---

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

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FORM 10-Q

|(Mark One)                                        |                                                                                          
|------------------------------------------------- | -----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
|For the quarterly period ended September 30, 2002
|OR                                               
|o                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|For the transition period from
 to               

Commission file number: 000-27871

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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 ý    No o

The
number of shares of the registrant's common stock outstanding as of October 31, 2002 was 20,203,634 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, 2002 and December 31, 2001                        |  | 3       
|                         |  | Condensed Consolidated Statements of Operations for the Three & Nine Months Ended September 30, 2002 & 2001 |  | 4       
|                         |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001       |  | 5       
|                         |  | Notes to Condensed Consolidated Financial Statements                                                        |  | 6       
|Item 2.                  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       |  | 14      
|Item 3.                  |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 29      
|Item 4.                  |  | Controls and Procedures                                                                                     |  | 29      
|                         |  | PART II. OTHER INFORMATION                                                                                  |  |         
|Item 1.                  |  | Legal Proceedings                                                                                           |  | 30      
|Item 2.                  |  | Changes in Securities and Use of Proceeds                                                                   |  | 30      
|Item 3.                  |  | Defaults Upon Senior Securities                                                                             |  | 31      
|Item 4.                  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 31      
|Item 5.                  |  | Other Information                                                                                           |  | 31      
|Item 6.                  |  | Exhibits and Reports on Form 8-K                                                                            |  | 31      
|SIGNATURE                |  | 32                                                                                                         
|OFFICER'S CERTIFICATIONS |  | 33                                                                                                         

2

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GRIC COMMUNICATIONS, INC.  Condensed Consolidated Balance Sheets  (in thousands, except per share amounts)

|                                     |                                                                                                                                                                                                                          | September 30,
2002                         |        | December 31,
2001 |       
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ----------------- | ------
|
|ASSETS                               |                                                                                                                                                                                                                          |                                            |        |                   |       
|Current assets:                      |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     | Cash and cash equivalents                                                                                                                                                                                                |                                            | $      | 3,353             |       
|                                     | Short-term investments                                                                                                                                                                                                   |                                            |        | 18,764            |       
|                                     | Accounts receivable, net of allowances of $575 and $591 at September 30, 2002 and December 31, 2001, respectively                                                                                                        |                                            |        | 4,562             |       
|                                     | Prepaid expenses and other current assets                                                                                                                                                                                |                                            |        | 1,261             |       
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|Total current assets                 |                                                                                                                                                                                                                          |                                            | 27,940 |                   |       
|Property and equipment, net          |                                                                                                                                                                                                                          |                                            | 2,194  |                   |       
|Other assets                         |                                                                                                                                                                                                                          |                                            | 738    |                   |       
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                          | Total assets                               |        | $                 | 30,872
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                                                          |                                            |        |                   |       
|Current liabilities:                 |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     | Accounts payable                                                                                                                                                                                                         |                                            | $      | 4,656             |       
|                                     | Accrued compensation and benefits                                                                                                                                                                                        |                                            |        | 626               |       
|                                     | Deferred revenue                                                                                                                                                                                                         |                                            |        | 619               |       
|                                     | Other current liabilities                                                                                                                                                                                                |                                            |        | 396               |       
|                                     | Current portion of long-term debt and capital lease obligations                                                                                                                                                          |                                            |        | 5                 |       
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|Total current liabilities            |                                                                                                                                                                                                                          |                                            | 6,302  |                   |       
|Long-term liabilities                |                                                                                                                                                                                                                          |                                            | 105    |                   |       
|Commitments and contingencies        |                                                                                                                                                                                                                          |                                            |        |                   |       
|Stockholders' equity:                |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     | Series A convertible redeemable preferred stock, $0.001 par value; 12,801 shares authorized, 9,036 shares issued and outstanding at September 30, 2002; no shares authorized, issued or outstanding at December 31,
2001 |                                            |        | 11,788            |       
|                                     | Preferred stock, 5,000 shares authorized at September 30, 2002 and December 31, 2001, respectively; no shares issued and outstanding                                                                                     |                                            |        |                  |       
|                                     | Common stock, $0.001 par value; 50,000 shares authorized at September 30, 2002 and December 31, 2001; 20,190 and 19,897 issued and outstanding at September 30, 2002 and December 31, 2001, respectively                 |                                            |        | 20                |       
|                                     | Additional paid-in capital                                                                                                                                                                                               |                                            |        | 141,652           |       
|                                     | Treasury stock                                                                                                                                                                                                           |                                            |        |                  |       
|                                     | Deferred stock-based compensation                                                                                                                                                                                        |                                            |        | (107              | )     
|                                     | Accumulated deficit                                                                                                                                                                                                      |                                            |        | (128,888          | )     
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                          | Total stockholders' equity                 |        |                   | 24,465
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       
|                                     |                                                                                                                                                                                                                          | Total liabilities and stockholders' equity |        | $                 | 30,872
|                                     |                                                                                                                                                                                                                          |                                            |        |                   |       

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       |        | Nine Months Ended |      
|----------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------ | ----------------- | -----
|
|Revenues:                                                         |                                              |                          |        |                   |      
|                                                                  | Settlement                                   |                          | $      | 9,264             |      
|                                                                  | Software and other                           |                          |        | 251               |      
|                                                                  |                                              |                          |        |                   |      
|                                                                  |                                              | Total revenues           |        |                   | 9,515
|Costs and expenses:                                               |                                              |                          |        |                   |      
|                                                                  | Cost of settlement revenues                  |                          |        | 4,277             |      
|                                                                  | Network and operations                       |                          |        | 1,159             |      
|                                                                  | Research and development                     |                          |        | 658               |      
|                                                                  | Sales and marketing                          |                          |        | 2,810             |      
|                                                                  | General and administrative                   |                          |        | 1,262             |      
|                                                                  | Amortization of stock-based compensation (1) |                          |        | 41                |      
|                                                                  | Restructuring charge (benefit)               |                          |        | (313              | )    
|                                                                  |                                              |                          |        |                   |      
|                                                                  |                                              | Total costs and expenses |        |                   | 9,894
|                                                                  |                                              |                          |        |                   |      
|Operating loss                                                    |                                              |                          | (379   | )                 |      
|Interest income and other, net                                    |                                              |                          | 89     |                   |      
|Interest expense                                                  |                                              |                          | (9     | )                 |      
|                                                                  |                                              |                          |        |                   |      
|Operating loss before income taxes                                |                                              |                          | (299   | )                 |      
|Provision for income taxes                                        |                                              |                          | 16     |                   |      
|                                                                  |                                              |                          |        |                   |      
|Net loss                                                          |                                              | $                        | (315   | )                 | $    
|                                                                  |                                              |                          |        |                   |      
|Deemed beneficial conversion dividend on Series A Preferred Stock |                                              |                          |       |                   |      
|                                                                  |                                              |                          |        |                   |      
|Net loss attributable to common stockholders                      |                                              | $                        | (315   | )                 | $    
|                                                                  |                                              |                          |        |                   |      
|Basic and diluted net loss per share                              |                                              | $                        | (0.02  | )                 | $    
|                                                                  |                                              |                          |        |                   |      
|Shares used to compute basic and diluted net loss per share       |                                              |                          | 20,135 |                   |      
|                                                                  |                                              |                          |        |                   |      

---



See
accompanying notes

4

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

|                                                                 |                                                                             | Nine Months Ended                                       |                                                    
|---------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                            |                                                                             |                                                         |                                                    
|Net loss                                                         |                                                                             | $                                                       | (5,349                                             
|                                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                                         |                                                    
|                                                                 |                                                                             | Depreciation and amortization of property and equipment |                                                    
|                                                                 |                                                                             | Amortization of stock-based compensation                |                                                    
|                                                                 |                                                                             | Loss on asset revaluation                               |                                                    
|                                                                 |                                                                             | Gain of sales of fixed assets                           |                                                    
|                                                                 |                                                                             | Accounts receivable allowances                          |                                                    
|                                                                 |                                                                             | Noncash portion of restructuring (benefit) charge       |                                                    
|                                                                 |                                                                             | Noncash warrant expensespreferred 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                                               |                                                    
|                                                                 |                                                                             | Maturities                                              |                                                    
|Proceeds from sales of fixed assets                              |                                                                             |                                                         | 372                                                
|Capital expenditures                                             |                                                                             |                                                         | (154                                               
|                                                                 |                                                                             |                                                         |                                                    
|                                                                 |                                                                             |                                                         | Net cash (used in) provided by investing activities
|                                                                 |                                                                             |                                                         |                                                    
|Cash flows from financing activities:                            |                                                                             |                                                         |                                                    
|Payments of debt and capital lease obligations                   |                                                                             |                                                         | (414                                               
|Proceeds from sales of common stock, net                         |                                                                             |                                                         | 231                                                
|Proceeds from sales of treasury stock                            |                                                                             |                                                         | 99                                                 
|Proceeds from issuance of preferred stock, net of issuance costs |                                                                             |                                                         | 14,252                                             
|                                                                 |                                                                             |                                                         |                                                    
|                                                                 |                                                                             |                                                         | Net cash provided by financing activities          
|                                                                 |                                                                             |                                                         |                                                    
|Net decrease in cash and cash equivalents                        |                                                                             |                                                         | (668                                               
|Cash and cash equivalents at beginning of year                   |                                                                             |                                                         | 4,021                                              
|                                                                 |                                                                             |                                                         |                                                    
|Cash and cash equivalents at end of period                       |                                                                             | $                                                       | 3,353                                              
|                                                                 |                                                                             |                                                         |                                                    
|Supplemental disclosures of cash flow information:               |                                                                             |                                                         |                                                    
|Income taxes paid                                                |                                                                             | $                                                       | 7                                                  
|Interest paid                                                    |                                                                             | $                                                       | 37                                                 

See
accompanying notes

5

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

1.    Basis of Presentation

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

The
balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete financial statements.

The
following information should be read in conjunction with consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.

2.    Summary of Significant Accounting Policies

Revenue Recognition

The Company derives revenues primarily from settlement services it provides to customers through its network. The Company also derives revenues from licenses of
software to customers seeking to offer Internet roaming to their end users, and from sales of maintenance and support services and hardware. Prior to January 30, 2001, the Company also derived
revenue from Internet telephony settlement services and related licenses of software.

Settlement
revenues are generated when customers' end users initiate Internet communications. Cost of settlement revenues represents the amounts paid to access our customers' networks
for the completion of services provided. The Company recognizes roaming services revenue and related costs at the time services are rendered to users. The Company has minimum purchase commitments with
some members of the GRIC TierOne network and expects to meet these commitments provided the supplier maintains the required pricing under the contract. In addition, the Company bears the risk of loss
related to collection for services.

The
Company records estimated allowances against settlement revenues in the same period the revenue is recorded. These estimates are based upon historical analysis of credit memo data
and other known factors for pricing and transaction volume related disputes that arise in the normal course of business. To date historical allowances for these amounts have not been significant.

Software
and other revenues consist primarily of revenues from software licenses and to a lesser extent from related services, maintenance and support and hardware sales. In accordance
with Statement of Position ("SOP 97-2"), Software Revenue Recognition, revenue earned on software arrangements involving multiple elements is required to be allocated to each element based
upon the relative fair values of the elements. Software revenues consist of license revenues which are recognized upon the delivery of application products, provided no significant vendor obligation
or contingencies remain, and collection of the receivable is probable, or where the license is for enabling software,

6

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ratably over the contractual services period as enabling licenses have not been sold separately. Maintenance and support service includes technical support, consulting, installation and training
services. Revenue allocated to maintenance is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed.

From
time to time, customers of the Company, including significant customers, may file a petition seeking protection under the U.S. bankruptcy laws. When this occurs, the Company
determines its ongoing exposure to risk that a pre-filing account receivable will prove to be uncollectible, and establishes appropriate reserves for that contingency as necessary. In
addition, for each continuing customer in bankruptcy the Company evaluates the creditworthiness of the customer and determines whether revenue should be recognized on an accrual basis or as cash
payments are received. The Company records revenue at the time of delivery (where other revenue recognition criteria have been
met) if, in the Company's judgment based on the creditworthiness of the debtor-in-possession and payment experience, the payment of amounts as they become due is reasonably
assured.

Net Loss Per Share

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

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

Weighted-average
options outstanding to purchase approximately 191,000 and 371,000 shares of common stock for the three months ended September 30, 2002 and 2001, respectively, and
539,000 and 553,000 shares of common stock for the nine months ended September 30, 2002 and 2001, respectively, were not included in the computation of diluted net loss per share because the
effect would be antidilutive.

Recent Accounting Pronouncements

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

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)".
The principle difference between SFAS No. 146 and EITF Issue No. 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal
activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a
liability for an exit cost as defined in EITF Issue No. 94-3 was recognized at the date of an entity's commitment to an exit plan. This statement also establishes that fair value is
the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31,
2002. The effect of adoption of SFAS No. 146 is dependent on the Company's related activities subsequent to the date of adoption.

7

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3.    Comprehensive Loss

The components of comprehensive loss for the three and nine months ended September 30, 2002 and 2001, respectively, are as follows:

Three Months Ended

Nine Months EndedSeptember 30,
2002

September 30,
2001

September 30,
2002

September 30,
2001(in thousands)Net loss

$
(315
)
$
(4,782
)
$
(17,130
)
$
(28,834
)Other comprehensive loss:Unrealized gain on available-for-sale investments





22





23Comprehensive loss

$
(315
)
$
(4,760
)
$
(17,130
)
$
(28,811
)


4.    Segment Information

The Company operates solely in one segment, providing services and software that enable its customers to offer remote access and other Internet-based mobile
office communications services to their end users worldwide.

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

Three Months Ended

Nine Months EndedSeptember 30,
2002

September 30,
2001

September 30,
2002

September 30,
2001(in thousands)Revenue by external customers:United States, Canada & Latin America

$
5,257

$
2,426

$
12,715

$
7,734Japan


2,407


1,731


6,670


3,971Asia Pacific


979


933


2,952


2,478Europe, Middle East and Africa


872


980


2,741


2,459$
9,515

$
6,070

$
25,078

$
16,642


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

September 30,
2002

December 30,
2001(in thousands)Long-lived assets:United States

$
1,948

$
3,736Rest of world


246


370$
2,194

$
4,106


Revenue
by external customer is based on the customer's billing locations. Long-lived assets are those assets used in each geographic location. For the three and nine months
ended September 30, 2002, respectively, four customers each accounted for 10% or more of the Company's total consolidated revenues.

8

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5.    Commitments and Contingencies

The Company is subject to various legal proceedings and claims arising in the ordinary course of business, including the proceedings to which the Company is a
party discussed below. While the Company's management believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the
Company's financial position, cash flows or
overall trend in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net
income of the period in which the ruling occurs.

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. By a judicial order dated September 4, 2001, these cases were consolidated, and the consolidated matter is now captioned In re GRIC
Communications, Inc. Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), and is part of over three hundred coordinated proceedings covered under the caption In re
Initial Public Offering Securities Litigation, Master File No. 21 MC 92 (SAS). The Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws ("Consolidated
Complaint") was filed on or about April 19, 2002, and alleges claims against the Company, certain of its officers, and CIBC World Markets Corp., Prudential Securities Incorporated, DB
Alex.Brown, as successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of the Company's December 14, 1999 initial public offering ("underwriter defendants"), under
Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section 10(b) and 20(a)of the Securities Exchange Act of 1934, as amended. The Consolidated Complaint also alleges claims
against the underwriter defendants under Section 12(2) of the Securities Act of 1933. The claims made in the Consolidated Complaint are substantially similar to the claims made in the over
three hundred other amended complaints filed in the coordinated matter captioned In re Initial Public Offering Securities Litigation.

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

During
October 2002, the Company's officers and directors who had been named as defendants in the In re Initial Public Offering Securities Litigation were dismissed without
prejudice upon order of the presiding judge. In addition, the parties have been participating in mediation and certain settlement proposals have been made or are being considered, which could include
dismissal of the issuer defendants, including the Company. There can be no guarantee that the parties will be able to reach agreement on either a partial dismissal or a global resolution of the claims
involving the issuer defendants. The Company's management believes that the Consolidated Complaint is without merit and

9

---

intends to defend against it vigorously. The Company does not believe the outcome of this consolidated lawsuit will have a material adverse effect on the Company's financial condition, results of
operations or cash flows.

The
Company leases all of its facilities under operating leases that expire at various dates through 2004. As of September 30, 2002, the Company had $626,000 in future operating
lease commitments and approximately $5,000 in capital lease obligations and equipment promissory notes.

6.    Restructuring Events

January 2001 Restructuring

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 completed its strategic restructuring by December 2001.

The
provision and associated charges against the provision for restructuring, each of which relate to the discontinuation of Internet telephony operations, through the twelve months
ended December 31, 2001 and the nine months ended September 30, 2002, 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 payments                  |  |                          | (708 | )                                             |   | (1,099                     | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at December 31, 2001  |  | $                        |     |                                               | $ | 433                        |   | $     |      
|Cash payments                  |  |                          |     |                                               |   | (184                       | ) |       |      
|Accrual reversal               |  |                          |     |                                               |   | (129                       | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at March 31, 2002     |  | $                        |     |                                               | $ | 120                        |   | $     |      
|Accrual reversal               |  |                          |     |                                               |   | (30                        | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at June 30, 2002      |  | $                        |     |                                               | $ | 90                         |   | $     |      
|Cash payments                  |  |                          |     |                                               |   | (27                        | ) |       |      
|Accrual reversal               |  |                          |     |                                               |   | (54                        | ) |       |      
|                               |  |                          |      |                                               |   |                            |   |       |       
|Accruals at September 30, 2002 |  | $                        |     |                                               | $ | 9                          |   | $     |      
|                               |  |                          |      |                                               |   |                            |   |       |       

In
connection with the January 2001 restructuring, the Company incurred a total charge to operations of $7.8 million.

Restructuring-related
involuntary employee severance costs resulted in a charge of $708,000, pertaining to the expected termination of employees worldwide. All worldwide employees who
were involved in providing, selling or supporting Internet telephony services or who performed related functions were considered during the cost-cutting plan. A total of 58 employees were
terminated as part of these cost-cutting measures.

The
termination of lease and facility obligations resulted in a charge of $1.5 million. The Company considered the costs of terminating these commitments to be related to its
decision to cease providing Internet telephony services. During the three months ended March 31, 2002, June 30, 2002 and September 30, 2002, the Company recorded noncash
restructure benefits from lease and facility obligations of $129,000, $30,000 and $54,000, respectively, as a result of final settlements that were less than the amount of previously reserved
obligations.

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The
net book value of fixed assets retired as part of our restructuring totaled $5.6 million. The assets consisted primarily of computer hardware and software utilized in our
Internet telephony business. During the three months ended March 31, 2002, the Company sold Internet telephony assets that were previously written-off during the restructuring in
January 2001 for a gain of approximately $335,000.

In
addition to the $7.8 million restructuring charge discussed above, the Company recorded a $1.6 million charge in general and administrative expense for the three months
ended March 31, 2001 related to the write-off of Internet telephony receivables as a result of its restructuring. Revenues derived from the Company's Internet telephony settlement
services through January 2001, when these services were ceased, were recognized at the time of cash collection. Revenues in the nine months ended September 30, 2001 included $913,000 of
Internet telephony services that were collected.

June 2002 Restructuring

In June 2002, the Company undertook a strategic restructuring to reduce its operating expense structure by streamlining operations. The provision and
associated charges against the provision for June 2002 restructuring through the nine months ended September 30, 2002, are as follows:

|                               |  | Employee Severance Costs |      | Termination of Lease and Other Obligations |   | Loss on Disposition and Retirement of Fixed Assets |   | Total |    
|------------------------------ |  | ------------------------ | ---- | ------------------------------------------ | - | -------------------------------------------------- | - | ----- | ---
|
|Q2 2002 provision              |  | $                        | 964  |                                            | $ | 169                                                |   | $     | 43 
|Non-cash charges               |  |                          |     |                                            |   |                                                   |   |       | (43
|Cash payments                  |  |                          | (335 | )                                          |   | (25                                                | ) |       |   
|                               |  |                          |      |                                            |   |                                                    |   |       |    
|Accruals at June 30, 2002      |  | $                        | 629  |                                            | $ | 144                                                |   | $     |   
|Cash payments                  |  |                          | (109 | )                                          |   | (76                                                | ) |       |   
|Accrual reversals              |  |                          | (191 | )                                          |   | (68                                                | ) |       |   
|                               |  |                          |      |                                            |   |                                                    |   |       |    
|Accruals at September 30, 2002 |  | $                        | 329  |                                            | $ |                                                   |   | $     |   
|                               |  |                          |      |                                            |   |                                                    |   |       |    

In
connection with the June 2002 restructuring, the Company incurred a total charge to operations of $1.2 million.

Restructuring-related
involuntary employee severance costs resulted in a charge of $964,000, pertaining to the estimated termination payout to employees worldwide. The employee
reductions came principally from Sales and Marketing, Engineering and General & Administrative areas. During the three months ended September 30, 2002, the Company recorded noncash
restructure benefits from restructuring-related involuntary employee severance costs of $191,000, as a result of final settlements that were less than the amount of previously reserved obligations. A
total of 16 employees were terminated as part of these cost cutting measures.

The
termination of lease and other obligations resulted in a charge of $169,000. The charge was primarily for the consolidation or elimination of facilities. The Company considered the
costs of terminating these commitments to be related to its decision to reduce operating expenses. During the three months ended September 30, 2002, the Company recorded noncash restructure
benefits from lease and other obligations of $68,000, as a result of final settlements that were less than the amount of previously reserved obligations.

The
loss on disposition and write-off of assets totaled $43,000. This loss was primarily the result of retirement of fixed assets due to the closure of a facility.

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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. As of December 31, 2001, the Company had purchased 110,000 shares for $99,000. No additional shares were repurchased by the Company during the nine months ended
September 30, 2002.

8.    Convertible Redeemable Preferred Stock

On April 19, 2002, the Company sold 9,036,140 shares of its Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock"), for
$15.0 million, to investors affiliated with H&Q Asia Pacific and Vertex Management. The net proceeds of the offering, after deducting expenses, were $14.3 million. At the closing of the
transaction, the Company also issued to these investors warrants to purchase 903,614
shares of Series A Preferred Stock at a purchase price of $1.66 per share, and warrants to purchase 1,355,420 shares of Series A Preferred Stock at a purchase price of $2.49 per share.

In
connection with the closing, the parties entered into an amended and restated Series A Preferred Stock purchase agreement and a number of ancillary agreements, and the Company
amended its certificate of incorporation to authorize and set forth the terms of the Series A Preferred Stock. The Company has designated a total of 12,801,205 shares as Series A
Preferred Shares.

Each
share of Series A Preferred Stock is initially convertible into the Company's common stock at any time at the option of the holders on a 1-for-1
basis. Furthermore the Series A Preferred Stock will convert automatically into common stock upon the earlier of the fifth anniversary of the date of issuance or the 90th
consecutive trading day that the closing price of the Company's common stock is at least $8.30 per share. There will be no change to the conversion ratio subsequent to issuance of the Series A
Preferred Stock based upon the trading price of the Company's common stock. If common stock or preferred stock (excluding options and stock purchased under the employee stock purchase plan) is
subsequently issued at a price of less than $1.66 per share, then the conversion ratio will be adjusted as a result of events such as stock dividends, stock splits, and combinations of stock into a
smaller number of shares, up to a maximum of 1.2296 shares of common stock for each share of Series A Preferred Stock. Each share of Series A Preferred Stock will vote with the common
stock on an as converted basis and not as a separate class.

Each
holder of Series A Preferred Stock is entitled to receive upon the liquidation of the Company, in preference to holders of common stock, the purchase price of the
Series A Preferred Stock plus declared but unpaid dividends. The holders will also be entitled to participate with the holders of the common stock in any further distribution of assets until
the aggregate amount distributed to the Series A Preferred Stock holders exceeds three and one-half times the amount of the original investment. If, however, the holders would
receive in the aggregate less than two times the amount of their original investment, then they will be entitled to receive an additional amount equal to 10% of their original investment for each year
since the time of their original investment.

Total
warrant coverage to purchase Series A Preferred Stock represents 25% of the preferred stock purchased, with 10% of the warrants exercisable at $1.66 and 15% exercisable at
$2.49. The warrants are exercisable at any time within five years after the closing. The intrinsic value assigned to the warrants amounted to $2,464,000 and is reflected in Additional Paid In Capital
on the balance sheet.

The
Series A Preferred Stock contained a beneficial conversion feature that required separate accounting recognition in the second quarter of 2002.

EITF
Issue No. 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", requires that a portion
of the proceeds equal to the intrinsic value (and not the fair value) of the conversion option be allocated to additional paid-in

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capital. This results in a discount on the convertible instrument that is recognized as a return to the preferred shareholders (similar to a dividend) over the period in which the preferred
shareholders can realize the return (which is immediately). In accordance with EITF Issue No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the discount is calculated at the commitment date as the difference between the conversion price of each preferred share and the fair value of each share of the common stock into which
the preferred stock is convertible, multiplied by the number of shares into which the security is convertible.

At
the commitment date, April 19, 2002 (the date of the transaction closing), the fair value of the Company's common stock was $2.67, the effective conversion price of the
Series A Preferred Stock was $1.37 and the effective conversion price of the two warrants were $2.80 and $3.61, respectively. Therefore, a beneficial conversion feature existed for the
Series A Preferred Stock, but not for the warrants. The Series A Preferred Stock was immediately convertible into common stock and, therefore, the amount of the beneficial conversion
feature, equal to $11.8 million, was recorded as a deemed dividend in the second quarter of 2002. In order to determine the effective conversion prices, the Company engaged an independent third
party to perform a valuation of the Series A Preferred Stock and associated warrants.

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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 the selected consolidated financial information and the consolidated financial
statements and notes appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements, such as statements of expected revenues and expenses, that
involve risks and uncertainties. We assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those detailed from time to time in our filings with the Securities and Exchange Commission and
those discussed in this Form 10-Q, particularly in this Management's Discussion and Analysis of Financial Condition and Results of Operations and under "Factors That May Affect
Future Results." Unless expressly stated or the 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 remote access and other Internet-based mobile office communications services to their end
users worldwide. Our customers include telecommunications companies, Internet service providers, corporate enterprises and newly emerging communications service providers.

From
our incorporation in 1994 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. Since that time most of our revenue has come from providing settlement and clearinghouse services for our customers, who are
members of the GRIC TierOne Network. As a result of our ability to provide these services, customers of any Internet service provider that is a member of the GRIC TierOne Network, may access the
Internet while outside his local service area without incurring long-distance telephone charges by accessing another member's network. From late 1998 until January 2001, we
primarily provided Internet telephony services that were characterized by high revenues that generated low margins. In January 2001 we ceased providing those services to focus on providing
Internet-based mobile office communications services based on our clearinghouse and settlement capabilities to service providers and corporate enterprises globally.

We
generate settlement revenues when we provide settlement services to customers whose end users initiate Internet communications. For these transactions, our settlement services consist
of tracking usage globally, 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 customers to enable end user billing.

Critical Accounting Policies and Estimates

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

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

We
also derive revenues from licenses of software to customers seeking to offer Internet roaming services to their end users, and from sales of maintenance and support services. Before
our January 2001 restructuring, we also licensed software to customers seeking to offer Internet telephony services. Estimates and judgments we make regarding recognition of these revenues are
not likely to have a material impact on our reported results of operations for a given period.

Revenues
from the sale of settlement services are recognized when a binding agreement or purchase order from the customer has been received; the services have been delivered; the fee or
price was fixed or determinable; the collection of the receivable was reasonably assured; and no significant post-delivery obligations remained. Revenues from the sale of software licenses
are recognized when a binding agreement or purchase order from the customer has been received; the software has been delivered; the license fee was fixed or determinable; the collection of the
receivable was reasonably assured; and no significant post-delivery obligations remained. License revenues are recognized ratably over the
contractual services period for software that has been characterized as enabling software. Revenues from the sale of maintenance and support services are recognized ratably over the maintenance term
when a binding agreement or purchase order from the customer has been received; the services have been delivered; the fee or price was fixed or determinable; and the collection of the receivable was
reasonably assured.

From
time to time our customers, including significant customers, may file a petition seeking protection under the U.S. bankruptcy laws. When this occurs, our management determines our
ongoing exposure to risk that a pre-filing account receivable will prove to be uncollectible, and establishes appropriate reserves for that contingency as necessary. In addition, for each
continuing customer in bankruptcy management evaluates the creditworthiness of the customer and determines whether revenue should be recognized on an accrual basis or as cash payments are received. We
record revenue at the time of delivery (where other revenue recognition criteria have been met) if, in management's judgment based on the creditworthiness of the
debtor-in-possession and payment experience, the payment of amounts as they become due is reasonably assured.

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

Results of Operations

Third Quarter and Year-to-Date Ended September 30, 2002 compared to Third Quarter and Year-to-Date Ended
September 30, 2001

Revenues

Total revenues increased to $9.5 million in the three months ended September 30, 2002 from $6.1 million in the three months ended
September 30, 2001, representing an increase of 57%. Total

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revenues increased to $25.1 million in the nine months ended September 30, 2001 from $16.6 million in the nine months ended September 30, 2001, representing an increase of
51%.

Settlement Revenues.Settlement revenues increased to $9.3 million in the three months ended September 30, 2002
from $5.9 million in the three months ended September 30, 2001, representing an increase of 58%. The increase was primarily due to higher Internet roaming settlement services due to
increased volumes of Internet roaming by our existing customers and to a lesser degree the expansion of our Internet roaming customer base. Revenues for the three months ended September 30,
2002 include revenues from a customer which filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and which accounts for 10% or more of our total consolidated
revenues in the quarter. This customer continues to generate business for us and to be an important customer. We continue to recognize settlement revenues from this customer on an accrual basis based
on the revenue recognition criteria described above. To date all amounts owed by this customer to us for services rendered subsequent to its Chapter 11 filing have been paid in accordance with the
terms of our agreement with the customer. Settlement revenues increased to $24.2 million in the nine months ended September 30, 2002 from $16.1 million in the nine months ended
September 30, 2001, representing an increase of 50%. The increase was primarily due to increased volumes of Internet roaming by our existing customers, to a lesser degree the expansion of our
Internet roaming customer base and approximately $500,000 of non-recurring minimum revenue commitments by customers during the three months ended March 31, 2002. Internet telephony
settlement revenues of $913,000 were recorded during the nine months ended September 30, 2001 and no Internet telephony settlement revenues were recorded for the nine months ended
September 30, 2002. We expect settlement services revenues to continue to increase during the fourth quarter of 2002.

Software and Other Revenues.Software, hardware, and maintenance and services revenues increased to $251,000 in the three
months ended September 30, 2002 from $220,000 in the three months ended September 30, 2001, representing an increase of 14%. The increase was primarily due to revenues from the increased
volume of Internet domain registrations in the GRIC TierOne network of $76,000 partially offset by fewer requests to provide customized reports and services of $43,000. Software, hardware, and
maintenance and services revenues increased to $915,000 in the nine months ended September 30, 2002 from $502,000 in the nine months ended September 30, 2001, representing an increase of
82%. The increase was primarily due to revenues from the increased volume of Internet domain registrations that were registered in the GRIC TierOne network of $209,000, higher sales of our Internet
roaming software and maintenance services of $78,000, revenues from increases in requests from our customers to provide customized reports and services of $64,000, and technical support services
revenues of $43,000. We expect the amount of software and other revenues to remain relatively flat during the fourth quarter of 2002.

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 increased to $4.3 million in the three months ended September 30, 2002 from $3.2 million in the three months ended
September 30, 2001, representing an increase of 35%. The increase was principally the result of corresponding increases in volume of Internet roaming and expansion of our Internet roaming
customer base. Cost of settlement revenues increased to $11.3 million in the nine months ended September 30, 2002 from $9.8 million in the nine months ended September 30,
2001, representing an increase of 16%. The increase was principally due to the corresponding increases in volume of Internet roaming and expansion of our Internet roaming customer base. Internet
telephony settlement costs of $1.1 million were recorded during the nine months ended September 30, 2001 and no Internet telephony settlement costs were recorded for the

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nine months ended September 30, 2002. We expect that the cost of settlement revenues during the fourth quarter of 2002 will increase in absolute dollars as roaming revenues increase and will
be in the range of 45%-47% of total settlement revenues as a result of maintaining current rates from our providers of Internet roaming access.

Network and Operations.Network and operations expenses include salaries and benefits, depreciation on network equipment,
allocated facility and management information system costs, and costs of co-location of network equipment and telecommunication lines. Network and operations expenses decreased to
$1.2 million in the three months ended September 30, 2002 from $1.4 million in the three months ended September 30, 2001, representing a decrease of 20%. The decrease
reflects reductions of approximately $233,000 in compensation-related expenses due primarily to decreased staffing levels and continued efforts to streamline our operations in 2002. Network and
operations expenses decreased to $3.4 million in the nine months ended September 30, 2002 from $4.9 million in the nine months ended September 30, 2001, representing a
decrease of 31%. The decrease reflects reductions of approximately $1.0 million in compensation-related expenses that were primarily due to decreased staffing levels and the elimination of
certain compensation programs, approximately $243,000 in depreciation expense, and approximately $145,000 in costs of co-location of network equipment and leased telecommunication lines as
a result of ceasing to provide Internet telephony services in January 2001 and continued efforts to streamline our operations in 2002. We expect network and operations expenses to remain flat
in the fourth quarter of 2002.

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 $658,000 in the three months ended
September 30, 2002 from $972,000 in the three months ended September 30, 2001, representing a decrease of 32%. The decrease reflects reductions of approximately $155,000 in
compensation-related expenses that were principally due to decreased staffing levels in our U.S. headquarters, approximately $107,000 in outside professional services expenses and approximately
$50,000 in lower allocated expenses as a result of ceasing to provide Internet telephony services following our January 2001 restructuring as continued development of our core Internet roaming
software became our main focus. Research and development expenses decreased to $2.2 million in the nine months ended September 30, 2002 from $4.6 million in the nine months ended
September 30, 2001, representing a decrease of 51%. The decrease was principally due to reductions of approximately $1.2 million in compensation-related expenses primarily as a result of
decreased staffing levels in our U.S. headquarters, approximately $696,000 in outside professional services expenses following our January 2001 restructuring, $245,000 in allocated expenses and
$76,000 in lower depreciation expense as a result of ceasing to provide Internet telephony services. We also reduced costs by expanding the use of our development center in India, where engineering
talent may be obtained at more favorable rates
than in the San Francisco Bay area. We expect the amount of research and development expenses to remain flat in the fourth quarter of 2002.

Sales and Marketing.Sales and marketing expenses include salaries and benefits, commissions earned by sales and marketing
personnel, costs for marketing and promotional programs, allocated facility, management information systems and depreciation costs, costs associated with domestic and international sales offices and
costs associated with traveling to both customers and potential customer locations. Sales and marketing expenses decreased to $2.8 million in the three months ended September 30, 2002
from $3.6 million in the three months ended September 30, 2001, representing a decrease of 21%. The decrease reflects reductions of approximately $501,000 in compensation-related
expenses, principally as a result of decreased staffing levels following our January 2001 restructuring, and approximately $272,000 in marketing and promotional programs as a result of managing
expense levels. Sales and marketing expenses decreased to $9.3 million in the nine months ended September 30, 2002 from $11.2 million in the nine months ended September 30,
2001, representing a decrease of 17%.

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The decrease reflects reductions of approximately $874,000 in compensation-related expenses, approximately $389,000 in marketing and promotional programs, approximately $388,000 in expenses
pertaining to the recruitment of employees, and approximately $68,000 in lower depreciation expenses, each of which were principally the result of decreased staffing levels following our
January 2001 restructuring and continued efforts to streamline our operations in 2002. We expect the overall amount of sales and marketing expenses to remain relatively constant during the
fourth quarter of 2002.

General and Administrative.General and administrative expenses consist of salary, benefits and related costs for executive,
finance, legal, administrative, human resources, investor relations and management information systems functions, general corporate and facility costs and provisions for uncollectible receivables.
General and administrative expenses decreased to $1.3 million in the three months ended September 30, 2002 from $1.7 million in the three months ended September 30, 2001,
representing a decrease of 25%. The decrease reflects reductions of approximately $424,000 in compensation-related expense. General and administrative expenses decreased to $3.9 million in the
nine months ended September 30, 2002 from $7.5 million in the nine months ended September 30, 2001, representing a decrease of 48%. The decrease was principally due to the
write-off of approximately $1.6 million of uncollected Internet telephony receivables in 2001 and reductions of approximately $1.3 million in compensation-related expenses
and approximately $621,000 in outside professional services expenses in 2002 as we continued to streamline our operations. We expect the amount of general and administrative expenses to remain
relatively constant during the fourth quarter of 2002.

Amortization of Stock-Based Compensation.Some stock options granted through December 31, 1999 were considered
compensatory because the estimated fair value for accounting purposes was greater than the stock option exercise price as determined by our board of directors on the date of grant. As a result, we
recorded expenses of $41,000 for the three months ended September 30, 2002 and $107,000 for the three months ended September 30, 2001 relating to the amortization of deferred
compensation expense. Included in amortization of stock-based compensation for the three months ended September 30, 2002 is $1,000 for network and operations, $2,000 for research and
development, $1,000 for sales and marketing and $37,000 for general and administrative. Included in amortization of stock-based compensation for the three months ended September 30, 2001 is
$2,000 for network and operations, $43,000 for research and development, $17,000 for sales and marketing and $45,000 for general and
administrative. Expenses of $127,000 relating to the amortization of deferred compensation expense were recorded for the nine months ended September 30, 2002 and $320,000 for the nine months
ended September 31, 2001. Included in amortization of stock-based compensation for the nine months ended September 30, 2002 is $4,000 for network and operations, $8,000 for research and
development, $2,000 for sales and marketing and $113,000 for general and administrative. Included in amortization of stock-based compensation for the nine months ended September 30, 2001 is
$6,000 for network and operations, $129,000 for research and development, $51,000 for sales and marketing and $134,000 for general and administrative. As of September 30, 2002, we had an
aggregate of $107,000 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
annual amortization of approximately $169,000 in 2002 and $65,000 in 2003.

Restructuring Charge.In January 2001 and June 2002, respectively, we announced our plans to restructure
operations in order to reduce operating expenses.

Our
January 2001 restructuring consisted of a charge to operations of $7.8 million, of which $708,000 related to involuntary employee severance costs, $1.5 million
related to the termination of lease and facility obligations and $5.6 million related to the retirement of fixed assets pertaining to the portion of the business that was discontinued. As of
January 1, 2002, the remaining accruals from our January 2001 restructuring amounted to $433,000. During the nine months ended September 30, 2002,

18

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the accrual was offset by cash payments of $184,000 in the first quarter of 2002 and $27,000 in the third quarter of 2002. We recorded reversals to our restructuring accrual in the amounts of
$129,000 in the first quarter of 2002, $30,000 in the second quarter of 2002, and $54,000 in the third quarter of 2002. These accruals were reversed as a result of final settlements that were less
than the amount of previously reserved obligations. As of September 30, 2002, the remaining balance in our restructuring accrual was $9,000.

Our
June 2002 restructuring consisted of a charge to operations of $1.2 million, of which $964,000 related to involuntary employee severance costs, $169,000 related to the
termination of lease and other obligations and $43,000 related to the retirement of fixed assets due to the closure of a facility. During the nine months ended September 30, 2002, the
restructuring accrual was offset by cash payments of $360,000 in the second quarter of 2002 and $185,000 in the third quarter of 2002. We recorded a reversal to our restructuring accrual in the amount
of $259,000 in the third quarter of 2002 as a result of final settlements that were less than the amount of previously reserved obligations. As of September 30, 2002, the remaining balance in
our restructuring accrual was $329,000.

Interest Income and Other, Net

Interest income and other, net, primarily represents interest income on cash balances. Interest income and other, net, decreased to $89,000 in the three months
ended September 30, 2002 from $135,000 in the three months ended September 30, 2001. Interest income and other, net, decreased to $222,000 in
the nine months ended September 30, 2002 from $740,000 in the nine months ended September 30, 2001. The decreases were principally due to the higher cash balances in 2001 resulting from
our initial public offering in December 1999 and subsequent reductions for cash used in operations.

Interest Expense

Interest expense consists of interest expense associated with capital leases and bridge financing and amortization of the fair value of warrants issued in
connection with our financing activities. Interest expense decreased to $9,000 in the three months ended September 30, 2002 from $30,000 in the three months ended September 30, 2001.
Interest expense decreased to $40,000 in the nine months ended September 30, 2002 from $103,000 in the nine months ended September 30, 2001. The decreases were primarily due to the
payment of outstanding capital lease obligations.

Income Taxes

The provision for income taxes decreased to $16,000 in the three months ended September 30, 2002 from $31,000 in the three months ended
September 30, 2001. The provision for income taxes decreased to $32,000 in the nine months ended September 30, 2002 from $102,000 in the nine months ended September 30, 2001. The
provision for income taxes consists primarily of foreign tax provisions.

Deemed Beneficial Conversion Dividend on Series A Preferred Stock.

On April 19, 2002, we sold 9,036,140 shares of our Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock"), for
$15.0 million, to investors affiliated with H&Q Asia Pacific and Vertex Management. The net proceeds of the offering, after deducting expenses, were $14.3 million. At the closing of the
transaction, we also issued to these investors warrants to purchase 903,614 shares of Series A Preferred Stock at a purchase price of $1.66 per share, and warrants to purchase 1,355,420 shares
of Series A Preferred Stock at a purchase price of $2.49 per share. The warrants are exercisable at any time within five years after the closing. Each share of Series A Preferred Stock
is initially convertible into common stock at any time at the option of the holders on a 1-for-1 basis. Furthermore, the Series A Preferred Stock will convert
automatically into common stock upon the earlier of the fifth

19

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anniversary of the date of issuance or the 90th consecutive trading day that the closing price of our common stock is at least $8.30 per share.

Emerging
Issues Task Force ("EITF") Issue No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios", requires that a portion of the proceeds equal to the intrinsic value (and not the fair value) of the conversion option be
allocated to additional paid-in capital. This results in a discount on the convertible instrument and is recorded as a deemed beneficial conversion dividend. In accordance with EITF Issue
No. 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments", the deemed dividend is calculated at the commitment date as the difference between
the conversion price of each preferred share and the fair value of each share of the common stock into which the preferred stock is convertible, multiplied by the number of shares into which the
security is convertible.

At
the commitment date, April 19, 2002 (the date of the transaction closing), the fair value of our common stock was $2.67, the effective conversion price of the Series A
Preferred Stock was $1.37 and the effective conversion price of the two warrants were $2.80 and $3.61, respectively. Therefore, a beneficial conversion feature existed for the Series A
Preferred Stock, but not for the warrants. The Series A Preferred Stock was immediately convertible into common stock, and therefore the amount of the beneficial conversion feature was recorded
as a deemed dividend in the second quarter of 2002 and amounted to $11.8 million. In order to determine the effective conversion prices, we engaged an independent third party to perform a
valuation of the Series A Preferred Stock and associated warrants.

Liquidity and Capital Resources

|                                                    |  | September 30,
2002 |        | September 30,
2001 |  
|--------------------------------------------------- |  | ------------------ | ------ | ------------------ | -
|
|Cash and cash equivalents                           |  | $                  | 3,353  |                    | $
|Net cash used in operating activities               |  |                    | (5,350 | )                  |  
|Net cash (used in) provided by investing activities |  |                    | (9,486 | )                  |  
|Net cash provided by financing activities           |  |                    | 14,168 |                    |  

Cash and cash equivalents.Our principal source of liquidity is our cash, cash equivalents and short-term
investments. As of September 30, 2002, in addition to our cash and cash equivalents balance of $3.4 million we had a short-term investment balance of approximately
$18.8 million.

Operating Activities.Net cash used in operating activities was $5.4 million and $23.7 million in the nine
months ended September 30, 2002 and 2001, respectively. Net cash used in operating activities in the nine months ended September 30, 2002 was primarily a result of our net operating
losses of $5.3 million, higher accounts receivable balances of $1.6 million from increased revenues and lower accruals for compensation and benefits of $1.1 million principally
due to the elimination of our 2002 bonus plan. The net cash used in operating activities was partially offset by adjustments from lower depreciation and amortization of property and equipment of
$2.0 million, primarily due to the retirement of assets, and lower accounts payable balances of $1.1 million, both of which were a result of our January 2001 and June 2002
restructuring events. Net cash used in operating activities in the nine months ended September 30, 2001 was primarily the result of our net operating losses of $28.8 million and lower
accounts payables of $3.7 million primarily due to cash payments associated with our January 2001 strategic restructuring charges.

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Investing Activities.Net cash used in investing activities was $9.5 million in the nine months
ended
September 30, 2002 and net cash provided by investing activities was $2.7 million for the nine months ended September 30, 2001. Net cash used in investing activities in the nine
months ended September 30, 2002 was primarily the result of investing in short-term instruments using the funds received in April 2002 from our Series A Preferred
Stock funding. Net cash provided by investing activities in the nine months ended September 30, 2001 was primarily the result of proceeds from maturing short-term investments to
fund operating activities.

Financing Activities.Net cash provided by financing activities was $14.2 million and $152,000 in the nine months
ended September 30, 2002 and 2001, respectively. The net cash provided by financing activities in the nine months ended September 30, 2002 was primarily the result of proceeds from the
issuance of our Series A Preferred Stock. Net cash provided by financing activities in the nine months ended September 30, 2001 was primarily due to the proceeds from the sale of common
stock through the incentive stock option and the employee stock purchase plans.

Commitments.We lease all our facilities under operating leases that expire at various dates through 2004. As of
September 30, 2002 we had $626,000 in future operating lease commitments and $5,000 of capital lease obligations and equipment promissory notes.

Summary of Liquidity.We believe that our available cash, cash equivalents and short-term investments of
$22.1 million at September 30, 2002 and cash expected to be generated by operations during the next twelve months, will fund planned operations for at least the next twelve months.

We
have successfully reduced our rate of cash consumption, excluding issuance costs related to our Series A Preferred Stock, down to $5.2 million during the nine months
ended September 30, 2002 from $25.4 million during the nine months ended September 30, 2001. During the nine months ended September 30, 2002, our quarterly rate of cash
consumption, excluding issuance costs related to our Series A Preferred Stock, dropped consecutively from $3.0 million in the first quarter to $1.9 million in the second quarter
and to $300,000 in the third quarter. Our rate of cash consumption has decreased primarily due to our increased revenues and the cost savings achieved from our restructuring events.

Although
we had incurred a net loss of $5.3 million before the deemed beneficial conversion dividend during the nine months ended September 30, 2002, we expect to turn
profitable in the fourth quarter of
2002 and expect to turn cash flow positive shortly thereafter. Our accumulated deficit as of September 30, 2002 was $128.9 million.

On
April 19, 2002, we sold 9,036,140 shares of our Series A Convertible Redeemable Preferred Stock, for $15.0 million, to investors affiliated with H&Q Asia Pacific
and Vertex Management. The net proceeds of the offering, after deducting expenses, were $14.3 million. At the closing of the transaction, we also issued to these investors warrants to purchase
903,614 shares of Series A Preferred Stock at a purchase price of $1.66 per share, and warrants to purchase 1,355,420 shares of Series A Preferred Stock at a purchase price of $2.49 per
share. The warrants are exercisable at any time within five years after the closing. Each share of Series A Preferred Stock is initially convertible into the Company's common stock at any time
at the option of the holders on a 1-for-1 basis. Furthermore the Series A Preferred Stock will convert automatically into common stock upon the earlier of the fifth
anniversary of the date of issuance or the 90th consecutive trading day that the closing price of the Company's common stock is at least $8.30 per share.

We
plan to invest in expanding our Internet roaming and related services, on a global basis, by continuing to build strategic partnering relationships. This will require us to maintain
market acceptance, and to grow our Internet roaming and related services offerings in order for us to continue our research and development activities and fund planned operating expenses. There can be
no assurance that our Internet roaming product offerings will maintain 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 12 months. These actions could have a material adverse effect on our business, results of operations and prospects.
Furthermore, we may need to raise additional funds in future periods through public or private financing, or other arrangements, to fund operations and potential acquisitions, if any. We may never
achieve profitability. If additional financing is needed, it might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and results of
operations. If additional funds were raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, these equity securities might have
rights, preferences or privileges senior to our common stock.

Factors That May Affect Future Results

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

We may have continued losses and may not achieve profitability.

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
$5.3 million for the nine months ended September 30, 2002, $31.5 million for 2001, $32.3 million for 2000 and $22.5 million for 1999. As of September 30,
2002, our accumulated deficit was $128.9 million. We have also experienced negative cash flows in each year since our inception in 1994. We may not turn profitable in the fourth quarter of 2002
as projected, which could cause our stock price to decline. We expect to continue to make substantial expenditures on research and development and sales and marketing, and we expect to face pressure
to adopt new pricing arrangements, including volume discounts, that may lower our gross margins. If revenues do not increase to the levels we anticipate, or if our costs and expenses exceed our
expectations, we will continue to sustain losses, and the price of our common stock is likely to decline as a result. Our operating history is more limited than that of many other companies, so you
may find it difficult to evaluate our business in making any investment decision.

We have limited experience and track record in our business, which makes it more difficult for us to execute our business plan and for you to evaluate us.

We have limited experience providing clearinghouse services, having done so since only 1997, and it is only since January 2001 that our efforts have been
focused primarily on providing services that enable our customers to provide Internet roaming services to their end-users. Some members of our senior management team and other employees
have worked with us for only a short period of time. As a result of our limited operating history, we have little meaningful historical financial data upon which to plan operating expenses or forecast
our revenues accurately. This combination of factors makes it difficult for us to plan and to implement plans, and it makes it difficult for you to evaluate your investment in GRIC.

We may require additional capital to fund our business, which could cause your investment to be diluted.

If the funds we raised in April 2002 through the sale of Series A preferred stock are insufficient to fund our operations, we may need to raise
additional funds at some point in the future. If we raise additional funds by selling equity or convertible debt securities, our stockholders may experience additional dilution and these new
securities may have powers, preferences and rights that are senior to those of the rights of our common stock. For example, as a result of the recent sale of our Series A preferred stock, the
investors control a significant portion of our outstanding capital stock, and the

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owners of the Series A preferred stock have claims that are senior to those of holders of the common stock in the event of a bankruptcy or liquidation, and the issuance of the Series A
preferred stock has substantially diluted the ownership interest of the common stockholders. We cannot predict whether additional financing will be available on terms favorable to us, or at all. If
adequate funds are not
available or are not available on acceptable terms, we may be unable to fund our business operations, promote our brand identity, take advantage of acquisition opportunities, develop or enhance
services or respond to competitive pressures. Any inability to do so could have a negative effect on our revenues, financial condition and results of operations.

We restructured our business in 2001 to focus on our Internet roaming service, which made us dependent on the success of this service.

In January 2001, we ceased to provide Internet telephony service and focused on providing our Internet roaming service. This concentration makes us more
dependent on the growth of the Internet roaming market, and more vulnerable if our Internet roaming product offerings are not have favorably received in the market or if we fail to achieve our revenue
and margin targets.

We face significant competition, including competition from larger companies, that could reduce our revenues and gross margins.

Our business 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 TierOne Network. Large communications service providers such as Equant and AT&T
also have the ability and resources to compete with us in the Internet-based mobile office communications services market. We could also face competition from emerging, wireless based network service
providers targeting the traveling business communities. 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. This competition may result in reduced prices and longer sales
cycles for our products. If any of our larger competitors were to commit greater technical, sales, marketing and other resources to our markets, it would be more difficult to compete.

We are dependent on a small number of customers for a large percentage of our revenues, so if we lose one or more large customers it could reduce our revenues or cause our
revenues to grow more slowly.

For the nine months ended September 30, 2002, four customers were responsible for an aggregate of more than 50% of our total consolidated revenues. Each of
these customers also contributed 10% or more of our total revenues in the most recent calendar quarter. One of these customers is currently operating under the protection of the U.S. bankruptcy laws.
If one of these companies ceased to be our customer or substantially reduced its use of our settlement services below recent levels, there is no guarantee that we could replace the lost revenue by
increasing revenues from existing customers or by obtaining new customers. If we were unable to do so, it would be more difficult to meet our revenue goals.

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

Our customers are generally free to use competing products and services, so we could face significant customer losses, at unpredictable times. Our customers are
generally not obligated to generate revenue at any minimum level, and some customers generate very little revenue for us. On the

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other hand, we had three customers in 2001 that each accounted for more than ten percent of our revenue. Losing any of those large customers could mean a significant revenue shortfall for us. These
factors make it difficult to anticipate future revenue from existing customers. In addition, to succeed we must expand our customer base. If we are unable to expand our customer base and to increase
our average revenue per customer sufficiently, our business success will be less likely.

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

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

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

The success of our business depends on our ability to introduce new services, products and features that will generate new revenues. Each effort to develop and
introduce a new service, product or feature involves investments of money, personnel and time, as well as opportunity costs. We recently introduced GRIC Mobile Office, a product suite that includes
wireless access, security monitoring and other features in addition to our traditional dial-up access. We have no assurance that this new product will be accepted by the marketplace, or
whether competing technologies or products will be more popular. Further, we do not know whether third-party developers of Internet communications applications will be willing to develop new
applications that can be delivered as part of our mobile office communications solutions, or that we will be able to develop any applications of this type ourselves. If our new products are not
successful, we will not achieve a profitable return on the costs of product development and launch, and we will have lost opportunities to pursue other products.

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

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

Sales in the Internet infrastructure market are unpredictable, and since we depend on sales to this market our revenues and any earnings are at risk when the market declines.

Sales to the Internet infrastructure market are characterized by sporadic purchasing decisions and sensitivity to expansions and contractions in the
telecommunications industry. Recently, many companies have warned of purchasing declines 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 local regulatory and

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business conditions. If our sales do not match our expectations we would not achieve profitability when we expect to.

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

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



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

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

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

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

Our business is characterized by a long "sales cycle"the time between initial contact with a potential customer and the resulting purchase. Typically
our sales cycle is between three to twelve months, and the actual length of a sales cycle depends on a number of factors such as the complexity of the customer's business and needs, the nature of
services being purchased and the level of deployment. Even after a sale is made there may be further delays before new users are brought into our system
and we begin to realize associated revenues. As a result, we typically incur substantial sales costs before we recognize any related revenues. It is possible that in some periods there will be
unusually high costs associated with the long sales cycle, or that the length of the sales cycle will increase, which could have a material effect on our business.

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

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



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

Our future success depends on the hiring and retention of key executive, management and technical personnel. 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. 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.

It is difficult for us to hire and retain qualified sales personnel, which may cause us to miss our revenue target.

Highly trained sales personnel are key to our performance. 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 salespersons, they require extensive training in our products and services. This training typically covers six to eight weeks of formal
in-class and on-the-job instruction. If we are unable to retain existing sales employees and train new sales personnel as rapidly as necessary, we may not be able
to increase market awareness and sales of our services, which may prevent us from generating revenue and achieving and maintaining profitability.

We could become subject to litigation regarding intellectual property rights that could be costly and result in the loss of significant rights.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We may become a party to
litigation in the future to protect our intellectual property or as a result of an alleged infringement of another party's intellectual property. Claims for alleged infringement and any resulting
lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their

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success, would likely be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could also force us to do
one or more of the following:



If
we are forced to take any of these actions, our business might be seriously harmed. Our insurance may not cover potential claims of this type or may not be adequate to indemnify us
for all liability that could be imposed.

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

As of September 30, 2002, our executive officers and directors, and their related entities, owned approximately 43.5% of our outstanding common stock and
common stock equivalents. As a result, these stockholders may be able to exercise control over all matters requiring approval of our stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership might also have the effect of delaying or preventing a change in control of the Company that might be viewed as beneficial by other
stockholders.

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

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

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



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

Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs.

For example, the Sarbanes-Oxley Act of 2002 that became law in July 2002 requires changes in some of our corporate governance and securities disclosure or
compliance practices. That Act also requires the SEC to promulgate new rules on a variety of subjects, in addition to rule proposals already made, and Nasdaq has proposed revisions to its requirements
for companies like GRIC that are

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Nasdaq-listed. We expect these developments to increase our legal compliance costs, and to make some activities more difficult, such as stockholder approval of new option plans. We expect these
developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage. These developments could make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers. We are presently
evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.

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, which could severely
limit the trading market for our common stock.

If we fail to meet the criteria for continued listing on The Nasdaq National Market, our common stock may be delisted, which could make it more difficult for you
to sell your shares. For example, if the market price for our common stock falls and remains below $1.00 per share for thirty trading days, we would be subject to delisting. On October 31,
2002, the closing price of our common stock was $1.88.

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

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

Government regulations and legal uncertainties regarding the Internet could increase our costs of doing business and reduce the demand for our services.

At present, Internet-based communication services are not subject to fees that the U.S. Federal Communications Commission generally imposes on entities that use
the local telephone network to access customers. Internet-based communication services also are generally not subject to other federal fees or taxes imposed to support programs such as universal
telephone service. Changes in the rules or regulations of the U.S. Federal Communications Commission or in applicable federal communications laws to impose such fees or taxes could add significant new
costs to our operations, and we are not certain how those increased costs could affect demand for our services.

Any
new law or regulation pertaining to Internet-based communication services, or the application or interpretation of existing laws, could decrease the demand for our services, increase
our cost of doing business or otherwise harm our business. There is, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet. These laws or regulations
may relate to taxation and the quality of products and services. Furthermore, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal privacy and other issues is uncertain and developing. In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property

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issues, taxation, and export or import matters. The vast majority of these laws were adopted prior to the advent of the Internet. As a result, they may not contemplate or address the unique issues of
the Internet and related technologies. Changes in laws intended to address these issues could create uncertainty in the Internet market. These uncertainties could reduce demand for our services or
increase the cost of doing business through litigation costs or increased service delivery costs.

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. The weighted-average maturity of our investment portfolio, when taking into account the reset feature of floating
rate municipal bonds, is limited to 90 days. We intend to hold our securities until maturity and, therefore, do not expect to recognize an adverse impact on income or cash flows, although there
can be no assurance of this. We have established policies and business practices regarding our investment portfolio to preserve principal while obtaining reasonable rates of return without
significantly increasing risk. We place investments with high credit quality issuers according to our investment policy. We do not use derivative financial instruments in our investment portfolio. All
investments are carried at fair market value for September 30, 2002. Due to the short-term nature of our investments and the immaterial amount of our debt obligation, we believe
that there is no material exposure to interest fluctuation. Therefore, no accompanying table has been provided.

ITEM 4. CONTROLS AND PROCEDURES



Regulations under the Securities Exchange Act of 1934 require public companies to maintain "disclosure controls and procedures," which are defined to mean a
company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Our Chief Executive Officer and our Chief Financial Officer, based on their
evaluation of the effectiveness of our disclosure controls and procedures within 90 days before the filing date of this report, concluded that our disclosure controls and procedures were
effective for this purpose.



There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to the
date of the evaluation referenced above.

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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 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. By a judicial order dated September 4, 2001, these cases were consolidated, and the consolidated matter is now captioned In re GRIC
Communications, Inc. Initial Public Offering Securities Litigation, No. 01 Civ 6771 (SAS), and is part of over three hundred coordinated proceedings covered under the caption In re
Initial Public Offering Securities Litigation, Master File No. 21 MC 92 (SAS). The Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws ("Consolidated
Complaint") was filed on or about April 19, 2002, and alleges claims against certain of our officers, and CIBC World Markets Corp., Prudential Securities Incorporated, DB Alex. Brown, as
successor to Deutsche Bank, and U.S. Bancorp Piper Jaffray Inc., underwriters of the Company's December 14, 1999 initial public offering ("underwriter defendants"), under Sections 11 and
15 of the Securities Act of 1933, as amended, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The Consolidated Complaint also alleges claims against the
underwriter defendants under Section 12(2) of the Securities Act of 1933. The claims made in the Consolidated Complaint are substantially similar to the claims made in the over three hundred
other amended complaints filed in the coordinated matter captioned In re Initial Public Offering Securities Litigation.

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

During
October 2002, certain of our officers and directors who had been named as defendants in the In re Initial Public Offering Securities Litigation were dismissed without
prejudice upon order of the presiding judge. In addition, the parties have been participating in a mediation and certain settlement proposals have been made or are being considered, which could
include dismissal of the issuer defendants, including us. There can be no guarantee that the parties will be able to reach agreement on either a partial dismissal or a global resolution of the claims
involving the issuer defendants. Our management believes that the Consolidated Complaint is without merit and intends to defend against it vigorously. We do not believe the outcome of this
consolidated lawsuit will have a material adverse effect on our financial condition, results of operations or cash flows.

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

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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, 2002, we have a remaining balance in
cash and cash equivalents of $3.4 million and have applied $4.5 million of the proceeds towards short-term investments, $13.3 million of the proceeds towards capital
expenditures and the balance of $45.6 million towards working capital and funding operations.

On
April 19, 2002, we sold 9,036,140 shares of our Series A Preferred Stock at a price of $1.66 per share, pursuant to a private placement, generating proceeds of
approximately $15 million. No brokers or underwriters were used by us in connection with this offering and sale.

In
connection with the offering, we incurred approximately $748,000 in expenses. The net proceeds from the offering, after deducting the foregoing expenses, were approximately
$14.3 million. From April 19, 2002 through September 30, 2002, we applied all of the net proceeds towards short-term investments.

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



|Date of Report |  | Item(s) |  | Description                                                                                                                                                                                                                                                  
|-------------- |  | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8/14/2002      |  | 9       |  | On August 14, 2002, we filed a Form 8-K to report the filing of certifications by our Chief Executive Officer and Chief Financial Officer with the SEC in connection with the filing of our Quarterly Report on
Form 10-Q for the period ended June 30, 2002.

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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 13, 2002.

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

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CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I,DR. HONG CHEN, certify that:

|Date: November 13, 2002 |  | By: | /s/DR. HONG CHENDr. Hong Chen
Chief Executive Officer
|----------------------- |  | --- | -----------------------------------------------------

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CERTIFICATION PURSUANT TO  SECTION 302 OF THE  SARBANES-OXLEY ACT OF 2002

I, KIM S. SILVERMAN, certify that:

|Date: November 13, 2002 | By: |  | /s/KIM S. SILVERMANKim S. Silverman
Chief Financial Officer
|----------------------- | --- |  | -----------------------------------------------------------

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