Analyst: Victor Sula, Ph.D. Initial Report

Analyst: Victor Sula, Ph.D. Initial Report December 24th, 2008

12/24/08

IPAS daily

2.50 2.25 2.00 1.75 1.50 1.25 1.00 volume

Š BigCharts.com

2 1.5

Tel: +1 650.232.4100 Fax: +1 650.232.4111 Website: www.ipass.com

1 0.5

Millions

iPass Inc. 3800 Bridge Parkway Redwood Shores, CA 94065 United States

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Oct

Nov

Dec

MARKET DATA

Share Statistics

NASDAQ

2006 2007 %Chg

(12/23/08) Symbol Current Price Low/ High 52 weeks Average Volume (3m) Market Capitalization Shares Outstanding

IPAS

Revenues, $ Mn.

$1.15

Gross margin

182.7 191.7 68.8% 63.9%

$1.01 - 4.35 Operating margin -10.6% -7.5% 263,271

9m 9m %Chg 2007 2008

4.9% 142.22 145.1

2.0%

-4.9% 64.2% 57.6% 68.8% 3.1%

-6.8% -4.3% 2.5%

Net margin

-4.4% -17.8% -13.4% -2.7% -3.4% -0.7%

EPS, $

(0.13) (0.54)

$71.70 Mn 62.35 Mn

n/m

(0.06) (0.08)

n/m

Source: Yahoo Finance, Analyst Estimates

Background IPAS helps enterprises unify the management of remote and mobile connectivity and devices, making mobility simple and affordable by combining worldwide remote and mobile broadband access with comprehensive management control over connectivity, devices and costs. The Company’s customers benefit from a single global solution that reduces overall data connectivity expenses, easily integrates with existing systems, and makes more efficient use of valuable IT management resources. IPAS helps companies deliver mission-critical applications to dispersed branch, retail and home locations, while saving up to 70% over private WAN solutions.

IPAS gives mobile employees a simple, secure way to connect around the world, while unifying control over connectivity, devices and costs. Companies get a one-stop shop for the combined management of mobile connections and devices, as well as predictable flat-rate pricing. Employees get a single user experience in 160 countries using 3G mobile broadband, more than 100,000 Wi-Fi hotspots, hotel Ethernet and other access methods. iPass Inc. (IPAS)

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Analyst: Victor Sula, Ph.D. Initial Report December 24th, 2008

IPAS derives revenues primarily from providing enterprise connectivity services through its virtual network.

The company sells these services directly, as well as indirectly through its channel partners. IPAS bills its customers on a time basis for usage based on negotiated rates, as well as based on a fixed charge per active user per month with additional charges for excess time. The company has three revenue streams: dial-up, broadband and services fees and others.

Highlights Solid history of growth Revenue, $ Mn

Source : SEC Filings

The Company reported solid growth over the last five years with revenue approaching $192 million in 2007.

The revenue growth was driven mainly by the addition of new customers 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. Despite the weakening economic conditions, IPAS is likely to report revenue in the range of $193 million in 2008.

Expansion of Broadband revenue drove the overall growth

Revenue Segments, $ Mn

Broadband Dial up Services fees and other Total Revenue

2006

2007

%Chg

39.9 105.7 37.1 182.7

75.1 67.8 48.8 191.7

88.0% -35.8% 31.7% 4.9%

9 mo 2007 9 mo 2008 %Chg 52.9 54.4 34.9 142.2

76.6 29.7 38.8 145.1

44.7% -45.4% 11.2% 2.0%

Source : SEC Filings

IPAS expects to stop the decline of Dial-up revenue at $8 million per quarter and expects the growth of BroadiPass Inc. (IPAS)

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Analyst: Victor Sula, Ph.D. Initial Report December 24th, 2008

band revenue to continue at decent rates in 2009.

The growth of Broadband revenue have altered gross margins Gross Margin, %

Source : SEC Filings

The decline of gross margin was caused mainly by the growth in network access expenses due to increased transition to broadband communication services. The Company has aggressively negotiated lower rates for access to broadband networks and transitioned its corporate customers to flat rate fees plans. Over the long term IPAS is likely to stabilize the margins at 57%-58% range, since its dial-up revenue is bottoming out.

Strong balance sheet IPAS has a strong balance sheet with cash and short-term investment of $68 million and no debt. The strong balance sheet is also allowing the Company to smooth the negative impact of global financial crises.

Selected balance sheet data, $ Mn 31-Dec-07

30-Sep-08

Total Assets, including Cash and short-term investment

222.0 75.2

213.7 68.0

Liabilities, including Debt Equity

40.9 0 181.1

37.4 0 176.3

Source : SEC Filings

2009

Customer diversification to attenuate the risks of global recession The Company sells its service offering directly to enterprise customers and indirectly though channel partners.

IPAS has relationships with more than 550 telecommunications carriers, Internet service providers, and other netiPass Inc. (IPAS)

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Analyst: Victor Sula, Ph.D. Initial Report December 24th, 2008

work service providers that enable it to offer services in more than 160 countries around the world. In 2007, two network service providers, T-Mobile U.S. and Verizon Business Services (formerly MCI), accounted for approximately 9% and 7% of the Company’s network access expenses, respectively. No individual customer accounted for 10% or more of total revenues. iPass services are deployed across a wide range of industries from retail to hospitality, financial services and healthcare.

Extensive geographical coverage As of September 30, 2008, the Company has reported approximately 105,000 Wi-Fi and 2,000 wired hotspots worldwide. The Company is currently working to expand its 3G mobile broadband proposition. Following the coverage of the U.S., IPAS announced a partnership with IIJ, making Japan the second country after the U.S. to offer multiple 3G data networks. The Company has also announced a partnership with 3 Scandinavia to provide 3G in two additional countries in Europe.

IPAS maintains 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.

Leadership changes to continue the transition to profitability In November 2008, IPAS named Evan L. Kaplan the president and CEO, and John D. Beletic chairman of the board.

Evan L. Kaplan brings to iPass nearly two decades of experience providing enterprises with IP-based communications services. Previously, Evan served as CEO and president of Aventail Corporation, a Seattle-based network communications company, which was acquired by Sonicwall Inc. in July 2007. He launched Aventail from his home in 1996. It was one of the first early infrastructure companies to deliver software-based technology as a service and served blue chip enterprise clients including IBM, Kraft, Dupont, Verizon and AT&T. Mr. Kaplan has been voted one of Network World’s 50 Most Powerful People in the Networking Industry. He was recognized as Ernst and Young’s Entrepreneur of the Year in the Pacific Northwest.

Investment sentiment IPAS is one of the largest global remote Internet access and communication service providers. Its strong global presence and coverage affords it the critical mass necessary to survive in the highly competitive communication services market.

The Company reported an impressive growth track over the least years with revenue to top $193 million by the year-end of 2008. Going forward, the growth rates are likely to flatten due to the negative impact of global financial crises.

The Company is currently trading at 0.37 times 2008 revenue, mainly due to lack of profits and margins erosion.

However, in the third quarter of 2008, IPAS succeeded to stop the decline of gross margins; with a decent growth in revenue, the company can breakeven already in 2009. The Company’s cash balance is at $1.09 per share, which is slightly less than the current price of its common stock of $1.15 and makes us to consider IPAS a good investing target. We rate IPAS as a Buy. iPass Inc. (IPAS)

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Analyst: Victor Sula, Ph.D. Initial Report December 24th, 2008

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I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

iPass Inc. (IPAS)

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