<PAGE>   1

===============================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                                       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 _-_____

                                 PACKETEER, INC.
             (Exact name of Registrant as specified in its charter)



                  DELAWARE                                   77-0420107
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                 Identification Number)

   10495 North De Anza Boulevard, Cupertino, CA                95014
  (Address of principal executive offices)                   (Zip Code)

                                 (408) 873-4400
               (Registrant's telephone number including area code)


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 [ ]

There were 29,399,115 shares of the Company's Common Stock, par value $0.001,
outstanding on October 31, 2000.

================================================================================


<PAGE>   2


                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                 NO.
                                                                                -----
<S>     <C>                                                                     <C>
PART I                       FINANCIAL INFORMATION

Item 1. Financial Statements:

        Condensed Consolidated Balance Sheets as of September 30, 2000 and
        December 31, 1999.....................................................     3

        Condensed Consolidated Statements of Operations for the Three
        and Nine Months Ended September 30, 2000 and September 30, 1999.......     4

        Condensed Consolidated Statements of Cash Flows for the Nine
        Months Ended September 30, 2000 and September 30, 1999................     5

        Notes to Condensed Consolidated Financial Statements..................     6

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations.................................................    10

        Factors That May Affect Future Results...............................     15

Item 3. Quantitative and Qualitative Disclosures About Market Risk...........     25


PART II                      OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds............................     26

Item 6. Exhibits and Reports on Form 8-K.....................................     26


SIGNATURES...................................................................     27
</TABLE>

In addition to historical information, this Form 10-Q contains forward-looking
statements including 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 dated March 23,
2000 as filed with the SEC. While this outlook represents our current judgement
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. See "Factors That May Affect Future Results" below as well as "Risk
Factors" in Packeteer's Annual Report on Form 10-K dated March 23, 2000 as filed
with the SEC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



<PAGE>   3



                                 PACKETEER, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (unaudited)




<TABLE>
<CAPTION>
                                                            September 30,     December 31,
                                                                 2000              1999
                                                              ---------         ---------
<S>                                                         <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                                   $  35,108         $  19,554
  Short-term investments                                         21,153            37,918
  Accounts receivable, net                                        7,275             3,931
  Inventories                                                     2,430               523
  Prepaids and other current assets                               1,253               506
                                                              ---------         ---------
          Total current assets                                   67,219            62,432
Property and equipment, net                                       1,765               755
Long-term investments and other long-term assets                  6,695             7,919
Goodwill and other intangible assets, net                        70,890                --
                                                              ---------         ---------
Total assets                                                  $ 146,569         $  71,106
                                                              =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Line of credit                                              $   3,168         $   1,890
  Current portion of obligations under capital leases               689               339
  Current portion of notes payable                                   50             2,524
  Accounts payable                                                4,904             1,302
  Accrued compensation                                            1,875             1,480
  Other accrued liabilities                                       3,986             2,400
  Deferred revenue                                                2,024             1,212
                                                              ---------         ---------
          Total current liabilities                              16,696            11,147
Long-term liabilities                                               908               839

Common stock                                                         29                27
Additional paid-in capital                                      161,375            88,848
Accumulated other comprehensive loss                                 (3)              (58)
Deferred stock-based compensation                                (2,260)           (2,138)
Notes receivable from stockholders                                 (191)             (738)
Accumulated deficit                                             (29,985)          (26,821)
                                                              ---------         ---------
Total stockholders' equity                                      128,965            59,120
                                                              ---------         ---------
Total liabilities and stockholders' equity                    $ 146,569         $  71,106
                                                              =========         =========
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.



<PAGE>   4

                                 PACKETEER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                   Three months ended                 Nine months ended
                                                      September 30,                     September 30,
                                                 -------------------------         -------------------------
                                                   2000             1999             2000             1999
                                                 --------         --------         --------         --------
<S>                                              <C>              <C>              <C>              <C>
Net revenues:
  Product revenues                               $ 11,086         $  4,594         $ 26,575         $ 10,924
  Licensing revenues                                  418              425            1,197            1,175
                                                 --------         --------         --------         --------
          Total net revenues                       11,504            5,019           27,772           12,099

Cost of revenues                                    3,530            1,436            8,642            3,363
Amortization of developed technology                   78                -               78                -
                                                 --------         --------         --------         --------

Gross profit                                        7,896            3,583           19,052            8,736

Operating expenses:
Research and development (exclusive of stock
based compensation expense of $107 and $112 for
the three months ended September 30, 2000
and 1999 and $237 and $349 for the nine
months ended September 30, 2000 and 1999
respectively.)                                      2,265            1,509            6,005            3,729

Sales and marketing (exclusive of stock
based compensation expense of $210 and
$447 for the three months ended September
30, 2000 and 1999 and $686 and $1,771 for
the nine months ended September 30, 2000
and 1999 respectively.)                             5,181            3,718           13,246            9,374

General and administrative (exclusive of
stock based compensation expense of $58
and $111 for the three months ended
September 30, 2000 and 1999 and $175 and
$334 for the nine months ended September
30, 2000 and 1999 respectively.)                    1,238              805            3,502            1,947

Stock-based compensation                              375              670            1,098            2,454

Amortization of goodwill                              916                -              916                -
                                                 --------         --------         --------         --------
          Total operating expenses                  9,975            6,702           24,767           17,504
                                                 --------         --------         --------         --------

Net loss from operations                           (2,079)          (3,119)          (5,715)          (8,768)

Other income, net                                     938              193            2,551              119
                                                 --------         --------         --------         --------
Net loss                                         $ (1,141)        $ (2,926)        $ (3,164)        $ (8,649)
                                                 ========         ========         ========         ========

Basic and diluted net loss per share             $  (0.04)        $  (0.14)        $  (0.12)        $  (0.72)
                                                 ========         ========         ========         ========
Shares used in computing basic and
     diluted net loss per share                    27,248           20,202           26,623           12,005
                                                 ========         ========         ========         ========
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.



<PAGE>   5


                                 PACKETEER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (unaudited)




<TABLE>
<CAPTION>
                                                                 Nine months ended
                                                                    September 30,
                                                              -------------------------
                                                                2000             1999
                                                              --------         --------
<S>                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                      $ (3,164)        $ (8,649)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation                                                 841              584
      Amortization of intangibles                                  998               --
      Other non-cash charges                                     1,192            2,691
      Changes in operating assets and liabilities:
        Accounts receivable                                     (3,370)             102
        Inventories                                             (1,907)            (531)
        Prepaids and other current assets                         (702)            (909)
        Accounts payable and other accrued liabilities           3,656            1,453
        Deferred revenue                                           812             (732)
                                                              --------         --------
Net cash used in operating activities                           (1,644)          (5,991)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                             (1,502)            (581)
Purchases of available-for-sale investments                    (25,623)         (20,249)
Sales of available-for-sale investments                         43,679            1,927
Acquisition, net of cash acquired                               (1,829)              --
Other assets                                                       (13)              14
                                                              --------         --------
Net cash provided (used) by investing activities                14,712          (18,889)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock                       1,640           62,651
Net payments on stockholders' notes receivable                     547              103
Repurchase of common stock                                          --                1
Sale of stock to employees under the ESPP                        1,303               --
Borrowings under line of credit                                  2,343            2,147
Repayments of line of credit                                    (1,065)            (754)
Proceeds from notes payable                                         --            5,000
Payments of notes payable                                       (2,600)          (2,552)
Net proceeds from capital equipment lease                          318              403
                                                              --------         --------
Net cash provided by financing activities                        2,486           66,999
                                                              --------         --------
Net increase in cash and cash equivalents                       15,554           42,119
Cash and cash equivalents at beginning of period                19,554            2,550
                                                              --------         --------

Cash and cash equivalents at end of period                    $ 35,108         $ 44,669
                                                              ========         ========
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.



<PAGE>   6

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

NOTE 1. BASIS OF PRESENTATION

        The condensed consolidated financial statements have been prepared by
Packeteer, Inc., pursuant to the rules and regulations of the Securities and
Exchange Commission and include the accounts of Packeteer, Inc. and its
wholly-owned subsidiaries ("Packeteer" or collectively the "Company"). 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. While in the
opinion of Packeteer, the unaudited financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position at September 30, 2000 and the operating
results and cash flows for the three and nine months ended September 30, 2000
and 1999, these financial statements and notes should be read in conjunction
with Packeteer's audited consolidated financial statements and notes thereto,
included in Packeteer's Annual Report on Form 10-K for the year ended December
31, 1999 filed with the Securities and Exchange Commission on March 23, 2000.

        The results of operations for the three months and nine months ended
September 30, 2000 are not necessarily indicative of results that may be
expected for any other interim period or for the full fiscal year ending
December 31, 2000.

        The accompanying condensed, consolidated financial statements include
the financial statements of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM INVESTMENTS

        We consider all highly liquid investment securities with maturities from
date of purchase of three months or less to be cash equivalents. Short-term
investments consist of debt securities with maturities between three months and
twelve months. Long-term investments consist of debt securities with maturities
greater than 12 months.

        Management determines the appropriate classification of investments at
the time of purchase and reevaluates such designation as of each balance sheet
date. To date, all marketable securities have been classified as
available-for-sale and are carried at fair value with material unrealized gains
and losses, if any, included in stockholders' equity as a component of
accumulated other comprehensive income/(loss). Realized gains and losses and
declines in value of securities judged to be other than temporary are included
in other income, net. Interest and dividends on all securities are included in
other income, net.

REVENUE RECOGNITION

        We recognize product revenues, with provision made for estimated
returns, after the following events have occurred: the customer issues a
noncancelable purchase order; a product has been shipped to the customer; and
collection of the sales price is probable. Revenue from product maintenance
contract sales is deferred and recognized on a straight-line basis over the
contractual period. Amounts billed in excess of revenue recognized are included
as deferred revenue in the accompanying condensed consolidated balance sheets.

         For software transactions entered into after January 1, 1998, the
Company adopted the American Institute of Certified Public Accountants' (AICPA)
Statement of Position (SOP) 97-2, "Software Revenue Recognition" as modified by
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect
to Certain Transactions." SOP 97-2 generally requires revenue earned on software
arrangements involving multiple-elements to be allocated to each element based
on its relative fair value. The fair value of the element must be based on
objective evidence that is specific to the vendor. If a vendor does not have
objective evidence of the fair value of all elements in a multiple-element
arrangement, all revenue from the arrangement must be deferred until such
evidence exists or until all elements have been delivered, unless the only
undelivered element is post-

<PAGE>   7


contract customer support, in which case, the entire fee is recognized over the
support period.

        Licensing revenues relate to OEM arrangements. We recognize OEM license
fees, which include post-contract customer support, when the software has been
shipped to the customer, the fees are fixed and determinable and there is
evidence of the fair value of the post-contract customer support. When we do not
have sufficient evidence of fair value of post-contract customer support for our
OEM license arrangements, we recognize the revenues for these arrangements over
the support period.

        Service revenue is recognized ratably over the term of the contract as
the services are performed. To date, these amounts have not been significant.


NET LOSS PER SHARE

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

        The following table presents the calculation of basic and diluted net
loss per share (in thousands, except per share data):




<TABLE>
<CAPTION>
                                                                     Three months ended                  Nine months ended
                                                                        September 30,                      September 30,
                                                                   -------------------------         -------------------------
                                                                     2000             1999             2000             1999
                                                                   --------         --------         --------         --------
<S>                                                                <C>              <C>              <C>              <C>
Numerator:
     Net loss                                                      $ (1,141)        $ (2,926)        $ (3,164)        $ (8,649)
                                                                   --------         --------         --------         --------
Denominator:
     Basic and diluted:
        Weighted-average shares of common stock outstanding          27,674           21,632           27,049           13,786
        Less: weighted-average shares subject to repurchase            (426)          (1,430)            (426)          (1,781)
                                                                   --------         --------         --------         --------
        Weighted-average shares used in computing basic
           and diluted net loss per share                            27,248           20,202           26,623           12,005
                                                                   --------         --------         --------         --------
     Basic and diluted net loss per share                          $  (0.04)        $  (0.14)        $  (0.12)        $  (0.72)
                                                                   --------         --------         --------         --------
</TABLE>


        The following potential common shares have been excluded from the
computation of diluted net loss per share for all periods presented because the
effect would have been antidilutive (in thousands):


<TABLE>
<CAPTION>
                                                           September 30,
                                                        -------------------
                                                         2000         1999
                                                        ------       ------
<S>                                                     <C>          <C>
Shares issuable under stock options                     3,635        2,845
Shares of unvested stock subject to repurchase            426        1,274
Shares issuable pursuant to warrants to purchase
  common stock                                             45          201
</TABLE>

        The weighted average exercise price of outstanding stock options was
$17.89 and $3.96 as of September 30, 2000 and 1999, respectively. The weighted
average purchase price of unvested stock was $0.54 and $0.50 as of September 30,
2000 and 1999, respectively. The weighted average exercise price of the warrants
was $3.58 and $3.07 as of September 30, 2000 and 1999, respectively.


<PAGE>   8

COMPREHENSIVE LOSS

        SFAS No. 130 Reporting Comprehensive Income establishes standards of
reporting and disclosure of comprehensive income and its components of net
income and other comprehensive income. Accumulated other comprehensive income
refers to revenues, expenses, gains and losses that are not included in net
income but rather are recorded directly in stockholders' equity. Other
comprehensive loss consists of net unrealized loss on the change in the fair
value of available-for-sale securities. Comprehensive loss for the three and
nine months ended September 30, 2000 and 1999 was as follows (in thousands):



<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED           NINE MONTHS ENDED
                                         SEPTEMBER 30,                 SEPTEMBER 30,
                                     ---------------------         ---------------------
                                      2000           1999           2000           1999
                                     ------         ------         ------         ------
<S>                                  <C>            <C>            <C>            <C>
Net Loss                             (1,141)        (2,926)        (3,164)        (8,649)
Unrealized gain on securities            80             --             55             --
                                     ------         ------         ------         ------
Comprehensive loss                   (1,061)        (2,926)        (3,109)        (8,649)
                                     ======         ======         ======         ======
</TABLE>

        Tax effects of components of other comprehensive loss are not considered
material. The components of accumulated other comprehensive loss were as follows
(in thousands):




<TABLE>
<CAPTION>
                                       SEPTEMBER 30,  DECEMBER 31,
                                           2000           1999
                                       -------------  ------------
<S>                                    <C>            <C>
Unrealized loss on securities                (3)           (58)
                                            ---            ---
Accumulated other comprehensive loss         (3)           (58)
                                            ===            ===
</TABLE>

SEGMENT INFORMATION

        The Company's chief operating decision maker is considered to be
Packeteer's CEO. The CEO reviews financial information presented on a
consolidated basis substantially similar to the accompanying consolidated
financial statements. Therefore, Packeteer has concluded that it operates in one
segment and accordingly has provided only the required enterprise-wide
disclosures.

        For the nine months ended September 30, 2000, no single customer
accounted for more than 10% of revenues. Revenues from Intel Corporation
accounted for 12% of total net revenues in the three months ended September 30,
2000.

        Geographic Information



<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED           NINE MONTHS ENDED
                                         SEPTEMBER 30,               SEPTEMBER 30,
                                     --------------------        --------------------
                                      2000          1999          2000          1999
                                     ------        ------        ------        ------
<S>                                  <C>           <C>           <C>           <C>
Total net revenues:
     North America                    4,489         2,343        11,803         5,556
     Asia Pacific                     3,609         1,949         8,623         3,344
     Europe and rest of world         3,406           727         7,346         3,199
                                     ------        ------        ------        ------
     Total net revenues              11,504         5,019        27,772        12,099
                                     ======        ======        ======        ======
</TABLE>

<PAGE>   9


        The Company operates worldwide and derives its revenue from the sale of
products and source licenses. Total net revenues by geographic region reflect
the destination of the product shipped.

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133, as amended by SFAS No. 137, establishes accounting and reporting
standards for derivative financial instruments and hedging activities related to
those instruments, as well as other hedging activities. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the Company expects that the adoption of SFAS No. 133, as amended,
will not have a material impact on its consolidated financial position, results
of operations, or cash flows. The Company will be required to adopt SFAS No. 133
in fiscal 2001.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements", which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. In June 2000,
the SEC issued SAB 101B which deferred the effective date of SAB 101 until the
last quarter of fiscal years beginning after December 15, 1999. The Company is
currently reviewing the impact of SAB 101 on its consolidated financial position
or results of operations.

NOTE 4. ACQUISITIONS

On September 13, 2000 Packeteer completed the acquisition of Workfire
Technologies International, Inc. ("Workfire") for a total purchase price of
$71.4 million in a transaction accounted for as a purchase. Workfire develops
software that delivers extended internet services to internet users. Packeteer
exchanged 1,836,517 shares of Packeteer common stock with a fair value of $64.3
million for all of the outstanding stock of Workfire. A total of 213,445 shares
of stock were placed in an escrow account to secure and collateralize the
indemnification obligations of Workfire shareholders to Packeteer. Packeteer
also assumed all of the outstanding stock options of Workfire with a fair value
of approximately $5.1 million. The options were valued using the Black Scholes
option pricing model with the following assumptions: no dividends; 110%
volatility; 4.5 years expected life; 6.1% for the risk-free interest rate. In
addition, Packeteer paid certain liabilities of Workfire.com, who was the
shareholder of Workfire, having an aggregate value of $380,000. There were also
$1.5 million of direct transaction costs consisting primarily of professional
fees related to this transaction.

The acquisition was accounted for under the purchase method of accounting in
accordance with APB Opinion No. 16. Under the purchase method of accounting, the
purchase price is allocated to the assets acquired and liabilities assumed based
on their estimated fair values. The results of operations for Workfire has been
included with the Company's results since September 13, 2000.

NOTE 5. SUBSEQUENT EVENT

On October 31, 2000 Packeteer signed an operating lease with WTA Piercy, LLC for
a twelve year period with monthly payments in the amount of $273,00 for the
first twelve months.  A deposit in the amount of $420,000 was paid to secure the
lease.


<PAGE>   10

The book value of tangible assets and liabilities acquired are assumed to
approximate fair value. The goodwill and other intangible assets will be
amortized on a straight-line basis over three years. Intrinsic value of unvested
employee options assumed in the acquisition was calculated as of the
consummation date and allocated to deferred stock compensation which will be
amortized over the remaining vesting period of approximately 3 years.

The total purchase price paid for the acquisitions is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
<S>                                                                  <C>
Common stock ..................................................      $64,326
Fair value of options assumed .................................        5,135
Cash consideration.............................................          380
Estimated transaction costs ...................................        1,530
                                                                     -------
      Total purchase price ....................................      $71,371
                                                                     =======
</TABLE>

The preliminary allocation of the purchase price is presented below (in
thousands):


<TABLE>
<CAPTION>
<S>                                                                  <C>
Book value of net tangible assets of Workfire .................      $(1,613)
Deferred compensation .........................................        1,097
Developed and core technology .................................        5,620
Assembled workforce ...........................................          220
Goodwill ......................................................       66,047
                                                                     -------
      Net assets acquired .....................................      $71,371
                                                                     =======
</TABLE>

The following summary, prepared on an unaudited pro forma basis, reflects the
condensed consolidated results of operations for the three and nine month
periods ended September 30, 2000 and 1999 assuming Packeteer and Workfire had
been combined on January 1, 1999 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED              NINE MONTHS ENDED
                                                           SEPTEMBER 30,                  SEPTEMBER 30,
                                                      -----------------------         -----------------------
                                                        2000            1999            2000            1999
                                                      -------         -------         -------         -------
<S>                                                   <C>             <C>             <C>             <C>
Revenues                                               11,504           5,019          27,772          12,099
Net loss attributable to common stockholders           (1,483)         (3,099)         (4,194)         (9,178)
Basic and diluted net loss per share                    (0.06)          (0.14)          (0.16)          (0.66)
Shares used in pro forma per share computation         26,901          22,039          26,507          13,842
</TABLE>



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

        The following discussion should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this report. Except for historical information, the discussion in this report
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of a number of factors, including the
risks described in the section titled "Factors that may affect future results"
set forth below.

OVERVIEW

        Packeteer is a leading provider of Internet application infrastructure
systems designed to enable businesses and service providers to ensure the
quality of experience for networked applications and application services.
Packeteer's advanced PacketWise software, the foundation of the Company's
innovative PacketShaper and AppVantage systems, integrates application
discovery, analysis, control and reporting technologies that are required for
proactive application performance and bandwidth management. The AppCelera(TM)
family of Internet acceleration appliances employs SSL acceleration and advanced
content compression, transformation and caching technologies to significantly
improve response times of mission critical enterprise, eBusiness and eCommerce
web applications.

        Packeteer's products are deployed today by leading companies and service
providers through an established network of more than 100 VARs, distributors,

<PAGE>   11


system-integrators and OEMs in more than 50 countries. In addition, PacketWise
software is licensed by major communications industry partners who integrate the
software into specific strategic networking solutions. We use indirect channels
to leverage the reach of our sales force to obtain worldwide coverage. Our sales
force and marketing efforts are used to develop brand awareness and support our
indirect channels. We have subsidiaries in Hong Kong, Japan, The Netherlands,
United Kingdom, Australia, Canada and Cayman Islands.

        We were incorporated in January 1996. From our inception through January
1997, our operating activities related primarily to establishing a research and
development organization, developing and testing prototype designs, establishing
a sales and marketing organization and developing customer, vendor and
manufacturing relationships. We shipped our first product, the PacketShaper
2000, 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
began shipments of the PacketShaper 1000 and 4000 in October 1997. In April
2000, we began to ship the AppVantage line of products, the PacketShaper 1500,
the PacketShaper 2500 and the PacketShaper 4500. Since inception, we have
incurred significant losses and as of September 30, 2000, had an accumulated
deficit of $30.0 million.

        In order to further the growth of our business, we sold 4.6 million
shares of common stock in our initial public offering on July 28, 1999, which
raised approximately $62.6 million net of fees and expenses.

        We have a limited operating history. We have not achieved profitability
on a quarterly or annual basis and we anticipate that we will incur net losses
for at least the next several quarters. 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
achieve and maintain profitability.


RESULTS OF OPERATIONS

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



<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED          NINE MONTHS ENDED
                                              SEPTEMBER 30,              SEPTEMBER 30,
                                           ------------------          ------------------
                                           2000          1999          2000          1999
                                           ----          ----          ----          ----
<S>                                        <C>           <C>           <C>           <C>
Net revenues:
  Product revenues                           96%           92%           96%           90%
  Licensing revenues                          4             8             4            10
                                           ----          ----          ----          ----
       Total net revenues                   100           100           100           100
Cost of revenues                             31            29            31            28
Amortization of acquired technology           1            --            --            --
                                           ----          ----          ----          ----
Gross margin                                 68            71            69            72
Operating expenses:
  Research and development                   19            30            21            31
  Sales and marketing                        45            74            48            77
  General and administrative                 11            16            13            16
  Stock-based compensation                    3            13             4            20
  Amortization of intangibles                 8            --             3            --
                                           ----          ----          ----          ----
       Total operating expenses              86           133            89           144
                                           ----          ----          ----          ----
Net loss from operations                    (18)          (62)          (20)          (72)
Other income, net                             8             4             9             1
                                           ----          ----          ----          ----
Net loss                                    (10)%         (58)%         (11)%         (71)%
                                           ====          ====          ====          ====
</TABLE>

<PAGE>   12

Total net revenues

        Our total net revenues consist primarily of product sales and, to a
lesser extent, licensing fees from OEM partners. Our product revenues consist of
sales of our PacketShaper and AppVantage lines of products. We recognize product
revenues, with provision made for estimated returns, after the following events
have occurred: the customer issues a noncancelable purchase order; a product has
been shipped to the customer; and collection of the sales price is probable.
Maintenance revenue is deferred and amortized over the period of the contract.
Service revenue is recognized as the services are performed. Maintenance and
service revenues to date have not been significant. We routinely analyze and
provide, as necessary, reserves at the time of shipment for product returns and
allowances. We have estimated these reserves based on our experience and other
available information since we began shipping. These amounts have not been
significant to date. Our licensing revenues currently consist of licensing and
maintenance fees, and royalty payments from unit sales of OEM products that
incorporate our technology. We recognize OEM license fees, which include
post-contract customer support, when the software has been shipped to the
customer, the fees are fixed and determinable and there is evidence of the fair
value of the post-contract customer support. When we do not have sufficient
evidence of fair value of post-contract customer support for our OEM license
arrangements, we recognize the revenues for these arrangements over the support
period. OEM license maintenance fees are recognized over the support period.

        Total net revenues increased to $11.5 million in the three months ended
September 30, 2000 from $5.0 million in the same quarter in the prior year, a
year-over-year increase of 129%. Total net revenues for the nine months ended
September 30, 2000 increased to $27.8 million from $12.1 million for the nine
months ended September 30, 1999, an increase of 130%. Product revenues increased
to $11.1 million in the three months ended September 30, 2000 from $4.6 million
in the same quarter in the prior year, a year-over-year increase of 141%.
Product revenues for the nine months ended September 30, 2000 increased to $26.6
million from $10.9 million for the nine months ended September 30, 1999, an
increase of 143%. The increase in product revenues in each of the comparative
periods was a result of increasing unit sales. Licensing revenues for the nine
months ended September 30, 2000 includes $798,000 of minimum royalty payments
received from our OEM partners.

        During the nine months ended September 30, 2000, no one customer
accounted for more than 10% of total net revenues. Sales to the top 10 indirect
channel partners accounted for 38.2% and 42.8% of total net revenues for the
nine months ended September 30, 2000 and September 30, 1999, respectively.

Cost of revenues

        Our cost of revenues consists primarily of the cost of finished products
purchased from our turnkey manufacturer, documentation and other overhead costs.
We outsource the manufacturing of the Packetshaper 1500, Packetshaper 2500,
Packetshaper 4500 and the AppVantage line of products to SMTC Manufacturing
Corporation. Our cost of revenue increased to $3.5 million in the three months
ended September 30, 2000 from $1.4 million in the three months ended September
30, 1999, an increase of 146%. Our cost of revenues increased to $8.6 million in
the nine months ended September 30, 2000 from $3.4 million in the nine months
ended September 30, 1999, an increase of 157%. The cost of revenues represented
31% and 28% of total net revenues during the nine months ended September 30,
2000 and September 30, 1999,respectively. The percentage increase from September
30, 1999 was due to increases in manufacturing and overhead costs.

Amortization of acquired technology

<PAGE>   13

        Amortization of acquired technology relates to the acquired technologies
of Workfire Technologies International, Inc. ("Workfire"). The amortization of
acquired technology was $78,000 for the three months and nine months ended
September 30, 2000. The amortization of acquired technology represented less
than 1% of revenues during the three month period ended September 30, 2000.


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
AppVantage lines of products and PacketWise software. Research and development
expenses increased to $2.3 million for the three months ended September 30, 2000
from $1.5 million for the three months ended September 30, 1999, an increase of
50%. For the nine months ended September 30, 2000, research and development
expenses increased to $6.0 million from $3.7 million for the nine months ended
September 30, 1999, an increase of 61%. The increase in research and development
expenses for the nine months ended September 30, 2000 was due to increases in
personnel, consulting and related overhead costs. Research and development
expenses represented 21% and 31% of total net revenues for the nine months ended
September 30, 2000 and September 30, 1999, respectively. The percentage decrease
from September 30, 1999 was primarily due to increased total net revenues.

        During the nine months ended September 30, 2000, 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
product and cost reduction objectives. We expect these absolute dollar expenses
to increase in the future as we continue to develop new products and enhance
existing products.

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
the product as well as related trade show, promotional and public relations
expenses. Sales and marketing expenses increased to $5.2 million in the quarter
ended September 30, 2000 from $3.7 million in the year-ago quarter and increased
to $13.2 million in the first nine months of 2000 from $9.4 million in the first
nine months of 1999. The increase reflects the hiring of additional personnel in
connection with building our sales force, channel and increased marketing
activities. Sales and marketing expenses represented 48% and 77% of total net
revenues for the nine months ended September 30, 2000 and September 30, 1999,
respectively. The percentage decrease from September 30, 1999 was primarily due
to increased total net revenues. We intend to pursue sales and marketing
campaigns aggressively and therefore expect our absolute dollar expenses to
increase in the future.


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. General and administrative expenses increased
to $1.2 million for the three months ended September 30, 2000 from $805,000 for
the three months ended September 30, 1999, an increase of 54%. General and
administrative expenses increased to $3.5 million for the nine months ended
September 30, 2000 from $1.9 million for the nine months ended September 30,
1999, an increase of 80%. General and administrative expenses represented 13%
and 16% of total net revenues for the nine months ended September 30, 2000 and
September 30, 1999, respectively. The percentage decrease from September 30,
1999 was primarily due to increased total net revenues. As we continue to add
personnel and incur additional costs related to the growth of our business, we
expect our absolute dollar expenses to increase in the future.


Stock-based compensation

<PAGE>   14

        Amortization of stock-based compensation resulted from the granting of
stock options to employees with exercise prices per share determined to be below
the deemed fair value per share of our common stock on the dates of grant for
financial reporting purposes. The stock-based compensation is being amortized to
expense 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 $1.1 million and $2.5 million in the nine months ended
September 30, 2000 and September 30, 1999, respectively, leaving $2.3 million to
be amortized in future periods.

Amortization of Goodwill

        Amortization of goodwill relating to our September 2000 acquisition of
Workfire aggregated $916,000 for the nine months ended September 30, 2000. In
connection with the Workfire acquisition, we recorded goodwill of approximately
$66.0 million, which is being amortized on a straight-line basis over a
three-year period. In addition, we may have additional acquisitions in future
periods which could give rise to additional goodwill being acquired. If we
acquire additional goodwill, our acquisition related amortization may increase
in future periods.

Other income (loss), net

        Other income (loss), net consists primarily of interest income on our
cash and investments offset by interest expense related to our line of credit,
debt and capital lease obligations. For the three months ended September 30,
2000, interest income was $1.1 million offset by interest expense of $126,000.
For the three months ended September 30, 1999, interest income was $608,000
offset by $415,000 in interest expense. For the nine months ended September 30,
2000, interest income was $3.0 million offset by interest expense of $464,000.
For the nine months ended September 30, 1999, interest income was $806,000
offset by $687,000 in interest expense. The increase in interest income relates
to increased interest income from our investments.



LIQUIDITY AND CAPITAL RESOURCES

        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, issuance of subordinated debt and capital equipment leasing. Cash,
cash equivalents and investments totaled $62.7 million at September 30, 2000, a
decrease of $2.2 million from September 30, 1999. The decrease was due to cash
used in operations. Cash used in operating activities for the nine months ended
September 30, 2000 and September 30, 1999 was approximately $1.6 million and
$6.0 million, respectively.

        Net cash provided by investing activities was $14.7 million for the nine
months ended September 30, 2000 and net cash used by investing activities was
$18.9 million for the nine months ended September 30, 1999. The increase in net
cash provided by investing activities is primarily due to the sale of
available-for-sale investments.

        Net cash provided by financing activities was $2.5 million and $67.0
million for the nine months ended September 30, 2000 and September 30, 1999,
respectively. The decrease in net cash provided by financing activities for the
nine months ended September 30, 1999 over the nine months ended September 30,
2000 is due to the proceeds raised from the issuance of common stock during the
1999 time period.

        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, as well as planned capital expenditures, will constitute a
partial use of our cash resources. In addition, we may utilize cash resources
for facilities expansion and to fund acquisitions or investments in
complementary businesses, technologies or products. We believe that our current
cash, cash equivalents, investments and cash generated from operations and
available borrowings under our credit facilities, will be sufficient to meet our
anticipated cash

<PAGE>   15


requirements for working capital and capital expenditures for at least the next
12 months.


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.

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 as an
early stage company 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 VARs,
               distributors, systems integrators and original equipment
               manufacturers, or OEMs; and

        -      expand our worldwide sales efforts.

WE HAVE A HISTORY OF LOSSES, EXPECT OUR EXPENDITURES TO INCREASE AND OUR LOSSES
TO CONTINUE, AND MAY NEVER ACHIEVE PROFITABILITY

         We have incurred losses since we commenced operations in 1996 and may
never achieve profitability. Furthermore, we currently expect that our operating
expenditures will continue to increase significantly and we may not generate a
sufficient level of revenues to offset these expenditures or be able to adjust
spending in a timely manner to respond to any unanticipated decline in revenues.
We incurred net losses of $5.9 million in 1997, $8.8 million in 1998, and $10.9
million in 1999. For the nine ended September 30, 2000 we incurred a loss of
$3.2 million and as of September 30, 2000 we had an accumulated deficit of $30
million. Although our revenues have grown in recent quarters, we cannot be
certain when or if we will realize sufficient revenues to achieve profitability.
If revenues grow slower than we anticipate or if operating expenditures exceed
our expectations or cannot be adjusted accordingly, we may continue to
experience significant losses on a quarterly and annual basis. Even if we
achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future.

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 significantly 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 mix of products we sell;

        -      the mix of channels through which those products are sold;

        -      the average selling prices of our products;


<PAGE>   16


        -      the timing and size of orders and shipments of our products;

        -      the amount and timing of revenues from OEMs; and

        -      the amount and timing of our operating expenses.

        In the past, we have experienced fluctuations in operating results. For
example, gross margin decreased from 69.6% for the six months ended December 31,
1997 to 61.8% for the six months ended June 30, 1998, primarily due to
variations in the mix of products sold and variations in channels through which
products were sold. Research and development expenses have fluctuated due to
increased prototype expenses and consulting fees related to the launch of new
products, increased personnel expenses and costs associated with a facilities
move. Sales and marketing expenses have fluctuated due to increased personnel
expenses and expenditures related to trade shows and the launch of new products.

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 expect to have
difficulties in predicting revenues from OEMs because we are unable to forecast
unit sales of their products which incorporate our technology. Sales from our
VARs and systems integrators to end users typically take three to four months to
complete. We are dependent on timely and accurate inventory information from our
indirect channel partners to enable us to establish channel inventory reserves
for indirect channel partners whose inventory exceeds normal stocking levels. If
this inventory information is not timely or accurate, we could experience
increased levels of sales returns or unforecasted fluctuations in future
revenue.

        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.

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

        The market for application traffic and bandwidth 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. The growth of the bandwidth management
solutions market also depends upon a number of factors, including the
availability of inexpensive bandwidth, especially in international markets, and
the growth of wide area networks.

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, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE

        We rely on an indirect distribution channel consisting of VARs,
distributors, systems integrators and OEMs for all of 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.



<PAGE>   17


        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 expand our
field sales and support staff significantly. 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.

DEVELOPING STRONG OEM RELATIONSHIPS WILL BE TIME AND RESOURCE INTENSIVE AND MAY
NOT RESULT IN THE SUCCESSFUL DEPLOYMENT OF OUR TECHNOLOGY AND PRODUCTS

        One aspect of our sales strategy is to develop relationships with OEM
partners that will license our PacketWise software and incorporate it into their
networking products. If we are not successful in entering into suitable OEM
relationships, our ability to successfully deploy our PacketWise software and
build brand awareness would be harmed. The development of OEM relationships
generally involves a considerable amount of management time and company
resources as potential OEM partners evaluate the viability of integrating our
technology. We cannot assure you that potential OEM partners will enter into
relationships with us after we have expended these efforts and costs. In
addition, even if we are successful in entering into OEM relationships, we
cannot assure you that our current or future OEM partners will be able to
integrate our technology into commercially viable products on a timely basis.
Furthermore, we cannot assure you that our OEM partners will give a high
priority to the marketing and sale of products that incorporate our technology
or that our OEM partners will not develop competitive products and decide to
terminate or minimize their relationships with us. The failure to build and
maintain successful OEM relationships would have a negative effect on the
deployment of our technology and products.

IF WE ARE NOT ABLE TO MAINTAIN CURRENT AND FUTURE OEM RELATIONSHIPS, OUR
BUSINESS WILL BE HARMED

        We may be unable to retain our current or future OEM partners.
Generally, OEM relationships can be terminated with little or no notice. Our OEM
agreements with ADC Telecommunications, Inc., Adtran, Inc., Skystream Networks,
Inc., and Intel Corporation are not exclusive and the initial terms range from
one to five years, with no obligation to renew their respective agreements with
us. We expect to enter into similar OEM relationships in the future. If our
relationship with any current or future OEM partner is terminated by either
party, we may not be successful in replacing such partner on a timely basis or
at all with another suitable OEM partner.

OUR RELIANCE ON OEM PARTNERS FOR THE SALE OF OUR PRODUCTS MAKES IT DIFFICULT
TO MANAGE AND FORECAST PRODUCTION AND DELIVERY SCHEDULES AND SALES EXPECTATIONS

        Our inability to forecast the level of orders from OEM partners may make
it difficult to schedule production, manage our contract manufacturers and
forecast sales. The level and timing of orders placed by OEM partners who
purchase hardware from us may vary due to many factors including OEM partners'
attempts to balance their inventories, changes in the OEM partners'
manufacturing strategies and variation in demand for their products. Due to
product life cycles and competitive and economic conditions, these OEM partners
generally do not commit to firm production schedules in advance. Anticipated
orders from our current or future OEM partners may not materialize or delivery
schedules may be deferred as a result of changes in customer's business needs.
These order fluctuations and deferrals will harm our business.


<PAGE>   18


PACKETEER'S PRODUCT LINES CURRENTLY CONSIST OF THE PACKETSHAPER, APPVANTAGE AND
APPCELERA SYSTEMS AND PACKETWISE SOFTWARE, AND ALL OF OUR CURRENT REVENUES AND A
SIGNIFICANT PORTION OF OUR FUTURE GROWTH DEPENDS ON THEIR COMMERCIAL SUCCESS

        All of our current revenues and a significant portion of our future
growth depends on the commercial success of our PacketShaper, AppVantage and
Appcelera lines of products and PacketWise software, which are the only products
that we currently offer. If our target customers do not widely adopt, purchase
and successfully deploy the PacketShaper, AppVantage and Appcelera lines of
products or PacketWise software, our revenues will not grow significantly.

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.

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.

        We do not have any long-term supply contracts to ensure sources of
supply. If our contract manufacturers fail 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 sole-sourced
or limited-sourced components, or to develop alternative sources for components
or products would harm our ability to grow our business.

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 54.7% of our total net revenues in 1998, 54.1% of our
total net revenues in 1999 and 57.5% of our total net revenues in the nine
months ended September 30, 2000. In particular, sales to customers in the Asia
Pacific region accounted for 31.0% of our total net revenues in 1998, 27.6% of
our total net revenues in 1999 and 31.0% of our total net revenues in the nine
months ended September 30, 2000. Our ability to grow will depend in part on the
expansion of international sales, which will require success on the part of our
VARs, distributors, systems integrators and OEMs 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 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.

<PAGE>   19


        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.

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 revenue 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. 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.

OUR ACQUISITION OF WORKFIRE MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND
MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS

        We may not realize the benefits from the acquisition of Workfire we
completed on September 13, 2000. We may not be able to successfully assimilate
the additional personnel, operations, acquired technology and products into our
business. In particular, we will need to assimilate and retain key engineering
personnel and professional consultants. This is particularly difficult because
Workfire's operations are located in Canada and we are headquartered in
California. Key personnel from Workfire may decide that they do not want to work
for us. In addition, we may wish to integrate Workfire products into our
products, and it is uncertain whether we may accomplish this easily or at all.
These difficulties could disrupt our ongoing business, distract management and
employees or increase expenses. Acquisitions are inherently risky and we may
also face unexpected costs, which may adversely affect operating results in any
quarter.

THE MERGER OF WORKFIRE INTO OUR COMPANY COULD ADVERSELY AFFECT OUR COMBINED
FINANCIAL RESULTS

        If the benefits of the merger of Workfire into our company do not exceed
the costs of the merger, including dilution to our stockholders resulting from
the issuance of shares in connection with the merger, our financial results,
including earnings per share, could be adversely affected. We are not certain
that we will be able to achieve our financial estimates if the anticipated
revenue from the sale of products containing technology or other intellectual
property acquired in the merger is not realized. In addition we have recorded
goodwill and intangible assets of approximately $71.2 million in connection with
the merger, which will be amortized over a period of three years.

THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE AS A RESULT OF THE MERGER OF
WORKFIRE INTO OUR COMPANY

        The market price of our common stock may decline as a result of the
merger if:

        -   the integration of our company and Workfire is unsuccessful;

        -   we do not achieve the perceived benefits of the merger as rapidly or
            to the extent anticipated by the financial or industry analysts or
            investors; or


<PAGE>   20

        -   the effect of the merger on our financial results is not consistent
            with the expectations of financial or industry analysts or
            investors.

        The market price of our common stock could also decline as a result of
factors related to the merger which may currently be unforeseen. A decline in
the market price of our common stock could materially and adversely affect our
operating results.

ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION, UNFAVORABLE ACCOUNTING
CHARGES 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.

        We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, acquisitions could harm our operating
results by diluting our stockholders' equity and requiring us to amortize
acquisition expenses and acquired assets. Further, potential acquisitions could
cause us to incur additional debt.

        Finally, recent and proposed changes by the Financial Accounting
Standards Board (FASB) and the SEC in the rules for merger accounting may affect
our ability to make acquisitions or be acquired. For example, elimination of the
"pooling" method of accounting for mergers increases the amount of goodwill that
we would be required to recognize if we acquire another company, which would
have an adverse financial impact on our future net loss or net income.

COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND 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.
Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber key personnel. We have recently
expanded our sales force, and we are actively searching for systems engineers,
research and development engineers and sales and marketing personnel, all of
whom are in short supply. We currently have a small indirect channel partner and
end-user service and support organization and will need to increase our staff to
support new indirect channel partners and end users and the expanding needs of
existing indirect channel partners and end users. Additionally, we rely on
qualified systems engineers and service and support personnel to provide pre-and
post-sales technical support for our products. Competition for qualified
personnel in the networking industry, including systems 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. Our business will suffer if
we encounter delays in hiring these additional personnel.

        Competitors and others have in the past and may in the future attempt to
recruit our employees. We do not have employment contracts with any of our
personnel. The loss of the services of any of our senior management could
negatively impact our ability to carry out our business plan.

<PAGE>   21

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 new, 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 which utilize competing technologies to provide bandwidth management.
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 bandwidth management solutions.

        Many 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 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 bandwidth management solutions market, we also expect that
other companies may 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 application
traffic and bandwidth 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 technology, 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;



<PAGE>   22

        -      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 THE DEMAND FOR OUR PRODUCTS

        We have rapidly and significantly expanded our operations and anticipate
that further significant expansion will be 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 installation and use of our products requires
training. If we are unable to provide training and support for our products, 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.

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.

OUR RELIANCE ON SMTC CORPORATION FOR ALL OF OUR MANUFACTURING REQUIREMENTS COULD
CAUSE US TO LOSE ORDERS IF THESE THIRD PARTY MANUFACTURERS FAIL TO SATISFY OUR
COST, QUALITY AND DELIVERY REQUIREMENTS

        We currently contract with SMTC Corporation, for the manufacture of all
of our current products. Any manufacturing disruption could impair our ability
to fulfill orders. Our future success will depend, in significant part, on our
ability to have 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;

        -      manufacturing yields and costs;

        -      quality assurance; and

        -      increases in prices and the potential misappropriation of our
               intellectual property.


<PAGE>   23


        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 manufacturers or that
these manufacturers 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.

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 between the WAN access router and the
enterprise local area network, or LAN, they can directly affect the
functionality of the network. We have in the past encountered errors in our
products, which in a few instances resulted in complete network failures. 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 and confidentiality provisions and
other contractual provisions to protect our proprietary rights. These measures
afford only limited protection. We currently have five issued U.S. patents, one
published patent, and eight pending patent applications including one for which
we have received a notice of allowance. 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


<PAGE>   24


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
bandwidth 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 Internet application infrastructure systems 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 may be required to comply with
standards established by telecommunications authorities in various countries 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. 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
and available line of credit 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.
Any future acquisitions 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.

OUR EXECUTIVE OFFICERS AND DIRECTORS WILL BE ABLE TO CONTROL ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL INCLUDING DELAYING OR PREVENTING A CHANGE IN OUR
CORPORATE CONTROL

        Our executive officers and directors and their affiliates together
control approximately 24.9% of the outstanding common stock as of October 31,
2000. As a result, these stockholders, if they act together, may be able to
control all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying, preventing or deterring a change
in control of Packeteer, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of Packeteer and
might affect the market price of our common stock.


<PAGE>   25


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

Fixed Income Investments

        Our general policy is to limit the risk of principal loss and ensure the
safety of invested funds by limiting market and credit risk. Our exposure to
market risks for changes in interest rates relate primarily to the Company's
investment portfolio. The Company's investment portfolio primarily consists of
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. We do not
expect any material loss with respect to our investment portfolio.

        All highly liquid investments with less than three months to maturity
are considered to be cash equivalents. Investments with maturities between three
and twelve months are considered to be short-term investments. Investments with
maturities in excess of twelve months are considered to be long-term
investments. The following table presents the amounts of cash equivalents and
investments that are subject to market risk by range of expected maturity and
weighted average interest rates.



<TABLE>
<CAPTION>
                                                        SEPTEMBER 30, 2000         DECEMBER 31, 1999
                                                      -----------------------    ----------------------
                                                                    WEIGHTED-                  WEIGHTED-
                                                                     AVERAGE                    AVERAGE
                                                      CARRYING      INTEREST     CARRYING      INTEREST
                                                       AMOUNT         RATE        AMOUNT         RATE
                                                      --------      ---------    --------      --------
<S>                                                   <C>           <C>          <C>           <C>
Cash Equivalents:
Commercial paper, market auction preferred
  and corporate notes and bonds                        $32,184        6.55%        $17,727        6.20%
Short-term investments:
Corporate notes and bonds and medium-term notes         21,153        7.09%         37,918        5.91%
Long-term investments:
Corporate notes and bonds and medium-term notes          6,244        7.27%          7,686        6.56%
                                                       -------                     -------
 Total investment securities                           $59,581        6.81%        $63,331        6.07%
                                                       =======                     =======
</TABLE>


Foreign Exchange

        We develop products in the United States and sell in North America,
Asia, Europe and in 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 foreign markets. All sales are currently made in
U.S. dollars; thus, 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 hedging arrangements.

PART II OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds


<PAGE>   26


        (c) During the quarter, the Company issued an aggregate of approximately
1.8 million shares of its common stock in exchange for the outstanding capital
stock of Workfire Technologies International, Inc. The shares were issued
pursuant to an exemption provided by Section 3(a)(10) of the Securities Act of
1933, as amended. The terms and conditions of such issuance were approved after
a hearing upon the fairness of such terms and conditions by a government
authority expressly authorized by the law to grant such approval.

        (d) Use of Proceeds from Sales of Registered Securities. Packeteer
commenced its initial public offering ("IPO") on July 28, 1999 pursuant to a
Registration Statement on Form S-1 (File No. 333-79077). In the IPO, Packeteer
sold an aggregate of 4.6 million shares of common stock (including an over
allotment option of 600,000 shares) at $15.00 per share.

        The sale of the shares of common stock generated aggregate gross
proceeds of approximately $69.0 million. The aggregate net proceeds were
approximately $62.6 million, after deducting underwriting discounts and
commissions of approximately $4.8 million and expenses of the offering of
approximately $1.6 million. Of the net proceeds, Packeteer has used $5.0 million
to repay two notes separate notes payable of $2.5 million each and has used $1.8
million in connection with the acquisition of Workfire. The remaining $55.1
million of the net proceeds are expected to be used for general corporate
purposes, including working capital, product development and capital
expenditures. The amounts actually expended for such purposes may vary
significantly and will depend on a number of factors described under "Factors
That May Affect Future Results". A portion of the net proceeds may also be used
to acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies, however, Packeteer has no agreements or
commitments with respect to any such acquisition or investments and we are not
currently engaged in any material negotiations with respect to any such
transaction. Pending such uses, the net proceeds of the IPO have been invested
in short and long-term, interest bearing, investment grade securities. None of
Packeteer's net proceeds of the IPO were paid directly or indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10% or more of any class of equity securities of Packeteer, or an
affiliate of Packeteer.


Item 6. Exhibits and Reports on Form 8-K

        a. Exhibits

<TABLE>
<CAPTION>
        Exhibit
        Number             Description
        --------           -----------
<S>                 <C>
        10.18       Lease Agreement between Packeteer and WTA Piercy LLC dated
                    October 30, 2000
        27.1        Financial Data Schedule
</TABLE>



        b. Reports on Form 8-K

            The Company filed one report on Form 8-K during the quarter ended
September 30, 2000 to announce the completion of the acquisition of Workfire
Technologies International, Inc.


                                    Signature


            Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized and in the capacity
indicated.

                                   PACKETEER, INC.


November 13, 2000                  /s/ DAVID C. YNTEMA
                                   --------------------------------------
                                   David C. Yntema
                                   Chief Financial Officer
                                   (Duly authorised Officer and Principal
                                   Financial and Accounting Officer)
<PAGE>   27


                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
  Number                      Exhibit Description
  ------                      -------------------
<S>               <C>
   10.18          Lease Agreement between Packeteer and WTA Piercy LLC dated
                  October 30, 2000
   27.1           Financial Data Schedule (Filed Electronically)
</TABLE>