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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                        
|          
|[X]        |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
or


|     |  |                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|[  ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from      
to      .

Commission File Number 000-26785

PACKETEER, INC.

(Exact name of Registrant as specified in its charter)


|                                  |  |                                                
|--------------------------------- |  | -----------------------------------------------
|DELAWARE
(State of incorporation) |  | 77-0420107
(I.R.S. Employer Identification No.)

10201 North De Anza Boulevard, Cupertino, CA 95014
(Address of principal executive offices)

Registrants telephone number, including area code: (408) 873-4400

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|         |  |          |  | 
|-------- |  | -------- |  | 
|Yes  [X] |  | No  [  ] |  | 

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act).

|         |  |          |  | 
|-------- |  | -------- |  | 
|Yes  [X] |  | No  [  ] |  | 

The number of shares outstanding of Registrants common stock, $0.001 par
value, was 31,222,331 at April 24, 2003.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              |                                                                                               | FACTORS THAT MAY AFFECT FUTURE RESULTS              
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                          
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II OTHER INFORMATION    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|CERTIFICATIONS               
|EXHIBIT INDEX                
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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##### Table of Contents



TABLE OF CONTENTS

|               |  |                                                                                                              |  |   
|-------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I         |  | FINANCIAL INFORMATION                                                                                        |  |   
|Item 1.        |  | Financial Statements:                                                                                        |  |   
|               |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                             |  | 3 
|               |  | Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2003 and March 31, 2002 |  | 4 
|               |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and March 31, 2002 |  | 5 
|               |  | Notes to Condensed Consolidated Financial Statements                                                         |  | 6 
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 9 
|               |  | Factors That May Affect Future Results                                                                       |  | 14
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 22
|Item 4.        |  | Controls and Procedures                                                                                      |  | 23
|PART II        |  | OTHER INFORMATION                                                                                            |  |   
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                             |  | 23
|Signatures     |  |                                                                                                              |  | 24
|Certifications |  |                                                                                                              |  | 25
|Exhibits       |  |                                                                                                              |  | 27

In addition to historical information, this Form 10-Q contains
forward-looking statements regarding our strategy, financial performance and
revenue sources that involve a number of risks and uncertainties, including
those discussed below at Factors That May Affect Future Results and in the
Risk Factors section of Packeteers Annual Report on Form 10-K as filed with
the SEC on March 21, 2003. Forward-looking statements in this report include,
but are not limited to, those relating to the general expansion of our
business, including the expansion of our network product lines, our ability to
develop multiple applications, our planned introduction of new products and
services, the possibility of acquiring complementary businesses, products,
services and technologies, our development of relationships with providers of
leading Internet technologies, our competition, the sufficiency of our cash,
cash equivalents and investments and our business model targets. While this
outlook represents our current judgment on the future direction of the
business, such risks and uncertainties could cause actual results to differ
materially from any future performance suggested below. Readers are cautioned
not to place undue reliance on the forward-looking statements, which speak only
as of the date of this Form 10-Q. Packeteer undertakes no obligation to
publicly release any revisions to forward-looking statements to reflect events
or circumstances arising after the date of this document.

2



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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




PACKETEER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)
(unaudited)


|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |          |        |        | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------- | -------- | --------- | ------ | ------------ | -------- | ------ | ------ | 
|                                                |                                                                                                                                                                 |                                            |                      |          | March 31, |        | December 31,
|                                                |                                                                                                                                                                 |                                            |                      |          | 2003      |        | 2002        
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |             
|ASSETS                                          |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|Current assets:                                 |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                | Cash and cash equivalents                                                                                                                                       |                                            | $                    | 34,448   |           |        | $            | 46,144   |       
|                                                | Short-term investments                                                                                                                                          |                                            |                      | 20,164   |           |        |              | 11,339   |       
|                                                | Accounts receivable less allowance for doubtful accounts
of $169 and $145, as of March 31, 2003 and
December 31, 2002, respectively                             |                                            |                      | 7,678    |           |        |              | 7,145    |       
|                                                | Other receivables                                                                                                                                               |                                            |                      | 234      |           |        |              | 410      |       
|                                                | Inventories                                                                                                                                                     |                                            |                      | 1,883    |           |        |              | 2,291    |       
|                                                | Prepaids and other current assets                                                                                                                               |                                            |                      | 1,409    |           |        |              | 1,302    |       
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                |                                                                                                                                                                 |                                            | Total current assets |          |           | 65,816 |              |          |        | 68,631 | 
|Property and equipment, net                     |                                                                                                                                                                 |                                            | 2,782                |          |           |        | 3,027        |         
|Long-term investments                           |                                                                                                                                                                 |                                            | 13,656               |          |           |        | 7,991        |         
|Other assets                                    |                                                                                                                                                                 |                                            | 254                  |          |           |        | 263          |         
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|Total assets                                    |                                                                                                                                                                 | $                                          | 82,508               |          |           | $      | 79,912       |         
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|Current liabilities:                            |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                | Line of credit                                                                                                                                                  |                                            | $                    |         |           |        | $            | 1,000    |       
|                                                | Current portion of capital lease obligations                                                                                                                    |                                            |                      | 553      |           |        |              | 598      |       
|                                                | Current portion of note payable                                                                                                                                 |                                            |                      | 194      |           |        |              | 188      |       
|                                                | Accounts payable                                                                                                                                                |                                            |                      | 1,293    |           |        |              | 1,352    |       
|                                                | Accrued compensation                                                                                                                                            |                                            |                      | 2,442    |           |        |              | 3,452    |       
|                                                | Other accrued liabilities                                                                                                                                       |                                            |                      | 3,462    |           |        |              | 3,408    |       
|                                                | Deferred revenue                                                                                                                                                |                                            |                      | 6,012    |           |        |              | 5,141    |       
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                |                                                                                                                                                                 | Total current liabilities                  |                      |          | 13,956    |        |              |          | 15,139 |       
|Capital lease obligations, less current portion |                                                                                                                                                                 |                                            | 297                  |          |           |        | 405          |         
|Note payable, less current portion              |                                                                                                                                                                 |                                            | 90                   |          |           |        | 140          |         
|Long-term deferred revenue                      |                                                                                                                                                                 |                                            | 934                  |          |           |        | 827          |         
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                |                                                                                                                                                                 | Total liabilities                          |                      |          | 15,277    |        |              |          | 16,511 |       
|Stockholders equity:                           |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                | Common stock, $0.001 par value;
85,000 shares authorized; 31,059 and 30,599 shares
issued and
outstanding at March 31, 2003 and December 31, 2002,
respectively |                                            |                      | 31       |           |        |              | 31       |       
|                                                | Additional paid-in capital                                                                                                                                      |                                            |                      | 168,381  |           |        |              | 166,727  |       
|                                                | Deferred stock-based compensation                                                                                                                               |                                            |                      | (8       | )         |        |              | (19      | )     
|                                                | Accumulated other comprehensive income                                                                                                                          |                                            |                      | 163      |           |        |              | 165      |       
|                                                | Notes receivable from stockholders                                                                                                                              |                                            |                      | (36      | )         |        |              | (54      | )     
|                                                | Accumulated deficit                                                                                                                                             |                                            |                      | (101,300 | )         |        |              | (103,449 | )     
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                |                                                                                                                                                                 | Total stockholders equity                 |                      |          | 67,231    |        |              |          | 63,401 |       
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         
|                                                |                                                                                                                                                                 | Total liabilities and stockholders equity |                      | $        | 82,508    |        |              | $        | 79,912 |       
|                                                |                                                                                                                                                                 |                                            |                      |          |           |        |              |         

See accompanying notes to condensed consolidated financial statements

3



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PACKETEER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)
(unaudited)


|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |        |        | 
|----------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                                      |                                                                                                                                                          |                               |        | Three months ended
|                                                      |                                                                                                                                                          |                               |        | March 31,         
|                                                      |                                                                                                                                                          |                               |        |                   
|                                                      |                                                                                                                                                          |                               |        | 2003               |        | 2002
|                                                      |                                                                                                                                                          |                               |        |                    |        |     
|Net revenues:                                         |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      | Product revenues                                                                                                                                         |                               | $      | 14,160             |        |      | $      | 10,586 |       
|                                                      | Service revenues                                                                                                                                         |                               |        | 2,608              |        |      |        | 1,655  |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Total net revenues            |        |                    | 16,768 |      |        |        | 12,241 | 
|Cost of revenues:                                     |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      | Product costs                                                                                                                                            |                               |        | 2,877              |        |      |        | 2,401  |       
|                                                      | Service costs                                                                                                                                            |                               |        | 1,012              |        |      |        | 669    |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Total cost of revenues        |        |                    | 3,889  |      |        |        | 3,070  | 
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Gross profit                  |        |                    | 12,879 |      |        |        | 9,171  | 
|Operating expenses:                                   |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      | Research and development (exclusive of stock-based compensation expense of $11 and $82 for
the three months ended March 31, 2003 and 2002,
respectively) |                               |        | 2,804              |        |      |        | 2,751  |       
|                                                      | Sales and marketing (exclusive of stock-based
compensation expense of $44 for the three
months ended March 31, 2002)                                     |                               |        | 6,521              |        |      |        | 5,342  |       
|                                                      | General and administrative (exclusive of stock-based compensation expense of $13 for the three
months ended March 31, 2002)                              |                               |        | 1,335              |        |      |        | 1,030  |       
|                                                      | Stock-based compensation                                                                                                                                 |                               |        | 11                 |        |      |        | 139    |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Total operating expenses      |        |                    | 10,671 |      |        |        | 9,262  | 
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Income (loss) from operations |        |                    | 2,208  |      |        |        | (91)   | 
|Other income, net                                     |                                                                                                                                                          |                               | 180    |                    |        |      | 217    |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|Income before taxes                                   |                                                                                                                                                          |                               | 2,388  |                    |        |      | 126    |       
|Provision for income taxes                            |                                                                                                                                                          |                               | 239    |                    |        |      | 12     |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|                                                      |                                                                                                                                                          | Net income                    |        | $                  | 2,149  |      |        | $      | 114    | 
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|Basic net income per share                            |                                                                                                                                                          | $                             | 0.07   |                    |        | $    | 0.00   |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|Diluted net income per share                          |                                                                                                                                                          | $                             | 0.07   |                    |        | $    | 0.00   |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|Shares used in computing basic net income per
share   |                                                                                                                                                          |                               | 30,828 |                    |        |      | 30,002 |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       
|Shares used in computing diluted net income
per share |                                                                                                                                                          |                               | 31,760 |                    |        |      | 30,540 |       
|                                                      |                                                                                                                                                          |                               |        |                    |        |      |        |       

See accompanying notes to condensed consolidated financial statements.

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PACKETEER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)


|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |         |     |        |        |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | --- | ------------------ | ------- | ------- | --- | ------ | ------ | -
|                                                   |                                                                                   |                                              |                                                    |                                           |     | Three months ended
|                                                   |                                                                                   |                                              |                                                    |                                           |     | March 31,         
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                   
|                                                   |                                                                                   |                                              |                                                    |                                           |     | 2003               |         | 2002   
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Cash flows from operating activities:              |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   | Net income                                                                        |                                              | $                                                  | 2,149                                     |     |                    | $       | 114     |    
|                                                   | Adjustments to reconcile net income to net cash
provided by operating activities: |                                              |                                                    |                                           |     |                    |         |         |    
|                                                   |                                                                                   | Depreciation                                 |                                                    |                                           | 371 |                    |         |         | 380 |       
|                                                   |                                                                                   | Other non-cash charges                       |                                                    |                                           | 11  |                    |         |         | 137 |       
|                                                   |                                                                                   | Changes in operating assets and liabilities: |                                                    |                                           |     |                    |         |         |     |       
|                                                   |                                                                                   |                                              | Accounts receivable, net                           |                                           |     | (533               | )       |         |     | 306    |       
|                                                   |                                                                                   |                                              | Inventories                                        |                                           |     | 408                |         |         |     | (232   | )     
|                                                   |                                                                                   |                                              | Prepaids and other current assets                  |                                           |     | 69                 |         |         |     | (61    | )     
|                                                   |                                                                                   |                                              | Accounts payable                                   |                                           |     | (59                | )       |         |     | 198    |       
|                                                   |                                                                                   |                                              | Accrued compensation and other accrued liabilities |                                           |     | (956               | )       |         |     | (1,041 | )     
|                                                   |                                                                                   |                                              | Deferred revenue                                   |                                           |     | 978                |         |         |     | 520    |       
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   |                                                                                   |                                              |                                                    | Net cash provided by operating activities |     |                    | 2,438   |         |     |        | 321    |  
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Cash flows from investing activities:              |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   | Purchases of property and equipment                                               |                                              |                                                    | (126                                      | )   |                    |         | (242    | )  
|                                                   | Purchases of investments                                                          |                                              |                                                    | (16,994                                   | )   |                    |         | (10,251 | )  
|                                                   | Proceeds from sales and maturities of investments                                 |                                              |                                                    | 2,502                                     |     |                    |         | 4,159   |    
|                                                   | Other assets                                                                      |                                              |                                                    | 9                                         |     |                    |         | (7      | )  
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   |                                                                                   |                                              |                                                    | Net cash used in investing activities     |     |                    | (14,609 | )       |     |        | (6,341 | )
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Cash flows from financing activities:              |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   | Net proceeds from issuance of common stock                                        |                                              |                                                    | 1,320                                     |     |                    |         | 7       |    
|                                                   | Sale of stock to employees under the ESPP                                         |                                              |                                                    | 334                                       |     |                    |         | 535     |    
|                                                   | Proceeds from stockholders notes receivable                                      |                                              |                                                    | 18                                        |     |                    |         | 21      |    
|                                                   | Repayments of line of credit                                                      |                                              |                                                    | (1,000                                    | )   |                    |         |        |    
|                                                   | Payments of notes payable                                                         |                                              |                                                    | (44                                       | )   |                    |         | (42     | )  
|                                                   | Principal payments of capital lease obligations                                   |                                              |                                                    | (153                                      | )   |                    |         | (175    | )  
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   |                                                                                   |                                              |                                                    | Net cash provided by financing activities |     |                    | 475     |         |     |        | 346    |  
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Foreign currency impact                            |                                                                                   |                                              |                                                   |                                           |     |                    | (16     | )      
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Net decrease in cash and cash equivalents          |                                                                                   |                                              | (11,696                                            | )                                         |     |                    | (5,690  | )      
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Cash and cash equivalents at beginning of period   |                                                                                   |                                              | 46,144                                             |                                           |     |                    | 50,009  |        
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Cash and cash equivalents at end of period         |                                                                                   | $                                            | 34,448                                             |                                           |     | $                  | 44,319  |        
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|Supplemental disclosures of cash flow information: |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   | Cash paid during period for interest                                              |                                              | $                                                  | 39                                        |     |                    | $       | 83      |    
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        
|                                                   | Cash paid during period for taxes                                                 |                                              | $                                                  | 117                                       |     |                    | $       | 20      |    
|                                                   |                                                                                   |                                              |                                                    |                                           |     |                    |         |        

See accompanying notes to condensed consolidated financial statements.

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PACKETEER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared by Packeteer, Inc., pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC) and include the accounts of
Packeteer, Inc. and its wholly-owned subsidiaries (Packeteer or collectively
the Company). All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. Certain previously reported amounts have been
reclassified to conform to the current presentation format. While in the
opinion of the Companys management, the unaudited financial statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair statement of interim periods presented, these financial statements and
notes should be read in conjunction with its audited consolidated financial
statements and notes thereto, included in the Companys Annual Report on Form
10-K for the year ended December 31, 2002 filed with the SEC on March 21, 2003.

The results of operations for the three months ended March 31, 2003 are
not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year ending December 31, 2003.

2.     STOCK-BASED COMPENSATION

The
Company adopted SFAS 148, Accounting for Stock-Based
Compensation 
Transition and Disclosure, which amended SFAS 123, Accounting for Stock-Based
Compensation, in December 2002. As permitted under SFAS 148, Packeteer has
elected to continue to follow the intrinsic value method in accounting for its
stock-based employee compensation arrangements. No stock-based employee
compensation cost is reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation.

|                                                                                                          |  |                    |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                                                          |  | Three months ended
|                                                                                                          |  | March 31,         
|                                                                                                          |  |                   
|(in thousands, except per share data)                                                                     |  | 2003               |        | 2002
|                                                                                                          |  |                    |        |     
|Net income as reported                                                                                    |  | $                  | 2,149  |      |  | $ | 114    |  
|Add: Stock-based compensation under APB 25                                                                |  |                    | 11     |      |  |   | 139    |  
|Deduct: Stock-based employee compensation
expense determined under fair value-based
method for all awards |  |                    | (1,487 | )    |  |   | (1,478 | )
|                                                                                                          |  |                    |        |      |  |   |        |  
|Net income (loss) pro forma                                                                               |  | $                  | 673    |      |  | $ | (1,225 | )
|                                                                                                          |  |                    |        |      |  |   |        |  
|Earnings (loss) per share:                                                                                |  |                    |        |      |  |   |        |  
|Basic and diluted  as reported                                                                           |  | $                  | 0.07   |      |  | $ | 0.00   |  
|Basic and diluted  pro forma                                                                             |  | $                  | 0.02   |      |  | $ | (0.04  | )

3.     CONTINGENCY

In November 2001, Packeteer, certain company officers and directors, and
its underwriters were named as defendants in a securities class-action lawsuit
filed in the United States District Court for the Southern District of New
York. The complaint captioned Antoniono v. Packeteer, Inc. et. al., alleges
violations of Sections 11, 12(a)2 and 15 of the Securities Act of 1933, as
amended, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder on behalf of a purported class of purchasers of
Packeteer common stock between July 27, 1999 and December 6, 2000. The
plaintiffs seek unspecified damages. Various plaintiffs have filed similar
actions asserting virtually identical allegations against more than 300 other
issuers. These cases have all been assigned to the Hon. Shira A. Scheindlin.

In October 2002, the plaintiffs agreed to dismiss the Companys officers
and directors from the litigation without prejudice, in return for a tolling
agreement. The Company moved to dismiss the claims against it. The Court denied
the motion. As a result, the case may proceed to the discovery phase. We
believe that we have meritorious defenses to the lawsuit and will defend
ourselves vigorously

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in the litigation. We are not presently able to estimate the losses, if
any, related to this lawsuit, and accordingly, as of March 31, 2003, no accrual
for this contingency has been recorded.

The Company is routinely involved in legal and administrative proceedings
incidental to its normal business activities and believes that these matters
will not have a material adverse effect on its financial position, results of
operations or cash flows.

4.     GUARANTEES

The Company records a liability for estimated warranty obligations at the
date products are sold. Adjustments are made as new information becomes
available. The provisions of FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, which Packeteer adopted in December
2002, require disclosures about the guarantees that an entity has issued,
including a reconciliation of changes in the entitys product warranty
liabilities. The following provides a reconciliation of changes in Packeteers
warranty reserve from December 31, 2002 to March 31, 2003. The Company provides
no other guarantees.

|                                                  |                                     |   |     |     |  
|------------------------------------------------- | ----------------------------------- | - | --- | --- | -
|(in thousands)                                    |                                     |   |     |    
|Accrued warranty obligations at December 31, 2002 |                                     | $ | 284 |    
|                                                  | Provision for current quarter sales |   |     | 86  |  
|                                                  | Warranty costs incurred             |   |     | (96 | )
|                                                  |                                     |   |     |    
|Accrued warranty obligations at March 31, 2003    |                                     | $ | 274 |    
|                                                  |                                     |   |     |    

5.     INCOME TAXES

Our income tax provision for the quarters ended March 31, 2003 and March
31, 2002 is primarily attributable to income taxes payable in foreign
jurisdictions. The effective tax rate for the quarters ended March 31, 2003 and
2002, and the expected annual rate for the remainder of fiscal 2003, is
approximately 10%.

6.     NET INCOME PER SHARE

Basic net income per share has been computed using the weighted-average
number of common shares outstanding during the period, less the
weighted-average number of common shares that are subject to repurchase.
Diluted net income per share has been computed using the weighted average
number of common and potential common shares outstanding during the period. All
warrants for common stock, outstanding stock options and shares subject to
repurchase have been excluded from the calculation of diluted net loss per
share for periods where their inclusion would be antidilutive.

The following table presents the calculation of basic and diluted net
income per share:

|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |      |        |        |        | 
|---------------------------------------- | ---------------------------- | ------------------------------------------ | ------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                         |                              |                                            |                                                                                             |                                                    |        | Three Months Ended
|                                         |                              |                                            |                                                                                             |                                                    |        | March 31,         
|                                         |                              |                                            |                                                                                             |                                                    |        |                   
|(in thousands, except per share amounts) |                              | 2003                                       |                                                                                             | 2002                                              
|                                         |                              |                                            |                                                                                             |                                                   
|Numerator:                               |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         | Net income                   |                                            | $                                                                                           | 2,149                                              |        |                    | $      | 114  |       
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|Denominator:                             |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         | Basic:                       |                                            |                                                                                             |                                                    |        |                    |        |      |       
|                                         |                              | Weighted-average common shares outstanding |                                                                                             |                                                    | 30,828 |                    |        |      | 30,008 |       
|                                         |                              | Less: common shares subject to repurchase  |                                                                                             |                                                    |       |                    |        |      | 6      |       
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         |                              |                                            |                                                                                             | Basic weighted-average common shares outstanding   |        |                    | 30,828 |      |        |        | 30,002 | 
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         | Diluted:                     |                                            |                                                                                             |                                                    |        |                    |        |      |       
|                                         |                              |                                            | Basic weighted-average common shares outstanding                                            |                                                    |        | 30,828             |        |      |        | 30,002 |       
|                                         |                              |                                            | Add: potentially dilutive common shares from stock
options and shares subject to repurchase |                                                    |        | 919                |        |      |        | 535    |       
|                                         |                              |                                            | Add: potentially dilutive common shares from warrants                                       |                                                    |        | 13                 |        |      |        | 3      |       
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         |                              |                                            |                                                                                             | Diluted weighted-average common shares outstanding |        |                    | 31,760 |      |        |        | 30,540 | 
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         | Basic net income per share   |                                            | $                                                                                           | 0.07                                               |        |                    | $      | 0.00 |       
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     
|                                         | Diluted net income per share |                                            | $                                                                                           | 0.07                                               |        |                    | $      | 0.00 |       
|                                         |                              |                                            |                                                                                             |                                                    |        |                    |        |     

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7.     COMPREHENSIVE INCOME

The Company reports comprehensive income or loss in accordance with the
provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting comprehensive income and loss and its
components in financial statements. The difference between reported net income
and comprehensive income is not considered material for the periods presented.

8.     SEGMENT REPORTING

The Company has adopted the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Companys chief
operating decision maker is considered to be the Companys CEO. The CEO reviews
financial information presented on a consolidated basis substantially similar
to the accompanying consolidated financial statements. Therefore, the Company
has concluded that it operates in one segment and accordingly has provided only
the required enterprise-wide disclosures.

The Company operates in the United States and internationally and derives
its revenue from the sale of products and software licenses and maintenance
contracts related to these products. For the three months ended March 31, 2003,
sales to three customers, Alternative Technology, Inc., Westcon, Inc. and
Macnica, Inc. accounted for 22% 16% and 10% of total net revenues,
respectively. In the prior year, for the three months ended March 31, 2002,
sales to three customers, Alternative Technology, Inc., Westcon, Inc. and
Macnica, Inc. accounted for 18%, 13% and 11% of net revenues, respectively.

Geographic Information

|               |                          |                    |   |                    |        |  |   |       |        | 
|-------------- | ------------------------ | ------------------ | - | ------------------ | ------ |  | - | ----- | ------ | 
|               |                          |                    |   | Three months ended
|               |                          |                    |   | March 31,         
|               |                          |                    |   |                   
|(in thousands) |                          | 2003               |   | 2002              
|               |                          |                    |   |                   
|Net revenues:  |                          |                    |   |                    |        |  |   |      
|               | North America            |                    | $ | 7,898              |        |  | $ | 4,325 |       
|               | Asia Pacific             |                    |   | 4,775              |        |  |   | 4,809 |       
|               | Europe and rest of world |                    |   | 4,095              |        |  |   | 3,107 |       
|               |                          |                    |   |                    |        |  |   |      
|               |                          | Total net revenues |   | $                  | 16,768 |  |   | $     | 12,241 | 
|               |                          |                    |   |                    |        |  |   |      

Revenues reflect the destination of the shipped product.

Long-lived assets are primarily located in North America. Assets located
outside North America are not significant.

9.     RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses the financial accounting and
reporting for obligations and retirement costs related to the retirement of
tangible long-lived assets. Packeteer adopted SFAS 143 January 1, 2003.
Adoption of this statement did not have an impact on the Companys results of
operations or financial position.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF 00-21,
Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides guidance
on determining whether a revenue arrangement contains multiple deliverable
items and if so, requires revenue be allocated amongst the different items
based on fair value. EITF 00-21 also requires that revenue on any item in a
revenue arrangement with multiple deliverables that is not delivered completely
must be deferred until delivery of the item is complete. EITF 00-21 is
effective for all arrangements entered into in fiscal periods beginning after
June 15, 2003. Adoption of this Statement is not expected to have a material
impact on the Companys results of operations or financial condition.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. FIN 46 requires consolidation of
variable interest entities by the entitys primary beneficiary if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created or
acquired after

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January 31, 2003. FIN 46 must be applied beginning July 1, 2003 to
variable entities existing prior to February 1, 2003. The adoption of FIN 46
will not have a material impact on the Companys results of operations or
financial condition.




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

OVERVIEW

Packeteer is a leading provider of application traffic management systems
designed to enable enterprises to gain visibility and control of networked
applications, extend network resources and align application performance with
business priorities. For service providers, Packeteer systems provide a
platform for delivering application-intelligent network services that control
quality of service, or QoS, expand revenue opportunities and offer compelling
differentiation from other potential solutions. Our PacketShaper family of
products, including the PacketShaper®, PacketSeeker and PacketShaper Xpress,
integrates application discovery, analysis, control, acceleration and reporting
technologies that are required for proactive application performance and
bandwidth management. Our AppCelera family of Internet acceleration appliances
employs secure socket layer (SSL) offload and advanced content compression,
transformation and caching technologies to improve response times of mission
critical enterprise, eBusiness and eCommerce web applications. Our
ReportCenter and PolicyCenter software products are designed to enable
management of large deployments of our PacketShaper systems.

Packeteers products are deployed by Global 2000 corporations and service
providers, and are sold through an established network of more than 100
resellers, distributors, system-integrators and OEMs in more than 50 countries.
Our products are built on hardware platforms based on Intel-compatible
microprocessor technologies. In addition, PacketWise® software is licensed by
several communications industry partners who integrate the software into
specific strategic networking solutions. We primarily use indirect channels to
leverage the reach of our sales force and to obtain worldwide coverage. Our
sales and marketing efforts are used to develop brand awareness and support our
indirect channels. We have subsidiaries or branch offices in Australia, Canada,
Caymans, Denmark, England, France, Germany, Hong Kong, Japan, Korea, Singapore,
Spain, and The Netherlands. To date, we have shipped more than 25,000 units.

We were incorporated in January 1996 and shipped our first product in
February 1997. Since then, we have focused on developing additional products
and product enhancements, building our worldwide indirect sales channel and
establishing our sales, marketing and customer support organizations.

We have a limited operating history. As of March 31, 2003, we had an
accumulated deficit of $101.3 million. We have achieved profitability
throughout fiscal 2002 and for the three months ended March 31, 2003. However,
as we incurred losses since we commenced operations until 2002, profitability
could be difficult to sustain. We expect to continue to incur significant sales
and marketing, product development and administrative expenses and, as a
result, will need to generate significant quarterly revenues to maintain
profitability.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are 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 financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to inventory valuation, valuation allowances including sales
return reserves and allowance for doubtful accounts, and other liabilities,
specifically warranty reserves. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

The items in our financial statements requiring the most significant
estimates and judgment are as follows:

Revenue recognition. Product revenue consists primarily of sales of our
PacketShaper family of products, which include hardware, as well as software
licenses. Service revenue consists primarily of maintenance revenue and, to a
lesser extent, training revenue.

The Company applies the provisions of Statement of Position 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions, to all transactions

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involving the sale of hardware and software products. Revenue is generally
recognized when all of the following criteria are met as set forth in paragraph
8 of SOP 97-2:



| |  |  | persuasive evidence of an arrangement exists,
| | - |  | ---------------------------------------------
| |   |  |                                              
| |  |  | delivery has occurred,                       
| |   |  |                                              
| |  |  | the fee is fixed or determinable, and        
| |   |  |                                              
| |  |  | collectibility is reasonably assured.        

Receipt of a customer purchase order is persuasive evidence of an
arrangement. Sales through our distribution channel are evidenced by an
agreement governing the relationship together with purchase orders on a
transaction-by-transaction basis.

Delivery generally occurs when product is delivered to a common carrier
from Packeteer or its designated fulfillment house. For maintenance contracts,
delivery is deemed to occur ratably over the contract period.

The Companys fees are typically considered to be fixed or determinable at
the inception of the arrangement and are negotiated at the outset of an
arrangement, generally based on specific products and quantities to be
delivered. In the event payment terms are provided that differ significantly
from our standard business practices, the fees are deemed to not be fixed or
determinable and revenue is recognized as the fees become due and payable.

We assess collectibility based on a number of factors, including credit
worthiness of the customer and past transaction history of the customer.

Our standard revenue recognition policy includes modifications under
certain circumstances as follows: Product revenue on sales to major new
distributors is recorded based on sell-through to the end user customers until
such time as the Company has established significant experience with the
distributors product exchange activity. Additionally, when the Company
introduces a new product into its distribution channel for which there is no
historical customer demand or acceptance history, revenue is recognized on the
basis of sell-through to end user customers until such time as demand or
acceptance history has been established.

The Company has analyzed all of the elements included in its multiple
element arrangements and has determined that it has sufficient vendor specific
objective evidence (VSOE) of fair value to allocate revenue to the maintenance
component of its product and to training. VSOE is based upon separate sales of
maintenance renewals and training to customers. Accordingly, assuming other
revenue recognition criteria are met, revenue from product sales is recognized
upon delivery using the residual method in accordance with SOP 98-9. Revenue
from maintenance is recognized ratably over the maintenance term and revenue
from training is recognized when the training has taken place. To date,
training revenues have not been material.

Inventory valuation. Inventories consist primarily of finished goods and
are stated at the lower of cost (on a first-in, first-out basis) or market. We
currently contract with SMTC for the manufacture of all of our products. We
record inventory reserves for excess and obsolete inventories based on
historical usage and forecasted demand. Factors which could cause our
forecasted demand to prove inaccurate include our reliance on indirect sales
channels and the variability of our sales cycle; the potential of announcements
of our new products or enhancements to replace or shorten the life cycle of our
current products, or cause customers to defer their purchases; loss of sales
due to product shortages; and the potential of new or alternative technologies
achieving widespread market acceptance and thereby rendering our existing
products obsolete. If future demand or market conditions are less favorable
than our projections, additional inventory write-downs may be required and
would be reflected in cost of sales in the period the revision is made.

Sales return reserve and allowance for doubtful accounts. In accordance
with SFAS 48, Revenue Recognition When Right of Return Exists, management
must use judgment and make estimates of potential future product returns
related to current period product revenue. When providing for sales return
reserves, we analyze historical return rates as they are the primary indicator
for estimating future returns. Material differences may result in the amount
and timing of our revenue if for any period actual returns differ from our
judgments or estimates. The sales return reserve balances at March 31, 2003 and
December 31, 2002 were $839,000 and $875,000, respectively. We must also make
estimates of the uncollectibility of accounts receivable. When evaluating the
adequacy of the allowance for doubtful accounts, we review the aged receivables
on an account-by-account basis, taking into consideration such factors as age
of the receivables, customer history and estimated continued credit-worthiness,
as well as general economic and industry trends. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances could be required. The allowance for
doubtful accounts at March 31, 2003 and December 31, 2002 was $169,000 and
$145,000, respectively.

Warranty reserves. Upon shipment of products to our customers, we provide
for the estimated cost to repair or replace products that may be returned under
warranty. Our warranty period is typically 12 months from the date of shipment
to the end user customer.

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For existing products, the reserve is estimated based on actual historical
experience. For new products, the warranty reserve is based on historical
experience of similar products until such time as sufficient historical data
has been collected on the new product. Factors that may impact our warranty
costs in the future include our reliance on our contract manufacturer to
provide quality products and the fact that our products are complex and may
contain undetected defects, errors or failures in either the hardware or the
software. To date, these problems have not materially adversely affected us.
Warranty reserves at March 31, 2003 and December 31, 2002 amounted to $274,000
and $284,000, respectively.

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of
total net revenues for the periods indicated. These historical operating
results are not necessarily indicative of the results for any future period.

|                              |                                          |                          |    |                    |     |      |    |    |     | 
|----------------------------- | ---------------------------------------- | ------------------------ | -- | ------------------ | --- | ---- | -- | -- | --- | 
|                              |                                          |                          |    | Three months ended
|                              |                                          |                          |    | March 31,         
|                              |                                          |                          |    |                   
|                              |                                          |                          |    | 2003               |     | 2002
|                              |                                          |                          |    |                    |     |     
|Net revenues:                 |                                          |                          |    |                    |     |      |    |   
|                              | Product revenues                         |                          |    | 84                 | %   |      |    | 86 | %  
|                              | Service revenues                         |                          |    | 16                 |     |      |    | 14 |    
|                              |                                          |                          |    |                    |     |      |    |   
|                              |                                          | Total net revenues       |    |                    | 100 |      |    |    | 100 | 
|Cost of revenues:             |                                          |                          |    |                    |     |      |    |   
|                              | Product costs                            |                          |    | 17                 |     |      |    | 20 |    
|                              | Service costs                            |                          |    | 6                  |     |      |    | 5  |    
|                              |                                          |                          |    |                    |     |      |    |   
|                              |                                          | Total cost of revenues   |    |                    | 23  |      |    |    | 25  | 
|                              |                                          |                          |    |                    |     |      |    |   
|                              |                                          | Gross margin             |    |                    | 77  |      |    |    | 75  | 
|Operating expenses:           |                                          |                          |    |                    |     |      |    |   
|                              | Research and development                 |                          |    | 17                 |     |      |    | 23 |    
|                              | Sales and marketing                      |                          |    | 39                 |     |      |    | 44 |    
|                              | General and administrative               |                          |    | 8                  |     |      |    | 8  |    
|                              | Amortization of stock-based compensation |                          |    |                   |     |      |    | 1  |    
|                              |                                          |                          |    |                    |     |      |    |   
|                              |                                          | Total operating expenses |    |                    | 64  |      |    |    | 76  | 
|                              |                                          |                          |    |                    |     |      |    |   
|Income (loss) from operations |                                          |                          | 13 |                    |     |      | (1 | ) 
|Other income, net             |                                          |                          | 1  |                    |     |      | 2  |   
|                              |                                          |                          |    |                    |     |      |    |   
|                              |                                          | Net income before taxes  |    |                    | 14  |      |    |    | 1   | 
|Provision for taxes           |                                          |                          | 1  |                    |     |      |   |   
|                              |                                          |                          |    |                    |     |      |    |   
|Net income                    |                                          |                          | 13 | %                  |     |      | 1  | % 
|                              |                                          |                          |    |                    |     |      |    |   

NET REVENUES

Product revenues consist primarily of sales of our PacketShaper family of
products. Service revenues consist primarily of maintenance revenues and, to a
lesser extent, training revenues.

Total net revenues of $16.8 million in the three months ended March 31,
2003 increased $4.5 million, or 37%, from the $12.2 million reported in the
same quarter of the prior year. Product revenues of $14.2 million for the
quarter increased $3.6 million, or 34%, from $10.6 million for the three months
ended March 31, 2002. The increase is primarily a result of increased shipments
of our higher end products, the PacketShaper 6500 and 8500 models. There were
no significant selling price changes during any of the periods presented.
Service revenues increased to $2.6 million in the three months ended March 31,
2002, from $1.7 million in the first quarter of fiscal 2002, an increase of
58%. The increase is mainly due to an increase in the number of units on
maintenance contracts.

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For the quarter ended March 31, 2003, net revenues in North America of
$7.9 million increased from $4.3 million in the same period last year, and
accounted for 47% of total net revenues, compared to 35% for the same period
last year. Net revenues in Asia Pacific of $4.8 million for the quarter ended
March 31 2003, accounted for 29% of total net revenues compared to $4.8 million
and 39% of total net revenues for the same period last year. Net revenues in
Europe, the Middle East and Africa, EMEA, of $4.1 million, accounting for 24%
of first quarter sales, compared to $3.1 million and 26% of total net revenues
for the three months ended March 31, 2002.

During the three months ended March 31, 2003, three customers, Alternative
Technology, Inc., Westcon, Inc. and Macnica, Inc., accounted for 22%, 16% and
10% of net revenues, respectively. For the three months ended March 31, 2002,
three customers, Alternative Technology, Inc., Westcon, Inc. and Macnica, Inc.,
accounted for 18%, 13% and 11% of net revenues, respectively. Sales to the top
10 indirect channel partners accounted for 68% and 69% of net revenues in the
three months ended March 31, 2003 and 2002, respectively. At March 31, 2003,
two customers accounted for 36% of accounts receivable.

Despite our belief that worldwide economic growth and IT spending will
remain relatively flat for at least 2003, we believe that our current value
proposition, which enables our enterprise customers to get more value out of
existing network resources and improved performance of their critical
applications, should allow us to continue to grow our business again in 2003.
Our growth rate and total net revenue depend significantly on continued growth
of the application traffic management solutions market, our ability to develop
and maintain strong partnering relationships with our indirect channel partners
and our ability to expand or enhance our product offerings or respond to
technological change. Our growth in service revenues is dependent upon
increasing the number of units on maintenance, which is dependent on both
growing our installed customer base and renewing existing maintenance
contracts. Our future profitability and rate of growth, if any, will be
directly affected by the continued acceptance of our product in the
marketplace, as well as the timing and size of orders, shipments, product mix,
average selling price of our products and general economic conditions. Our
failure to successfully convince the market of our value proposition and
maintain strong relationships with our indirect channel partners to ensure the
success of their selling efforts on our behalf, would adversely impact our net
revenues and operating results.

COST OF REVENUES

Our cost of revenues consists of the cost of finished products purchased
from our turnkey contract manufacturer, overhead costs and service support
costs. Our cost of revenues, $3.9 million in the three months ended March 31,
2003, increased $819,000 from the $3.1 million reported in the same period of
fiscal 2002. The increase in costs was due to an increase in units shipped, as
well as higher overhead costs and service support costs. The cost of revenues
represented 23% of net revenues for the three months ended March 31, 2003, down
2% from the 25% reported in the same quarter of the prior year

Product costs for the first quarter of 2003, increased by $476,000, or
20%, to $2.9 million from $2.4 million as reported in the first quarter of
2002. Manufacturing costs increased $360,000 from the same quarter of fiscal
2002 due to increased units shipped. Other product costs, specifically rework
and parts costs were up $105,000 from the first quarter of 2002 as our contract
manufacturer caught up on refurbishment of returned units. Despite these
increases, product costs as a percentage of product sales decreased to 20% for
the quarter ended March 31, 2003, down 3% from the 23% reported in the first
quarter of 2002.

Service costs increased $343,000, or 51%, from $669,000 in the first
quarter of fiscal 2002 to $1.0 million in the current quarter. The increased
service costs in this quarter are due to increased supplies expense, as well as
service fees related to an agreement previously entered into by the Company for
the outsourcing of certain maintenance and support services beginning late in
the third quarter of fiscal 2002. We expect service costs to continue at these
higher levels as a result of this outsourcing arrangement, as well as the
increase in the number of units under maintenance contracts.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of salaries and
related personnel expenses, consultant fees and prototype expenses related to
the design, development, testing and enhancement of the PacketShaper and
AppCelera products and PacketWise software. Excluding the effects of
stock-based compensation of $11,000 and $82,000 for the three months ended
March 31, 2003 and 2002, respectively, research and development expenses of
$2.8 million in the three months ended March 31, 2003, were up $53,000, or 2%
from the first quarter of fiscal 2002. Small increases in personnel related
expenses and travel were largely offset by a decrease in outside consulting
fees in the current quarter. Research and development expenses represented 17%
and 23% of total net revenues for the three months ended March 31, 2003 and
2002, respectively. As of March 31, 2003, all research and development costs
have been expensed as incurred. We believe that continued investment in
research and development is critical to attaining our strategic

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product and cost control objectives. We currently expect to experience
somewhat higher spending levels in the upcoming quarters, but continue to
target our spending to approaching the lower end of our current long-term
business model target of 18% to 20% of revenues going forward.

SALES AND MARKETING

Sales and marketing expenses consist primarily of salaries, commissions
and related personnel expenses for those engaged in the sales and marketing of
our products as well as related trade show, promotional and public relations
expenses. Excluding the effects of stock-based compensation of $44,000 in the
three months ended March 31, 2002, sales and marketing expenses increased to
$6.5 million in the three months ended March 31, 2003, from $5.3 million in the
same quarter of the prior year, an increase of 22%. Increases in personnel
costs, specifically recruiting and commissions, as well as higher travel costs,
accounted for most of the increase. Sales and marketing expenses represented
39% and 44% of total net revenues for the three months ended March 31, 2003 and
2002, respectively. We intend to continue to invest in appropriate sales and
marketing campaigns and therefore expect our absolute dollar expenses to
increase in the future. We continue to work towards our long-term business
model target showing sales and marketing expenses in the range of 26% to 28% of
revenues, but do not expect to achieve this on a quarterly basis for at least
the next one to two years.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of salaries and
related personnel expenses for administrative personnel, professional fees and
other general corporate expenses. Excluding the effects of stock-based
compensation of $13,000 for the three months ended March 31, 2002, general and
administrative expenses increased to $1.3 million in the three months ended
March 31, 2003, from $1.0 million in the same quarter of the prior year, an
increase of 30%. For the quarter ending March 31, 2003, the higher costs
include small increases in several expense categories, including personnel,
supplies and bad debt expenses. General and administrative expenses represented
8% of total net revenues for both three-month periods ended March 31, 2003 and
2002. We expect to see general and administrative expenses continue to decline
as a percentage of revenue and expect to reach our long-term business model
target of 6% to 7% of revenue within the next twelve months.

STOCK-BASED COMPENSATION

Stock-based compensation resulted primarily from stock option grants to
employees and options assumed in the Workfire acquisition. Stock-based
compensation is being amortized in accordance with FASB Interpretation No. 28
over the vesting period of the individual options, generally four years. We
recorded stock-based compensation expense of $11,000 and $139,000 in the three
months ended March 31, 2003 and 2002, respectively. There is $8,000 remaining
to be amortized in future periods.

OTHER INCOME, NET

Other income, net consists primarily of interest income from our cash,
cash equivalents and investments, less interest expense related to our line of
credit, debt and capital lease obligations, and other expenses. Other income,
net decreased 17% to $180,000 in the three months ended March 31, 2003 from
$217,000 in the same quarter in the prior year. This decrease was a result of
lower yields on invested funds due to declining interest rates and increased
foreign currency transaction losses, partially offset by lower interest
expenses due to decreased levels of debt.

INCOME TAX PROVISION

Our income tax provision for the quarters ended March 31, 2003 and 2002,
respectively, is primarily attributable to income taxes payable in foreign
jurisdictions. The effective tax rate for these quarters and the expected
annual rate for 2003 is approximately 10%.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily from the sale
of preferred and common stock and other financing activities such as bank
credit against accounts receivable, subordinated debt offerings and equipment
leasing and loans. Cash, cash equivalents and investments totaled $68.3 million
at March 31, 2003, an increase of $2.8 million from December 31, 2002.

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Net cash provided by operating activities was $2.4 million in the three
months ended March 31, 2003, compared with net cash provided by operations of
$321,000 for the same period of the prior year. The increase in operating cash
flows was primarily due to the increase in net income reported in the current
period, compared the first three months of fiscal 2002.

Net cash used in investing activities increased to $14.6 million in the
three months ended March 31 2003, compared to net cash used in investing
activities of $6.3 million for the same period in the prior year, primarily
reflecting a greater movement of funds from cash and cash equivalents to
investments with longer terms to maturity. Fixed asset purchases were $126,000
for the three months ended March 31, 2003, compared to $242,000 for the same
period in the prior year.

Net cash provided by financing activities was $475,000 in the three months
ended March 31, 2003, compared to $346,000 provided by financing activities for
the same period in the prior year. In the three months ended March 31, 2003,
proceeds generated by issuance of common stock totaled $1.7 million, partially
offset by $197,000 of payments on lease obligations, and notes payable.
Additionally, during the quarter we paid down the $1.0 million balance
remaining on our line of credit as of December 31, 2002. In the three months
ended March 31, 2002, proceeds generated by issuance of common stock totaled
$542,000. Repayments on the note payable of $42,000 and lease obligations
repayments totaling $175,000 offset this.

We have entered into capital leases and notes payable to finance the
acquisition of computer software, hardware and furniture. As of March 31, 2003,
approximately $850,000 was outstanding under capital lease obligations and
$284,000 was outstanding on a note payable. We also have a revolving credit
facility against accounts receivable, which provides for borrowings of up to
$10.0 million. As of March 31, 2003, there were no borrowings on the line. This
facility expires in May 2003. Borrowings under this facility bear interest at
the prime rate, which was 4.75% as of March 31, 2003, and are secured by
substantially all the assets of the Company. The Company is required to
maintain certain financial covenants related to working capital and quarterly
maximum net loss amounts. At March 31, 2003, the Company was in compliance with
these covenants.

The following summarizes Packeteers commitments under debt and lease
obligations, including interest where applicable, as of March 31, 2003, and the
effect such obligations are expected to have on its liquidity and cash flow in
future periods (in thousands):

|                 |       |   |       |       |      |   |                   |       |            |   |       |       |  |   |       |       | 
|---------------- | ----- | - | ----- | ----- | ---- | - | ----------------- | ----- | ---------- | - | ----- | ----- |  | - | ----- | ----- | 
|                 |       |   | Total |       | 2003 |   | 2004 through 2006 |       | Thereafter
|                 |       |   |       |       |      |   |                   |       |           
|Capital leases   |       | $ | 939   |       |      | $ | 457               |       |            | $ | 482   |       |  | $ |      |      
|Operating leases |       |   | 6,567 |       |      |   | 1,168             |       |            |   | 3,991 |       |  |   | 1,408 |      
|Note payable     |       |   | 308   |       |      |   | 163               |       |            |   | 145   |       |  |   |      |      
|                 |       |   |       |       |      |   |                   |       |            |   |       |       |  |   |       |      
|                 | Total |   | $     | 7,814 |      |   | $                 | 1,788 |            |   | $     | 4,618 |  |   | $     | 1,408 | 
|                 |       |   |       |       |      |   |                   |       |            |   |       |       |  |   |       |      

We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities and capital expenditures will constitute a partial use of
our cash resources. In addition, we may utilize cash resources to fund
acquisitions or investments in complementary businesses, technologies or
products. We believe that our current cash, cash equivalents and investments of
$68.3 million at March 31, 2003 will be sufficient to meet our anticipated cash
requirements for working capital and capital expenditures for at least the
foreseeable future. However, we may need to raise additional funds if our
estimates of revenues, working capital or capital expenditure requirements
change or prove inaccurate or in order for us to respond to unforeseen
technological or marketing hurdles or to take advantage of unanticipated
opportunities. These funds may not be available at the time or times needed, or
be available on terms acceptable to us. If adequate funds are not available, or
are not available on acceptable terms, we may not be able to take advantage of
market opportunities to develop new products or to otherwise respond to
competitive pressures.

RECENT ACCOUNTING PRONOUNCEMENTS

The impact of recent accounting pronouncements is discussed in Note 9 of
the notes to the unaudited condensed consolidated financial statements.




FACTORS THAT MAY AFFECT FUTURE RESULTS

You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially and
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

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OUR LIMITED OPERATING HISTORY AND THE RAPIDLY EVOLVING MARKET WE SERVE MAKES
EVALUATING OUR BUSINESS PROSPECTS DIFFICULT

We were incorporated in January 1996 and began shipping our products
commercially in February 1997. Because of our limited operating history and the
uncertain nature of the rapidly changing market that we serve, we believe the
prediction of future results of operations is difficult. As an investor in our
common stock, you should consider the risks and difficulties that we face in a
new and rapidly evolving market. Some of the specific risks we face include our
ability to:



| | - |  | execute our sales and marketing strategy;                                                                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | maintain current and develop new relationships with key resellers,
distributors, systems integrators and original equipment manufacturers,
or OEMs; and
|
| | - |  | expand our domestic and international sales efforts.                                                                                                   

WE HAVE A HISTORY OF LOSSES AND PROFITABILITY COULD BE DIFFICULT TO SUSTAIN

As of March 31, 2003, we had an accumulated deficit of $101.3 million.
Although we have achieved profitability throughout fiscal 2002 and for the
three months ended March 31, 2003, we incurred losses since we commenced
operations until 2002, and our profitability could be difficult to sustain. If
revenues grow slower than we anticipate or if operating expenditures exceed our
expectations or cannot be adjusted accordingly, we may experience additional
losses on a quarterly and annual basis.

IF THE APPLICATION TRAFFIC MANAGEMENT SOLUTIONS MARKET FAILS TO GROW, OUR
BUSINESS WILL FAIL

The market for application traffic management solutions is in an early
stage of development and its success is not guaranteed. Therefore, we cannot
accurately assess the size of the market, the products needed to address the
market, the optimal distribution strategy, or the competitive environment that
will develop. In order for us to be successful, our potential customers must
recognize the value of more sophisticated bandwidth management solutions,
decide to invest in the management of their networks and the performance of
important business software applications and, in particular, adopt our
bandwidth management solutions.

OUR FUTURE OPERATING RESULTS MAY NOT MEET ANALYSTS EXPECTATIONS AND MAY
FLUCTUATE SIGNIFICANTLY, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE

We believe that period-to-period comparisons of our operating results
cannot be relied upon as an indicator of our future performance. Our operating
results may be below the expectations of public market analysts or investors in
some future quarter. If this occurs, the price of our common stock would likely
decrease. Our operating results are likely to fluctuate in the future on both a
quarterly and an annual basis due to a number of factors, many of which are
outside our control. Factors that could cause our operating results to
fluctuate include variations in:



| | - |  | the timing and size of orders and shipments of our products;
| | - |  | ------------------------------------------------------------
|
| | - |  | the mix of products we sell;                                
|
| | - |  | the mix of channels through which those products are sold;  
|
| | - |  | the average selling prices of our products; and             
|
| | - |  | the amount and timing of our operating expenses.            

In the past, we have experienced fluctuations in operating results. These
fluctuations resulted primarily from variations in the mix of products sold and
variations in channels through which products were sold. Research and
development expenses, specifically prototype expenses, consulting fees and
other program costs, have fluctuated relative to the specific stage of product
development of the various projects underway. Sales and marketing expenses have
fluctuated due to increased personnel expenses, expenditures related to trade
shows and the launch of new products. See Managements Discussion and Analysis
of Financial Condition and Results of Operations for detailed information on
our operating results.

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THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY WHICH MAY
NEGATIVELY IMPACT GROSS MARGINS AND REVENUES

We may experience substantial period-to-period fluctuations in future
operating results due to the erosion of our average selling prices. The average
selling prices of our products could decrease in the future in response to
competitive pricing pressures, increased sales discounts, new product
introductions by us or our competitors or other factors. Therefore, to maintain
our gross margins, we must develop and introduce on a timely basis new products
and product enhancements and continually reduce our product costs. Our failure
to do so would cause our revenue and gross margins to decline.

IF OUR INTERNATIONAL SALES EFFORTS ARE UNSUCCESSFUL, OUR BUSINESS WILL FAIL TO
GROW

The failure of our indirect partners to sell our products internationally
will harm our business. Sales to customers outside of North America accounted
for 53% of our net revenues in the three months ended March 31, 2003 and 58%
and 55% of our net revenues in fiscal 2002 and 2001, respectively. Our ability
to grow will depend in part on the expansion of international sales, which will
require success on the part of our resellers, distributors and systems
integrators in marketing our products.

We intend to expand operations in our existing international markets and
to enter new international markets, which will demand management attention and
financial commitment. We may not be able to successfully sustain and expand our
international operations. In addition, a successful expansion of our
international operations and sales in foreign markets will require us to
develop relationships with suitable indirect channel partners operating abroad.
We may not be able to identify, attract or retain these indirect channel
partners.

Furthermore, to increase revenues in international markets, we will need
to continue to establish foreign operations, to hire additional personnel to
run these operations and to maintain good relations with our foreign indirect
channel partners. To the extent that we are unable to successfully do so, our
growth in international sales will be limited.

Our international sales are currently all U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets.
In the future, we may elect to invoice some of our international customers in
local currency. Doing so will subject us to fluctuations in exchange rates
between the U.S. dollar and the particular local currency and could negatively
affect our financial performance.

IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING RELATIONSHIPS WITH
OUR INDIRECT CHANNEL PARTNERS, OR IF THEIR SALES EFFORTS ON OUR BEHALF ARE NOT
SUCCESSFUL, OR IF THEY FAIL TO PROVIDE ADEQUATE SERVICES TO OUR END-USER
CUSTOMERS, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE

We rely primarily on an indirect distribution channel consisting of
resellers, distributors and systems integrators for our revenues. Because many
of our indirect channel partners also sell competitive products, our success
and revenue growth will depend on our ability to develop and maintain strong
cooperative relationships with significant indirect channel partners, as well
as on the sales efforts and success of those indirect channel partners.

We cannot assure you that our indirect channel partners will market our
products effectively or continue to devote the resources necessary to provide
us with effective sales, marketing and technical support. In order to support
and develop leads for our indirect distribution channels, we plan to continue
to expand our field sales and support staff as needed. We cannot assure you
that this internal expansion will be successfully completed, that the cost of
this expansion will not exceed the revenues generated or that our expanded
sales and support staff will be able to compete successfully against the
significantly more extensive and well-funded sales and marketing operations of
many of our current or potential competitors. In addition, our indirect channel
agreements are generally not exclusive and one or more of our channel partners
may compete directly with another channel partner for the sale of our products
in a particular region or market. This may cause such channel partners to stop
or reduce their efforts in marketing our products. Our inability to effectively
establish or manage our distribution channels would harm our sales.

In addition, our indirect channel partners may provide services to our
end-user customers that are inadequate or do not meet expectations. Such
failures to provide adequate services could result in customer dissatisfaction
with us or our products and services due to delays in maintenance and
replacement, decreases in our customers network availability and other losses.
These occurrences could result in the loss of customers and repeat orders and
could delay or limit market acceptance of our products, which would negatively
affect our sales and results of operations.

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SALES TO LARGE CUSTOMERS WOULD BE DIFFICULT TO REPLACE IF LOST

A limited number of indirect channel partners have accounted for a large
part of our revenues to date and we expect that this trend will continue.
Because our expense levels are based on our expectations as to future revenue
and to a large extent are fixed in the short term, any significant reduction or
delay in sales of our products to any significant indirect channel partner or
unexpected returns from these indirect channel partners could harm our
business. For the three months ended March 31, 2003, three customers,
Alternative Technology, Inc., Westcon, Inc. and Macnica, Inc., accounted for
22%, 16% and 10% of net revenues, respectively. For the three months ended
March 31, 2002, three customers, Alternative Technology, Inc., Westcon, Inc.
and Macnica, Inc., accounted for 18%, 13% and 11% of net revenues,
respectively. Sales to our top 10 indirect channel partners accounted for 68%
and 69% of net revenues in the three months ended March 31, 2003 and 2002,
respectively. We expect that our largest customers in the future could be
different from our largest customers today. End users can stop purchasing and
indirect channel partners can stop marketing our products at any time. We
cannot assure you that we will retain these indirect channel partners or that
we will be able to obtain additional or replacement partners. The loss of one
or more of our key indirect channel partners or the failure to obtain and ship
a number of large orders each quarter could harm our operating results and
liquidity.

OUR RELIANCE ON SALES OF OUR PRODUCTS BY OTHERS MAKES IT DIFFICULT TO PREDICT
OUR REVENUES AND RESULTS OF OPERATIONS

The timing of our revenues is difficult to predict because of our reliance
on indirect sales channels and the variability of our sales cycle. The length
of our sales cycle for sales through our indirect channel partners to our end
users may vary substantially depending upon the size of the order and the
distribution channel through which our products are sold.

We generally do not have significant unfulfilled product orders at any
point in time. Substantially all of our revenues in any quarter depend upon
customer orders that we receive and fulfill in that quarter. If revenues
forecasted in a particular quarter do not occur in that quarter, our operating
results for that quarter could be adversely affected. Furthermore, because our
expense levels are based on our expectations as to future revenue and to a
large extent are fixed in the short term, a substantial reduction or delay in
sales of our products or the loss of any significant indirect channel partner
could harm our business.

WE FACE RISKS RELATED TO INVENTORIES OF OUR PRODUCTS HELD BY OUR DISTRIBUTORS

Many of our distributors maintain inventories of our products. We work
closely with these distributors to monitor channel inventory levels so that
appropriate levels of products are available to resellers and end users.
However, if distributors reduce their levels of inventory or if they do not
maintain sufficient levels to meet customer demand, our sales could be
negatively impacted.

Additionally, although we monitor and track channel inventory with our
distributors, overstocking could occur if the demand for our products were to
rapidly decline due to economic downturns, increased competition,
underperformance of distributors or the introduction of new products by our
competitors or ourselves. This could cause sales and cost of sales to fluctuate
from quarter to quarter.

WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF PRODUCTS
FOR A SIGNIFICANT PORTION OF OUR REVENUES

Most of our revenues have been derived from sales of our PacketShaper
family of products and related maintenance and training services. We currently
expect that PacketShaper-related revenues will continue to account for a
substantial percentage of our revenues in fiscal 2003 and for the foreseeable
future thereafter. Our future operating results are significantly dependent
upon the continued market acceptance of our PacketShaper family of products and
enhanced PacketShaper applications. Our business will be harmed if our
PacketShaper products do not continue to achieve market acceptance or if we
fail to develop and market improvements to our PacketShaper products or new and
enhanced products. A decline in demand for our PacketShaper family of products
as a result of competition, technological change or other factors would harm
our business.

INTRODUCTION OF OUR NEW PRODUCTS MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF OUR
EXISTING PRODUCTS WHICH COULD HARM OUR OPERATING RESULTS

When we announce new products or product enhancements that have the
potential to replace or shorten the life cycle of our existing products,
customers may defer purchasing our existing products. These actions could harm
our operating results by unexpectedly decreasing sales, increasing our
inventory levels of older products and exposing us to greater risk of product
obsolescence.

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OUR RELIANCE ON SMTC FOR ALL OF OUR MANUFACTURING REQUIREMENTS COULD CAUSE US
TO LOSE ORDERS IF THIS THIRD PARTY MANUFACTURER FAILS TO SATISFY OUR COST,
QUALITY AND DELIVERY REQUIREMENTS

We currently contract with SMTC for all of our manufacturing requirements.
Any manufacturing disruption could impair our ability to fulfill orders. Our
future success will depend, in significant part, on our ability to have SMTC or
others manufacture our products cost-effectively and in sufficient volumes. We
face a number of risks associated with our dependence on third-party
manufacturers including:



| | - |  | reduced control over delivery schedules;                                
| | - |  | ------------------------------------------------------------------------
|
| | - |  | the potential lack of adequate capacity during periods of excess demand;
|
| | - |  | decrease in manufacturing yields and increases in costs;                
|
| | - |  | the potential lack of quality assurance;                                
|
| | - |  | increases in prices; and                                                
|
| | - |  | the potential misappropriation of our intellectual property.            

We have no long-term contracts or arrangements with any of our vendors
that guarantee product availability, the continuation of particular payment
terms or the extension of credit limits. We have experienced in the past, and
may experience in the future, problems with our contract manufacturers, such as
inferior quality, insufficient quantities and late delivery of product. To
date, these problems have not materially adversely affected us. We may not be
able to obtain additional volume purchase or manufacturing arrangements on
terms that we consider acceptable, if at all. If we enter into a high-volume or
long-term supply arrangement and subsequently decide that we cannot use the
products or services provided for in the agreement, our business will be
harmed. We cannot assure you that we can effectively manage our contract
manufacturer or that this manufacturer will meet our future requirements for
timely delivery of products of sufficient quality or quantity. Any of these
difficulties could harm our relationships with customers and cause us to lose
orders.

In the future, we may seek to use additional contract manufacturers. We
may experience difficulty in locating and qualifying suitable manufacturing
candidates capable of satisfying our product specifications or quantity
requirements. Further, new third-party manufacturers may encounter difficulties
in the manufacture of our products resulting in product delivery delays.

MOST OF THE COMPONENTS FOR OUR PRODUCTS COME FROM SINGLE OR LIMITED SOURCES,
AND WE COULD LOSE SALES IF THESE SOURCES FAIL TO SATISFY OUR SUPPLY
REQUIREMENTS

Almost all of the components used in our products are obtained from single
or limited sources. Our products have been designed to incorporate a particular
set of components. As a result, our desire to change the components of our
products or our inability to obtain suitable components on a timely basis would
require engineering changes to our products before we could incorporate
substitute components. Any such changes could be costly and result in lost
sales.

We do not have any long-term supply contracts to ensure sources of supply.
If our contract manufacturer fails to obtain components in sufficient
quantities when required, our business could be harmed. Our suppliers also sell
products to our competitors. Our suppliers may enter into exclusive
arrangements with our competitors, stop selling their products or components to
us at commercially reasonable prices or refuse to sell their products or
components to us at any price. Our inability to obtain sufficient quantities of
single-sourced or limited-sourced components, or to develop alternative sources
for components or products would harm our ability to maintain and expand our
business.

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POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS ARE LIKELY TO IMPACT OUR FUTURE
FINANCIAL POSITION AND RESULTS OF OPERATIONS

Proposed initiatives could result in changes in accounting rules,
including legislative and other proposals to account for employee stock options
as compensation expense. These and other potential changes could materially
increase the expenses we report under generally accepted accounting principles,
and adversely affect our operating results.

ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION TO OUR EXISTING SHAREHOLDERS
AND DIFFICULTIES IN SUCCESSFULLY MANAGING OUR BUSINESS

We continually evaluate strategic acquisitions of other businesses. Our
consummation of the acquisition of other businesses would subject us to a
number of risks, including the following:



|                                                                    | - |  | difficulty in integrating the acquired operations and retaining acquired personnel;                                         
|------------------------------------------------------------------- | - |  | ----------------------------------------------------------------------------------------------------------------------------
|                                                                   
|                                                                    | - |  | limitations on our ability to retain acquired distribution channels and customers;                                          
|                                                                   
|                                                                    | - |  | diversion of managements attention and disruption of our ongoing business; and                                             
|                                                                   
|                                                                    | - |  | limitations on our ability to successfully incorporate acquired technology and rights
into our product and service offerings
|and maintain uniform standards, controls, procedures, and policies.

Furthermore, we may incur indebtedness or issue equity securities to pay
for future acquisitions. The issuance of equity or convertible debt securities
could be dilutive to our existing shareholders.

OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY
INTERRUPT OUR BUSINESS OPERATIONS

Our future success will depend, to a significant extent, on the ability of
our management to operate effectively, both individually and as a group. We are
dependent on our ability to attract, retain and motivate high caliber key
personnel. Competition for qualified personnel and management in the networking
industry, including engineers, sales and service and support personnel, is
intense, and we may not be successful in attracting and retaining such
personnel. There may be only a limited number of persons with the requisite
skills to serve in these key positions and it may become increasingly difficult
to hire such persons. Competitors and others have in the past and may in the
future attempt to recruit our employees. With the exception of our CEO, we do
not have employment contracts with any of our personnel. Our business will
suffer if we encounter delays in hiring additional personnel as needed.

WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR MARKET
SECTOR WHO ARE SUBSTANTIALLY LARGER AND MORE ESTABLISHED AND WHO HAVE
SIGNIFICANTLY GREATER RESOURCES THAN OUR COMPANY

We compete in a rapidly evolving and highly competitive sector of the
networking technology market. We expect competition to persist and intensify in
the future from a number of different sources. Increased competition could
result in reduced prices and gross margins for our products and could require
increased spending by us on research and development, sales and marketing, and
customer support, any of which could harm our business. We compete with Cisco
Systems, Inc. and CheckPoint Software Technologies Ltd., which sell products
incorporating competing technologies. We also compete with several small
private companies that utilize competing technologies to provide bandwidth
management and compression. In addition, our products and technology compete
for information technology budget allocations with products that offer
monitoring capabilities, such as probes and related software. Lastly, we face
indirect competition from companies that offer enterprises and service
providers increased bandwidth and infrastructure upgrades that increase the
capacity of their networks, which may lessen or delay the need for traffic
management solutions.

Some of our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. We have
encountered, and expect to encounter, customers who are extremely confident in
and committed to the product offerings of our competitors. Furthermore, some of
our competitors may make strategic

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acquisitions or establish cooperative relationships among themselves or
with third parties to increase their ability to rapidly gain market share by
addressing the needs of our prospective customers. These competitors may enter
our existing or future markets with solutions that may be less expensive,
provide higher performance or additional features or be introduced earlier than
our solutions. Given the market opportunity in the traffic management solutions
market, we also expect that other companies may enter or announce an intention
to enter our market with alternative products and technologies, which could
reduce the sales or market acceptance of our products and services, perpetuate
intense price competition or make our products obsolete. If any technology that
is competing with ours is or becomes more reliable, higher performing, less
expensive or has other advantages over our technology, then the demand for our
products and services would decrease, which would harm our business.

IF WE DO NOT EXPAND OR ENHANCE OUR PRODUCT OFFERINGS OR RESPOND EFFECTIVELY TO
TECHNOLOGICAL CHANGE, OUR BUSINESS MAY NOT GROW

Our future performance will depend on the successful development,
introduction and market acceptance of new and enhanced products that address
customer requirements in a cost-effective manner. We cannot assure you that our
technological approach will achieve broad market acceptance or that other
technologies or solutions will not supplant our approach. The traffic
management solutions market is characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. The introduction of new products, market
acceptance of products based on new or alternative technologies, or the
emergence of new industry standards, could render our existing products
obsolete or make it easier for other products to compete with our products.
Developments in router-based queuing schemes could also significantly reduce
demand for our product. Alternative technologies, including packet-queuing and
compression technologies, could achieve widespread market acceptance. Our
future success will depend in large part upon our ability to:



| | - |  | develop and maintain competitive products;                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| | - |  | enhance our products by adding innovative features that differentiate our products from those of our competitors;
|
| | - |  | bring products to market on a timely basis at competitive prices;                                                
|
| | - |  | identify and respond to emerging technological trends in the market; and                                         
|
| | - |  | respond effectively to new technological changes or new product announcements by others.                         

We have in the past experienced delays in product development which to
date have not materially adversely affected us. However, these delays may occur
in the future and could result in a loss of customers and market share.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING
INEFFICIENCIES AND HAVE DIFFICULTY MEETING DEMAND FOR OUR PRODUCTS

In the past, we have experienced rapid and significant expansion of our
operations. If further rapid and significant expansion is required to address
potential growth in our customer base and market opportunities, this expansion
could place a significant strain on our management, products and support
operations, sales and marketing personnel and other resources, which could harm
our business.

In the future, we may experience difficulties meeting the demand for our
products and services. The use of our products requires training, which is
provided by our channel partners, as well as ourselves. If we are unable to
provide training and support for our products in a timely manner, the
implementation process will be longer and customer satisfaction may be lower.
In addition, our management team may not be able to achieve the rapid execution
necessary to fully exploit the market for our products and services. We cannot
assure you that our systems, procedures or controls will be adequate to support
the anticipated growth in our operations.

We may not be able to install management information and control systems
in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations.

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OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE
BEEN SOLD, WHICH COULD NEGATIVELY AFFECT OUR REVENUES AND THE MARKET ACCEPTANCE
OF OUR PRODUCTS AND INCREASE OUR COSTS

Our products are complex and may contain undetected defects, errors or
failures in either the hardware or software. In addition, because our products
plug into our end users existing networks, they can directly affect the
functionality of the network. Furthermore, end users rely on our products to
maintain acceptable service levels. We have in the past encountered errors in
our products, which in a few instances resulted in network failures and in a
number of instances resulted in degraded service. To date, these errors have
not materially adversely affected us. Additional errors may occur in our
products in the future. The occurrence of defects, errors or failures could
result in the failure of our customers network or mission-critical
applications, delays in installation, product returns and other losses to us or
to our customers or end users. In addition, we would have limited experience
responding to new problems that could arise with any new products that we
introduce. These occurrences could also result in the loss of or delay in
market acceptance of our products, which could harm our business.

We may also be subject to liability claims for damages related to product
errors. While we carry insurance policies covering this type of liability,
these policies may not provide sufficient protection should a claim be
asserted. A material product liability claim may harm our business.

FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN
SIGNIFICANT HARM TO OUR BUSINESS

Our success depends significantly upon our proprietary technology and our
failure or inability to protect our proprietary technology would result in
significant harm to our business. We rely on a combination of patent, copyright
and trademark laws, and on trade secrets, confidentiality provisions and other
contractual provisions to protect our proprietary rights. These measures afford
only limited protection. As of March 31, 2003 we have 11 issued U.S. patents
and 34 pending U.S. patent applications. Currently, none of our technology is
patented outside of the United States. Our means of protecting our proprietary
rights in the U.S. or abroad may not be adequate and competitors may
independently develop similar technologies. Our future success will depend in
part on our ability to protect our proprietary rights and the technologies used
in our principal products. Despite our efforts to protect our proprietary
rights and technologies, unauthorized parties may attempt to copy aspects of
our products or to obtain and use trade secrets or other information that we
regard as proprietary. Legal proceedings to enforce our intellectual property
rights could be burdensome and expensive and could involve a high degree of
uncertainty. These legal proceedings may also divert managements attention
from growing our business. In addition, the laws of some foreign countries do
not protect our proprietary rights as fully as do the laws of the U.S. Issued
patents may not preserve our proprietary position. If we do not enforce and
protect our intellectual property, our business will suffer substantial harm.

CLAIMS BY OTHERS THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS COULD
BE COSTLY TO DEFEND AND COULD HARM OUR BUSINESS

We may be subject to claims by others that our products infringe on their
intellectual property rights. These claims, whether or not valid, could require
us to spend significant sums in litigation, pay damages, delay product
shipments, reengineer our products or acquire licenses to such third-party
intellectual property. We may not be able to secure any required licenses on
commercially reasonable terms, or at all. We expect that we will increasingly
be subject to infringement claims as the number of products and competitors in
the traffic management solutions market grows and the functionality of products
overlaps. Any of these claims or resulting events could harm our business.

IF OUR PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT
REGULATIONS, OUR BUSINESS COULD BE HARMED

The market for application traffic management solutions is characterized
by the need to support industry standards as these different standards emerge,
evolve and achieve acceptance. In the United States, our products must comply
with various regulations and standards defined by the Federal Communications
Commission and Underwriters Laboratories. Internationally, products that we
develop must comply with standards established by the International
Electrotechnical Commission as well as with recommendations of the
International Telecommunication Union. To remain competitive we must continue
to introduce new products and product enhancements that meet these emerging
U.S. and international standards. However, in the future we may not be able to
effectively address the compatibility and interoperability issues that arise as
a result of technological changes and evolving industry standards.

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Failure to comply with existing or evolving industry standards or to
obtain timely domestic or foreign regulatory approvals or certificates could
harm our business.

OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR
FUTURE CAPITAL REQUIREMENTS

We currently anticipate that our existing cash and investment balances
will be sufficient to meet our liquidity needs for the foreseeable future.
However, we may need to raise additional funds if our estimates of revenues,
working capital or capital expenditure requirements change or prove inaccurate
or in order for us to respond to unforeseen technological or marketing hurdles
or to take advantage of unanticipated opportunities.

In addition, we expect to review potential acquisitions that would
complement our existing product offerings or enhance our technical
capabilities. While we have no current agreements or negotiations underway with
respect to any such acquisition, any future transaction of this nature could
require potentially significant amounts of capital. These funds may not be
available at the time or times needed, or available on terms acceptable to us.
If adequate funds are not available, or are not available on acceptable terms,
we may not be able to take advantage of market opportunities to develop new
products or to otherwise respond to competitive pressures.

CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF
PACKETEER MORE DIFFICULT, WHICH COULD LOWER THE MARKET PRICE OF THE COMMON
STOCK

Our corporate documents and Section 203 of the Delaware General
Corporation Law could discourage, delay or prevent a third party or a
significant stockholder from acquiring control of Packeteer. In addition,
provisions of our certificate of incorporation may have the effect of
discouraging, delaying or preventing a merger, tender offer or proxy contest
involving Packeteer. Any of these anti-takeover provisions could lower the
market price of the common stock and could deprive our stockholders of the
opportunity to receive a premium for their common stock that they might
otherwise receive from the sale of Packeteer.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Fixed Income Investments

Our exposure to market risks for changes in interest rates and principal
relates primarily to investments in debt securities issued by U.S. government
agencies and corporate debt securities. We place our investments with high
credit quality issuers and, by policy, limit the amount of the credit exposure
to any one issuer. Our investment securities are classified as
available-for-sale and consequently are recorded on the balance sheet at fair
value with unrealized gains and losses reported as a separate component of
accumulated other comprehensive income.

We do not use derivative financial instruments. In general, our policy is
to limit the risk of principal loss and ensure the safety of invested funds by
limiting market and credit risk. All highly liquid investments with less than
three months to maturity from date of purchase are considered to be cash
equivalents; investments with maturities between three and twelve months are
considered to be short-term investments; and investments with maturities in
excess of twelve months are considered to be long-term investments. The
following table presents the amortized cost, fair value and related
weighted-average interest rates by year of maturity for our investment
portfolio as of March 31, 2003 and the comparable fair values as of December
31, 2002.

|                           |                       |      |                                  |      |              |      |        |       |   |            |       |            |   |   |        |  |  |   |        |  |  |   |        |  | 
|-------------------------- | --------------------- | ---- | -------------------------------- | ---- | ------------ | ---- | ------ | ----- | - | ---------- | ----- | ---------- | - | - | ------ |  |  | - | ------ |  |  | - | ------ |  | 
|                           |                       |      | The comparable fair values as of |      | December 31,
|                           |                       |      | March 31, 2003                   |      | 2002        
|                           |                       |      |                                  |      |             
|(in thousands)             |                       | 2003 |                                  | 2004 |              | 2005 |        | Total |   | Fair Value |       | Fair Value
|                           |                       |      |                                  |      |              |      |        |       |   |            |       |           
|Cash equivalents           |                       | $    | 32,030                           |      |              | $    |       |       |   | $          |      |            |   | $ | 32,030 |  |  | $ | 32,031 |  |  | $ | 44,519 | 
|                           | Weighted-average rate |      |                                  | 1.17 | %            |      |        |      |   |            |       |           |   |   |        |  |  |   |        |  |  |   |        |  | 
|Short-term investments     |                       |      | 10,965                           |      |              |      | 9,043  |       |   |            |      |            |   |   | 20,008 |  |  |   | 20,129 |  |  |   | 11,339 | 
|                           | Weighted-average rate |      |                                  | 2.42 | %            |      |        | 2.14  | % |            |       |           |   |   |        |  |  |   |        |  |  |   |        |  | 
|Long-term investments      |                       |      |                                 |      |              |      | 12,375 |       |   |            | 1,274 |            |   |   | 13,649 |  |  |   | 13,691 |  |  |   | 7,991  | 
|                           | Weighted-average rate |      |                                  |     |              |      |        | 1.73  | % |            |       | 3.31       | % |   |        |  |  |   |        |  |  |   |        |  | 
|                           |                       |      |                                  |      |              |      |        |       |   |            |       |            |   |   |        |  |  |   |        |  |  |   |        | 
|Total investment portfolio |                       | $    | 42,995                           |      |              | $    | 21,418 |       |   | $          | 1,274 |            |   | $ | 65,687 |  |  | $ | 65,851 |  |  | $ | 63,849 | 
|                           |                       |      |                                  |      |              |      |        |       |   |            |       |            |   |   |        |  |  |   |        |  |  |   |        | 

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Foreign Exchange

We develop products in the United States and sell in North America, Asia,
Europe and the rest of the world. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in worldwide markets. All sales are currently made in U.S.
dollars; and, as a result, a strengthening of the dollar could make our
products less competitive in foreign markets. We have no foreign exchange
contracts, option contracts or other foreign currency hedging arrangements.




ITEM 4. CONTROLS AND PROCEDURES

a.     Evaluation of Disclosure Controls and Procedures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Within the 90 day period prior to the filing date of this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14
promulgated under the Securities Exchange Act of 1934, as amended. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
that date.

b.     Changes in Internal Controls



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referred to above.




PART II OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|    |  |                     |  |                                               
|--- |  | ------------------- |  | ----------------------------------------------
|(a) |  | EXHIBITS            |  |                                               
|    |  |                     |  |                                               
|    |  | Exhibit 99.1:       |  | Sarbanes-Oxley Section 906 Certification  CEO
|    |  |                     |  |                                               
|    |  | Exhibit 99.2:       |  | Sarbanes-Oxley
Section 906 Certification - CFO
|    |  |                     |  |                                               
|(b) |  | REPORTS ON FORM 8-K |  |                                               
|    |  |                     |  |                                               
|    |  | None.               |  |                                               

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cupertino, State of California, on this 30th
day of April, 2003.

| |  |                 |  |                                                   
| |  | --------------- |  | --------------------------------------------------
| |  | PACKETEER, INC.
| |  |                 |  |                                                   
| |  | By:             |  | /s/ DAVE CÔTÉ                                     
| |  |                 |  |                                                   
| |  |                 |  | Dave Côté
President and Chief Executive Officer   
| |  |                 |  |                                                   
| |  | By:             |  | /s/ DAVID YNTEMA                                  
| |  |                 |  |                                                   
| |  |                 |  | David Yntema
Chief Financial Officer and Secretary

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CERTIFICATIONS

I, Dave Côté, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Packeteer, Inc.;                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a - 14 and 15 d - 14) for the registrant and we have:                                                                                                 



| | (a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |     |  |                                                
|-------------------- |  | --- |  | -----------------------------------------------
|Date: April 30, 2003 |  | /s/ |  | DAVE CÔTÉ                                      
|                     |  |     |  |                                                
|                     |  |     |  | Dave Côté
President and Chief Executive Officer

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##### Table of Contents



I, David Yntema, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Packeteer, Inc.;                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15 d - 14) for the
registrant and we have:                                                                                                 



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |     |  |                                     
|-------------------- |  | --- |  | ------------------------------------
|Date: April 30, 2003 |  | /s/ |  | DAVID YNTEMA                        
|                     |  |     |  |                                     
|                     |  |     |  | David Yntema
Chief Financial Officer

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EXHIBIT INDEX

|              |  |                                                | 
|------------- |  | ---------------------------------------------- | 
|EXHIBIT       |  |                                                | 
|NUMBER        |  | DESCRIPTION                                    | 
|              |  |                                                | 
|Exhibit 99.1: |  | Sarbanes-Oxley Section 906 Certification  CEO | 
|Exhibit 99.2: |  | Sarbanes-Oxley Section 906 Certification  CFO |