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Article by DailyStocks_admin    (02-16-09 07:55 AM)

Filed with the SEC from Feb 5 to Feb 11:

iPass (IPAS)
Foxhill Master Fund submitted a nonbinding shareholder proposal recommending that directors should be elected annually rather than serving for three-year staggered terms. Foxhill owns 4,074,721 shares (6.5%).

BUSINESS OVERVIEW

The growth of remote and mobile work combined with the proliferation of mobile devices and remote and mobile broadband networks has created increasing complexity for enterprises which can lead to multiple risks including growth in total costs for supporting knowledge workers, lost workforce productivity from technical complexity, and security and regulatory threats to the business.

To address this growing enterprise pain point, we provide software-enabled enterprise services that unify the management of remote and mobile connectivity and devices on a global basis. First, we offer a portfolio of connectivity services. Our flagship connectivity service, iPass Mobile Office, is designed to enable enterprises to provide their employees with secure internet and corporate network connectivity over any access network through a single easy-to-use interface. iPass Mobile Office unifies access across more than 400 3G mobile broadband, Wi-Fi hotspot and dial-up networks in over 160 countries that make up the iPass global virtual network. The service also gives customers the option to use the service for access over networks that are not yet part of the iPass global virtual network such as on-campus wireless local area networks (LANs) as well as third-party home broadband links, Wi-Fi hotspot networks, municipal Wi-Fi networks, 3G mobile data networks and hotel Ethernet links.

In addition, iPass Mobile Office includes capabilities for managing laptop and handhelds over the Internet, including detailed reporting on device configurations and usage and the ability to automatically update software on these hard-to-reach devices based on corporate policies.

iPass also offers the iPass Virtual Office service that combines iPass Mobile Office with managed home broadband service in the US, Canada, and the United Kingdom. iPass aggregates over 150 providers of cable, DSL and other home broadband services into the industry’s most complete network, and then provisions and manages these links for the enterprise.

iPass also offers site-to-site managed network services via the internet through its iPass Branch Office and iPass Retail Office services that combine service functions that include end-to-end Managed IP VPN, Visa accredited PCI security solutions for retail, and home gateway management for tele-workers. Complete with a tailored design and end-to-end SLAs to meet enterprise performance requirements, iPass services are used by leaders in a range of industries including retail, hospitality, financial services and health care.

Lastly, iPass provides device authentication capabilities using the iPass DeviceID service which can be used in conjunction with iPass Mobile Office or on a stand-alone basis.

Fundamental to all iPass services is enabling the IT Manager or an iPass Solution Provider partner servicing the enterprise to maintain direct control of the determination and application of policies as part of a self-service management process.

We were incorporated in California in July 1996 and reincorporated in Delaware in June 2000.

Software-Based Platform for Service Delivery

As opposed to traditional telecommunications companies that build, operate and maintain network facilities, we have created a software-based platform that delivers a virtual network over which our services operate. Our software architecture gives our services the technology flexibility and cost-effective scalability valued by enterprises. It comprises contractual relationships and technical integrations with over 550 fixed and mobile telecommunications carriers, Internet service providers and other network service providers around the globe. This architecture has redundancy built in throughout, from the use of multiple network providers in most countries to fault-tolerance mechanisms at all points in the user login process. This allows us to deliver extremely high service availability to our customers. In fact, since 2000, there has been no service-wide system down-time that impacted the platform and the services that it provides.

In addition, our architecture allows customers to gain better control of remote and mobile connectivity and simplify their back-end operations. Customers can configure and enforce policies around network access based on financial and security considerations. They also receive centralized delivery of detailed billing, reporting and management information.

Revenue Sources

We derive revenues from usage of our networks, from service fees and from enterprise software licenses and maintenance fees. Our usage revenues are generated by providing enterprise connectivity services to customers using narrowband access technologies, such as modem dial-up, and from broadband access technologies, including hotel Ethernet and Wi-Fi hotspots and Mobile Data Services based on technologies such as 1xRTT, EV-DO, GPRS and HSDPA. Revenues pertaining to usage represented 74% of our total revenues in 2007. Additionally, we receive revenue from fees and other services, including authentication services for channel partners, service fees for use of our iPassConnect client software on 3 rd -party networks, value-added reporting services, endpoint systems management services and professional services including service customization, service deployment and customer training. In 2007, we generated approximately 26% of our revenues from fees and other services. We market and sell our services directly, as well as indirectly through channel partners, including network service providers, Internet service providers, systems integrators and value-added resellers. See our Consolidated Financial Statements for our revenues and other financial performance and condition for the past three years.

Our Strategy

Our objective is to use our software-enabled platform to become the leading provider of enterprise mobility services worldwide. The key elements of our strategy to achieve this objective include:

Expand our Enterprise Customer Base. We seek to increase the number of enterprises that use our services by leveraging direct-touch sales professionals and channel partners who focus on generating new accounts. We also seek to expand our indirect sales capabilities by building additional relationships with channel partners, such as value-added resellers, systems integrators, providers of security products and services (i.e. virtual private networks (VPN), personal firewalls and intrusion detection) and telecommunications carriers. We also intend to build and maintain iPass brand awareness through the promotion of our brand through public relations, marketing campaigns, our web presence, and our large installed base of branded client software, and to increase our market reach through technical integration of our back-end software and client software with the offerings of our channel partners.

Increase User Penetration within our Existing Customer Base. We seek to accelerate the adoption of our services by increasing usage of our services from the highly mobile business travelers who dominate our current user base to all customer employees who use laptop and handheld mobile devices at home, while traveling, or in the office over a wireless LAN. We intend to achieve this through the sale of services related to use of iPass connectivity and device management software over non-iPass networks, such as enterprise home broadband and on-campus wireless LANs as well as Wi-Fi hotspots, municipal Wi-Fi networks, mobile data networks and hotel Ethernet links. We also intend to continue to add to our service connectivity footprint to capture users who we do not yet serve within existing customers.

Within customers who only have implemented our services in a single division, we endeavor to broaden service adoption to all other operating units of the enterprise. A key function of our sales force is to assist our customers with the adoption and integration of our services with their organizations, continually assess the customers evolving needs and offer new services for adoption, and provide ongoing account management.

Continue to Expand our Wired and Wireless Broadband Coverage and Service Offerings. We believe that the improved security, ease of use, simplified management and improved cost control that our services provide can address many of the challenges presented by the emerging broadband markets, such as wireless security, lack of unified roaming standards and increased complexity driven by provider fragmentation, and increased costs driven by grass-roots purchase of wireless services by individuals within enterprises. As such, we seek to continually expand the broadband coverage of our virtual network to venues attractive to international, inter-city and metro-area business travelers, such as airports, hotels, train stations, convention centers, cafes, restaurants, and other retail locations, as well as hotzones, municipal area networks and in-transit access on airplanes and trains. We intend to continue increasing the number of these venues by establishing relationships with network service providers that provide access to these venues. We also plan to expand the network coverage through mobile broadband data services based on 2.5G and 3G networks around the world, which provides another layer of wireless data coverage. We also seek to continue evolving our back-end authentication, settlement and clearinghouse capabilities to support this expansion, developing our client software to both enrich and simplify the user experience, and improving our management capabilities to simplify management control for our customers.

Continue to Enhance our Virtual Network. We intend to continue to establish new relationships with network service providers to increase the coverage and redundancy of our virtual network. We intend to enhance the functionality and features of our software architecture and to address changing customer requirements and technologies through internal development, strategic partnerships and/or acquisitions. We also seek to expand our service offerings by supporting and integrating new access methods, devices, applications and operating systems, and by building additional relationships with systems integrators and technology providers and develop services that effectively leverage an enterprise’s existing infrastructure. We also intend to explore additional services that enhance our competitive advantage and provide us with new growth opportunities. We endeavor to web-enable our business processes wherever feasible, to increase the leverage of our software-based service model.

Leverage and Extend our Mobile Device Management Capabilities. In order to deepen the value we provide to customers, we intend to continue to improve the mobile device management capabilities of our services through both extension of our platform to new functions that serve to protect identities, endpoints, the network, and user data as well as integrate with technology partners in the enterprise security industry.

Flexible Enterprise Security Integration. Our software is designed to enable integration between an enterprise’s network connectivity infrastructure and a wide variety of enterprise security applications. Our services integrate with a breadth of security software and systems, including VPN, personal firewall, anti-virus and authentication systems, enabling enterprises to rapidly deploy our services while leveraging their best-of-breed investments in security infrastructure.

Authentication Security. Unlike many network service providers, we securely route all credentials relating to our end users with 128-bit Secure Socket Layer, or SSL, protocols, ensuring the confidentiality of sensitive user information as it traverses the Internet. All transactions between iPass systems are further secured by mutual authentication and digital certificate exchange. Lastly, to defend against identity theft over local shared and wireless links, an additional layer of authentication using 131-bit ECC cryptography protects user credentials from the laptop or handheld into the iPass virtual network.

Policy-Based Access Control. Our virtual network also offers policy management capabilities, enabling customers to allow or deny access to their network based on specific user and session characteristics. The characteristics may be based on the user’s location, the user’s identity and role within the organization, the type of access network being used, and the compliance of the user’s computer with enterprise security policies.

Mobile Device Management. We have software and services that allow for flexible and automated systems management capabilities, with specific advantages with regard to laptop and handheld endpoint systems used by remote and mobile workers. The capabilities can be used for device discovery, device inventory, asset management, device configuration, patch management and software distribution. These capabilities can be hosted on servers at our customer’s premises or delivered from iPass data centers. They are supported by agent software that runs on the mobile worker’s device.

Most management functions are directly available to customers and partners over the web on the iPass Portal. This one-stop shop is designed to help reduce the cost and resources required for customers to manage enterprise mobility.

Integration of New Technologies. We actively evaluate and integrate support for new access methods, laptop and handheld operating systems and applications into our service offering. For example, we support wired broadband, wireless broadband based on the current and emerging Wi-Fi standards, as well as 3G mobile data services. End users can access our virtual network using desktop and laptop computers, wireless handheld devices and other Internet Protocol (IP) enabled electronic devices. Our network integrates with our enterprise customers’ existing VPN and security applications, and our software supports a wide range of computer operating systems, including various versions of Microsoft’s Windows(R), Apple’s Mac OS, as well as Symbian OS and Microsoft’s Windows Mobile versions for handheld devices.

iPass Mobile Office

iPass Mobile Office offers our customers the ability to reduce their costs of delivering mobility by providing unified global connectivity, connectivity management and device management. It delivers 3G mobile data, Wi-Fi hotspot, wired broadband and dial-up access through the iPassConnect mobility manager. It unifies a management and billing for the IT department. We generally bill customers based on usage of the iPass virtual network, as well as additional monthly fees based on number of users for use of our client and management software over non-iPass networks. The process by which a mobile worker accesses their enterprise network through iPass virtual network is illustrated in the following diagram and described through the following steps:


1. The iPassConnect mobility manager software installed on a mobile worker’s laptop computer or other electronic device enables the mobile worker to connect to our virtual network. For wired access the mobile worker launches the iPassConnect(TM) mobility manager, selects the city in which he or she is located, and then selects a local network access point (dial-up, ISDN, PHS, or wired high-speed internet). For wireless access, the client software automatically detects and displays any available Wi-Fi hotspots or mobile data services, whether it is a part of the iPass footprint or not. It will also automatically choose the appropriate authentication protocol to initiate the access request without user intervention. This is especially beneficial in Wi-Fi hotspots, corporate wireless LANs or home wireless LANs that require 802.1x-based security. The client software can also be used to connect via the user’s home broadband connection and home Wi-Fi LAN.

Security checks can be built into the connection process. A feature called SecureConnect allows the enterprise to set policies that detect whether the user’s personal firewall or anti-virus software is active, auto-launch this software if it is not, and disallow the connection attempt if the proper software cannot be launched. In addition, the user must enter his or her corporate credentials, which will be authenticated by his or her enterprise database before the connection is allowed.

2. The iPass NetServer software, installed in a network service provider’s network, provides the interface between the network service provider and the iPass network. The NetServer recognizes that the end user belongs to the iPass user base and securely transmits the username and password to the nearest available iPass Transaction Center using 128-bit SSL encryption. Our eight transaction centers are located in California, New York, Georgia, Hong Kong, Australia, the United Kingdom, The Netherlands and Japan. Any NetServer can communicate with any Transaction Center, allowing for high availability in the rare event of a single Transaction Center failure.

3. The Transaction Center to which the authentication request is routed looks up the enterprise to which the user belongs and securely transmits the user name and password to the iPass RoamServer software residing on the enterprise’s servers.

4. The RoamServer receives the request from the Transaction Center, converts it to the local authentication protocol used at the enterprise, and passes it to the enterprise authentication database. Enterprises can manage their own user lists and authentication databases and control users’ access to their internal network through the authentication system of their choice.

5. The enterprise authentication database then grants or denies authorization. The RoamServer securely sends a yes/no response back to the NetServer via a Transaction Center.

6. The NetServer authorizes the network service provider to allow the user access to the Internet. At this point the iPassConnect mobility manager software can be configured to invoke the Device Management (formerly Endpoint Policy Management) service to assess and remediate the mobile device for compliance with endpoint security policies before providing access to the corporate network. Once remediation is complete, iPassConnect can automatically launch the user’s VPN to securely connect to the enterprise network.

7. When the mobile worker terminates the Internet session, the VPN connection is also terminated and a record of the transaction is forwarded to the iPass Clearinghouse. The enterprise receives detailed invoices either on a monthly or more frequent basis, as requested. For additional security, customers can use the Auto-Teardown feature to set policies that terminate the internet session if the VPN, personal firewall, or anti-virus software is terminated during the session.

Additional Mobile Office features

iPass Mobile Office includes the following features:

iOQ Advanced Reporting. iOQ allows our customers’ in-house or outsourced help desk personnel to quickly identify issues and troubleshoot connection problems. With this feature enterprises can generate records and reports regarding access locations, client configuration, error codes, connection speeds, time to authenticate and other critical information. We generally charge a monthly fee for our iOQ service. We periodically update the iOQ software in order to provide improved reporting for our internal support organization and our customers. These upgrades are downloaded to the user’s computer or other electronic device when the user logs in, at no additional cost to the customer.

Hosted Authentication. We offer a hosted authentication option for iPass Mobile Office to enable enterprises to realize the benefits of our enterprise connectivity services while avoiding the cost of installing and managing additional authentication infrastructure. We manage an enterprise’s authentication server in one of our secure data centers, but the enterprise’s information technology manager retains full control. There is an additional option in ExpressConnect that allows the individual charges to be directly charged to their corporate credit card.

On-Campus Roaming. This feature allows enterprise IT departments to offer a single user experience for all remote and local wireless connections while extending centralized management of security policies to these potentially vulnerable corporate wireless networks.

Virtual Office. iPass Virtual Office adds managed fixed broadband for tele-workers to Mobile Office, providing enterprise customers a method of outsourcing the broadband network design, implementation and on-going support for their entire population of home workers. This service provides customers a managed service with a single point of contact and single consolidated bill while supporting broadband connections on different technologies and carriers. iPass maintains relationships with over 150 cable and DSL providers to provide coverage in the United States, Canada and the United Kingdom. The Virtual Office service comes with a secured, managed Wi-Fi enabled router to allow a user the freedom to work anywhere within the home.

iPass Managed Network Services

Branch Offic e. This service provides an organization with a managed wide-area network to connect hundreds of small offices back to a corporate data center. It leverages iPass’ relationships with over 150 cable and DSL providers to provide coverage throughout the United States, Canada and the United Kingdom. The connections are secured using VPN platforms from Cisco, Juniper Networks and SonicWALL and the entire service is managed by iPass. As part of the managed service, iPass provides end-to-end proactive monitoring, reporting and troubleshooting of the health of the network, including availability, latency and packet loss. All of this information is available on a real-time basis on the Universal Remote Control section of the iPass portal.

Retail Office. Retail Office provides wide-area networking for distributed retail locations to connect to a corporate data center. It is identical to the Branch Office product except that the offering includes Payment Card Industry (PCI) Compliance as part of the solution. PCI is required for any network which transmits credit card data. Retail Office solutions include VPN platforms from Cisco and Juniper Networks and include all of the proactive management and reporting associated with Branch Office as well as specific reporting for PCI Compliance.

Device Authentication Service

DeviceID. The DeviceID service strengthens network security through device authentication. This service creates a digital fingerprint for every device by gathering unique identifying numbers from select hardware components and uses this information when interrogating the device to provide access to the corporate LAN via a VPN. DeviceID helps protect against replay attacks, reverse engineering and spoofing by checking different hardware attributes during each authentication request. This service is designed to ensure that only corporate-issued or authorized machines access the network as well as validate device identity as an additional factor for VPN authentication.

Principal Components of the iPass Platform

The technology incorporated in our services is designed to provide our customers with reliability, quality of service, network security, policy enforcement, consolidated billing and scalability. Our technology consists of the following four principal components, each of which was designed and developed internally: iPassConnect mobility manager; distributed authentication system; iPass Clearinghouse; and Service Quality Management.

iPassConnect Mobility manager. The iPassConnect mobility manager software is installed on mobile workers’ laptop computers or other devices, and allows them to securely and reliably connect to the Internet using a variety of access methods including narrowband, integrated services digital network, or ISDN, wired and wireless broadband, GSM and 3G. The iPassConnect mobility manager is designed to be easy-to-use and to be a flexible and scalable network connectivity platform for enterprises. The key features of iPassConnect include:

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I ntuitive User Interface. iPassConnect mobility manager was designed with over seven years of experience and customer feedback, resulting in a user-friendly interface with many features.

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Automatic Updates. iPassConnect mobility manager also provides ent erprises with the ability to schedule periodic software modifications or updates of iPassConnect to their end users without handling each end user device separately. These upgrades are securely downloaded to the user ’ s computer or other electronic device w hen the user logs in, at no additional cost to the customer.

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Central Policy Control. iPassConnect mobility manager enables an enterprise to define a set of criteria, such as length of session or idle timeouts, once and apply those criteria to manage it s remote access policies across its entire workforce.

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Dynamic Directory. iPassConnect mobility manager enables enterprises to adjust the order of narrowband access points that are displayed to the end user, based on service quality. Customers also have the flexibility of integrating in-house access numbers with iPass ’ access points in cases where both networks are being utilized.

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Third Party Application Integration. iPassConnect mobility manager can be configured to automatically launch a variety of third party VPNs upon successful connection to the Internet. iPassConnect can also monitor anti-virus software, personal firewalls and VPNs and disconnect a user if there not running (based on the customer ’ s policy).

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Support for multiple operating sys tems and languages. iPassConnect mobility manager supports a wide range of computer operating systems, including Microsoft Windows 2000, XP, Mac OS X and above, and Windows Mobile. Additionally, iPassConnect for Windows is localized in Brazilian Portuguese , Portuguese, Simplified Chinese, Traditional Chinese, French, German, Japanese, Korean and Spanish.

Distributed and Redundant Authentication System. Our distributed authentication system, which is made up of iPass NetServer software, iPass RoamServer software and iPass TransactionServer software, is designed to enable the reliable, scalable and secure initiation and termination of a remote access session on our virtual network. NetServer is installed on the servers of our network service providers. RoamServer is installed on our enterprise customer’s internal networks, typically located on their premises. Our eight Transaction Centers, each of which is comprised of two or more transaction servers, are located in third party co-location facilities.

The software components of NetServer, RoamServer and the transaction server operate on third party single- or multi-processor servers based on Unix, Linux, or Windows. We send our enterprise customers updates to NetServer, RoamServer and the transaction server electronically on an as needed basis to support new authentication and management needs.

iPass NetServer software receives end user authentication requests for Internet connectivity and securely forwards the request to a transaction server across a 128-bit SSL connection. The iPass transaction server validates the request and securely forwards this request to a RoamServer located at the enterprise. The RoamServer receives the authentication request for Internet connectivity and forwards the request in a format compatible with the enterprise’s authentication database. Once the enterprise authentication database has allowed or denied the end user’s request for access, this reply is returned along the same route.

We have developed a security enhancement to our authentication system that further ensures the confidentiality of sensitive user credentials.

iPass Clearinghouse. Our iPass Clearinghouse software collects, filters, resolves, analyzes and summarizes the accounting details necessary to bill for the iPass Mobile Office services. Once an end user session is terminated, the Clearinghouse retrieves accounting records for each customer from each transaction server. Once received by the Clearinghouse, the records are filtered to eliminate duplicate records and reviewed for completeness and integrity of the data. The Clearinghouse then determines the identities of both the customer and the network service provider and generates two billing records to reflect the revenues and network access expenses based on the details contained in the original accounting record. The Clearinghouse then summarizes the records of each network service provider and generates and distributes customer call detail records and invoices. The Clearinghouse software is run internally on servers residing at a secure data center in Redwood City, California, with a fail-over and disaster recovery in a separate location.

Service Quality Management. Our patented iPass service quality management process, or SQM, system consists of several quality-of-service monitoring and management elements that we incorporated into our services. These tools and processes are comprised of the following:

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Client-Side SQM. Client-side SQM captures detailed status and usage information from connection atte mpts and uploads this information to a central iPass database when a successful connection is made. SQM records and reports access points from which connections are made, client configuration, error codes, connection speeds, time to authenticate and other information important in diagnosing network health. Our SQM software is deployed on networks worldwide to gather data on local access points and network conditions and allows us to monitor our virtual network from a customer ’ s point of view.

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SQM Report ing. Our SQM infrastructure enables our iOQ service and provides information such as detailed access point performance, individual and corporate connection success rates, and other connection data to our customers and to us. With this data, our customer su pport and development teams can monitor service quality and continue to improve the reliability and performance of our service offering. Through our iOQ service, our customers benefit from this SQM technology because it enables them to diagnose problems t h eir users are experiencing.

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Phonebook/Connection Directory. Based on input from the SQM infrastructure, the phonebook tool within the iPassConnect mobility manager places the highest quality access point at the top of the directory in order to enhance the experience for our customers ’ end users.

Co-location Facilities

Our eight Transaction Centers are located in third-party co-location facilities in California, New York, Georgia, Hong Kong, Australia, the United Kingdom, The Netherlands and Japan. Three additional co-location facilities are utilized to host our primary Clearinghouse and Finance systems, and corporate web services, which are located in California. Three out of our eight transaction centers also run the standby and disaster recovery Clearinghouse environments, our ExpressConnect service and the phonebook distribution servers. We maintain standard contractual agreements with the third parties that host our co-location facilities which generally provide for a term of between one and three years. If our relationships with these providers terminate, we believe that we will be able to secure relationships with alternative providers without any significant disruption to our operations.

Customers

We sell our service offering directly to enterprise customers and indirectly though channel partners.

International revenues accounted for approximately 38%, 40% and 45% of total revenues for the year ended December 31, 2007, 2006 and 2005, respectively. Revenues generated in the United Kingdom accounted for 11%, 11% and 14% of total revenues for the year ended December 31, 2007, 2006 and 2005, respectively. International revenues are determined by the location of the customer’s headquarters.

Substantially all of our long-lived assets are located in the United States.

Agreements with Network Service Providers

We have relationships with over 550 telecommunications carriers, Internet service providers and other network service providers that enable us to offer our services in over 160 countries around the world. We pay network service providers for access to their network on a usage or session basis, in some cases, subject to minimum purchase commitments. Most of these contracts have a term of one year, after which either party can terminate the contract with two months notice. In 2007, two network service providers, T-Mobile US and Verizon Business Services (formerly MCI), accounted for approximately 9% and 7% of our network access expenses, respectively. The contracts we have entered into with providers are non-exclusive and may contain minimum commitments for the purchase of network access. A new agreement was executed with Verizon Wireless in May 2007 for a three-year term with a commitment of 70 million megabytes, ramping over the term of the agreement. The T-Mobile agreement has no commitment, and is due to expire in March 2009. In countries in which we have contracted with multiple network service providers, if one network service provider is no longer available, we can generally obtain alternative network access without significant disruption to our business. We are also able to direct users to the network of particular service providers to fulfill minimum purchase commitments.

Sales and Marketing

We sell our services directly through our sales force and indirectly through our channel partners. Our sales organization is organized into regional account teams, which include sales directors, sales managers, account executives, account managers, sales engineers and sales operations personnel. We maintain sales offices or personnel in a number of cities in the United States as well as Australia, the United Kingdom, Hong Kong, Japan, Germany, France, Singapore, Denmark, Sweden and The Netherlands. As of December 31, 2007, our sales organization was comprised of 57 individuals in North America, 15 individuals in Asia Pacific and 39 individuals in Europe.

Our channel partners include network service providers, telecommunications carriers, systems integrators and value added resellers. A channel partner typically signs a one to two year agreement with us through which we appoint the partner as a nonexclusive reseller of our services. Channel partner responsibilities vary may include actively marketing and selling iPass services, deploying and supporting customer accounts, and implementing and managing billing for their customers. Selling through channel partners allows us to offer our services without incurring the cost of maintaining a direct sales force or customer support capability in each target market. Our channel partners typically sell complementary hardware, software, and services, and bundle our services with their core offerings. In some cases, once an enterprise has signed a contract for our services through a channel partner, our post-sales team may work with the channel partner to ensure successful implementation of our services. However, the enterprise remains the channel partner’s customer and has no direct financial relationship with us.

We focus our marketing efforts on creating awareness for our services and their applications, educating potential customers and generating new sales opportunities and generating end-user demand within customer accounts. We conduct a variety of marketing programs including advertising, press relations, analyst relations, telemarketing, direct marketing, web and e-mail marketing, collateral and sales tools creation, seminars, events and trade shows, co-operative channel marketing and promotions.

Competition

We compete primarily with large, facilities-based carriers and software-enabled virtual network operators. We compete based on geographic coverage, reliability, quality of service, ease of implementation, ease of use and the ability to manage both remote and mobile connections and devices. We believe that we compete favorably in terms of geographical coverage, reliability, quality of service, ease of implementation and ease of use.

Facilities-based telecommunications carriers against whom we compete, such as AT&T globally, Verizon Business in the U.S. and BT Infonet and Orange Business Services in Europe, generally have substantially greater resources, larger customer bases, longer operating histories, and greater name recognition than we have. Carriers may have the ability to offer a broad range of services and may be willing to reduce the price for remote access that is bundled with their other services. In some cases, potential customers are also suppliers to these carriers, and may be more inclined to purchase enterprise connectivity services from these carriers than from us. We believe that we compete favorably against facilities-based carriers when the potential customer is not a supplier to the carrier, and when the customer requires global multi-technology access rather than access only within a limited geographic region or via a single access method.

To a lesser extent we also compete with software-enabled virtual network operators. In some cases, our service offerings may be offered at a price premium to those offered by our competitors, which may put us at a competitive disadvantage. We believe we compete favorably against these competitors in terms of the coverage, redundancy, security, quality and ease of use of our service offerings. Still, software-based virtual network operators may also provide managed services such as VPNs and firewalls, and additional telecommunications services such as local exchange and long distance services, voicemail and DSL services. We do have channel partners that offer these types of services in conjunction with our service, but we do not offer these additional services directly, which may put us at a competitive disadvantage when competing for potential customers.

For a discussion of the possible effects that competition could have on our business, see “Risk Factors” — We face strong competition in our market, which could make it difficult for us to succeed.”

Research and Development

We believe that to compete favorably we must continue to invest in the research and development of our services. Our research and development efforts are focused on improving and enhancing our existing service offerings as well as developing new proprietary products and services. As of December 31, 2007, our research and development organization consisted of 172 employees. Our research and development expenses were $21.1 million, $22.6 million and $17.7 million in 2007, 2006, and 2005, respectively.

Intellectual Property

We rely on a combination of trademark, copyright, trade secret laws and disclosure restrictions to protect our intellectual property rights. We also enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information. iPass has a patent portfolio of eight US patents, one Australian patent and one Israeli patent. Our patents expire between 2016 and 2025. In 2007 we were granted two new US patents, one around our SQM technology and the other around our dynamic configuration for iPassConnect. We were also granted one new patent in Europe on our DeviceID technology. We currently have twenty-two US patent applications pending, and twenty-seven international patent applications pending (in the same subject areas as the US patent applications). If a claim is asserted that we have infringed the intellectual property of a third party, we may be required to seek licenses to that technology. In addition, we license third-party technologies that are incorporated into our services, including our license for encryption granted by RSA Security. Licenses from third party technologies may not continue to be available to us at a reasonable cost, or at all. Additionally, the steps we have taken to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary rights. Competitors may also independently develop technologies that are substantially equivalent or superior to the technologies we employ in our services. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially significantly harming our competitive position and decreasing our revenues.

Employees

As of December 31, 2007, we had 504 employees, consisting of 115 in network operations, 172 in research and development, 139 in sales and marketing and 78 in general and administrative. We consider our relationship with our employees to be good.

Trademarks

iPass(R), iOQ(R) and the iPass logo are our U.S. registered trademarks. iPassConnect(TM), ExpressConnect(TM), iPassNet(TM), RoamServer(TM), NetServer(TM), iPass Mobile Office(TM), DeviceID(TM), EPM(TM), iSEEL(TM) and iPass Alliance(TM) are designations that we use. We have also applied for or registered company trademarks in over 50 other countries.

CEO BACKGROUND

Executive Officers and Directors

Set forth below is information regarding our executive officers as of February 28, 2006. Information regarding our directors is set forth in “Proposal 1-Election of Directors” presented earlier in this proxy statement.


Name

Age

Position

Kenneth D. Denman
47 Chairman, President and Chief Executive Officer
Frank E. Verdecanna
34 Vice President and Chief Financial Officer
John C. Charters
43 Chief Operating Officer
Bruce K. Posey
53 Senior Vice President, General Counsel and Secretary
Anurag Lal
41 Senior Vice President of Business Development
Joel Wachtler
56 Vice President of Marketing and Strategy
Thomas Thimot
39 Senior Vice President of Worldwide Sales


MANAGEMENT DISCUSSION FROM LATEST 10K

Company Overview

We deliver simple, secure and manageable enterprise mobility services, maximizing the productivity of workers as they move between office, home and remote locations. Our policy management services close the gaps in protecting computers, network assets, user identities and data whenever users connect over the Internet. Our connectivity services utilize the iPass global virtual network, a unified network of over 550 dial-up, wireless, and broadband providers in over 160 countries.

Overview of 2007

In 2007, we continued to experience a decline in revenues derived from our traditional dial-up business as dial-up revenue decreased 36% to $67.8 million in 2007 as compared to $105.7 million in 2006 and $138.1 million in 2005. This decrease was offset in part by revenues generated from fees and usage of our broadband service. However, we continued to add new customers during 2007, including 40 from the Forbes Global 2000, bringing our total Forbes Global 2000 customers to 417 as of December 31, 2007.

As we continued to increase the number of broadband access points during the year, increasing our global broadband footprint was a priority for us in 2007. We ended 2007 with approximately 94,000 Wi-Fi and wired hotspots worldwide, approximately 92,000 of which were Wi-Fi hotspots and approximately 2,000 of which were wired hotspots. This enabled our customers to remotely access their corporate networks from more locations, at higher speeds and contributed to a $35.1 million or 88% increase in broadband usage revenue in 2007 over 2006.

Going forward, we will continue to focus on delivering innovative services and solutions for our customers, increasing the number of end users of our services for both dial-up and broadband access, as well as continue to increase fee revenues from device management and other fee based services. In 2008, we expect to see continued growth in our business. However, our success could be limited by several factors, including the timely release of new products, continued market acceptance of our products and the introduction of new products by existing or new competitors. For a further discussion of these and other risk factors, see the section below entitled “Risk Factors.”

Sources of Revenues

We derive our revenues primarily from providing enterprise connectivity services through our virtual network. We sell these services directly, as well as indirectly through our channel partners. We bill substantially all customers on a time basis for usage based on negotiated rates. We bill the remaining customers based on a fixed charge per active user per month with additional charges for excess time. Substantially all enterprise customers commit to a one to three year contract term. Most of our contracts with enterprise customers contain minimum usage levels. We bill customers for minimum commitments when actual usage is less than their monthly minimum commitment amount. The difference between the minimum commitment and actual usage is recognized as fee revenue based on our estimate of cash that will ultimately be collected related to the minimum commitment. Our usage-based revenues, which consists of dial-up and broadband usage, represented 74%, 80% and 87% of our total revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

We have incurred expenses to expand our broadband coverage and are seeking to generate additional revenues from our broadband wired and wireless coverage. Revenues from usage of our broadband services were 39%, 22% and 5.2% of our total revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

We also provide customers with deployment services and technical support throughout the term of the contract. We typically charge fees for these services on a one-time or annual basis, depending on the service provided and the nature of the relationship. In addition, we also offer customers additional services for which we generally bill on a monthly basis. With the acquisition of Mobile Automation, Inc. in October 2004, we also began generating license and maintenance revenue through software licensing agreements. Revenues generated from license and maintenance fees, together with revenues generated from deployment services and technical support, represented approximately 26%, 20% and 13% of our revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

Recent Acquisitions

In February 2006, we acquired all the outstanding shares of GoRemote, a provider of managed virtual business network services for approximately $78.9 million in cash. This acquisition allows us to expand our product offering to include GoRemote’s managed broadband services for branch offices and teleworkers. In 2004, we acquired all the outstanding shares of Mobile Automation and Safe3w for approximately $28.5 million in cash. Mobile Automation created a solution to help enterprise IT departments protect and manage their remote and mobile devices such as computers and personal data assistants. Safe3w developed a dynamic device “fingerprinting” technology. The technology from both of these acquisitions has been integrated into our existing products.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, and allowance for doubtful accounts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis of making judgments about the carrying values of assets and liabilities.

We believe the following critical accounting policies and estimates are important in understanding our consolidated financial statements.

Revenue Recognition

Usage and Services Fees

We derive a substantial portion of our revenues from broadband and dial-up usage fees. We recognize revenues when persuasive evidence of an arrangement exists, service has been provided to the customer, the price to the customer is fixed or determinable, and collectability is reasonably assured.

We recognize revenues during the period the services are rendered to end users based on usage at negotiated rates. We typically require our customers to commit to minimum usage levels. Minimum usage levels can be based on an annual term, monthly term or over the term of the arrangement. If actual usage in a given period is less than the minimum commitment, we recognize the difference between the actual usage and the minimum commitment as revenue when the fee is fixed and determinable. We estimate the amount of the difference that will ultimately be collected because we have from time to time renegotiated minimum commitments in cases where customers have sought renegotiation of their contract for reasons such as a significant downturn in their business or where we have determined that it would be in our best interest to do so. Customers are not contractually entitled to use or otherwise receive benefit for unused service in subsequent periods.

License, Maintenance and Training

We also license our DeviceID and Device Management automated systems management and security software products. We recognize revenue in accordance with Statement of Position (“SOP”) No. 97-2, “ Software Revenue Recognition ,” as amended by SOP No. 98-9, “ Modification of 97-2 Software Revenue Recognition, With Respect to Certain Transactions ,” and generally recognize revenue when all of the following criteria are met as set forth in paragraph 8 of SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectability is probable.

One of the critical judgments that we make is the assessment that “collectability is probable.” We base our recognition of revenue on our assessment of the probability of collecting the related accounts receivable balance on a customer-by-customer basis. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection had been made at the time the transactions were recorded in revenue. If we determine that collectability is not probable, we recognize revenue as cash is collected.

Another critical judgment that we make involves the “fixed or determinable” criterion. We consider payment terms where arrangement fees are due within three months from delivery to be normal contractual terms. We consider payment terms beyond three months from delivery extended and not fixed or determinable. For arrangements with extended payment terms, we recognize arrangement fee revenues when fees become due, assuming all other revenue recognition criteria have been met.

Maintenance revenue consists of fees for providing software updates on a when and if available basis and technical support for software products (post-contract support or “PCS”). Our maintenance rates are generally based on the percentage of license paid. We recognize maintenance revenue ratably over the term of the agreement.

Training revenue consists of fees for training services, generally provides to customer’s technical teams to help support their own end-users. Our training rates are generally based on a fixed rate per day and revenue is recognized as training services are delivered.

We defer payments received in advance of services until services are performed. We provide allowances for estimated uncollectable amounts of minimum commitments billed as well as future discounts upon recognition of revenue.

Accounting for Income Taxes

In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion of the net deferred tax assets will not be realized. We include changes in the valuation allowance in our consolidated statements of income as a provision for (benefit from) income taxes. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

When we assess the likelihood that we will be able to recover our deferred tax assets, we consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If recovery is not likely, we would increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes” provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses to date, we have provided a full valuation allowance of $56.0 million against our deferred tax assets at December 31, 2007. At each period end, we reassess our ability to realize our deferred tax assets, including net operating losses. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. To the extent the valuation allowance relates to acquired entities, the recognition of any future tax benefits would first reduce goodwill and then reduce the provision for income taxes.

Stock-Based Compensation

Effective January 1, 2006, we adopted FAS 123R using the modified prospective method, in which compensation cost was recognized based on the requirements of FAS 123R for (a) all share-based payments granted or modified after the effective date and (b) for all awards granted to employees prior to the effective date of FAS 123R that remain unvested on the effective date. FAS 123R requires the use of judgment and estimates in performing multiple calculations. We have estimated the expected volatility as an input into the Black-Scholes-Merton valuation formula when assessing the fair value of options granted. Our estimate of volatility was based upon the historical volatility experienced in our stock price and the volatility of peers in our industry. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods. In addition, we apply an expected forfeiture rate when amortizing stock-based compensation expense. Our estimate of the forfeiture rate was based primarily upon historical experience of employee turnover. To the extent we revise this estimate in the future, our stock-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters. Our estimate of expected term of options granted was derived from the average midpoint between vesting and the contractual term, as described in the SEC Staff Accounting Bulletin No. 107, “ Share-Based Payment .” In the future, as information regarding post vesting termination becomes more accessible, we may change our method of deriving the expected term. This change could impact the fair value of our options granted in the future.

Upon adoption, we elected the alternative transition method provided in the Financial Accounting Standards Board (“FASB”) Staff Position for calculating the tax effects of equity-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee equity-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of employee equity-based compensation awards that are outstanding upon the implementation of SFAS 123(R). As of December 31, 2006, there was $8.7 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to employees. We will adjust total unrecognized compensation cost for future changes in estimated forfeitures.

Restructuring

Restructuring charges are comprised primarily of costs for abandonment of excess facilities, severance and associated employee termination costs. We record severance costs pursuant to Statement of Financial Accounting Standard ("SFAS") No. 112, “ Employers' Accounting for Postemployment Benefits — an amendment of FASB Statements No. 5 and 43 ” and the excess facility costs are recorded pursuant to SFAS No. 146, “ Accounting for Costs Associated with Exit or Disposal Activities ” ("SFAS No. 146"). SFAS No. 146 requires that liabilities be recorded at fair value. The difference between the fair value of the liability at the time it was recorded and the total cash liability is accreted ratably over the expected term. This accretion is reported in the restructuring expense line on the condensed consolidated statements of operations. We reduce costs for the abandonment of excess facilities by estimated income from the sublease of the vacated facilities. As of December 31, 2007, we have estimated $1.5 million in sublease income through the end of the sublease lease term in April 2010. If we are unable to sublease the facilities within the timeframe and for the rates anticipated, we may need to revise our estimates and record additional restructuring charges.

We recognized the accrual related to the facilities abandoned in connection with the acquisition of GoRemote as part of the purchase price allocation pursuant to Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts is based on a detailed assessment of accounts receivable for specific, as well as anticipated, uncollectible accounts receivable. Our estimate for the allowance for doubtful accounts is based on credit profiles of our customers, current economic trends, contractual terms and conditions, and historical payment experience. We have an allowance for doubtful accounts of $2.7 million, $3.1 million and $2.0 million as of December 31, 2007, 2006 and 2005, respectively, for estimated losses resulting from the inability of our customers to make their required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, or if we underestimated the allowances required, additional allowances may be required, which would result in an increased general and administrative expense in the period such determination was made.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Company Overview

We deliver simple, secure and manageable enterprise mobility services, maximizing the productivity of workers as they move between office, home and remote locations. Our policy management services close the gaps in protecting computers, network assets, user identities and data whenever users connect over the Internet. Our connectivity services utilize the iPass global virtual network, a unified network of over 550 dial-up, wireless, and broadband providers in over 160 countries.

Overview of 2007

In 2007, we continued to experience a decline in revenues derived from our traditional dial-up business as dial-up revenue decreased 36% to $67.8 million in 2007 as compared to $105.7 million in 2006 and $138.1 million in 2005. This decrease was offset in part by revenues generated from fees and usage of our broadband service. However, we continued to add new customers during 2007, including 40 from the Forbes Global 2000, bringing our total Forbes Global 2000 customers to 417 as of December 31, 2007.

As we continued to increase the number of broadband access points during the year, increasing our global broadband footprint was a priority for us in 2007. We ended 2007 with approximately 94,000 Wi-Fi and wired hotspots worldwide, approximately 92,000 of which were Wi-Fi hotspots and approximately 2,000 of which were wired hotspots. This enabled our customers to remotely access their corporate networks from more locations, at higher speeds and contributed to a $35.1 million or 88% increase in broadband usage revenue in 2007 over 2006.

Going forward, we will continue to focus on delivering innovative services and solutions for our customers, increasing the number of end users of our services for both dial-up and broadband access, as well as continue to increase fee revenues from device management and other fee based services. In 2008, we expect to see continued growth in our business. However, our success could be limited by several factors, including the timely release of new products, continued market acceptance of our products and the introduction of new products by existing or new competitors. For a further discussion of these and other risk factors, see the section below entitled “Risk Factors.”

Sources of Revenues

We derive our revenues primarily from providing enterprise connectivity services through our virtual network. We sell these services directly, as well as indirectly through our channel partners. We bill substantially all customers on a time basis for usage based on negotiated rates. We bill the remaining customers based on a fixed charge per active user per month with additional charges for excess time. Substantially all enterprise customers commit to a one to three year contract term. Most of our contracts with enterprise customers contain minimum usage levels. We bill customers for minimum commitments when actual usage is less than their monthly minimum commitment amount. The difference between the minimum commitment and actual usage is recognized as fee revenue based on our estimate of cash that will ultimately be collected related to the minimum commitment. Our usage-based revenues, which consists of dial-up and broadband usage, represented 74%, 80% and 87% of our total revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

We have incurred expenses to expand our broadband coverage and are seeking to generate additional revenues from our broadband wired and wireless coverage. Revenues from usage of our broadband services were 39%, 22% and 5.2% of our total revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

We also provide customers with deployment services and technical support throughout the term of the contract. We typically charge fees for these services on a one-time or annual basis, depending on the service provided and the nature of the relationship. In addition, we also offer customers additional services for which we generally bill on a monthly basis. With the acquisition of Mobile Automation, Inc. in October 2004, we also began generating license and maintenance revenue through software licensing agreements. Revenues generated from license and maintenance fees, together with revenues generated from deployment services and technical support, represented approximately 26%, 20% and 13% of our revenues for the years ended December 31, 2007, 2006 and 2005, respectively.

Recent Acquisitions

In February 2006, we acquired all the outstanding shares of GoRemote, a provider of managed virtual business network services for approximately $78.9 million in cash. This acquisition allows us to expand our product offering to include GoRemote’s managed broadband services for branch offices and teleworkers. In 2004, we acquired all the outstanding shares of Mobile Automation and Safe3w for approximately $28.5 million in cash. Mobile Automation created a solution to help enterprise IT departments protect and manage their remote and mobile devices such as computers and personal data assistants. Safe3w developed a dynamic device “fingerprinting” technology. The technology from both of these acquisitions has been integrated into our existing products.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, and allowance for doubtful accounts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis of making judgments about the carrying values of assets and liabilities.

We believe the following critical accounting policies and estimates are important in understanding our consolidated financial statements.

Revenue Recognition

Usage and Services Fees

We derive a substantial portion of our revenues from broadband and dial-up usage fees. We recognize revenues when persuasive evidence of an arrangement exists, service has been provided to the customer, the price to the customer is fixed or determinable, and collectability is reasonably assured.

We recognize revenues during the period the services are rendered to end users based on usage at negotiated rates. We typically require our customers to commit to minimum usage levels. Minimum usage levels can be based on an annual term, monthly term or over the term of the arrangement. If actual usage in a given period is less than the minimum commitment, we recognize the difference between the actual usage and the minimum commitment as revenue when the fee is fixed and determinable. We estimate the amount of the difference that will ultimately be collected because we have from time to time renegotiated minimum commitments in cases where customers have sought renegotiation of their contract for reasons such as a significant downturn in their business or where we have determined that it would be in our best interest to do so. Customers are not contractually entitled to use or otherwise receive benefit for unused service in subsequent periods.

License, Maintenance and Training

We also license our DeviceID and Device Management automated systems management and security software products. We recognize revenue in accordance with Statement of Position (“SOP”) No. 97-2, “ Software Revenue Recognition ,” as amended by SOP No. 98-9, “ Modification of 97-2 Software Revenue Recognition, With Respect to Certain Transactions ,” and generally recognize revenue when all of the following criteria are met as set forth in paragraph 8 of SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectability is probable.

One of the critical judgments that we make is the assessment that “collectability is probable.” We base our recognition of revenue on our assessment of the probability of collecting the related accounts receivable balance on a customer-by-customer basis. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection had been made at the time the transactions were recorded in revenue. If we determine that collectability is not probable, we recognize revenue as cash is collected.

Another critical judgment that we make involves the “fixed or determinable” criterion. We consider payment terms where arrangement fees are due within three months from delivery to be normal contractual terms. We consider payment terms beyond three months from delivery extended and not fixed or determinable. For arrangements with extended payment terms, we recognize arrangement fee revenues when fees become due, assuming all other revenue recognition criteria have been met.

Maintenance revenue consists of fees for providing software updates on a when and if available basis and technical support for software products (post-contract support or “PCS”). Our maintenance rates are generally based on the percentage of license paid. We recognize maintenance revenue ratably over the term of the agreement.

Training revenue consists of fees for training services, generally provides to customer’s technical teams to help support their own end-users. Our training rates are generally based on a fixed rate per day and revenue is recognized as training services are delivered.

We defer payments received in advance of services until services are performed. We provide allowances for estimated uncollectable amounts of minimum commitments billed as well as future discounts upon recognition of revenue.

Accounting for Income Taxes

In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion of the net deferred tax assets will not be realized. We include changes in the valuation allowance in our consolidated statements of income as a provision for (benefit from) income taxes. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

When we assess the likelihood that we will be able to recover our deferred tax assets, we consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If recovery is not likely, we would increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes” provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses to date, we have provided a full valuation allowance of $56.0 million against our deferred tax assets at December 31, 2007. At each period end, we reassess our ability to realize our deferred tax assets, including net operating losses. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. To the extent the valuation allowance relates to acquired entities, the recognition of any future tax benefits would first reduce goodwill and then reduce the provision for income taxes.

Stock-Based Compensation

Effective January 1, 2006, we adopted FAS 123R using the modified prospective method, in which compensation cost was recognized based on the requirements of FAS 123R for (a) all share-based payments granted or modified after the effective date and (b) for all awards granted to employees prior to the effective date of FAS 123R that remain unvested on the effective date. FAS 123R requires the use of judgment and estimates in performing multiple calculations. We have estimated the expected volatility as an input into the Black-Scholes-Merton valuation formula when assessing the fair value of options granted. Our estimate of volatility was based upon the historical volatility experienced in our stock price and the volatility of peers in our industry. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods. In addition, we apply an expected forfeiture rate when amortizing stock-based compensation expense. Our estimate of the forfeiture rate was based primarily upon historical experience of employee turnover. To the extent we revise this estimate in the future, our stock-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters. Our estimate of expected term of options granted was derived from the average midpoint between vesting and the contractual term, as described in the SEC Staff Accounting Bulletin No. 107, “ Share-Based Payment .” In the future, as information regarding post vesting termination becomes more accessible, we may change our method of deriving the expected term. This change could impact the fair value of our options granted in the future.

Upon adoption, we elected the alternative transition method provided in the Financial Accounting Standards Board (“FASB”) Staff Position for calculating the tax effects of equity-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee equity-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of employee equity-based compensation awards that are outstanding upon the implementation of SFAS 123(R). As of December 31, 2006, there was $8.7 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to employees. We will adjust total unrecognized compensation cost for future changes in estimated forfeitures.

Restructuring

Restructuring charges are comprised primarily of costs for abandonment of excess facilities, severance and associated employee termination costs. We record severance costs pursuant to Statement of Financial Accounting Standard ("SFAS") No. 112, “ Employers' Accounting for Postemployment Benefits — an amendment of FASB Statements No. 5 and 43 ” and the excess facility costs are recorded pursuant to SFAS No. 146, “ Accounting for Costs Associated with Exit or Disposal Activities ” ("SFAS No. 146"). SFAS No. 146 requires that liabilities be recorded at fair value. The difference between the fair value of the liability at the time it was recorded and the total cash liability is accreted ratably over the expected term. This accretion is reported in the restructuring expense line on the condensed consolidated statements of operations. We reduce costs for the abandonment of excess facilities by estimated income from the sublease of the vacated facilities. As of December 31, 2007, we have estimated $1.5 million in sublease income through the end of the sublease lease term in April 2010. If we are unable to sublease the facilities within the timeframe and for the rates anticipated, we may need to revise our estimates and record additional restructuring charges.

We recognized the accrual related to the facilities abandoned in connection with the acquisition of GoRemote as part of the purchase price allocation pursuant to Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts is based on a detailed assessment of accounts receivable for specific, as well as anticipated, uncollectible accounts receivable. Our estimate for the allowance for doubtful accounts is based on credit profiles of our customers, current economic trends, contractual terms and conditions, and historical payment experience. We have an allowance for doubtful accounts of $2.7 million, $3.1 million and $2.0 million as of December 31, 2007, 2006 and 2005, respectively, for estimated losses resulting from the inability of our customers to make their required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, or if we underestimated the allowances required, additional allowances may be required, which would result in an increased general and administrative expense in the period such determination was made.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, impairment of short-term investments, impairment of goodwill and intangible assets and allowance for doubtful accounts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis of making judgments about the carrying values of assets and liabilities.

Given the recent decline in our stock price, management reviewed the recoverability of our goodwill balance and concluded an impairment charge was not required as of September 30, 2008. If our common stock price continues to trade below book value per common share, we may have to recognize an impairment of all or some portion of our goodwill and other intangible assets in the near future.

There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2008 as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Total revenue increased in the three and nine months ended September 30, 2008, as compared to the same periods in 2007, due to an increase in enterprise flat rate fees, which is allocated to broadband and dial-up revenue based on actual usage, increase in broadband revenues from the addition of new customers signed over the last year and the increase in existing customers’ mobile broadband usage. This was partially offset by a continued decline in dial-up revenue as customers migrated from dial-up to broadband as the preferred method of connecting to their corporate networks.

We expect revenue from dial-up usage to continue to decrease in absolute dollars as well as a percentage of total revenue as we expect the use of dial-up as a primary means of enterprise connectivity to continue to decline, although the rate of decline is expected to decrease.

International revenues accounted for approximately 40% and 36% of total revenues for the three months ended September 30, 2008 and 2007, respectively, and 38% and 37% of total revenues for the nine months ended September 30, 2008 and 2007, respectively. Substantially all of our international revenues are generated in the EMEA (Europe, Middle East and Africa) and Asia Pacific regions. Revenues in the EMEA region represented 27% and 26% of total revenues for the three months ended September 30, 2008 and 2007, respectively, and 27% of our revenues for both the nine months ended September 30, 2008 and 2007, respectively. Revenues in the Asia Pacific region represented 9% and 8% of total revenues for the three months ended September 30, 2008 and 2007, respectively, and 8% of total revenues for both the nine months ended September 30, 2008 and 2007. The only individual foreign country to account for 10% or more of total revenues for the periods presented was the United Kingdom, which for the three and nine months ended September 30, 2007 represented approximately 10% and 12% of total revenues, respectively. No individual foreign country represented 10% or more of total revenues for the three or nine months ended September 30, 2008. Substantially all of our revenues to date have been denominated in U.S. dollars. In the future, some portion of revenues may be denominated in foreign currencies. No individual customer accounted for 10% or more of total revenues for the three or nine months ended September 30, 2008 and 2007.

The growth in network access expenses in the three and nine months ended September 30, 2008 as compared to the same periods in 2007 was primarily due to increased usage of our virtual network with respect to our broadband services. While network access costs for broadband access are higher than those for dial up, we expect that as broadband usage continues to increase, we will continue to be in a better position to negotiate lower rates for access to broadband networks.

Network operations expenses increased only slightly for the three months ended September 30, 2008 as compared to the third quarter of 2007. There were no fluctuations, offsetting or otherwise, significant enough to note.

The growth in network operations expenses in the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 was related primarily to approximately $756,000 in additional compensation and benefits expense. This increase was offset by a reduction of $285,000 in expenses for outside contractors as those contractors were converted to full time employees. The remainder of the increase was attributable to various expenses which, individually, are insignificant items.

We expect that our network operations expenses will remain relatively constant in absolute dollars and as a percentage of revenues in the fourth quarter of 2008.

The decrease in research and development expenses, in both absolute dollars and percent of revenue, for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 is primarily due to the restructuring plan completed in 2007. The headcount reductions included as part of the restructuring resulted in a $438,000 reduction in contractor expense and a $956,000 reduction in compensation and benefits expenses. The remaining portion of the decrease was due to individually insignificant items.

The decrease in research and development expenses, in both absolute dollars and percent of revenue, for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 resulted primarily from $3.6 million lower compensation, benefits and outside contractor expenses and $410,000 lower stock-based compensation expense due to the headcount reductions in the restructuring plan completed in 2007. The remaining portion of the decrease was due to individually insignificant items.

We expect that our research and development expenses will remain relatively constant in absolute dollars and as a percentage of revenue in the fourth quarter of 2008.

The decrease in sales and marketing expenses in absolute dollars and percent of revenue for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 was due primarily to an approximately $1.1 million decrease in compensation and benefits expenses due to decreased sales personnel resulting from our restructuring plan in 2007. The remaining portion of the decrease was due to individually insignificant items.

The decrease in sales and marketing expenses in absolute dollars and percent of revenue for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 was due primarily to approximately $5.7 million in decreased compensation and benefits expenses due to decreased sales personnel resulting from the restructuring plan in 2007. The decreased sales personnel resulted in an additional $581,000 reduction in travel costs and $609,000 reduction in stock-based compensation expense. Targeted reductions in specific marketing programs further reduced sales and marketing expenses by $636,000. The remaining portion of the decrease was due to individually insignificant items.

We expect that sales and marketing expenses will remain relatively constant in absolute dollars and as a percentage of revenues in the fourth quarter of 2008.

CONF CALL

Frank Verdecanna

Good afternoon. Thank you for joining us to discuss our financial and operating results for the third quarter of 2008. I am Frank Verdecanna, Chief Financial Officer or iPass. I am joined by Ken Denman, President and Chief Executive Officer.

Before I turn the call over to Ken, I would like to bring the following to your attention. The date of this call is November 3, 2008. Our presentation today contains forward-looking statements about events and circumstances that have not yet occurred. Statements regarding our projected financial results for the fourth quarter of 2008, statements containing words such as will, expect, believe and should and other statements in the future tense are forward-looking statements.

Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. These risks and uncertainties are set forth in our press release of today as well as in our quarterly report on form 10-Q under the section "Factors Effecting Operating Results" in part one, item two of that report filed with the Securities and Exchange Commission on August 11, 2008 and available at www.sec.gov.

iPass undertakes no responsibility to update the information in this conference call under any circumstances. The press release announcing our financial results is available on our website at www.ipass.com in the Pressroom section under Press Releases. The current report on form 8-K furnished with respect to our press release is available on our website in the Investor Relations section under SEC filings. In addition, in this earnings call we will provide non-GAAP financial results. The press release on our website includes text and tables that explain our reconciliation of these non-GAAP results to GAAP results.

This earnings call is also being recorded for replay and is being webcast and will be available on our website for one quarter until the next quarter's call. This webcast is a property of iPass and any copying or rebroadcast of this webcast without the expressed written consent of iPass is strictly prohibited.

I will now turn the call over to President and CEO, Ken Denman.

Ken Denman

Thanks Frank. Good afternoon everyone and thanks for joining us today. Let me start with a note about the third quarter. We continued our progress towards profitability. We improved both our gross margins and our operating profit despite the seasonal pressures associated with summer which has been a slow season as users take their vacations. We still did well on our bottom line however because of our lower network access cost and our lower operating expenses in the quarter. Frank and I will return to the results in a few minutes.

First, though, I want to touch on the management transition that we announced this afternoon. Late in 2007, I told the Board I was interested in exploring other business opportunities that had been coming my way. In the event that I did determine to leave the Company, the Board and I wanted an orderly and smooth transition and we wanted to make the handoff while iPass was traveling a real smooth path. At a minimum, I agreed that I would stay through the strategic review process.

Before mid 2008, the Board had already spent a lot of time reviewing the business from the inside. We have looked carefully at our opportunities to reduce our operating cost and we had talked at length about the steps toward our biggest opportunity to improve margins namely our network access cost. By mid 2008, the Board turned its focus outward. We retained an investment banking firm that was involved in our IPO and knows our space and our Company. The bank helped the Board to look at a wide range of strategic alternatives. The entire process has been frankly very helpful to the Board. It helped sharpen the Board's vision of how it can create value for shareholders and for customers. We have now concluded the most important phases of that process when the Board determined unanimously that the best course at this time was to remain independent then the Board turned its attention to the process of a possible management transition. I have been very pleased with the outcome of that process.

First, as you will see from our results, iPass is traveling on a smooth path. This is a great time for handoff. Second, I was very pleased that we were able to attract Evan Kaplan. I and others of our management team worked closely with him at Aventail, an NSO VPN company which was one of our good partners for many years. I am convinced he will work well with our team and we know he understands our markets, our customers, our technology issues and our partners. I will work with Evan during a transition period so we can meet the Board's other objective of a smooth and orderly transition.

Now, turning to our quarterly results starting with our top line; our total revenues continue to erode but the rate of erosion was slower than we have become accustomed to. In fact, the rate of erosion in the third quarter was 7% which is substantially less than our second quarter rate of 18%. While a single quarter does not make a trend, there is a possibility that we maybe approaching a more stable quarter of dial usage. We also continued to make progress in expanding our unified mobility value proposition to 3G mobile broadband.

In Japan, we signed a relationship with IIJ. This will give our customers access to three of Japan's leading 3G networks. In Sweden, we signed an agreement with 3 Scandinavia that gives us access to their award-winning network in Sweden as well as in bundle access across Denmark. Once deployed, these networks will expand our coverage to 12 networks across nine countries.

During Q3, we had total revenues of $48.4 million. Broadband represented $26.3 million. Software and service fee revenues representing $13.3 million. Our legacy dial business produced a mere $8.8 million of our revenues or 18% of total revenues. Over the last few quarters, we have been discussing the importance of stabilizing gross margin and the related impact on our business model. I am pleased to report that our gross margins for the quarter came in 58% or 1% higher than last quarter. For the fourth quarter, we expect gross margins to be in the range of 57% to 59%.

The primary drivers of the increasing gross margin were first, a full-quarter impact from the renegotiation of our largest mobile data provider in the US, a stronger US dollar during the quarter as we pay some of our network access charges in local currencies such as the Euro and finally, the continued shift of customers to enterprise flat rate pricing. Enterprise customers continue to be receptive to our message of helping enterprises deliver mobility while controlling cost. During the third quarter, we closed over $20 million, almost $24 million in fact, in new business and keeping with the range of bookings we have delivered over the past two years.

Our enterprise flat rate price plans continue to be a growth driver at iPass. New and existing customers see the value and versatility of this model. During the third quarter, the new mobility deals that we signed under this model accounted for 85% of all our deals. As we stated before, this pricing model delivers more balance and predictable revenues to iPass and it helps us deploy to more users within a given enterprise. We had 1.1 million users during the quarter through approximately 3500 enterprise customers. We continue to experience very low rate return. We have a strong balance sheet with cash and short-term investment of $68 million and no debt.

With that, I will turn the call back over to Frank.

Frank Verdecanna

Thanks, Ken. Total revenues for the third quarter ended September 30, 2008 were $48.4 million versus $48.6 million last quarter, a 1% decrease in the quarter. This was within our expectations of $47 million to $50 million.

Our total broadband revenues in Q3 were $26.3 million versus $26.2 million in Q2. Mobile broadband revenues came in at $19.4 million in Q3 compared with $19.5 million last quarter. The slight decrease from Q2 was a result of the seasonality we experienced during the summer months especially in Europe. Fixed broadband revenues were $6.9 million in Q3 compared to $6.7 million in Q2, an increase of 3%.

Software and service fee revenues in Q3 were $13.3 million versus $13 million last quarter, an increase of 2%. Dial revenues in Q3 were $8.8 million versus $9.4 million in Q2, a 7% rate of decline which is quite a bit less erosion than we saw in Q2 when dial eroded 18%. Our combined software and service fee revenues in Q3 were $39.6 million or 82% of our total revenues with dial representing the remaining 18%.

In the quarter, US revenues accounted for 61% of total revenues and international revenues accounted for the remaining 39%. Network access costs were $20.1 million in the third quarter or 41.7% of total revenues versus $20.9 million or 43.1% of total revenues last quarter. Our gross margin was 58.3% in the third quarter compared with 56.9% last quarter.

Now let us review our operating income and operating expenses. During Q3 our combined non-stock compensation expenses for network operations, research and development, sales and marketing, and general and administrative expenses was $27.4 million compared with $27.8 million in Q2. We had a GAAP operating loss of $1.7 million in the third quarter compared to a loss of $2.3 million last quarter.

We had a non-GAAP operating income of $822,000 in the third quarter versus non-GAAP operating loss of $123,000 last quarter. Improvement and operating profit both on a GAAP and non-GAAP basis was the result of our continuing focus on improving gross margins and managing our operating expenses. Now I would like to review our net income and earnings per share both on a GAAP and a non-GAAP basis. We had a GAAP net loss of $2.1 million or $0.03 per diluted share versus a net loss of $1.4 million or $0.02 per diluted share in Q2. We had non-GAAP net income of $467,000 or $0.01 per diluted share compared to $722,000 million last quarter or $0.01 per diluted share.

We ended the third quarter with $68 million in cash and investment and no debt. During the quarter, we had cash used in operation of approximately $1.2 million. The cash used in operating activities was primarily a result of the reduction in accounts payable from last quarter.

Now I would like to review our projections for the fourth quarter of 2008. The following statements are based on information available to iPass today. These statements are forward-looking and actual results may differ materially.

For the quarter ending December 31, 2008, we anticipate revenues of approximately $47 million to $50 million. For Q4, we expect gross margins in a range of 57% to 59%. We anticipate a fully diluted GAAP loss per share to be between a $0.02 and $0.05 per share. We expect fully diluted non-GAAP earnings per share to be between $0.00 and $0.03 per share.

Now I would like to turn the call back over to Ken.

Ken Denman

Thanks Frank. In the third quarter, we pushed through the slow summer period and delivered financial results that were inline with our expectations. During the quarter, we improved our operating profit and delivered strong bookings. Most importantly, we improved gross margins and we are reiterating our expectations that we have reached the point where we can expect gross margins to stabilize, if not improved, going forward.

Contributing to this margin improvement was a long awaited slowing of our rate of dial erosion. We are cautiously optimistic about the stabilization of our dial business we saw in the third quarter. We will now be seeing the long awaited slowing of this erosion as the majority of those users who could move from dial to home broadband already have. We expect that increasingly, our dial usage will be coming from regions where broadband is not significantly penetrated. If that proves to be the case then a slower rate of erosion might become the norm. At the same time, we are of course busily focused on improving our broadband margins through aggressive contract renegotiation and continued deployment of flat rate pricing models to our enterprise customers.

We continue to improve our global broadband value proposition through new partnerships with 3G mobile broadband providers. Our partnership with IIJ announced in July makes Japan the second country after the US where we offer multiple 3G data networks and our partnership with 3 Scandinavia signed in the current quarter gives us two additional countries in Europe. One of our top priorities is to build our global 3G broadband footprint replicating the successful model we have employed in dial-up and Wi-Fi hot spot.

Now, I would like to shift gears and discuss the current economic situation and why we believe iPass can do relatively well in this environment.

First, I would like to point out that we have yet to see an impact on our business from the current economic turmoil. So, certainly that could change in the future. We draw comfort from the fact that we have a broad customer base, a base that is diversified across industries and geography. Importantly, when you service these customers make up a very small fraction of our revenues and while our recession might create problems for enterprise customers, in most cases, we have firm contractual revenue commitment that will give us predictability and limit our downside.

Second, we believe we have a value proposition that is well suited for these difficult times. Our ability to help our customers reign in mobility cost resonating to the market and position us well in a downturn. Industry analyst such as Gardner believe that the majority of our enterprise customers, mobility spins are occurring outside the normal budgeting process and expense management processes what we call the black budget. Our services help bring these expenses back into the purview of the IT department and can create significant financial value for customers especially those under heavy expense manager pressures.

Lastly, we believe we are well positioned financially. We have no long-term debt nor do we need to obtain credit in order to maintain our liquidity. Our adequate and stable cash position has helped insulate us from the recent tightening of the credit markets.

In summary, iPass continues to close new business at a steady rate, renegotiate our supplier relationships on favorable terms and drive down our expense profile and position the business for margin improvement. Our ability to save our customers' money and our lack of exposure to the credit market, positions us as a lead and effective competitor in a down economic cycle.

With that, I will turn the call back to our operator for your questions. Operator?

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