---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | ----------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | -----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission file number: 000-27871

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

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

1421 McCarthy Blvd.
Milpitas, California 95035
(408) 955-1920(Address, including Zip Code, of Registrant's Principal Executive Offices
and Registrant's Telephone Number, including Area Code)

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

The
number of shares of the registrant's common stock outstanding as of October 31, 2001 was 19,896,534 shares.

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GRIC COMMUNICATIONS, INC.

INDEX

|                              |  |                                                                                                                 |  | Page No.
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Condensed Consolidated Financial Statements:                                                                    |  |         
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000                            |  | 3       
|                              |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000 |  | 4       
|                              |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000           |  | 5       
|                              |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 6       
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 10      
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 22      
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                               |  | 23      
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                       |  | 23      
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                 |  | 24      
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 24      
|Item 5.                       |  | Other Information                                                                                               |  | 24      
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                |  | 24      
|SIGNATURE                     |  | 25                                                                                                             

2

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GRIC COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets  (in thousands)

|                                     |                                                                                                                                                                                                                 | September 30,
2001                         |        | December 31,
2000 |       
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | ------
|
|ASSETS                               |                                                                                                                                                                                                                 |                                            |        |                   |       
|Current assets:                      |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     | Cash and cash equivalents                                                                                                                                                                                       |                                            | $      | 8,445             |       
|                                     | Short-term investments                                                                                                                                                                                          |                                            |        | 7,714             |       
|                                     | Accounts receivable, net of allowances of $485 and $1,013 at September 30, 2001 and December 31, 2000, respectively                                                                                             |                                            |        | 3,237             |       
|                                     | Prepaid expenses and other current assets                                                                                                                                                                       |                                            |        | 1,274             |       
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|Total current assets                 |                                                                                                                                                                                                                 |                                            | 20,670 |                   |       
|Property and equipment, net          |                                                                                                                                                                                                                 |                                            | 4,783  |                   |       
|Other assets                         |                                                                                                                                                                                                                 |                                            | 717    |                   |       
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                 | Total assets                               |        | $                 | 26,170
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                                                 |                                            |        |                   |       
|Current liabilities:                 |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     | Accounts payable                                                                                                                                                                                                |                                            | $      | 4,835             |       
|                                     | Accrued compensation and benefits                                                                                                                                                                               |                                            |        | 1,717             |       
|                                     | Deferred revenue                                                                                                                                                                                                |                                            |        | 799               |       
|                                     | Other current liabilities                                                                                                                                                                                       |                                            |        | 408               |       
|                                     | Current portion of long-term debt and capital lease obligations                                                                                                                                                 |                                            |        | 596               |       
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|Total current liabilities            |                                                                                                                                                                                                                 |                                            | 8,355  |                   |       
|Long-term liabilities                |                                                                                                                                                                                                                 |                                            | 110    |                   |       
|Commitments and contingencies        |                                                                                                                                                                                                                 |                                            |        |                   |       
|Stockholders' equity:                |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     | Preferred stock, 5,000 shares authorized at September 30, 2001 and December 31, 2000, respectively; no shares issued and outstanding                                                                            |                                            |        |                  |       
|                                     | Common stock, $0.001 par value; 50,000 shares authorized at September 30, 2001 and December 31, 2000; 20,000 and 19,597 shares issued and outstanding at September 30, 2001 and December 31, 2000,
respectively |                                            |        | 20                |       
|                                     | Additional paid-in capital                                                                                                                                                                                      |                                            |        | 127,445           |       
|                                     | Deferred stock-based compensation                                                                                                                                                                               |                                            |        | (732              | )     
|                                     | Accumulated deficit                                                                                                                                                                                             |                                            |        | (109,027          | )     
|                                     | Accumulated other comprehensive loss                                                                                                                                                                            |                                            |        | (1                | )     
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                 | Total stockholders' equity                 |        |                   | 17,705
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                 | Total liabilities and stockholders' equity |        | $                 | 26,170
|                                     |                                                                                                                                                                                                                 |                                            |        |                   |       

See
accompanying notes

3

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GRIC COMMUNICATIONS, INC.        Condensed Consolidated Statements of Operations  (in thousands, except per share amounts)  (unaudited)

|                                                            |                                              | Three Months Ended
September 30, |        | Nine Months Ended
September 30, |       
|----------------------------------------------------------- | -------------------------------------------- | -------------------------------- | ------ | ------------------------------- | ------
|
|Revenues:                                                   |                                              |                                  |        |                                 |       
|                                                            | Settlement                                   |                                  | $      | 5,850                           |       
|                                                            | Software and other                           |                                  |        | 220                             |       
|                                                            |                                              |                                  |        |                                 |       
|                                                            |                                              | Total revenues                   |        |                                 | 6,070 
|Costs and expenses:                                         |                                              |                                  |        |                                 |       
|                                                            | Cost of settlement revenues                  |                                  |        | 3,160                           |       
|                                                            | Cost of software and other revenues          |                                  |        |                                |       
|                                                            | Network and operations                       |                                  |        | 1,440                           |       
|                                                            | Research and development                     |                                  |        | 972                             |       
|                                                            | Sales and marketing                          |                                  |        | 3,553                           |       
|                                                            | General and administrative                   |                                  |        | 1,692                           |       
|                                                            | Amortization of stock-based compensation (1) |                                  |        | 107                             |       
|                                                            | Restructuring charge                         |                                  |        |                                |       
|                                                            |                                              |                                  |        |                                 |       
|                                                            |                                              | Total costs and expenses         |        |                                 | 10,926
|                                                            |                                              |                                  |        |                                 |       
|Operating loss                                              |                                              |                                  | (4,856 | )                               |       
|Interest income and other, net                              |                                              |                                  | 135    |                                 |       
|Interest expense                                            |                                              |                                  | (30    | )                               |       
|                                                            |                                              |                                  |        |                                 |       
|Loss before income taxes                                    |                                              |                                  | (4,751 | )                               |       
|Provision for income taxes                                  |                                              |                                  | 31     |                                 |       
|                                                            |                                              |                                  |        |                                 |       
|Net loss                                                    |                                              | $                                | (4,782 | )                               | $     
|                                                            |                                              |                                  |        |                                 |       
|Basic and diluted net loss per share                        |                                              | $                                | (0.24  | )                               | $     
|                                                            |                                              |                                  |        |                                 |       
|Shares used to compute basic and diluted net loss per share |                                              |                                  | 19,924 |                                 |       
|                                                            |                                              |                                  |        |                                 |       

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See
accompanying notes

4

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

|                                                   |                                                                             | Nine Months Ended
September 30,                         |                                                    
|-------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:              |                                                                             |                                                         |                                                    
|Net loss                                           |                                                                             | $                                                       | (28,834                                            
|                                                   | Adjustments to reconcile net loss to net cash used in operating activities: |                                                         |                                                    
|                                                   |                                                                             | Depreciation and amortization of property and equipment |                                                    
|                                                   |                                                                             | Amortization of stock-based compensation                |                                                    
|                                                   |                                                                             | Write-off of intangible assets                          |                                                    
|                                                   |                                                                             | Gain of sale of fixed assets                            |                                                    
|                                                   |                                                                             | Noncash portion of restructuring charge                 |                                                    
|                                                   |                                                                             | Noncash warrant expensespreferred stock                |                                                    
|                                                   |                                                                             | Noncash warrant expensescommon stock                   |                                                    
|                                                   | Net changes in assets and liabilities:                                      |                                                         |                                                    
|                                                   |                                                                             | Accounts receivable                                     |                                                    
|                                                   |                                                                             | Prepaid expenses and other current assets               |                                                    
|                                                   |                                                                             | Other assets                                            |                                                    
|                                                   |                                                                             | Accounts payable                                        |                                                    
|                                                   |                                                                             | Accrued compensation and benefits                       |                                                    
|                                                   |                                                                             | Deferred revenue                                        |                                                    
|                                                   |                                                                             | Other current liabilities                               |                                                    
|                                                   |                                                                             | Other long-term liabilities                             |                                                    
|                                                   |                                                                             |                                                         |                                                    
|                                                   |                                                                             |                                                         | Net cash used in operating activities              
|                                                   |                                                                             |                                                         |                                                    
|Cash flows from investing activities:              |                                                                             |                                                         |                                                    
|Available-for-sale investments:                    |                                                                             |                                                         |                                                    
|                                                   |                                                                             | Purchases                                               |                                                    
|                                                   |                                                                             | Sales                                                   |                                                    
|Proceeds from sales of fixed assets                |                                                                             |                                                         | 444                                                
|Capital expenditures                               |                                                                             |                                                         | (2,256                                             
|                                                   |                                                                             |                                                         |                                                    
|                                                   |                                                                             |                                                         | Net cash provided by (used in) investing activities
|                                                   |                                                                             |                                                         |                                                    
|Cash flows from financing activities:              |                                                                             |                                                         |                                                    
|Payment of debt and capital lease obligations      |                                                                             |                                                         | (508                                               
|Proceeds from sales of common stock, net           |                                                                             |                                                         | 660                                                
|                                                   |                                                                             |                                                         |                                                    
|                                                   |                                                                             |                                                         | Net cash provided by financing activities          
|                                                   |                                                                             |                                                         |                                                    
|Net decrease in cash and cash equivalents          |                                                                             |                                                         | (20,875                                            
|Cash and cash equivalents at beginning of year     |                                                                             |                                                         | 29,320                                             
|                                                   |                                                                             |                                                         |                                                    
|Cash and cash equivalents at end of year           |                                                                             | $                                                       | 8,445                                              
|                                                   |                                                                             |                                                         |                                                    
|Supplemental disclosures of cash flow information: |                                                                             |                                                         |                                                    
|Income taxes paid                                  |                                                                             | $                                                       | 12                                                 
|Interest paid                                      |                                                                             | $                                                       | 96                                                 

See
accompanying notes

5

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GRIC COMMUNICATIONS, INC.        Notes to Condensed Consolidated Financial Statements  (unaudited)

1. Basis of Presentation

Except for the December 31, 2000 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the GRIC
Communications, Inc. (the "Company") Annual Report on Form 10-K, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and restructuring accruals) considered necessary for a fair representation have been included. The results for the nine months ended
September 30, 2001 are not necessarily indicative of the results that may be expected for future periods. The following information should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

2. Summary of Significant Accounting Policies



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

Options
outstanding to purchase approximately 371,000 and 862,000 shares of common stock for the three months ended September 30, 2001 and 2000, respectively, and 553,000 and
1.8 million shares of common stock for the nine months ended September 30, 2001 and 2000, respectively, were not included in the computation of diluted net loss per share because the
effect would be antidilutive. Such securities, had they been dilutive, would have been included in the computation of diluted net loss per share using the treasury stock method.

Recent Accounting Pronouncements

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective
January 1, 2002. SFAS 144 supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. The Company does not expect that the adoption of
SFAS 144 will have a significant impact on its financial statements.

6

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3. Comprehensive Loss

The components of comprehensive loss for the three and nine months ended September 30, 2001 and 2000, respectively, are as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2001

2000

2001

2000(in thousands)Net loss

$
(4,781
)
$
(8,194
)
$
(28,833
)
$
(23,217
)Other comprehensive loss:Unrealized loss on available-for-sale investments


22





23


(14
)Comprehensive loss

$
(4,759
)
$
(8,194
)
$
(28,810
)
$
(23,231
)


The only component of accumulated other comprehensive loss at September 30, 2001 was unrealized loss on
available-for-sale investments.

4. Segment Information

The Company operates solely in one segment, providing a global network for Internet service providers and telecommunications companies, corporate enterprises
and newly-emerging communications service providers.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2001

2000

2001

2000(in thousands)

(in thousands)Revenue by external customers:United States

$
2,330

$
5,624

$
7,528

$
12,642Southeast Asia


265


1,083


1,380


2,775Japan


1,731


641


3,971


1,668Europe


850


1,138


2,152


2,788Greater China (1)


243


209


682


600Rest of world


651


312


929


774$
6,070

$
9,007

$
16,642

$
21,247


---

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

September 30, 2001

December 31, 2000(in thousands)Long-lived assets:United States

$
4,403

$
10,901Rest of world


380


577$
4,783

$
11,478


7

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Revenue by external customer is based on the customer's billing location. Long-lived assets are those assets used in each
geographic location.

5. Commitments and Contingencies

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

On
July 24, 2001, the Company and certain of its officers were named as defendants in a purported securities class-action lawsuit filed in the United States District Court,
Southern District of New York, captioned Colbert Birnet LP v. GRIC Communications, Inc. et al., No. 01 CV 6771. In August, 2001, substantially identical lawsuits were filed in the same
court, again naming the Company and certain of its officers, under the captions Northern Capital Holdings Inc. v. GRIC Communications, Inc. et al., No. 01 CV 7124; Gerald S.
Platts v. GRIC Communications, Inc., et al., No. 01 CV 7699; Glenn Tortoso v. GRIC Communications, Inc., et al., No. 01 CV 7869; and Sanjay Israni v. GRIC
Communications, Inc., et al., No. 01 CV 8087. These complaints allege claims against the Company, certain of its officers (the suits are not uniform in their selection of officers named
as defendants), and CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc., underwriters of the Company's December 14, 1999 initial public
offering, under Sections 11 and 15 of the Securities Act of 1933, as amended. The complaints also allege claims against CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp
Piper Jaffray Inc. under Section 12(2) of the Securities Act of 1933 and against some of the named defendants under Section 10(b) of the Securities Exchange Act of 1934, as
amended. The lawsuits brought by Northern Capital Holdings Inc. and Israni also name Deutsche Bank Securities, Inc. as a defendant and allege claims against that underwriter
substantially similar to the claims alleged against CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. The Northern Capital Holdings, Tortoso and
Israni complaints also purport to allege claims against the Company and certain of its officers and directors under Sections 10(b) and 20(a) of the Securities Act of 1934, and
Rule 10b-5 promulgated thereunder.

Citing
several press articles, the complaints allege that CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. used improper methods
in allocating shares in initial public offerings, and claim the underwriters entered into improper commission agreements regarding aftermarket trading in the Company's common stock purportedly issued
pursuant to the registration statement for the initial public offering.

The
parties to those lawsuits have been discussing a proposal by which all of the individual officers and directors of the issuer defendants would be dismissed, without prejudice, all
Section 10(b) and Rule 10b-5 claims would be dismissed, without prejudice, and the actions against the issuer defendants would be stayed, except for certain test cases. The
Company believes that it would meet the conditions set by the current proposal for dismissal of its officers, and anticipates that the actions against it would be stayed and the 10b-5
claims would be dismissed if the Company were to agree to these terms. There can be no
guarantee that the parties will agree to these or similar terms. The Company's management believes that the lawsuits are without merit and intends to defend them vigorously.

8

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6. Restructuring Event

In January 2001, the Company undertook a strategic restructuring and decided to cease providing its Internet telephony settlement services, based on an
analysis of the operating expenses required to support these services and the low gross margins associated with them, and on the Company's expectation that continued Internet telephony operations
would require additional cash infusions to the business. The Company anticipates that its strategic restructuring will be completed within this calendar year.

7. Stock Repurchase Program

In September 2001, the Board of Directors approved a program to expend up to $2,000,000 to repurchase shares of the Company's common stock in open
market transactions. During the three months ended September 30, 2001, the amount of shares repurchased was insignificant.

The
provision and associated charges against the provision for restructuring, each of which relate to the discontinuation of Internet telephony operations, through the nine months
ended September 30, 2001, are as follows:

|                               |  | Employee
Severance Costs |      | Termination of
Lease and Facility
Obligations |   | Retirement of
Fixed Assets |   | Total |       
|------------------------------ |  | ------------------------ | ---- | --------------------------------------------- | - | -------------------------- | - | ----- | ------
|
|Q1 2001 provision              |  | $                        | 708  |                                               | $ | 1,532                      |   | $     | 5,581 
|Non-cash charges               |  |                          |     |                                               |   |                           |   |       | (5,581
|Cash charges                   |  |                          | (620 | )                                             |   | (310                       | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at March 31, 2001     |  |                          | 88   |                                               |   | 1,222                      |   |       |      
|Cash charges                   |  |                          | (88  | )                                             |   | (289                       | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at June 30, 2001      |  |                          |     |                                               |   | 933                        |   |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Cash charges                   |  |                          |     |                                               |   | (122                       | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at September 30, 2001 |  | $                        |     |                                               | $ | 811                        |   | $     |      
|                               |  |                          |      |                                               |   |                            |   |       |       

Recognition of settlement revenues derived from the Company's Internet telephony settlement services through January 2001, when these
services were ceased, has been deferred, due to the low probability of
collection, until the time of cash collection. Settlement revenues include $5,000 and $908,000 of Internet telephony services that were collected during the three and nine months ended
September 30, 2001, respectively.

During
the three months ended March 31, 2001, June 30, 2001 and September 30, 2001, cash received from the sale of fixed assets to third parties was $131,000, and
$287,000 and $0, respectively. The sale of these assets resulted in a gain of $48,000 in the three months ended June 30, 2001. All employee terminations in connection with the restructuring
plan had been completed and paid as of June 30, 2001 at a total severance cost of $708,000 for a total of 58 employees.

9

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes,
which appear elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements, such as statements of expected revenues and expenses,
that involve risk and uncertainties.  We assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in the
forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those detailed from time to time in our filings with the Securities and Exchange
Commission and those discussed in this Form 10-Q, particularly in "Factors That May Affect Future Results."

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

Overview

We provide services and software that enable our customers to offer Internet-based mobile office communications services, such as Internet roaming, to their
end users worldwide. Our customers include telecommunications companies, Internet service providers, corporate enterprises and newly emerging communications service providers.

From
our inception until 1997 we were both an Internet service provider in Northern California and an independent software developer for the Internet service provider community. In
1997, we sold our local Internet service provider business. We first recognized settlement revenues in 1997, and since 1998 we have derived our revenues primarily from settlement services. From late
1998 until January 2001, our settlement services included Internet telephony services, which are characterized by high revenues with low margins. On January 30, 2001, we announced
actions to focus our business on our Internet roaming service, and to cease our Internet telephony service, based on an analysis of the operating expenses required to support Internet telephony
services along with the low gross margins associated with them, and our expectation that continued Internet telephony operations would require additional cash infusions to the business. In connection
with that new focus, we also restructured our operations by reducing our workforce, eliminating bandwidth costs associated with Internet telephony and reducing equipment and network maintenance
expenses. As a result of this restructuring we are now focused on globally providing Internet-based mobile office communications services.

As
an Internet-based mobile office communications services business, we generate settlement revenues when we provide settlement services to customers whose end users initiate Internet
communications. For global Internet roaming transactions, our settlement services consist of tracking usage, collecting the amount that a roamer's "home" service provider owes us, paying the
appropriate amount to the service provider enabling local access, and providing the underlying usage data to our customer to enable end user billing. Revenues during 2000 were primarily settlement
revenues generated from Internet telephony transactions, which we discontinued in January 2001.

We
have incurred substantial losses since our inception as a result of expenses associated with building our GRIC Alliance and related network infrastructure and developing our
software products. As of September 30, 2001, we had an accumulated deficit of approximately $109.0 million. We expect to incur additional losses for the foreseeable future, and we cannot
assure you that we will achieve or sustain profitability. See "Factors That May Affect Future ResultsWe have not been profitable to date and we anticipate continued losses during 2002."

Our
business model has evolved in the course of our development and we believe that period-to-period comparisons of our operating results should not be relied
upon as indicative of future performance. Our future prospects must be considered in light of the risks, expenses and difficulties

10

---

frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets. See "Factors That May Affect Future ResultsOur
operating history is more limited than that of many other companies, so you may find it difficult to evaluate our business in making an investment decision."

Results of Operations

Third Quarter and Year-to-Date Ended September 30, 2001 compared to Third Quarter and Year-to-Date Ended
September 30, 2000

Revenues

Total revenues decreased to $6.1 million in the three months ended September 30, 2001 from $9.0 million in the three months ended
September 30, 2000, representing a decrease of 33%. Total revenues decreased to $16.6 million in the nine months ended September 30, 2001 from $21.2 million in the nine
months ended September 30, 2000, representing a decrease of 22%.

Settlement Revenues.Settlement revenues decreased to $5.9 million in the three months ended
September 30, 2001 from $8.2 million in the three months ended September 30, 2000, representing a decrease of 28%. Settlement revenues decreased to $16.1 million in the
nine months ended September 30, 2001 from $19.9 million in the nine months ended September 30, 2000, representing a decrease of 19%. The decreases were due to lower revenues from
our Internet telephony settlement services resulting from our January 2001 restructuring, partially offset by increased revenues from our Internet roaming services. Settlement revenues include
$5,000 and $908,000 of Internet telephony services that had been deferred from prior periods due to the low probability of collection, but were collected during the three months and nine months ended
September 30, 2001, respectively. We expect settlement revenues from Internet roaming services to increase in the last quarter of 2001.

Software and Other Revenues.Software, hardware, and maintenance and services revenues decreased to $220,000 in the
three months ended September 30, 2001 from $855,000 in the three months ended September 30, 2000, representing a decrease of 74%. Software, hardware, and maintenance and services
revenues decreased to $502,000 in the nine months ended September 30, 2001 from $1.4 million in the nine months ended September 30, 2000, representing a decrease of 63%. The
decreases were primarily due to lower sales from licenses of certain components of our clearinghouse software and related maintenance and services, partially offset by higher revenues from sales of
Internet roaming software, maintenance and services. We expect total software and other revenues to constitute an insignificant component of total revenues for the year ended 2001.

Costs and Expenses

Cost of Settlement Revenues.Cost of settlement revenues consists of amounts we pay to access the Internet in order to
provide Internet roaming services for our customers and, before our decision to cease providing Internet telephony services, amounts we paid to terminate Internet telephony services for our customers.
Cost of settlement revenues decreased to $3.2 million in the three months ended September 30, 2001 from $7.3 million in the three months ended September 30, 2000,
representing a decrease of 57%. Cost of settlement revenues decreased to $9.8 million in the nine months ended September 30, 2001 from $17.8 million in the nine months ended
September 30, 2000, representing a decrease of 45%. The decreases were primarily due to a decrease in Internet telephony settlement costs as a result of our decision in January 2001 to
cease providing low margin Internet telephony services. The decrease in Internet telephony settlement costs was partially offset by an increase in Internet roaming costs due to increased volumes of
Internet roaming minutes. We expect that for 2001 the cost
of settlement revenues will decline as a percentage of total settlement revenues as a result of our ceasing to provide Internet telephony service and negotiating lower rates with our Internet roaming
providers thereby improving overall settlement margins.

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Cost of Software and Other Revenues.Cost of software, hardware and maintenance services revenues represents the cost
of equipment, software and professional services. Cost of software, hardware and maintenance and services revenues decreased to zero in the three months ended September 30, 2001 from $7,000 in
the three months ended September 30, 2000. Cost of software, hardware, and maintenance and services revenues decreased to zero in the nine months ended September 30, 2001 from $83,000 in
the nine months ended September 30, 2000.

Network and Operations.Network and operations expenses include costs of co-location of network equipment
and leased telecommunication lines, salaries and benefits, depreciation on network equipment and allocated facility and management information systems costs. Network and operations expenses decreased
to $1.4 million in the three months ended September 30, 2001 from $2.2 million in the three months ended September 30, 2000, representing a decrease of 34%. Network and
operations expenses decreased to $4.9 million in the nine months ended September 30, 2001 from $5.3 million in the nine months ended September 30, 2000, representing a
decrease of 8%. The decreases were primarily due to our ceasing to provide Internet telephony services in January 2001 resulting in decreased costs of co-location of network
equipment and leased telecommunication lines. This decrease was partially offset by an overall increase in staffing and related expenses to provide customer support and to operate our network centers
on a 24 hours-a-day, seven days-a-week basis. We expect that network and operations expenses will remain relatively flat during the last quarter
of 2001.

Research and Development.Research and development expenses include salaries and benefits, recruiting costs of
employees and outside consultants, quality assurance, allocated facility, management information systems and depreciation costs. Research and development expenses decreased to $972,000 in the three
months ended September 30, 2001 from $2.8 million in the three months ended September 30, 2000, representing a decrease of 65%. Research and development expenses decreased to
$4.6 million in the nine months ended September 30, 2001 from $8.0 million in the nine months ended September 30, 2000, representing a decrease of 43%. The decreases were
primarily due to the reduction in engineering personnel following our January 2001 restructuring of operations as we decreased the complexity of our settlement services model and focused
principally on the continued development of our core Internet roaming software. Further, by expanding the use of our development center in India, we continue to reduce our research and development
expenses due to the favorable costs of obtaining engineering talent in India compared to the San Francisco Bay area.

Sales and Marketing.Sales and marketing expenses include salaries and benefits, commissions earned by sales and
marketing personnel, allocated facility, management information systems and depreciation costs, costs for marketing and promotional programs, and costs associated with domestic and international sales
offices. Sales and marketing expenses increased to $3.6 million in the three months
ended September 30, 2001 from $3.3 million in the three months ended September 30, 2000, representing an increase of 7%. Sales and marketing expenses increased to
$11.2 million in the nine months ended September 30, 2001 from $9.4 million in the nine months ended September 30, 2000, representing a increase of 18%. The increases
reflect the recruitment and hiring of additional personnel to expand our geographic coverage and to support the growth of our global Internet roaming services. The increases also reflect our
investments in marketing and promotional campaigns to promote our brand identity. We expect sales and marketing expenses to remain relatively flat during the last quarter of 2001.

General and Administrative.General and administrative expenses consist of general corporate and facility costs as well
as salary, benefits and related costs for executive, finance, legal, administrative, human resources, investor relations and management information systems functions and provisions for uncollectible
receivables. General and administrative expenses decreased to $1.7 million in the three months ended September 30, 2001 from $2.3 million in the three months ended
September 30, 2000, representing a decrease of 28%. General and administrative expenses increased to $7.5 million in the

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nine months ended September 30, 2001 from $6.2 million in the nine months ended September 30, 2000, representing an increase of 20%. The decrease in the three months ended
September 30, 2001 was primarily due to a decrease in the provisions for uncollectible receivables resulting from our ceasing to provide Internet telephony service in January 2001. The
increase in the nine months ended September 30, 2001 was primarily due to fully reserving, during the first quarter of 2001, all uncollected Internet telephony receivables. We expect general
and administrative expenses to decrease during the last quarter of 2001.

Amortization of Stock-Based Compensation.Some stock options previously granted through December 14, 1999 are
considered compensatory because the estimated fair value for accounting purposes was greater than the stock option exercise price as determined by the board of directors on the date of grant. As a
result, we have recorded related amortization of deferred compensation expense of $107,000 in the three months ended September 30, 2001 and $320,000 in the nine months ended
September 30, 2001. As of September 30, 2001, we had an aggregate of $732,000 of deferred compensation remaining to be amortized. Deferred compensation is amortized on a
straight-line basis over the vesting period of the options. We expect amortization of approximately $427,000 in each of 2001 and 2002, and $198,000 in fiscal 2003.

Restructuring Charge.In connection with our January 2001 restructuring, which we anticipate will be completed
within this calendar year, we incurred a total charge to operations of $7.8 million in the first quarter of 2001. This restructuring charge was composed of $5.6 million for the
retirement of fixed assets, $1.5 million for expected cash payments related to the termination of lease and facility obligations and $708,000 of employee severance costs, each of which are
related to our Internet telephony services. During the three months ended March 31, 2001, June 30, 2001 and September 30, 2001, cash received from the sale of fixed assets to
third parties was $131,000, $287,000 and $0, respectively. During the three months ended March 31, 2001, June 30, 2001 and September 30, 2001, cash payments were made for the
termination of lease and facility obligations totaling $310,000, $289,000 and $122,000, respectively. During the three months ended March 31, 2001 and June 30, 2001, employee
severance payments totaled $620,000 for 53 employees and $88,000 for 5 employees, respectively. All employee terminations in connection with the restructuring plan were completed as of June 30,
2001.

Interest Income and Other, Net

Interest income and other, net, primarily represents interest income on cash balances. Interest income and other, net, decreased to $136,000 in the three
months ended September 30, 2001 from $908,000 in the three months ended September 30, 2000. Interest income and other, net, decreased to $741,000 in the nine months ended
September 30, 2001 from $3.0 million in the nine months ended September 30, 2000. The decreases were primarily due to the higher cash balances in 2000 resulting from our initial
public offering in December 1999 and subsequent reductions for cash used in operations.

Interest Expense

Interest expense consists of amortization of the fair value of warrants issued in connection with our financing activities and interest expense associated with
capital leases and bridge financing. Interest expense decreased to $30,000 in the three months ended September 30, 2001 from $46,000 in the three months ended September 30, 2000.
Interest expense decreased to $103,000 in the nine months ended September 30, 2001 from $134,000 in the nine months ended September 30, 2000. The decreases are primarily due to the
payment of outstanding capital lease obligations.

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Income Taxes

The provision for income taxes decreased to $31,000 in the three months ended September 30, 2001 from $38,000 in the three months ended
September 30, 2000. The provision for income taxes decreased to $102,000 in the nine months ended September 30, 2001 from $115,000 in the nine months ended September 30, 2000. The
provision for income taxes consists of foreign tax provisions.

Liquidity and Capital Resources

Operating Activities.Net cash used in operating activities was $23.7 million and $19.6 million in the
nine months ended September 30, 2001 and 2000, respectively. Net cash used in operating activities in the nine months ended September 30, 2001 and 2000 was primarily a result of net
operating losses and our January 2001 strategic restructuring charges.

Investing Activities.Net cash provided by investing activities was $2.7 million in the nine months ended
September 30, 2001 and net cash used in investing activities was $19.6 million in the nine months ended September 30, 2000. The net cash provided by investing activities in the
nine months ended September 30, 2001 was primarily the result of maturing short term investments to fund net operating activities. The cash used in the nine months ended September 30,
2000 was primarily a result of purchases of short-term investments which utilized the funds received from the Company's initial public offering. Other uses of cash in investing activities
consisted of purchases of computer hardware, relating to the network infrastructure, and of computer hardware and software.

Financing Activities.Net cash provided by financing activities was $153,000 and $1.2 million in the nine months
ended September 30, 2001 and 2000, respectively. Financing activities primarily consisted of proceeds from sales of common stock through our employee stock purchase plan and the exercise of
stock options.

Commitments.We lease all of our facilities under operating leases that expire at various dates through 2003. As of
September 30, 2001, we had $2.0 million in future operating lease commitments and $596,000 of capital lease obligations and equipment promissory notes.

Stock Repurchase Program.In September 2001, the Board of Directors approved a program to expend up to
$2,000,000 to repurchase shares of the Company's common stock in open market transactions. During the three months ended September 30, 2001, the amount of shares repurchased was insignificant.

Summary of Liquidity.Our consolidated financial statements are prepared on a going concern basis. At
September 30, 2001, we had an accumulated deficit of $109.0 million and incurred a net loss of $28.8 million for the nine months ended September 30, 2001. We expect losses
to continue during 2002. Our January 2001 restructuring plan was designed to reduce our operating expenses in 2001, however, there can be no assurance that we will be successful in reducing
operating expenses in the future.

We
believe that total available cash, cash equivalents and short-term investments of $16.2 million at September 30, 2001, future cash savings as a result of
ceasing to provide our Internet telephony service, our associated operational restructuring, and cash expected to be generated by operations, will be adequate to fund planned operations for at least
the next twelve months.

We
plan to invest in expanding our Internet roaming and related services on a global basis. This will require us to maintain continued favorable market acceptance and growth of our
Internet roaming and related services offerings in order for us to continue our research and development activities and fund planned operating expenses. There can be no assurance that our Internet
roaming product offerings will maintain continued favorable market acceptance, growth and operating margins.

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If we are unable to attain our revenue and margin goals, significant reductions in spending and the delay or cancellation of planned activities or more substantial restructuring may
be necessary to enable us to meet our cash requirements through the next twelve months. These actions could have a material adverse effect on our business, results of operations and prospects.
Furthermore, we may need to raise additional funds in future periods through public or private financing, strategic relationships or other arrangements to fund operations and potential acquisitions,
if any. We may never achieve profitability. Any additional financing, if needed, might not be available on terms acceptable to us or at all. Failure to raise capital when needed could seriously harm
our business and results of operations. If additional funds were raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, these
equity securities might have rights, preferences or privileges senior to our common stock.

Factors That May Affect Future Results

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

We recently restructured our business, which makes our financial results more difficult to analyze.

In January 2001, we restructured our business by ceasing to provide our Internet telephony service and focusing on our Internet roaming service. As a
result, we reduced our employee workforce and eliminated some network and operating expenses. Further, the termination of our Internet telephony service means that telephony revenues have been
eliminated and our Internet roaming service is our primary source of revenue. This concentration of our revenues makes us more dependent on the growth of the Internet roaming market in general, and
will increase the negative impact on our business if our Internet roaming product offerings do not maintain favorable market acceptance and growth or achieve our revenue and margin targets. The
restructuring may also lead to resignations by key employees, which could harm our operations and financial results.

Our financial performance and workforce reduction may adversely affect our ability to retain and hire personnel.

As a result of our January 2001 restructuring and the low price of our common stock, our personnel may seek opportunities with larger, more established
companies or companies they perceive to have better prospects. This may cause us to lose critical personnel or to increase recruiting expenses, or both.

In
order to implement our model successfully, we will need to retain and hire personnel. Specifically, our sales efforts require highly trained sales personnel. Competition for these
individuals is intense, and we may not be able to hire the type and number of sales personnel we need. Moreover, even after we hire these individuals, they require extensive training in our products
and services. If we are unable to continue to retain our current employees and train new sales personnel as rapidly as necessary, we may not be able to increase market awareness and sales of our
services, which may prevent us from generating revenue and achieving and maintaining profitability.

Our operating history is more limited than that of many other companies, so you may find it difficult to evaluate our business in making an investment decision.

We have limited experience in developing and providing our products and services. Since our inception, we have had limited revenues from our current
Internet-based communications software products and services. In the past we have undertaken development of software products, which were either not completed or not delivered on time. We have also
discontinued products that did not achieve widespread market acceptance. Many members of our senior management team and other employees

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have worked with us for only a short period of time. Consequently, we have not demonstrated that our business can succeed.

We have not been profitable to date and we anticipate continued losses during 2002.

To date, we have not been profitable. We cannot assure you that we will ever achieve or sustain profitability. We reported operating losses before income taxes
of $32.3 million for 2000, $22.5 million for 1999 and $17.9 million for 1998. As of September 30, 2001, our accumulated deficit was $109.0 million. We expect to
incur operating losses during 2002. We expect to face pressure to adopt new pricing arrangements, including volume discounts that may lower our gross margins. If revenues do not meet levels we
anticipate, or if our costs and expenses exceed our expectations, we will continue to sustain losses, and our business and the price of our common stock may be harmed.

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

It is possible that we may need to raise additional funds in the future in order to fund operations or acquisitions, particularly if the general economic
downturn continues to negatively impact revenues. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be
reduced, stockholders may experience additional dilution and these securities may have powers, preferences and rights that are senior to those of the rights of our common stock. We cannot be certain
that additional financing will be available on terms favorable to us, if at all. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our business
operations, promote our brand identity, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures. Any inability to do so could have a negative
effect on our business, revenues, financial condition and results of operations.

Our success depends on our ability to maintain and increase our customer base.

Customers are generally free to use competing products and services, so we could face significant customer losses. Our customers are generally not obligated to
generate minimum revenues, and some generate very little revenue for us. These factors make it difficult to anticipate the level of our future revenues from existing customers. In addition, our
success depends on our ability to expand our customer base. If we lose any significant customer or are unable to expand our customer base and to increase our average revenues per customer, our
business will be harmed.

If we fail to attract larger customers, our revenues could fail to increase.

Historically, a significant portion of our revenues has been derived from smaller companies in the Internet marketplace. We have begun to focus our sales and
marketing efforts upon larger corporate and enterprise-level customers. This strategy places demands on our business, such as the longer sales cycles and higher levels of service and support that
larger corporate and enterprise accounts often require. A failure to obtain more of our revenues from larger customers could materially adversely affect our operations and if we have underestimated
the costs of this strategy our results could also be harmed.

We depend on our customers to market Internet-based communications services to their end users, so our revenues depend on the activities of others and the market acceptance of
those services.

Our business depends on the efforts and success of our customers in marketing Internet-based communications services to their end users. We have little ability
to promote those services. If our
customers fail to market Internet-based communications services effectively, our revenues would be reduced.

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We face significant competition, including competition from larger companies.

There are low barriers to entry by businesses seeking to offer services on the Internet. As a result, our business environment is intensely competitive, highly
fragmented and rapidly changing. Competition can come from many sources. For example, we compete directly with iPass in the market for Internet roaming and related settlement services, and iPass has a
network that competes with the GRIC Alliance. Large communications service providers such as AT&T, Equant and UUNET also have the ability and resources to compete with us in the Internet-based mobile
office communications services market.

Many
of our competitors have substantially greater resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the
industry than we have. Any of these competitors may combine or form strategic partnerships, gaining competitive advantages as a result. Our competitors may be able to develop and market products and
services that are superior to our own in terms of features, quality, pricing or other factors. In that event, our products and services may not achieve the market acceptance necessary for us to
achieve success.

Sales in the Internet infrastructure market are subject to fluctuation.

Although sales to the Internet infrastructure market have grown historically, this market is characterized by large and often sporadic purchases. In addition,
recently, we and other companies in this market, as well as in the computer market generally, have warned of lower-than-expected revenue and declines or delays in sales orders
from customers in the Internet infrastructure market. Sales activity in this industry depends upon the stage of completion of expanding network infrastructures, the availability of funding and the
extent that service providers are affected by regulatory and business conditions in the locale of operations. A decline or delay in sales orders from this industry could have a material adverse effect
on our business, operating results and financial condition.

If we are unable to manage growth, the GRIC Alliance and our product development efforts effectively, our business and the price of our stock will be harmed.

In recent periods, growth has strained our network operations, product development and other managerial, operating and financial resources. We expect these
strains to continue if we resume our growth, and our financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively. If we
are not able to manage research and
development efforts, network infrastructure, performance and internal controls effectively, our costs will be higher than expected and our business will be harmed.

Our operating results fluctuate and are difficult to predict, so we may fail to satisfy the expectations of investors or market analysts and our stock price may decline.

Our quarterly operating results have fluctuated in the past, and we expect them to fluctuate in the future. Despite our recent restructuring, our business may
fail to grow rapidly enough to offset our operating expenses. As a result, our quarterly operating results could fluctuate. The primary factors that may cause fluctuations in our quarterly operating
results, many of which are beyond our control, include:



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Business
models relying on the Internet to provide Internet-based communications services are still evolving. As a result, you should not rely on the results of any past periods as an
indication of our future performance. It is likely that in some future periods, our operating results may be below expectations of public market analysts or investors. If this occurs, the price of our
common stock is likely to decline.

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

Our success depends in large part on our ability to assure generally error-free clearinghouse services, uninterrupted operation of our network and
software infrastructure, and a satisfactory experience for our customers' end users. To achieve these objectives, we depend on the quality, performance and scalability of our products and services,
the responsiveness of our technical support and the capacity, reliability and security of our network operations. We also depend on third parties over which we have no control. For example, our
ability to serve approximately 52 countries is based solely on our network access agreement with one service provider and on that service provider's ability to provide reliable Internet access points
in those countries. In the past, we have experienced problems due to our inability to detect system malfunctions and due to errors in collecting or processing account usage and settlement data. Due to
the high level of performance required for critical communications traffic, any failure to deliver a satisfactory experience to end users, whether or not caused by our own failures, and any failure to
provide accurate settlement data in connection with acting as a clearinghouse, could reduce demand for our products and services.

As a clearinghouse, we have greater collection risks than many other companies.

Difficulties in collecting accounts receivable will harm our financial results, and this collection risk is inherently greater for us as a clearinghouse
service provider because we are obligated to pay amounts owed to each customer whether or not we have collected all the amounts due to us from other customers. In addition, if end users or
unauthorized third parties engage in unauthorized or otherwise fraudulent roaming activity, we may face difficulty collecting the resulting accounts receivable. If we are not able to manage this
problem, our financial results will suffer.

If we are unable to develop and introduce new products and services, we will be less likely to attract or retain customers.

We expect the market for Internet-based communications products and services to continue to change rapidly. To succeed, we will be required to adapt to those
changes by improving and enhancing our existing products and services, and developing and introducing new products and services. We have not demonstrated that we can consistently develop and market
product enhancements and new products or services on a timely or cost-effective basis. On several occasions, we have altered the course of our
product development efforts or discontinued products after their introduction, which has resulted in delays and increased research and development expenses. If we fail to produce technologically
competitive products and services in a cost-effective manner and on a timely basis, our business will be harmed.

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Our long sales cycle makes it particularly difficult for us to forecast revenues, requires us to incur high costs of generating sales, and aggravates fluctuations in quarterly
financial results.

Our business is characterized by a long sales cycle, including contact with a potential customer, establishment of a new customer relationship, winning the new
customer and realizing significant transaction-based revenues. Recently, our revenues have been negatively impacted by the general economic downturn. These factors make it difficult for us to predict
future revenues. In addition, we incur substantial sales costs before we win a customer or recognize any related revenue, which increases the volatility of our results because we may have high costs
without associated offsetting revenues.

Because much of our business is conducted internationally, we encounter special payment and regulatory difficulties, which may reduce our profitability and harm the price of
our common stock.

Because we generate most of our revenues from business conducted internationally, we are subject to special risks. It is costly to maintain international
facilities and operations, promote our brand internationally and develop localized systems and support centers. Revenues from certain regions may not offset the expense of maintaining operations in
these regions. Additional risks faced by our international operations include:



We
are also exposed to general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships. Any of these factors may reduce our
profitability and harm the price of our common stock.

We need to hire and retain qualified personnel to sustain the growth of our business, which is particularly difficult for us because we compete with other companies in the San
Francisco Bay area where we are based.

Our future success depends, in part, on the continued service of our key executive, management and technical personnel, and our ability to attract new skilled
employees. From time to time we have experienced difficulty in hiring and retaining highly skilled employees, and we expect to continue to experience this sort of difficulty. Competition for employees
in our industry is intense, particularly in the San Francisco Bay area where we are located, and we have experienced significant attrition, particularly after our recent restructuring of operations.
Continued declines in the market price of our common stock could also hurt employee morale and retention. If we are not able to retain our key employees or to attract, assimilate or retain other
highly qualified employees in the future, our business could be harmed because our growth might be slowed or executive leadership might be disrupted.

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Litigation arising out of intellectual property infringement or other commercial disputes could be expensive and disrupt our business.

We cannot be certain that our products do not, or will not, infringe upon patents, trademarks, copyrights or other intellectual property rights held by third
parties. In addition, since we rely on third parties to help us develop, market and support our product and service offerings, we cannot assure you that litigation will not arise from disputes
involving those third parties. From time to time we have
been, and we expect to continue to be, party to disputes with these third parties. We may incur substantial expenses in defending against these claims, regardless of their merit. Successful claims
against us may result in substantial monetary liability, significantly impact our results of operations in one or more quarters or materially disrupt the conduct of our business.

Our executive officers and directors hold a significant percentage of our stock and will be able to control matters requiring stockholder approval.

As of September 30, 2001, our executive officers and directors and their affiliated entities owned approximately 31% of our outstanding common stock.
Accordingly, these stockholders may have a substantial influence on all matters requiring approval by our stockholders, including the election of directors and the approval of significant corporate
transactions. This concentration could also have the effect of delaying or preventing a change in control of our company.

Our certificate of incorporation and bylaws and Delaware law contain provisions that could discourage a takeover and depress our stock price.

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



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

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

If the market price for our common stock falls and remains below $1.00 per share, our market capitalization falls and remains below $35 million or we
otherwise fail to meet the criteria for continued listing on The Nasdaq National Market, our common stock may be deemed to be penny stock. On October 31, 2001, the closing price of our common
stock was $1.54. If our common stock were considered penny stock, it would be subject to rules that impose additional sales practices on broker-dealers who sell our securities. Because of these
additional obligations, some brokers may be unwilling to effect transactions in penny stocks. This could have an adverse effect on the liquidity of our common stock and your ability to sell the common
stock.

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Future developments in Internet-based communications services, which are critical to our success, are uncertain.

For us to increase our revenues, the Internet must be validated as an effective medium for the delivery of Internet roaming and other Internet-based
communications services. The infrastructure of the public Internet may not be able to support increased demands placed on it, and the performance of the Internet may be adversely affected. Our
business will be harmed if the Internet does not continue to grow as a telecommunications medium, and that growth may be inhibited by factors such as:



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

The secure transmission of confidential information over public networks is a significant barrier to widespread adoption of electronic commerce and
communications. The Internet is a public network and information is sent over this network from many sources. Advances in computer capabilities, new discoveries in the field of cryptography or other
developments could result in compromised security on our network or the networks of others. If any well-publicized compromises of confidential information were to occur, it could reduce
demand for Internet-based communications and our products and services.

We may be affected by regional electric shortages.

During 2001, California has experienced shortages of electric power supply that have resulted in intermittent losses of power in some areas in the form of
rolling blackouts. A blackout may affect our ability to provide our Internet services. If blackouts were to interrupt our power supply, we would be temporarily unable to continue operations at our
main U.S. facility. Any such interruption in our ability to continue operations at our main U.S. facility could damage our reputation, harm our ability to retain existing customers and to obtain new
customers, and could result in lost revenue, any of which could substantially harm our business and results of operations.

U.S. or foreign governmental regulations regarding the Internet and Internet-based services may be enacted, which could impede our business.

To date, governmental laws and regulations applicable to access to or commerce on the Internet have not materially restricted use of the Internet in our
markets. However, the legal and regulatory environment that pertains to the Internet is uncertain and may change. New domestic or foreign taxes could also be adopted that would apply to the delivery
or use of communications services over the Internet. Uncertainty about and adoption of new regulations could increase our costs of doing business, or prevent us from delivering our products and
services over the Internet, or significantly slow the growth of the Internet. This could delay growth in demand for our products and services and harm our business.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk.We have limited exposure to financial market risks, including changes in foreign currency
exchange rates and interest rates. Although we have foreign operations in Europe and Asia, to date, our exposure to foreign currency fluctuations has not been significant.

Interest Rate Risk.Our exposure to interest rate risk relates primarily to our investment portfolio and debt
obligations. Interest rate risk occurs when we cannot hold a purchased investment to its maturity. We limit the weighted-average maturity of our investment portfolio to 90 days. We intend to
hold our securities until maturity and, therefore, do not expect to recognize an adverse impact on income or cash flows, although there can be no assurance of this. We have established policies and
business practices regarding our investment portfolio to preserve principal while obtaining reasonable rates of return without significantly increasing risk. We place investments with high credit
quality issuers according to our investment policy. We do not use derivative financial instruments in our investment portfolio. All investments are carried at fair market value for 2001. Due to the
short-term nature of our investments and the immaterial amount of our debt obligation, we believe that there is no material exposure to interest fluctuation. Therefore, no accompanying
table has been provided.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 24, 2001, we and certain of our officers were named as defendants in a purported securities class-action lawsuit filed in the United States
District Court, Southern District of New York, captioned Colbert Birnet LP v. GRIC Communications, Inc. et al., No. 01 CV 6771. In August, 2001, substantially identical lawsuits were
filed in the same court, again naming us and certain of our officers, under the captions Northern Capital Holdings Inc. v. GRIC Communications, Inc. et al., No. 01 CV 7124;
Gerald S. Platts v. GRIC Communications, Inc., et al., No. 01 CV 7699; Glenn Tortoso v. GRIC Communications, Inc., et al., No. 01 CV 7869; and Sanjay Israni
v. GRIC Communications, Inc., et al., No. 01 CV 8087. These complaints allege claims against us, certain of our officers (the suits are not uniform in their selection of officers named
as defendants), and CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc., underwriters of the Company's December 14, 1999 initial public
offering, under Sections 11 and 15 of the Securities Act of 1933, as amended. The complaints also allege claims against CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp
Piper Jaffray Inc. under Section 12(2) of the Securities Act of 1933 and against some of the named defendants under Section 10(b) of the Securities Exchange Act of 1934, as
amended. The lawsuits brought by Northern Capital Holdings Inc. and Israni also name Deutsche Bank Securities, Inc. as a defendant and allege claims against that underwriter
substantially similar to the claims alleged against CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. The Northern Capital Holdings, Tortoso and
Israni complaints also purport to allege claims against us and certain of our officers and directors under Sections 10(b) and 20(a) of the Securities Act of 1934, and Rule 10b-5
promulgated thereunder.

Citing
several press articles, the complaints allege that CIBC World Markets Corp., Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. used improper methods
in allocating shares in initial public offerings, and claim the underwriters entered into improper commission agreements regarding aftermarket trading in our common stock purportedly issued pursuant
to the registration statement for the initial public offering. To date, substantially identical lawsuits have been filed against approximately 180 other technology companies who sold shares of their
companies' respective common stock in initial public offerings during 1999 and 2000.

The
parties to those lawsuits have been discussing a proposal by which all of the individual officers and directors of the issuer defendants would be dismissed, without prejudice, all
Section 10(b) and Rule 10b-5 claims would be dismissed, without prejudice, and the actions against the issuer defendants would be
stayed, except for certain test cases. We believe that we would meet the conditions set by the current proposal for dismissal of our officers, and anticipates that the actions against us would be
stayed and the 10b-5 claims would be dismissed if we were to agree to these terms. There can be no guarantee that the parties will agree to these or similar terms. We believe that the
lawsuits are without merit and intends to defend them vigorously.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On December 14, 1999, a registration statement on Form S-1 (No. 333-87497) was declared effective by the
Securities and Exchange Commission, pursuant to which 5,290,000 shares of our common stock were offered and sold for our account at a price of $14.00 per share, generating gross proceeds of
approximately $74 million. Each outstanding share of preferred stock was automatically converted into one share of common stock upon the closing of the initial public offering. The managing
underwriters were CIBC World Markets, U.S. Bancorp Piper Jaffray and Prudential Volpe Technology.

In
connection with the offering, we incurred $5.2 million in underwriting discounts and commissions, and $2.0 million in other related expenses. The net proceeds from
the offering, after deducting the foregoing expenses, were $66.8 million. From the effective date of the registration statement through September 30, 2001, we applied $7.7 million
of the proceeds towards short-term

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investments, $13.0 million of the proceeds towards capital expenditures and the balance of the proceeds to working capital.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Not applicable.

No reports on Form 8-K were filed for the three months ended September 30, 2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on November 14, 2001.

| | GRIC COMMUNICATIONS, INC.                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------
| | /s/KIM S. SILVERMANVice President and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)

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