |        | 1,100    |         |   |        | 1,176   |         |   |        | 1,250   |       
|                                                                                      | Loss on disposals of property and equipment                                                |                                                      |        |         |         |   |        | 45      |         |   |        |        |       
|                                                                                      | Realized loss on investments, net                                                          |                                                      |        | 98       |         |   |        |        |         |   |        |        |       
|Changes in operating assets and liabilities:                                          |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Accounts receivable                                                                        |                                                      |        | (3,433   | )       |   |        | (7,607  | )       |   |        | (5,961  | )     
|                                                                                      | Prepaid expenses and other current assets                                                  |                                                      |        | 250      |         |   |        | (1,991  | )       |   |        | 183     |       
|                                                                                      | Other assets                                                                               |                                                      |        | 30       |         |   |        | (22     | )       |   |        | 52      |       
|                                                                                      | Accounts payable                                                                           |                                                      |        | 1,733    |         |   |        | 442     |         |   |        | 1,521   |       
|                                                                                      | Accrued liabilities                                                                        |                                                      |        | 1,185    |         |   |        | 2,486   |         |   |        | 1,719   |       
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|                                                                                      |                                                                                            | Net cash provided by operating activities            |        |          | 37,464  |   |        |         | 23,682  |   |        |         | 10,576 |  
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|Cash flows from investing activities:                                                 |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Purchases of short-term investments                                                        |                                                      |        | (156,020 | )       |   |        | (98,854 | )       |   |        |        |       
|                                                                                      | Maturities of short-term investments                                                       |                                                      |        | 131,072  |         |   |        | 5,340   |         |   |        |        |       
|                                                                                      | Purchases of property and equipment                                                        |                                                      |        | (6,186   | )       |   |        | (5,683  | )       |   |        | (3,533  | )     
|                                                                                      | Acquisition of Safe3w, net of cash acquired                                                |                                                      |        | (8,481   | )       |   |        |        |         |   |        |        |       
|                                                                                      | Acquisition of Mobile Automation, net of cash acquired                                     |                                                      |        | (19,964  | )       |   |        |        |         |   |        |        |       
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|                                                                                      |                                                                                            | Net cash used in investing activities                |        |          | (59,579 | ) |        |         | (99,197 | ) |        |         | (3,533 | )
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|Cash flows from financing activities:                                                 |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Net proceeds from initial public offering                                                  |                                                      |        |         |         |   |        | 102,657 |         |   |        |        |       
|                                                                                      | Proceeds from loans payable                                                                |                                                      |        |         |         |   |        | 1,483   |         |   |        | 2,418   |       
|                                                                                      | Payments on loans payable                                                                  |                                                      |        |         |         |   |        | (5,064  | )       |   |        | (1,128  | )     
|                                                                                      | Payments on line of credit, net                                                            |                                                      |        |         |         |   |        | (6,794  | )       |   |        |        |       
|                                                                                      | Proceeds from issuance of common stock                                                     |                                                      |        | 7,977    |         |   |        | 963     |         |   |        | 191     |       
|                                                                                      | Proceeds from payment of stockholder notes receivable                                      |                                                      |        | 2,887    |         |   |        |        |         |   |        | 625     |       
|                                                                                      | Payments for repurchase of unvested restricted stock                                       |                                                      |        |         |         |   |        |        |         |   |        | (22     | )     
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|                                                                                      |                                                                                            | Net cash provided by financing activities            |        |          | 10,864  |   |        |         | 93,245  |   |        |         | 2,084  |  
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|                                                                                      |                                                                                            | Net increase (decrease) in cash and cash equivalents |        |          | (11,251 | ) |        |         | 17,730  |   |        |         | 9,127  |  
|Cash and cash equivalents at beginning of year                                        |                                                                                            |                                                      | 45,646 |          |         |   | 27,916 |         |         |   | 18,789 |        
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|Cash and cash equivalents at end of year                                              |                                                                                            | $                                                    | 34,395 |          |         | $ | 45,646 |         |         | $ | 27,916 |        
|                                                                                      |                                                                                            |                                                      |        |          |         |   |        |         |        
|Supplemental disclosures of cash flow information:                                    |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Cash paid for interest                                                                     |                                                      | $      |         |         |   | $      | 486     |         |   | $      | 799     |       
|                                                                                      | Cash paid for taxes                                                                        |                                                      | $      | 1,485    |         |   | $      | 1,362   |         |   | $      | 378     |       
|Non-cash investing and financing activities:                                          |                                                                                            |                                                      |        |          |         |   |        |         |         |   |        |        
|                                                                                      | Issuance of stockholder notes receivable for exercise of stock
    options                 |                                                      | $      |         |         |   | $      |        |         |   | $      | 1,485   |       
|                                                                                      | Cancellation of stockholder notes receivable for unvested
    restricted stock repurchases |                                                      | $      |         |         |   | $      |        |         |   | $      | 87      |       



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iPASS INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                        
|------- | -----------------------
|Note 1. | Description of Business









|        |                                           
|------- | ------------------------------------------
|Note 2. | Summary of Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                     
| | --------------------
| | Comprehensive Income



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                           |                                                                                   |                         |        |      |      |   |        |      |  |   |        |   | 
|-------------------------- | --------------------------------------------------------------------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | - | 
|                           |                                                                                   | Year Ended December 31, |       
|                           |                                                                                   |                         |       
|                           |                                                                                   | 2004                    |        |      | 2003 |   |        | 2002 | 
|                           |                                                                                   |                         |        |      |      |   |        |      | 
|Net income                 |                                                                                   | $                       | 19,068 |      |      | $ | 13,902 |      |  | $ | 29,759 |  
|Comprehensive income:      |                                                                                   |                         |        |      |      |   |        |      |  |   |        |  
|                           | Change in accumulated unrealized gain (loss) on
    available-for-sale securities |                         |        | (549 | )    |   |        | 125  |  |   |        |  | 
|                           |                                                                                   |                         |        |      |      |   |        |      | 
|Total comprehensive income |                                                                                   | $                       | 18,519 |      |      | $ | 14,027 |      |  | $ | 29,759 |  
|                           |                                                                                   |                         |        |      |      |   |        |      | 



| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-term Investments







| |                       
| | ----------------------
| | Concentrations of Risk







|                 |  |      |      |   |      |  |      |      |  |  |      |  
|---------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|Access Provider: |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                 |  |      |      |   |      |  |      |      | 
|A                |  |      | 6.8  | % |      |  | 14.2 | %    |  |  | 19.0 | %
|B                |  |      | 16.8 | % |      |  | 21.3 | %    |  |  | 21.1 | %





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Property and Equipment





| |                                                              
| | -------------------------------------------------------------
| | Equipment (Three years)                                      
|
| | Furniture and fixtures (Five years)                          
|
| | Computer software and equipment (Three years)                
|
| | Leasehold improvements (Shorter of useful life or lease term)



| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation





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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                                                   |             |                                 |        |      |      |   |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------ | ----------- | ------------------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                   |             | For the Year Ended December 31, |       
|                                                                                                                   |             |                                 |       
|                                                                                                                   |             | 2004                            |        |      | 2003 |   |        | 2002 | 
|                                                                                                                   |             |                                 |        |      |      |   |        |      | 
|Net income  as reported                                                                                           |             | $                               | 19,068 |      |      | $ | 13,902 |      |  | $ | 29,759 |     
|Add: Stock-based employee compensation expense included in the
    reported net income, net of related tax effects |             |                                 | 1,429  |      |      |   | 2,523  |      |  |   | 1,714  |     
|Deduct: Stock-based employee compensation expense using the fair
    value method, net of related tax effects      |             |                                 | (3,699 | )    |      |   | (3,029 | )    |  |   | (2,265 | )   
|                                                                                                                   |             |                                 |        |      |      |   |        |      | 
|Pro forma net income                                                                                               |             | $                               | 16,798 |      |      | $ | 13,396 |      |  | $ | 29,208 |     
|                                                                                                                   |             |                                 |        |      |      |   |        |      | 
|Basic net income per common share:                                                                                 |             |                                 |        |      |      |   |        |      |  |   |        |     
|                                                                                                                   | As reported |                                 | $      | 0.31 |      |   | $      | 0.26 |  |   | $      | 2.34 | 
|                                                                                                                   | Pro forma   |                                 | $      | 0.28 |      |   | $      | 0.25 |  |   | $      | 2.29 | 
|Diluted net income per common share:                                                                               |             |                                 |        |      |      |   |        |      |  |   |        |     
|                                                                                                                   | As reported |                                 | $      | 0.29 |      |   | $      | 0.23 |  |   | $      | 0.57 | 
|                                                                                                                   | Pro forma   |                                 | $      | 0.26 |      |   | $      | 0.22 |  |   | $      | 0.56 | 





|                        |  |                                 |         |   |                                 |  |         |      |  |  |         |    |  |      |          |   |      |  |   |  |  |  |   | 
|----------------------- |  | ------------------------------- | ------- | - | ------------------------------- |  | ------- | ---- |  |  | ------- | -- |  | ---- | -------- | - | ---- |  | - |  |  |  | - | 
|                        |  | Employee Stock Options          |         |   | Employee Stock Purchase Plan    | 
|                        |  | For the Year Ended December 31, |         |   | For the Year Ended December 31, | 
|                        |  |                                 |         |   |                                 | 
|                        |  | 2004                            |         |   | 2003                            |  |         | 2002 |  |  | 2004    |    |  | 2003 |          |   | 2002 | 
|                        |  |                                 |         |   |                                 |  |         |      |  |  |         |    |  |      |          |   |      | 
|Risk-free rate          |  |                                 | 3.0     | % |                                 |  | 2.0     | %    |  |  | 3.0     | %  |  |      | 1.6      | % |      |  |  |  |  |  |  | 
|Expected dividend yield |  |                                 | 0       | % |                                 |  | 0       | %    |  |  | 0       | %  |  |      | 0        | % |      |  |  |  |  |  |  | 
|Expected volatility     |  |                                 | 41-47   | % |                                 |  | 43      | %    |  |  | 0       | %* |  |      | 32-52    | % |      |  |  |  |  |  |  | 
|Expected life           |  |                                 | 3 Years |   |                                 |  | 3 Years |      |  |  | 3 Years |    |  |      | .5 Years |   |      |  |  |  |  |  |  | 






|  |                                                                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Note that all stock option grants issued during the year ended
    December 31, 2002 were issued prior to the Companys
    initial public offering, therefore 0% volatility has been used.
    The employee stock purchase plan commenced on July 23, 2003
    with the first purchase occurring on April 30, 2004.



| |                                    
| | -----------------------------------
| | Computation of Net Income per Share



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                    
| | -------------------
| | Revenue Recognition



| |                  
| | -----------------
| | Services and Fees









| |                        
| | -----------------------
| | License and Maintenance









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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |               
| | --------------
| | Network Access







| |            
| | -----------
| | Advertising





| |                           
| | --------------------------
| | Software Development Costs







| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees, Stock-Based
Compensation


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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|        |                       
|------- | ----------------------
|Note 3. | Short-Term Investments



|                         |  |                        |         |            |       |  |            |        |  |      |       |   |  |  |         | 
|------------------------ |  | ---------------------- | ------- | ---------- | ----- |  | ---------- | ------ |  | ---- | ----- | - |  |  | ------- | 
|                         |  | Short-term Investments |        
|                         |  |                        |        
|                         |  |                        |         | Unrealized |       |  | Unrealized |        |  | Fair |      
|December 31, 2004        |  | Cost                   |         |            | Gains |  |            | Losses |  |      | Value |  
|                         |  |                        |         |            |       |  |            |        |  |      |       |  
|U.S. Government agencies |  |                        | 103,357 |            |       |  |           |        |  |      | (368  | ) |  |  | 102,989 | 
|Corporate notes          |  |                        | 15,007  |            |       |  |           |        |  |      | (56   | ) |  |  | 14,951  | 
|                         |  |                        |         |            |       |  |            |        |  |      |       |  
|                         |  |                        | 118,364 |            |       |  |           |        |  |      | (424  | ) |  |  | 117,940 | 
|                         |  |                        |         |            |       |  |            |        |  |      |       |  

|                         |  |                        |        |            |       |  |            |        |  |      |       |   |  |  |        | 
|------------------------ |  | ---------------------- | ------ | ---------- | ----- |  | ---------- | ------ |  | ---- | ----- | - |  |  | ------ | 
|                         |  | Short-term Investments |       
|                         |  |                        |       
|                         |  |                        |        | Unrealized |       |  | Unrealized |        |  | Fair |      
|December 31, 2003        |  | Cost                   |        |            | Gains |  |            | Losses |  |      | Value |  
|                         |  |                        |        |            |       |  |            |        |  |      |       |  
|U.S. Government agencies |  |                        | 80,551 |            |       |  | 110        |        |  |      |      |   |  |  | 80,661 | 
|Corporate notes          |  |                        | 9,157  |            |       |  | 17         |        |  |      | (2    | ) |  |  | 9,172  | 
|Asset backed             |  |                        | 3,806  |            |       |  |           |        |  |      |      |   |  |  | 3,806  | 
|                         |  |                        |        |            |       |  |            |        |  |      |       |  
|                         |  |                        | 93,514 |            |       |  | 127        |        |  |      | (2    | ) |  |  | 93,639 | 
|                         |  |                        |        |            |       |  |            |        |  |      |       |  



|                         |       |                        |        |        |            |   |               |        |  |   |                  |         |  |   |         |         | 
|------------------------ | ----- | ---------------------- | ------ | ------ | ---------- | - | ------------- | ------ |  | - | ---------------- | ------- |  | - | ------- | ------- | 
|                         |       | Expected Maturity Date |        |        |            |   |              
|                         |       | for Par Value Amounts  |        |        |            |   |              
|                         |       | For the Year Ended     |        |        |            |   | As of         |       
|                         |       | December 31,           |        |        |            |   | Dec. 31, 2004 |       
|                         |       |                        |        |        | Total Cost |   |               |        | 
|                         |       | 2005                   |        |        | 2006       |   |               | Value  |  |   | Total Fair Value |        
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        
|U.S. Government agencies |       | $                      | 59,600 |        |            | $ | 43,500        |        |  | $ | 103,357          |         |  | $ | 102,989 |        
|Corporate notes          |       |                        |       |        |            |   | 14,415        |        |  |   | 15,007           |         |  |   | 14,951  |        
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        
|                         | Total |                        | $      | 59,600 |            |   | $             | 57,915 |  |   | $                | 118,364 |  |   | $       | 117,940 | 
|                         |       |                        |        |        |            |   |               |        |  |   |                  |        





|        |                                
|------- | -------------------------------
|Note 4. | Allowance for Doubtful Accounts



|                             |  |           |       |  |            |   |       |             |        |   |         |   |  |   |       | 
|---------------------------- |  | --------- | ----- |  | ---------- | - | ----- | ----------- | ------ | - | ------- | - |  | - | ----- | 
|                             |  | Beginning |       |  |            |   |       |             | Ending |  
|                             |  | Balance   |       |  | Provisions |   |       | Charge Offs |        |   | Balance |  
|                             |  |           |       |  |            |   |       |             |        |   |         |  
|Year ended December 31, 2002 |  | $         | 1,114 |  |            | $ | 1,250 |             |        | $ | (864    | ) |  | $ | 1,500 | 
|Year ended December 31, 2003 |  | $         | 1,500 |  |            | $ | 1,176 |             |        | $ | (328    | ) |  | $ | 2,348 | 
|Year ended December 31, 2004 |  | $         | 2,348 |  |            | $ | 1,100 |             |        | $ | (1,377  | ) |  | $ | 2,071 | 

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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|        |                       
|------- | ----------------------
|Note 5. | Property and Equipment



|                                                |                             |                |         |        |              |   |         |       | 
|----------------------------------------------- | --------------------------- | -------------- | ------- | ------ | ------------ | - | ------- | ----- | 
|                                                |                             | December 31,   |         |        | December 31, |  
|                                                |                             | 2004           |         |        | 2003         |  
|                                                |                             |                |         |        |              |  
|                                                |                             | (In thousands) |        
|Equipment                                       |                             | $              | 17,906  |        |              | $ | 13,694  |      
|Furniture and fixtures                          |                             |                | 2,538   |        |              |   | 2,456   |      
|Computer software and equipment                 |                             |                | 4,312   |        |              |   | 2,213   |      
|Leasehold improvements                          |                             |                | 1,620   |        |              |   | 1,443   |      
|                                                |                             |                |         |        |              |  
|                                                |                             |                | 26,376  |        |              |   | 19,806  |      
|Less: Accumulated depreciation and amortization |                             |                | (16,265 | )      |              |   | (11,518 | )    
|                                                |                             |                |         |        |              |  
|                                                | Property and equipment, net |                | $       | 10,111 |              |   | $       | 8,288 | 
|                                                |                             |                |         |        |              |  





|        |                    
|------- | -------------------
|Note 6. | Accrued Liabilities



|                          |  |                |        |  |              |   |        | 
|------------------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                          |  | December 31,   |        |  | December 31, |  
|                          |  | 2004           |        |  | 2003         |  
|                          |  |                |        |  |              |  
|                          |  | (In thousands) |       
|Accrued commissions       |  | $              | 2,928  |  |              | $ | 2,979  | 
|Deferred rent             |  |                | 1,630  |  |              |   | 1,504  | 
|Deferred revenues         |  |                | 2,984  |  |              |   | 1,852  | 
|Paid time off payable     |  |                | 1,631  |  |              |   | 1,274  | 
|Other accrued liabilities |  |                | 4,964  |  |              |   | 3,365  | 
|                          |  |                |        |  |              |  
|                          |  | $              | 14,137 |  |              | $ | 10,974 | 
|                          |  |                |        |  |              |  



|        |                      
|------- | ---------------------
|Note 7. | Business Combinations



| |       
| | ------
| | Safe3w



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                               |                                |   |       |       | 
|------------------------------ | ------------------------------ | - | ----- | ----- | 
|Cash acquired                  |                                | $ | 7     |      
|Other tangible assets acquired |                                |   | 96    |      
|                               | Amortizable intangible assets: |   |       |       | 
|                               | Existing technology            |   |       | 2,900 | 
|                               | Patent/core technology         |   |       | 1,100 | 
|Goodwill                       |                                |   | 5,785 |      
|                               |                                |   |      
|Total assets acquired          |                                |   | 9,888 |      
|Deferred tax liability, net    |                                |   | (953  | )    
|Liabilities assumed            |                                |   | (135  | )    
|Transaction costs              |                                |   | (300  | )    
|                               |                                |   |      
|Net assets acquired            |                                | $ | 8,500 |      
|                               |                                |   |      







|                                                 |         |                     |         |            |      |   |         |            | 
|------------------------------------------------ | ------- | ------------------- | ------- | ---------- | ---- | - | ------- | ---------- | 
|                                                 |         | Twelve Months Ended |        
|                                                 |         | December 31,        |        
|                                                 |         |                     |        
|                                                 |         | 2004                |         |            | 2003 |  
|                                                 |         |                     |         |            |      |  
|Total revenue                                    |         | $                   | 166,444 |            |      | $ | 136,223 |           
|Net income                                       |         |                     | 16,187  |            |      |   | 10,893  |           
|Net income per share:                            |         |                     |         |            |      |   |         |           
|                                                 | Basic   |                     | $       | 0.27       |      |   | $       | 0.20       | 
|                                                 | Diluted |                     | $       | 0.25       |      |   | $       | 0.18       | 
|Number of shares used in per share calculations: |         |                     |         |            |      |   |         |           
|                                                 | Basic   |                     |         | 60,770,680 |      |   |         | 53,474,537 | 
|                                                 | Diluted |                     |         | 65,645,757 |      |   |         | 60,622,040 | 

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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Mobile Automation





|                               |                                                  |   |        |       | 
|------------------------------ | ------------------------------------------------ | - | ------ | ----- | 
|Cash acquired                  |                                                  | $ | 37     |      
|Accounts receivable            |                                                  |   | 893    |      
|Other tangible assets acquired |                                                  |   | 52     |      
|Amortizable intangible assets: |                                                  |   |        |      
|                               | Existing technology                              |   |        | 5,000 | 
|                               | Patent/core technology                           |   |        | 1,700 | 
|                               | Maintenance agreements and certain relationships |   |        | 400   | 
|                               | Customer relationships                           |   |        | 500   | 
|Goodwill                       |                                                  |   | 14,228 |      
|                               |                                                  |   |       
|Total assets acquired          |                                                  |   | 22,810 |      
|Deferred tax liability, net    |                                                  |   | (1,297 | )    
|Liabilities assumed            |                                                  |   | (1,326 | )    
|Transaction costs              |                                                  |   | (187   | )    
|                               |                                                  |   |       
|Net assets acquired            |                                                  | $ | 20,000 |      
|                               |                                                  |   |       







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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                 |         |                     |         |            |      |   |         |            | 
|------------------------------------------------ | ------- | ------------------- | ------- | ---------- | ---- | - | ------- | ---------- | 
|                                                 |         | Twelve Months Ended |        
|                                                 |         | December 31,        |        
|                                                 |         |                     |        
|                                                 |         | 2004                |         |            | 2003 |  
|                                                 |         |                     |         |            |      |  
|Total revenue                                    |         | $                   | 169,545 |            |      | $ | 139,682 |           
|Net income                                       |         |                     | 17,682  |            |      |   | 13,579  |           
|Net income per share:                            |         |                     |         |            |      |   |         |           
|                                                 | Basic   |                     | $       | 0.29       |      |   | $       | 0.25       | 
|                                                 | Diluted |                     | $       | 0.27       |      |   | $       | 0.22       | 
|Number of shares used in per share calculations: |         |                     |         |            |      |   |         |           
|                                                 | Basic   |                     |         | 60,770,680 |      |   |         | 53,474,537 | 
|                                                 | Diluted |                     |         | 65,645,757 |      |   |         | 60,622,040 | 



|        |                          
|------- | -------------------------
|Note 8. | Acquired Intangibles, net



|                                                 |  |                         |        |          |              |   |           |        |  |  |            | 
|------------------------------------------------ |  | ----------------------- | ------ | -------- | ------------ | - | --------- | ------ |  |  | ---------- | 
|                                                 |  | As of December 31, 2004 |       
|                                                 |  |                         |       
|                                                 |  |                         |        | Weighted |             
|                                                 |  |                         |        | Average  |             
|                                                 |  | Gross                   |        |          |              |   | Remaining |       
|                                                 |  | Carrying                |        |          | Accumulated  |   |           | Useful | 
|                                                 |  | Amount                  |        |          | Amortization |   |           | Life   | 
|                                                 |  |                         |        |          |              |   |           |        | 
|                                                 |  | (In thousands)          |       
|Existing technology                              |  | $                       | 7,900  |          |              | $ | (314      | )      |  |  | 5.3  Years | 
|Patent/ Core technology                          |  |                         | 2,800  |          |              |   | (111      | )      |  |  | 5.4  Years | 
|Maintenance agreements and certain relationships |  |                         | 400    |          |              |   | (11       | )      |  |  | 5.8  Years | 
|Customer relationships                           |  |                         | 500    |          |              |   | (21       | )      |  |  | 3.8  Years | 
|                                                 |  |                         |        |          |              |   |           |        | 
|Total acquired intangibles                       |  | $                       | 11,600 |          |              | $ | (457      | )      |  |  | 5.2  Years | 
|                                                 |  |                         |        |          |              |   |           |        | 

|                                                                        |            |   |        |       | 
|----------------------------------------------------------------------- | ---------- | - | ------ | ----- | 
|Aggregate amortization expense for the fiscal years (in
    thousands): |            |   |        |      
|                                                                        | 2004       |   | $      | 457   | 
|Estimated amortization expense for the fiscal years (in
    thousands): |            |   |        |      
|                                                                        | 2005       |   | $      | 2,367 | 
|                                                                        | 2006       |   |        | 2,367 | 
|                                                                        | 2007       |   |        | 2,367 | 
|                                                                        | 2008       |   |        | 2,067 | 
|                                                                        | 2009       |   |        | 567   | 
|                                                                        | Thereafter |   |        | 1,408 | 
|                                                                        |            |   |       
|Total estimated amortization expense                                    |            | $ | 11,143 |      
|                                                                        |            |   |       



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|        |                              
|------- | -----------------------------
|Note 9. | Commitments and Contingencies



|                         |      |   |        |       | 
|------------------------ | ---- | - | ------ | ----- | 
|Year ending December 31: |      |   |        |      
|                         | 2005 |   | $      | 3,799 | 
|                         | 2006 |   |        | 3,927 | 
|                         | 2007 |   |        | 4,055 | 
|                         | 2008 |   |        | 4,183 | 
|                         | 2009 |   |        | 4,311 | 
|                         | 2010 |   |        | 1,453 | 
|                         |      |   |       
|                         |      | $ | 21,728 |      
|                         |      |   |       





|                         |      |   |       |       | 
|------------------------ | ---- | - | ----- | ----- | 
|Year ending December 31: |      |   |       |      
|                         | 2005 |   | $     | 3,042 | 
|                         | 2006 |   |       | 208   | 
|                         |      |   |      
|                         |      | $ | 3,250 |      
|                         |      |   |      



| |              
| | -------------
| | Legal Actions

Palumbo v.
iPass, Inc., et al.,




|         |            
|-------- | -----------
|Note 10. | 401(k) Plan





|         |             
|-------- | ------------
|Note 11. | Income Taxes



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|         |                                                 |      |        |        |      |  |       |       |   |  |         |         |  
|-------- | ----------------------------------------------- | ---- | ------ | ------ | ---- |  | ----- | ----- | - |  | ------- | ------- | -
|         |                                                 | 2004 |        |        | 2003 |  |       | 2002  |  
|         |                                                 |      |        |        |      |  |       |       |  
|Current  |                                                 |      |        |        |      |  |       |       |   |  |         |        
|         | U.S. federal                                    |      | $      | 584    |      |  | $     | 518   |   |  | $       |        |  
|         | State                                           |      |        | 583    |      |  |       | 1,285 |   |  |         | 531     |  
|         | Foreign                                         |      |        | 187    |      |  |       | 207   |   |  |         | 75      |  
|         |                                                 |      |        |        |      |  |       |       |  
|         |                                                 |      | 1,354  |        |      |  | 2,010 |       |   |  | 606     |        
|Deferred |                                                 |      |        |        |      |  |       |       |   |  |         |        
|         | U.S. federal                                    |      |        | 9,371  |      |  |       | 7,451 |   |  |         | (22,245 | )
|         | State                                           |      |        | 1,471  |      |  |       | (493  | ) |  |         | (2,054  | )
|         |                                                 |      |        |        |      |  |       |       |  
|         |                                                 |      | 10,842 |        |      |  | 6,958 |       |   |  | (24,299 | )      
|         |                                                 |      |        |        |      |  |       |       |  
|         | Total provision for (benefit from) income taxes |      | $      | 12,196 |      |  | $     | 8,968 |   |  | $       | (23,693 | )
|         |                                                 |      |        |        |      |  |       |       |  



|                                     |                                  |                           |        |        |        |   |        |        |        | 
|------------------------------------ | -------------------------------- | ------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                     |                                  | 2004                      |        |        | 2003   |  
|                                     |                                  |                           |        |        |        |  
|Deferred tax liabilities:            |                                  |                           |        |        |        |   |        |       
|                                     | Acquired intangibles             |                           | $      | (4,520 | )      |   | $      |       |       
|                                     |                                  |                           |        |        |        |  
|Deferred tax assets:                 |                                  |                           |        |        |        |   |        |       
|                                     | Net operating loss carryforwards |                           |        | 11,461 |        |   |        | 13,104 |       
|                                     | Reserves and accruals            |                           |        | 3,293  |        |   |        | 3,082  |       
|                                     | Other                            |                           |        | 1,624  |        |   |        | 1,155  |       
|                                     |                                  |                           |        |        |        |  
|                                     |                                  | Total deferred tax assets |        |        | 16,378 |   |        |        | 17,341 | 
|                                     |                                  |                           |        |        |        |  
|Valuation allowance                  |                                  |                           | (3,216 | )      |        |   |       |       
|                                     |                                  |                           |        |        |        |  
|                                     | Net deferred tax assets          |                           |        | 13,162 |        |   |        | 17,341 |       
|                                     |                                  |                           |        |        |        |  
|Total net deferred income tax assets |                                  | $                         | 8,642  |        |        | $ | 17,341 |       
|                                     |                                  |                           |        |        |        |  

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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                          |  |      |    |   |      |  |    |      |  |  |      |   
|----------------------------------------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | --
|                                          |  | 2004 |    |   | 2003 |  |    | 2002 | 
|                                          |  |      |    |   |      |  |    |      | 
|Federal statutory rate                    |  |      | 34 | % |      |  | 34 | %    |  |  | 34   | % 
|State taxes, net of federal benefit       |  |      | 6  |   |      |  | 2  |      |  |  | 6    |   
|Foreign taxes                             |  |      |   |   |      |  |   |      |  |  | 1    |   
|Amortization of stock-based compensation  |  |      | (1 | ) |      |  | 6  |      |  |  | 14   |   
|Research and development benefit          |  |      | (2 | ) |      |  | (3 | )    |  |  |     |   
|Other                                     |  |      | 2  |   |      |  |   |      |  |  | 1    |   
|Change in valuation allowance             |  |      |   |   |      |  |   |      |  |  | (447 | ) 
|                                          |  |      |    |   |      |  |    |      | 
|Provision for (benefit from) income taxes |  |      | 39 | % |      |  | 39 | %    |  |  | (391 | )%
|                                          |  |      |    |   |      |  |    |      | 







|         |             
|-------- | ------------
|Note 12. | Common Stock



| |                   
| | ------------------
| | Stock Option Plans



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                    |            |           |           |            |           |  |                  |            |   |   |      |      | 
|----------------------------------- | ---------- | --------- | --------- | ---------- | --------- |  | ---------------- | ---------- | - | - | ---- | ---- | 
|                                    |            | Shares    |           |            |           |  | Weighted Average |           
|                                    |            | Available |           |            | Number    |  |                  | Exercise   |  
|                                    |            | for Grant |           |            | of Shares |  |                  | Price      |  
|                                    |            |           |           |            |           |  |                  |            |  
|Balance as of December 31, 2001     |            |           | 1,614,664 |            |           |  | 9,783,296        |            |   | $ | 2.32 |     
|                                    | Granted    |           |           | (1,800,000 | )         |  |                  | 1,800,000  |   |   |      | 0.83 | 
|                                    | Exercised  |           |           |           |           |  |                  | (3,240,697 | ) |   |      | 0.52 | 
|                                    | Cancelled  |           |           | 1,334,281  |           |  |                  | (1,334,281 | ) |   |      | 3.19 | 
|                                    |            |           |           |            |           |  |                  |            |  
|Balance as of December 31, 2002     |            |           | 1,148,945 |            |           |  | 7,008,318        |            |   |   | 2.60 |     
|                                    | Authorized |           |           | 8,859,026  |           |  |                  |           |   |   |      |     | 
|                                    | Granted    |           |           | (1,792,200 | )         |  |                  | 1,792,200  |   |   |      | 6.00 | 
|                                    | Exercised  |           |           |           |           |  |                  | (661,550   | ) |   |      | 4.55 | 
|                                    | Cancelled  |           |           | 251,395    |           |  |                  | (251,395   | ) |   |      | 2.79 | 
|                                    |            |           |           |            |           |  |                  |            |  
|Balance as of December 31, 2003     |            |           | 8,467,166 |            |           |  | 7,887,573        |            |   |   | 3.46 |     
|                                    | Authorized |           |           | 3,024,171  |           |  |                  |           |   |   |      |     | 
|                                    | Granted    |           |           | (4,497,933 | )         |  |                  | 4,497,933  |   |   |      | 6.10 | 
|                                    | Exercised  |           |           |           |           |  |                  | (1,885,253 | ) |   |      | 2.75 | 
|                                    | Cancelled  |           |           | 385,267    |           |  |                  | (385,267   | ) |   |      | 3.11 | 
|                                    |            |           |           |            |           |  |                  |            |  
|Balance at December 31, 2004        |            |           | 7,378,671 |            |           |  | 10,114,986       |            |   | $ | 4.78 |     
|                                    |            |           |           |            |           |  |                  |            |  
|Exercisable as of December 31, 2002 |            |           |           |            |           |  | 2,576,460        |            |   | $ | 3.75 |     
|Exercisable as of December 31, 2003 |            |           |           |            |           |  | 3,891,821        |            |   | $ | 3.45 |     
|Exercisable as of December 31, 2004 |            |           |           |            |           |  | 4,055,123        |            |   | $ | 3.83 |     



|            |  |                     |            |             |         |  |          |          |                     |   |            |          |  |          |           |  |  |   |       | 
|----------- |  | ------------------- | ---------- | ----------- | ------- |  | -------- | -------- | ------------------- | - | ---------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|            |  | Options Outstanding |            |             |         |  |         
|            |  |                     |            |             |        
|            |  |                     |            | Weighted    |         |  |          |          | Options Exercisable |  
|            |  |                     |            | Average     |         |  |          |          |                     |  
|            |  |                     |            | Remaining   |         |  | Weighted |          |                     |   |            | Weighted | 
|            |  |                     |            | Contractual |         |  | Average  |          |                     |   |            | Average  | 
|Exercise    |  | Number              |            |             | Life    |  |          | Exercise |                     |   | Number     |          |  | Exercise |          
|Prices      |  | of Options          |            |             | (Years) |  |          | Price    |                     |   | of Options |          |  | Price    |          
|            |  |                     |            |             |         |  |          |          |                     |   |            |          |  |          |          
|$0.06-1.50  |  |                     | 2,360,425  |             |         |  | 6.74     |          |                     | $ | 0.66       |          |  |          | 1,444,084 |  |  | $ | 0.64  | 
|$2.00-4.75  |  |                     | 2,450,903  |             |         |  | 5.46     |          |                     | $ | 3.75       |          |  |          | 1,784,600 |  |  | $ | 4.12  | 
|$5.05-5.35  |  |                     | 3,175,091  |             |         |  | 9.58     |          |                     | $ | 5.26       |          |  |          | 234,465   |  |  | $ | 5.33  | 
|$5.50-20.02 |  |                     | 2,128,567  |             |         |  | 8.04     |          |                     | $ | 9.83       |          |  |          | 591,974   |  |  | $ | 10.13 | 
|            |  |                     |            |             |         |  |          |          |                     |   |            |          |  |          |          
|            |  |                     | 10,114,986 |             |         |  | 7.60     |          |                     | $ | 4.78       |          |  |          | 4,055,123 |  |  | $ | 3.83  | 
|            |  |                     |            |             |         |  |          |          |                     |   |            |          |  |          |          







| |                         
| | ------------------------
| | Stock-Based Compensation



56



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|         |                    
|-------- | -------------------
|Note 13. | Segment Information

Disclosures about Segments of an
Enterprise and Related Information








|         |                            
|-------- | ---------------------------
|Note 14. | Net Income Per Common Share



57



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iPASS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                    |                                                                    |                                     |      |            |            |   |      |            |            |   |      |            |            | 
|----------------------------------- | ------------------------------------------------------------------ | ----------------------------------- | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | 
|                                    |                                                                    | For the Year Ended December 31,     |     
|                                    |                                                                    |                                     |     
|                                    |                                                                    | 2004                                |      |            | 2003       |   |      | 2002       |           
|                                    |                                                                    |                                     |      |            |            |   |      |            |           
|Numerator:                          |                                                                    |                                     |      |            |            |   |      |            |            |   |      |           
|                                    | Net income                                                         |                                     | $    | 19,068     |            |   | $    | 13,902     |            |   | $    | 29,759     |           
|                                    |                                                                    |                                     |      |            |            |   |      |            |           
|Denominator:                        |                                                                    |                                     |      |            |            |   |      |            |            |   |      |           
|                                    | Denominator for basic net income per common share                  |                                     |      |            |            |   |      |            |            |   |      |            |           
|                                    |                                                                    | Weighted average shares outstanding |      |            | 60,770,680 |   |      |            | 53,474,537 |   |      |            | 12,742,068 | 
|                                    | Effect of dilutive securities:                                     |                                     |      |            |            |   |      |            |            |   |      |            |           
|                                    |                                                                    | Preferred stock                     |      |            |           |   |      |            |           |   |      |            | 35,273,169 | 
|                                    |                                                                    | Stock options                       |      |            | 4,875,077  |   |      |            | 7,147,503  |   |      |            | 3,835,170  | 
|                                    |                                                                    | Warrants                            |      |            |           |   |      |            |           |   |      |            | 22,660     | 
|                                    | Denominator for diluted net income per common share 
    adjusted |                                     |      | 65,645,757 |            |   |      | 60,622,040 |            |   |      | 51,873,067 |           
|                                    |                                                                    |                                     |      |            |            |   |      |            |           
|Basic net income per common share   |                                                                    | $                                   | 0.31 |            |            | $ | 0.26 |            |            | $ | 2.34 |           
|                                    |                                                                    |                                     |      |            |            |   |      |            |           
|Diluted net income per common share |                                                                    | $                                   | 0.29 |            |            | $ | 0.23 |            |            | $ | 0.57 |           
|                                    |                                                                    |                                     |      |            |            |   |      |            |           



|                                   |       |                                 |         |         |      |  |         |         |  |  |           |           | 
|---------------------------------- | ----- | ------------------------------- | ------- | ------- | ---- |  | ------- | ------- |  |  | --------- | --------- | 
|                                   |       | For the Year Ended December 31, |        
|                                   |       |                                 |        
|                                   |       | 2004                            |         |         | 2003 |  |         | 2002    | 
|                                   |       |                                 |         |         |      |  |         |         | 
|Options to purchase common stock   |       |                                 | 804,250 |         |      |  | 351,200 |         |  |  | 2,914,281 |          
|Common stock subject to repurchase |       |                                 |        |         |      |  |        |         |  |  | 27,500    |          
|Warrants                           |       |                                 |        |         |      |  |        |         |  |  | 535,601   |          
|                                   |       |                                 |         |         |      |  |         |         | 
|                                   | Total |                                 |         | 804,250 |      |  |         | 351,200 |  |  |           | 3,477,382 | 
|                                   |       |                                 |         |         |      |  |         |         | 





|         |                           
|-------- | --------------------------
|Note 15. | Related Party Transactions



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##### Table of Contents






SIGNATURES






| |           
| | ----------
| | iPass Inc.



| |     |                       
| | --- | ----------------------
| | By: | /s/ Donald C. McCauley

| |                                                          
| | ---------------------------------------------------------
| |                                                          
| | Donald C. McCauley                                       
| | Vice President and Chief Financial Officer               
| | (duly authorized officer and principal financial officer)



POWER OF ATTORNEY






|                                               |  |                                                                                            |  |                |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------- |  | 
|Signature                                      |  | Title                                                                                      |  | Date          
|                                               |  |                                                                                            |  |               
|                                              
|/s/ KENNETH D. DENMANKenneth
    D. Denman     |  | Chairman, President, Chief Executive Officer and Director                                  |  | March 15, 2005
|                                              
|/s/ DONALD C. MCCAULEYDonald
    C. McCauley   |  | Vice President, Finance, and Chief
    Financial Officer
    (Principal Financial Officer) |  | March 15, 2005
|                                              
|/s/ FRANK E. VERDECANNAFrank
    E. Verdecanna |  | Vice President and
    Corporate Controller
    (Principal Accounting Officer)             |  | March 15, 2005
|                                              
|/s/ A. Gary AmesA.
    Gary Ames               |  | Director                                                                                   |  | March 15, 2005
|                                              
|/s/ Cregg B. BaumbaughCregg
    B. Baumbaugh   |  | Director                                                                                   |  | March 15, 2005

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##### Table of Contents



|                                               |  |          |  |                |  | 
|---------------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                                      |  | Title    |  | Date          
|                                               |  |          |  |               
|                                              
|/s/ John D. BeleticJohn
    D. Beletic         |  | Director |  | March 15, 2005
|                                              
|/s/ Peter G. BodinePeter
    G. Bodine         |  | Director |  | March 15, 2005
|                                              
|/s/ Arthur C. PattersonArthur
    C. Patterson |  | Director |  | March 15, 2005
|                                              
|/s/ Allan R. SpiesAllan
    R. Spies           |  | Director |  | March 15, 2005

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##### Table of Contents






INDEX TO EXHIBITS


|        |       |                         |  |                                                                                                                                                                                                                   
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 2.1   |                         |  | Agreement and Plan of Merger dated October 26, 2004 by and
    among iPass Inc., Montage Acquisition Corp., Mobile Automation,
    Inc. and David Strohm, as Stockholders Agent.                                 
|        | 3.1   |                         |  | Amended and Restated Certificate of Incorporation.(1)                                                                                                                                                             
|       
|        | 3.2   |                         |  | Bylaws, as amended.(1)                                                                                                                                                                                            
|       
|        | 4.1   |                         |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                        
|       
|        | 4.2   |                         |  | Specimen stock certificate.(1)                                                                                                                                                                                    
|       
|        | 10.1  |                         |  | 2003 Equity Incentive Plan and form of related agreements, as
    amended.(1)                                                                                                                                     
|       
|        | 10.2  |                         |  | 2003 Non-Employee Directors Plan.(1)                                                                                                                                                                              
|       
|        | 10.3  |                         |  | 1999 Stock Option Plan and form of related agreements.(1)                                                                                                                                                         
|       
|        | 10.4  |                         |  | 1997 Stock Option Plan and form of related agreements.(1)                                                                                                                                                         
|       
|        | 10.5  |                         |  | Interim 1999 Stock Option Plan.(1)                                                                                                                                                                                
|       
|        | 10.6  |                         |  | Restricted Stock Purchase Agreement by and between the
    Registrant and Anurag Lal dated November 8, 1999.(1)                                                                                                   
|       
|        | 10.7  |                         |  | 2003 Employee Stock Purchase Plan and form of related
    agreements, as amended.(1)                                                                                                                              
|       
|        | 10.8  |                         |  | Lease Agreement, dated October 26, 1999 between Registrant
    and Westport Joint Venture (as amended).(1)                                                                                                        
|       
|        | 10.9  |                         |  | Amended and Restated Investor Rights Agreement dated
    August 8, 2000 between Registrant, founders and holders of
    the Registrants Preferred Stock.(1)                                                      
|       
|        | 10.10 |                         |  | Form of Indemnity Agreement.(1)                                                                                                                                                                                   
|       
|        | 10.11 |                         |  | Employment Agreement, dated November 13, 2001 between
    Registrant and Kenneth D. Denman.(1)                                                                                                                    
|       
|        | 10.12 |                         |  | Form of Offer Letter to Executive Officers.(1)                                                                                                                                                                    
|       
|        | 10.13 |                         |  | OEM Service Provider License Agreement, dated February 29,
    2000, between RSA Security, Inc. and the Registrant, and
    amendments thereto.(1)(3)                                                             
|       
|        | 10.14 |                         |  | Support Agreement, dated February 29, 2000, by and between
    RSA Security, Inc. and the Registrant.(1)(3)                                                                                                       
|       
|        | 10.15 |                         |  | Managed Data Network Services Agreement, dated
    September 17, 1996, between Equant, (formerly Scitor
    International Telecommunication Services, Inc.), and the
    Registrant, and amendments thereto.(1)(3)
|       
|        | 10.16 |                         |  | Loan and Security Agreement dated September 4, 2001 between
    Silicon Valley Bank and the Registrant and modifications
    thereto.(1)                                                                          
|       
|        | 10.17 |                         |  | Internet Service Agreement dated April 25, 2001, by and
    between UUNET Technologies, Inc. and the Registrant, and
    amendment thereto.(1)(3)                                                                 
|       
|        | 10.18 |                         |  | Virtual Internet Provider (VIP) Agreement dated January 9,
    1997, by and between UUNET Technologies, Inc. and the Registrant
    and amendments thereto.(1)(3)                                                 
|       
|        | 10.19 |                         |  | Management Bonus Structure 2005 Plan (4)                                                                                                                                                                          
|       
|        | 10.20 |                         |  | Outside Director Compensation Arrangement (5)                                                                                                                                                                     
|       
|        | 10.21 |                         |  | Executive Officer Cash Compensation Arrangement (6)                                                                                                                                                               
|       
|        | 21.1  |                         |  | Subsidiaries of the Registrant.                                                                                                                                                                                   
|       
|        | 23.1  |                         |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                         
|       
|        | 24.1  |                         |  | Power of Attorney.(reference is made to the signature page of
    this Form 10-K)                                                                                                                                 
|       
|        | 31.1  |                         |  | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                        
|       
|        | 31.2  |                         |  | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                        

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##### Table of Contents



|        |    |                         |  |                                                                                                                                                             
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 32 | .1                      |  | Certification of the Chief Executive Officer pursuant to 18
    U.S.C Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002
|       
|        | 32 | .2                      |  | Certification of the Chief Financial Officer pursuant to 18
    U.S.C Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002






|    |                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as the like-numbered exhibit to our
    Registration Statement on Form S-1, as amended, originally
    filed with the Securities and Exchange Commission on
    January 24, 2003, as amended, and incorporated by reference
    herein.
|   
|(2) | Previously filed as the like-numbered exhibit to our Quarterly
    Report on Form 10-Q filed with the Securities and Exchange
    Commission on November 13, 2003, and incorporated by
    reference herein.                                            
|   
|(3) | Confidential treatment has been grated for a portion of the
    exhibit. The information omitted pursuant to such confidential
    treatment order has been filed separately with the Securities
    and Exchange Commission.                           
|   
|(4) | Previously filed as the file-numbered exhibit on our Current
    Report on Form 8-K filed with the Securities and Exchange
    Commission on February 17, 2005, and incorporated by
    reference herein.                                               
|   
|(5) | Previously disclosed under the caption Compensation of
    Directors in our Definitive Proxy Statement on Schedule
    14A filed with the Securities and Exchange Commission on
    April 26, 2004, and incorporated by reference herein.             
|   
|(6) | Previously disclosed under the caption Compensation of
    Executive Officers in our Definitive Proxy Statement on
    Schedule 14A filed with the Securities and Exchange Commission
    on April 26, 2004, and incorporated by reference herein.    

62