UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
     For the fiscal year ended December 31, 2000
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
     For the transition period from _____ to _____ .

Commission File Number: 000-26130

                                  RESONATE INC.
             (Exact name of registrant as specified in its charter)

DELAWARE                                                            94-3228496
(State of incorporation)                                      (I.R.S. Employer
                                                           Identification No.)
                             385 MOFFETT PARK DRIVE
                           SUNNYVALE, CALIFORNIA 94089
                    (Address of principal executive offices)

                                 (408) 548-5500
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE
           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $0.0001 PAR VALUE
                              (Title of each class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 2, 2001 was approximately $39,463,603, based upon the
last sales price reported for such date on The Nasdaq Stock Market's National
Market. For purposes of this disclosure, shares of Common Stock held by persons
who hold more than 5% of the outstanding shares of Common Stock and shares of
Common Stock held by each officer and director of the registrant have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

     The number of shares outstanding of the registrant's Common Stock as of
March 2, 2001 was 27,555,113.


<PAGE>

                                  RESONATE INC.
                           ANNUAL REPORT ON FORM 10-K

                               FOR THE YEAR ENDED
                                DECEMBER 31, 2000

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                                                          <C>
PART I

Item 1.    Business.......................................................................................   3

Item 2.    Properties.....................................................................................  12

Item 3.    Legal Proceedings..............................................................................  12

Item 4.    Submission of Matters to a Vote of Security Holders............................................  12

Item 4a.   Executive Officers of the Registrant...........................................................  14

PART II

Item 5.    Market for  Registrant's Common Stock and Related Stockholder Matters..........................  15

Item 6.    Selected Consolidated Financial Data...........................................................  16

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..........  17

Item 7a.   Quantitative and Qualitative Disclosures About Market Risks....................................  34

Item 8.    Consolidated Financial Statements and Supplementary Data.......................................  35

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........  55

PART III

Item 10.   Directors and Executive Officers of the Registrant.............................................  56

Item 11.   Executive Compensation.........................................................................  57

Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................  62

Item 13.   Certain Relationships and Related Transactions.................................................  65

PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K.................................  67

SIGNATURES ...............................................................................................  70
</TABLE>




                                     Page 2
<PAGE>

                                     PART I


ITEM 1.  BUSINESS

OVERVIEW

     We develop and market a family of software products and services that
ensure high levels of availability and performance for Internet, intranet and
extranet applications. Examples of these types of eBusiness applications are
Internet-based customer relationship management, sales force automation, supply
chain management, self-service customer information, and product support.

     Our family of software products integrates network traffic management and
systems management functions to ensure reliable service and fast response times
and provide automated control of electronic business, or eBusiness,
applications. We call the collection of capabilities that our products provide
active service level management.

INDUSTRY BACKGROUND

     Companies worldwide are transforming the way they conduct business by using
the Internet and Internet-based technologies. The primary force driving
businesses to rapidly adopt these technologies is the need to become more
efficient, productive and competitive. Applications and services that use
Internet-based technologies, whether deployed across the Internet, intranets or
extranets, are commonly referred to as eBusiness applications and have become
critical to many companies' success. These applications are managing an
increasing portion of the interactions between a company and its customers,
suppliers, partners, employees and other parties.

     The availability, performance and response time of these applications are
critical since they directly impact the operational success of a company's
business. As a result, companies must invest heavily in personnel, training,
software and computer systems to ensure that they operate continuously and
respond quickly.

     The preferred method to deploy these new eBusiness applications is to use
groups of distributed independent server systems. Deploying eBusiness
applications across multiple server systems, however, significantly increases
the complexity of monitoring, managing and controlling these applications. The
scale and the complexity of eBusiness applications can substantially reduce the
performance, reliability and response time of these applications.

     With the increasing reliance on applications that use Internet-based
technologies and the growing complexity of these applications' infrastructure,
companies must address the following eBusiness application issues on an ongoing
basis:

 - Optimizing performance and minimizing response times.
 - Avoiding the cost of downtime and poor service levels.
 - Reducing the cost of administration and control.
 - Managing rapid growth and complexity

     Companies have employed a number of techniques to achieve a high level of
availability, performance, and scalability, as well as better management,
administration and control of their eBusiness applications. Some of these
techniques focus on external network performance issues. For example, Internet
caching technologies, as well as content delivery services, which store commonly
accessed data at a location separate from its source and closer to the
requester, are both popular techniques to improve content download times and
overall response time.

                                     Page 3
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     These techniques, however, do not address the challenges of executing
Internet-based transactions that usually require data be changed or modified in
real time. Over the past several years, software and hardware vendors have
attempted to address these challenges by using server load balancing and network
traffic management products in conjunction with systems management products.

     Companies are increasingly aware that the levels of application
availability and performance provided by server load balancing, traffic
management and systems management products do not adequately address the
increasing challenges of conducting eBusiness. Even if these products could
ensure that an application is available and responding to requests, they may not
be able to ensure that the application responds fast enough to satisfy users'
expectations or provide minimum response times. In addition, eBusiness
applications must be able to handle problems such as traffic surges,
intermittent delays or network service interruptions. These problems generally
occur without warning and have an immediate impact on availability and service
levels. These problems need to be detected, diagnosed and isolated quickly, and
corrective action often must take place within seconds to maintain an on-line
presence with acceptable response times. Even when these products are used
together there is generally no automated, integrated way to take corrective
action to restore service.

     Moreover, hardware-based products may introduce performance bottlenecks
because the processing power necessary for sophisticated traffic management
functions can consume all available processing capacity in these devices,
resulting in delays. In addition, some types of products themselves represent
new potential failure points, which can limit the effectiveness of these
products as high availability alternatives.

     In an attempt to address the limitations of existing products, some
companies have resorted to internally developed alternatives which attempt to
integrate traffic management and systems management products. Companies have
found that these products, even when used in combination, do not provide
effective solutions because they often are functionally incomplete, complex to
deploy and require expensive ongoing maintenance.

     As a result, we believe an opportunity exists for a software-based solution
that integrates network traffic management and systems management functions,
which together provide real-time monitoring, reporting and automated control of
eBusiness applications to ensure reliable service and fast response times. It
should also facilitate the administration and control of the distributed
computing environments that support these eBusiness applications to reduce costs
and simplify administrative overhead.

RESONATE SOLUTION

     Our solution is a suite of software products and services that integrate
network traffic management and system management functions as an active service
level management platform. It is specifically designed to:

 - Intelligently distribute requests to the server system that is best
   suited to respond thus avoiding hardware and software failures and slow
   response times

 - Continuously monitor the health and performance of the network, systems
   and applications to quickly detect network and systems failures

 - Automatically adjust the computing environment so that applications and
   services respond quickly

 - Simplify the administration and control of the distributed computing
   environments that support these applications to reduce costs





                                     Page 4
<PAGE>

      Our products provide high availability and scalable performance for
eBusiness applications and facilitate cost-effective growth while simplifying
the administration and control of these complex applications. We believe that
our active service level management platform is well suited to meet the
distinctive requirements of Internet-based applications because our products are
feature-rich, flexible, scalable and fault tolerant. These products are based
upon a distributed software architecture that is consistent with the
multi-server deployment environment of typical Internet-based applications.

     Benefits of Our Platform

     We believe our platform provides the following key benefits:

     SUPERIOR AVAILABILITY, PERFORMANCE AND AUTOMATED CORRECTIVE ACTION

     Our products feature server-resident software modules, commonly referred to
as agents, that act as distributed monitoring and control points. These agents
collectively deliver traffic management functions which enable multiple server
systems to act as a single scalable, reliable computing platform. Our traffic
management features allow our products to automatically route traffic to the
best available server based on specified criteria, such as traffic type, server
capacity or response time. Using our products, companies can also define and
deliver differentiated classes of service, ensuring the appropriate allocation
of server resources. For example, high priority visitors can be given access to
faster responding application resources, while lower priority visitors can be
directed to slower responding resources. Our adaptive platform automatically
adjusts in response to changing infrastructure conditions. For example, a
failing server can be automatically detected, and application traffic to that
server can subsequently be rerouted to other performing servers to maintain
service levels.

     REDUCED COSTS AND IMPROVED RETURN ON INVESTMENT

     Our active service level management products are designed to reduce costs
for companies by enabling them to more efficiently utilize their network
infrastructure and server system resources. For example, companies that use even
a single server to run several applications can use our products to reduce the
risk that one application will consume all of the available computing resources
and thereby degrade the response time for the other application. Our product's
traffic management, problem avoidance and service restoration features reduce
the need for human monitoring and intervention, thereby lowering administrative
and maintenance costs for our customers. In addition, our platform increases
resource capacity utilization, reducing the need to invest in additional network
and server systems while increasing return on investment of existing resources.

     Since our software runs on a variety of operating systems and server
configurations it may be deployed on the most cost-effective systems to further
reduce implementation costs.

     INTEGRATED MONITORING, MANAGEMENT AND SERVICE LEVEL CONTROL CAPABILITIES

     Our products provide companies with a consolidated, detailed view of their
infrastructure, allowing them to monitor, manage and control response times and
service levels from a single console. Our products automatically implement
customer-defined configuration changes and enable companies to generate real-
time and historical performance reports, reconfigure system options, add or
remove infrastructure resources, and conduct maintenance and repairs from a
single point of administration. We offer a fully integrated active service level
management platform that incorporates real-time feedback of system status and
health to provide automated, self-adjusting problem avoidance and service
restoration.

     Advantages of Software Platform

     We believe that our software platform, compared to single-purpose
hardware-based alternatives, provides distinct advantages, the most significant
of which are highlighted below.




                                     Page 5
<PAGE>

     FLEXIBILITY

     Our software-based platform offers our customers a high degree of
flexibility and can be deployed within our customers' existing networking and
server systems infrastructure typically without any changes to their physical
networks. To address their growing requirements, our customers can easily add
functionality or features provided by the most recent enhancement of our
products by simply deploying the latest version of our software. In contrast,
for customers to benefit from new functionality or features with a hardware
alternative, they must go to the expensive and time-consuming task of removing
old hardware from various locations and installing new equipment. Moreover, our
software can be typically installed on our customers' existing distributed
server systems regardless of existing network architecture, while hardware
products generally require a device to be physically installed at each location.

     Our platform's rich feature set also gives companies the flexibility to
implement and modify a broad range of active service level management
capabilities, when and as they choose. In contrast, configurations of hardware
products are generally more limited and are often constrained by the underlying
hardware capability, and therefore, lack the flexibility to meet businesses
different or changing needs.

     Our platform supports a broad range of computer hardware and operating
systems, such as Solaris, Windows NT, AIX, Linux and HP/UX for eBusiness
applications ranging from small to very large capacity. This flexibility allows
our customers to choose the operating system or combinations of operating
systems best suited for their needs.

     PERFORMANCE SCALABILITY

     The computing requirements to run our software products are distributed
across a company's available computing resources. Companies benefit from this
distributed architecture when they add new server systems to an eBusiness
application to accommodate growing request volume. When new systems are added,
the computing processing capacity grows accordingly. In contrast, hardware-based
products, whose computing processing capacity remains constant, can introduce
delays when a hardware device reaches its processing capacity limit.

     The benefit of the distributed processing approach becomes more important
as traffic management processing requirements grow. These requirements are
growing rapidly in response to both the increase in request volume to eBusiness
applications and the increasing complexity of processing each request. The
combined effect of these increases can quickly overcome the capacity of any
individual hardware-based traffic management device.

     VISIBILITY AND CONTROL

     Our distributed software platform features agents, which provide local
monitoring of the health and load of the hardware and software components of our
customers' overall systems. Immediate feedback from these agents enables our
customers to have a detailed view of the overall health of their infrastructure.
Because these agents also provide points of direct control, our products can
launch applications or services on back-up servers in response to increased site
load or other problems.

     As a distributed, modular, active service level management platform,
components of our software may be deployed independently and across multiple
systems. Our platform's remote management capability allows our customers to
configure, manage and control our distributed software components from a
centralized location.


PRODUCTS AND SERVICES

     Our solution is a suite of software products and services. The products
that make up our active service level management platform are Central Dispatch,
Commander, Global Dispatch, the Enterprise Services Console and 360(degree)
Services. Dispatch SLB-Now! is our entry-level server load balancing product


                                     Page 6
<PAGE>

that we make available for free over the Internet. Our products are open,
software solutions that support industry standard computing platforms and
operating systems including Solaris, Windows NT, AIX, Linux and HP/UX.

     CENTRAL DISPATCH

     Central Dispatch is a software traffic management solution for high
traffic, eBusiness applications where high levels of availability and
predictable performance are business critical. Central Dispatch's distributed
software architecture enables multiple server systems to act as a single,
scalable, reliable and easily managed server system. Central Dispatch is more
than a server load balancing product because it allows for precise, real-time
control of incoming traffic by intelligently routing requests to the server
system best suited to respond. Central Dispatch can be quickly deployed into a
customer's existing infrastructure, typically without altering the physical
network architecture, for immediate improvements in the performance and
availability of eBusiness applications.

     Central Dispatch enables server systems to be accessed through a single
Internet Protocol address, or IP address. Since this IP address represents all
of the server systems, users making requests for server resources at this IP
address appear to be accessing a single, scalable, highly available server
system. This allows content and applications to be replicated on multiple server
systems for the highest availability, or segregated by type or by subject to
maximize performance. The software-based architecture of Central Dispatch can
accommodate new server system additions to achieve higher performance or to
maintain performance levels as request volume increases. Since each server
system in the Central Dispatch configuration can perform the request
distribution function, Central Dispatch avoids introducing new potential failure
points and provides high availability to eBusiness applications.

     Central Dispatch performs automatic, real-time distribution of incoming
requests to available server system resources based on both server load and
server health. In addition, by defining distinct priority levels for different
users' requests and setting capacity thresholds, our customers' computer system
administrators can use Central Dispatch to allocate or reserve server system
capacity so that targeted service levels are more likely to be maintained.

     Our workload distribution technique enables Central Dispatch to avoid
bottlenecks by enabling any server to return responses directly to the
requester, which eliminates the need for a single server system to process both
incoming and outgoing data. This avoids the potential bottleneck that may occur
when an eBusiness application gets overloaded by requests.

     COMMANDER

     Commander is a software product that provides automated service level
control for complex eBusiness applications. It provides resource monitoring,
rapid problem diagnosis and isolation, and automated corrective response at the
web server, application server and database server levels of the infrastructure.
Commander integrates the key elements of traffic management and systems
management to enable automated real-time control of service levels.

     Commander is used to establish and enforce service management rules that
strive to maintain service levels within target ranges. When these rules are
automatically enforced, they relieve our customers' computer system
administrators of ongoing routine tasks such as continual site observation and
manual performance tuning. Commander can capture the information gathered by its
own software agents, Central Dispatch, Global Dispatch, as well as third party
monitoring products, and can take action based on that information. Commander's
testing, statistics and automated configuration adjustment capabilities, as well
as its fault tolerant operation give systems administrators a comprehensive
solution for effectively managing performance, availability and overall service
levels. It also lets site managers centrally monitor end-user connectivity by
verifying client access to a site through URL tests, host access tests, and
other service availability tests.

                                     Page 7
<PAGE>

     Commander monitors events throughout a site and processes them according to
customer defined rules or policies that specify the appropriate action. The
policies can specify that scripts or programs be executed to actively control
service levels. Examples of policy-based controls include:

 - Direct requests away from a server system that depends upon a
   supplemental resource that is congested or responding too slowly

 - Increase, or decrease, request traffic to a server system when response times
   fall below, or above, specified thresholds

 - Enable a redundant, stand-by backup server system in a Central Dispatch
   site when the primary server system fails or becomes too busy

 - Monitor applications and server processes, as well as restart any that fail
   by executing policies customized to the customer's environment

     GLOBAL DISPATCH

     Global Dispatch is a software product that provides traffic management
functions across geographically distributed eBusiness applications to
consolidate multiple points of presence, or POPs, into a single, enterprise-wide
resource. Global Dispatch uses site performance and availability metrics
including network delays, server activity and service availability to direct
users to the site best suited to respond.

     Global Dispatch provides features that can simplify administrative tasks
such as database and content replication. Global Dispatch also incorporates
features that allow a user to access an alternative POP when a particular
resource, including an entire site, is unavailable due to failure or routine
maintenance. Global Dispatch automatically monitors POPs for failures and only
routes requests to available, healthy resources.

     ENTERPRISE SERVICES CONSOLE

     The Enterprise Services Console is a software product that provides a
single unified view of enterprise wide deployments of multiple Central Dispatch
and Global Dispatch installations. It also serves as an enterprise wide
integration point for the exchange of information among our products. Our
Enterprise Services Console enables remote monitoring of the applications and
services deployed on our active service level management platform and can be
used from any networked computer. Currently part of our managed services
offering, the Enterprise Services Console can also be customized to establish
thresholds for site activity, generate alerts and alarms and make platform
adjustments to avoid service failures.

     360(DEGREE) SERVICES

     Our 360(degree) Services integrate our technology and expertise into
recommendations using information on service quality and service health. These
enable Internet services managers to test, deploy, maintain, automate, and
optimize the quality of their Internet services. Our 360(degree) Services
consists of CapTest and QualTest. CapTest provides online load and capacity
testing to ensure that e-business sites can handle forecasted user loads under a
wide range of conditions while still delivering the performance that yields high
service quality. QualTest provides ongoing quality of service testing to measure
and assess end-to-end service levels from the user's perspective from around the
world and around the Internet.

     DISPATCH SLB--NOW!

     Dispatch SLB--Now! is our server load balancing software product that we
make available free of charge over the Internet. It allows two servers to appear
as a single unified server system. It is based on our patented traffic
management technology, but is limited in the features it offers and the number
of server systems it supports. Similar to Central Dispatch, companies can
specify how requests are to be distributed across the server systems based on
requested content type or status of the server systems.

                                     Page 8
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     Users of our Dispatch SLB--Now! product have a clear migration path to our
traffic management products and our complete active service level management
platform as their requirements grow. Dispatch SLB--Now! is intended to promote
widespread adoption of our server load balancing technology so as to further our
strategy and establish our active service level management offerings as the de
facto standard platform for eBusiness applications.

TECHNOLOGY

     At the heart of our Central Dispatch software product is our patented
networking technology that enables requests to be transferred, or "hopped" from
one server system to another. We call this technology a "TCP Connection Hop."

Central Dispatch determines which server system is best suited to respond based
on:

 - the type of content requested
 - the identity of the client making the request
 - the current workload on the server system
 - the overall status of applications running on the server systems
 - other customer-specified criteria

This technology provides the following capabilities:

 - SINGLE IP ADDRESS. When a connection is hopped to the server system
   that will respond, the client is unaware that the response is coming
   from a different server system. As a result, all server systems in a
   Central Dispatch cluster appear to the client to behave as a single
   reliable, high performance server system.

 - TRIANGULAR DATA FLOW. Since the response is sent directly to the
   client, without requiring the data to flow back through the server
   system that originally received the request, the resulting triangular
   data flow eliminates the performance bottleneck that can occur when a
   single server system or network device must process all incoming and
   outgoing data. Additionally, since no individual server system is
   responsible for processing all data packets, Central Dispatch has
   computing resources to implement a rich traffic management feature set
   without degrading the throughput or overall performance of the
   platform.

 - NETWORK DESIGN FLEXIBILITY. A connection can be hopped to any server
   system independent of its location. This means that Central Dispatch
   can provide performance scalability and high reliability to server
   systems that are spread across an enterprise even if the server systems
   are in different physical locations.

     Global Dispatch takes advantage of our distributed software approach by
distributing software on server systems to check the health and status of the
Internet POPs to determine which one should be selected to receive incoming
requests. With this distributed software approach, Global Dispatch and Central
Dispatch can exchange information about server performance and availability at
each location which can improve end-to-end traffic flow and response time.

     Commander leverages our distributed software architecture to collect
information gathered by Commander, Central Dispatch and Global Dispatch agents,
as well as third party monitoring products. Our event translation technology,
which processes this information, allows Commander to automatically reconfigure
Central Dispatch or Global Dispatch, or to run programs that have been
predefined to take the necessary steps to restore a failed or slowly responding
system resource.




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CUSTOMERS

     We have over 400 customers worldwide. We believe that Resonate has
established itself as a technology leader through a variety of industry firsts,
including patented traffic management technologies, and as a provider of a range
of solution capabilities that include server load-balancing, network traffic
management and service level control.

     Our customers include Internet content publishers, Internet service
providers, application service providers, web hosting services and corporate
intranet sites that vary in complexity and sophistication, ranging from two or
three individual web servers located in a single location up to several hundred
server systems geographically distributed across multiple locations.

     In 2000, one individual customer, Charles Schwab & Co., accounted for 15%
of our total revenue. In 1999, no individual customer accounted for 10% or more
of our total revenue.

SALES AND MARKETING

     DIRECT SALES

     We promote and sell the majority of our products and services through our
direct sales organization to corporate enterprises and service providers such as
web site hosters and application service providers. As of December 31, 2000, we
had 72 people in our sales organization and 26 in our marketing organization. We
plan to increase the number of our direct sales personnel to increase the direct
sales of our products and to support and develop leads for our indirect
distribution channels.

     When an enterprise, an application service provider or a web hosting
service provider chooses to deploy our products, it is typically necessary to
add additional software product licenses as their computing environment grows to
accommodate new users. Within these environments, our products allow our
customers to deliver more reliable services and more easily scale their
environment as necessary as their customer base grows. In addition, the
management and control capabilities of our products simplify the administration
of their multi server environment.

     INDIRECT SALES CHANNELS

     Our distribution strategy utilizes multiple indirect sales channels,
including platform vendors, value added resellers/system integrators and
independent software vendors. We market and sell our products through a variety
of relationships with service companies and hardware and software vendors. Our
professional services organization provides consulting and training to ensure
that both companies who sell our products and our customers get the education
and support they need to design and deploy our products.

     These indirect channels are aimed at increasing geographic sales coverage
and addressing potential customers that would otherwise be beyond the reach of
our direct sales organization. We intend to expand the types of companies with
whom we have indirect sales relationships to include providers of Internet co-
location facilities, web site hosting and application services. Our indirect
sales channels enable us to effectively leverage our direct sales channels to
accelerate revenue growth and to pursue our strategic objective of making our
solution the de facto active service level management platform worldwide.

     RESONATE REACH PARTNER PROGRAM

 - Our REACH Partner Program is intended to help companies who comprise
   our indirect sales channel sell our products. We provide participants
   in the REACH Program with technical training, as well as sales and
   marketing support, to enhance their offerings through the
   recommendation or implementation of our platform. We offer REACH
   Program participants use of our logo, a listing on our web site,
   demonstration software, and sales, marketing and technical assistance
   materials. We work with each participant to tailor the elements of the
   program to each participant's sales and applications goals.

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RESEARCH AND DEVELOPMENT

     We have made substantial investments to design and develop our active
service level management platform. We have assembled a team of highly
experienced network engineers, software developers, system architects and test
engineers to design, implement and test our platform. As part of this
development we have 3 patents pending and 2 patent issued which contain, in the
aggregate, over 110 claims.

     The majority of our research and development activity has been directed
towards feature enhancement and the development of new functionality to our
products. Although we intend to continue to invest in research and development,
we also plan to evaluate third party suppliers for complimentary technologies
that might be integrated into our product offerings.

     Our research and development expenditures, excluding stock-based
compensation of $3.5 million in 2000, $1.2 million in 1999 and $101,000 in 1998
were approximately $12.8 million in 2000, $6.8 million in 1999 and $3.2 million
in 1998. We will continue to commit significant resources to research and
development in the future. All research and development expenses have been
expensed as incurred.

     The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of features and functionality, incorporating new technologies and
the emergence of new industry standards could render existing products obsolete
and unmarketable. Our future success will depend in part on our ability to
anticipate changes, enhance our current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers.

COMPETITION

     Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Our principal competitors
for our Central Dispatch and Global Dispatch products include Alteon Web Systems
(Nortel Networks), Arrowpoint Communications (Cisco Systems), F5 Networks and
Foundry Networks and other server load balancing and traffic management product
suppliers. We expect to continue to face additional competition as new
participants enter the service level management market. In addition, companies
with greater resources and more established brand recognition and sales channels
may form alliances or acquire competing traffic management solutions and emerge
as significant competitors. Potential competitors may bundle their products or
incorporate a load balancing or traffic management capability into their
existing products in a manner that discourages users from purchasing our
products. In the future, increased competition may come from systems and network
management product providers including Tivoli Systems, BMC Software, Visual
Networks, Micromuse and others. As these providers enhance their products to
target the needs and requirements of Internet deployed applications, potential
customers may choose their products over ours.

INTELLECTUAL PROPERTY

     We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information.

     The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we may be subject to legal proceedings and claims for
alleged infringement by us or our licensees of third party proprietary rights,
such as patents, trademarks or copyrights, in the ordinary course of business.
Any claims relating to the infringement of third-party proprietary rights, even
if not meritorious, could result in costly litigation, divert management's
attention and resources, or require us to enter into royalty or license


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agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain an injunction, which could prevent us from selling
our products in the United States or abroad. Any of these results could harm our
business. We may increasingly be subject to infringement claims as the number of
products and competitors in our industry grow and functionalities of products
overlap. Furthermore, former employers of our current and future employees may
assert that our employees have improperly disclosed confidential or proprietary
information to us.

EMPLOYEES

     As of December 31, 2000, we had a total of 245 employees. Of the total
number of employees, 76 were in engineering, 98 were in sales and marketing, 29
were in service and support, 7 were in business development and 35 were in
operations and administration. None of our employees is subject to a collective
bargaining agreement.

CORPORATE INFORMATION

     Resonate Inc. was incorporated in California July 1995 under the corporate
name of Mediability Inc. In April 1996, we changed our corporate name to
Resonate Inc. We reincorporated in Delaware in July 2000.


ITEM 2. PROPERTIES

     Our corporate headquarters are located in Sunnyvale, California, under a
lease that expires in November 2003. We occupy approximately 53,600 square feet
in this facility. We also lease space in Irvine, El Segundo and San Francisco,
California; Englewood, Colorado; London, England; Miami, Florida; Paris, France;
Norcross, Georgia; Chicago and Schaumburg, Illinois; McLean, Virginia; Iselin,
New Jersey; White Plains, New York; Dallas, Texas; and Bellevue, Washington for
our sales and related personnel. We believe that our existing facilities are
adequate for our requirements through at least 2001 and that additional space
can be obtained on commercially reasonable terms to meet future requirements.


ITEM 3. LEGAL PROCEEDINGS

     On September 12, 2000, we filed a complaint for patent infringement against
Alteon Web Systems, Inc. in the United States District Court, Northern District
of California. We believe Alteon infringes United States Letters Patent No.
5,774,660, entitled "World-Wide Web Server With Delayed Resource-Binding For
Resource-Based Load Balancing On A Distributed Resource Multi-Node Network,"
which was issued to us on June 30, 1998. Alteon served its answer to our
complaint in October 2000, in which Alteon denied our allegations and
counterclaimed that our patent is invalid. In October 2000, Alteon was acquired
by Nortel Networks Corporation. The litigation is currently in the discovery
phase and a trial date has been set for the summer of 2002.

     We are also involved in disputes in the normal course of business. We do
not believe that the outcome of any of these disputes will have a material
effect on our business, financial condition or results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2000.




                                    Page 12
<PAGE>

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information with respect to Resonate's
current executive officers.

NAME                       AGE        POSITION

Peter R. Watkins.......... 45  President, Chief Executive Officer and Director
Christopher C. Marino..... 40  Founder, Corporate Vice President and Director
Robert C. Hausmann........ 37  Vice President and Chief Financial Officer
Karen L. Styres........... 43  Vice President, Marketing
Karen Barnes.............. 50  Vice President, Engineering
A. Alan Button............ 53  Vice President, Worldwide Sales
David R. Guercio.......... 47  Vice President, Professional Services
Marcia Bartelmie.......... 50  Vice President, Human Resources

     Set forth below are the biographical summaries of our executive officers as
of March 15, 2001:

     Peter R. Watkins joined Resonate as President and Chief Executive Officer
and was appointed to our board of directors in February 2001. Mr. Watkins served
as President and Chief Operating Officer of Network Associates, a supplier of
security and availability solutions for e-business from December 1999 to
December 2000. Mr. Watkins joined Networks Associates in May 1995 as Vice
President of International Operations. From May 1995 to November 1999, Mr.
Watkins also served in a number of other positions at Network Associates
including Vice President of International Sales, General Manager and Vice
President Net Tools Secure Division and Executive Vice President of Product
Development and Services. Mr. Watkins holds a B.A. in economics from Wesleyan
University and an M.B.A. from Yale University.

     Christopher C. Marino founded Resonate in July 1995. Mr. Marino has been
our Corporate Vice President since August 1998 and has been a member of our
board of directors since August 1995. From August 1995 to August 1998, Mr.
Marino served as our President and Chief Executive Officer. Mr. Marino holds a
B.S. in electrical engineering from Columbia University, an M.S. in electrical
engineering and computer science from the University of California at Berkeley
and an M.B.A. from Stanford University.

     Robert C. Hausmann has been our Vice President and Chief Financial Officer
since September 1999. From September 1997 to September 1999, Mr. Hausmann was
Chief Financial Officer at Mohr Davidow Ventures, a venture capital firm. Mr.
Hausmann also acted as Chief Financial Officer for certain portfolio companies
of Mohr Davidow. From October 1991 to September 1997, Mr. Hausmann was Vice
President and Chief Financial Officer of Red Brick Systems, a provider of data
warehousing solutions. Mr. Hausmann holds a B.A. in finance and accounting from
Bethel College and an M.B.A. from Santa Clara University.

     Karen L. Styres has been our Vice President of Marketing since March 1999.
From December 1995 to February 1999, Ms. Styres was Vice President, Marketing
for Diffusion, Inc., a vendor in the customer relationship management market.
Ms. Styres holds a B.A. in marketing from the University of Kentucky and an
M.B.A. from the University of California at Berkeley.

     Karen S. Barnes has been our Vice President of Engineering since March
1999. From July 1997 to March 1999, Ms. Barnes was business unit manager at
Legato Systems, a developer of enterprise-strength storage management software
for the enterprise computing market. From July 1995 to July 1997, Ms. Barnes was
director of Solaris Engineering at Sun Microsystems. Ms. Barnes holds a B.A. in
mathematics from the University of California at Berkeley.

     Alan Button has been our Vice President of Worldwide Sales since February
2000. From 1986 through February 2000, Mr. Button served in various capacities
with Hewlett-Packard Corporation, most recently as Vice President and General
Manager, Sales and Marketing for Hewlett-Packard's Customer Support and
Professional Services Group. Mr. Button holds a B.A. in history from UCLA.

                                    Page 13
<PAGE>

     David R. Guercio has been our Vice President of Professional Services since
September 1999. From January 1995 to September 1999, Mr. Guercio was Vice
President of Business Operations and Customer Services at NeoVista Software, a
provider of business intelligence applications and technology. Mr. Guercio holds
a B.S. in finance and an M.B.A. from Santa Clara University.

     Marcia Bartelmie has been our Vice President of Human Resources since March
2000. From November 1996 until March 2000, Ms. Bartelmie was a principal with
PeopleVision Inc., a provider of strategic human resource consulting to
venture-backed start-up companies. From 1988 to 1996, Ms. Bartelmie held
management positions, including Vice President of Human Resources from 1993 to
1996, for Borland International, a software company. Ms. Bartelmie holds a B.A.
in history from Santa Clara University.

     There are no family relationships among any of our directors or executive
officers. All executive officers are appointed by our board of directors on an
annual basis and serve until their successors have been duly appointed and
qualified.



                                    Page 14
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our common stock, par value $0.0001 per share, is traded on the Nasdaq
National Market under the symbol RSNT. We completed our initial public offering
on August 2, 2000 and trading commenced on August 3, 2000. The following table
sets forth the high and low closing sales prices of our common stock from August
3, 2000 through December 31, 2000. Such prices represent prices between dealers,
do not include retail mark-ups, mark-downs or commissions and may not represent
actual transactions.

           Fiscal 2000                        High                Low
           ---------------                  ---------          --------
           Third Quarter*                    $44.25              $29.88
           Fourth Quarter                     47.50                9.50

           ---------------
           *Commencing August 3, 2000

     The closing price of our common stock as reported on the Nasdaq National
Market on March 15, 2001 was $3.31. As of March 2, 2001, there were
approximately 300 holders of record of our common stock. We believe that a
significant number of beneficial owners of our common stock hold shares in
street name.

     We have never paid a cash dividend on our common stock and do not intend to
pay cash dividends on our common stock in the foreseeable future. We currently
intend to retain any earnings for use in our business.

     During the year ended December 31, 2000, we issued an aggregate of 835,642
shares of our Common Stock as a result of the exercise of options under our 1996
Stock Option Plan, for gross proceeds of approximately $1.2 million. These
purchases and sales were exempt from registration under the Securities Act of
1933, as amended, by virtue of Rule 701 pursuant to compensatory benefit plans
and contracts relating to compensation as provided under such Rule. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

     In March 2000, we issued 514,668 shares of our Series E Preferred Stock at
$19.43 per share for net proceeds of approximately $10 million. These sales were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof on the basis that the transaction did not involve a
public offering. The 514,668 shares of our Series E Preferred Stock were
automatically converted into 514,668 shares of our common stock upon the closing
of our initial public offering on August 8, 2000.

     In July 2000, we issued 1,389,603 shares of our Series F Preferred Stock to
three strategic investors for $19.43 per share for an aggregate of $27 million.
These sales were exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof on the basis that the transaction did
not involve a public offering. The 1,389,603 shares of our Series F Preferred
Stock were converted into 1,607,142 shares of common stock upon the closing of
our initial public offering on August 8, 2000.

     As of December 31, 2000, we had not yet used any funds from the initial
public offering. We expect to use the net proceeds from the initial public
offering to develop products and support activities, to expand selling and
marketing infrastructure including capital expenditures and for working capital
purposes. We may also use a portion of the net proceeds from the offering to
acquire or invest in businesses, technologies or products that are complementary
to our business. We currently have no commitments or agreements with respect to
any acquisitions or investments. We have not determined the amounts we plan to
spend on any of the uses described above or the timing of these expenditures.
Pending our use of the net proceeds, we intend to continue to invest them in
short-term, interest-bearing, investment-grade securities.




                                    Page 15
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data set forth below should be read
together with the consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the other information contained in this Annual Report on Form
10-K.

     The statement of operations data set forth below for each of the years in
the five-year period ended December 31, 2000 and the balance sheet data as of
December 31, 2000 are derived from, and qualified by reference to, our audited
consolidated financial statements appearing elsewhere in this Annual Report on
Form 10-K. Historical results are not necessarily indicative of the results to
be expected in the future.
<TABLE>
<CAPTION>

                                                                     Years Ended December 31,
                                                 ------------------------------------------------------------------
                                                   2000          1999           1998          1997          1996
                                                 ---------    ----------    ---------        -------       --------
                                                                (in thousands, except per share amounts)
<S>                                             <C>           <C>            <C>            <C>          <C>
Statement of Operations Data:
Total revenue.................................. $   19,994    $    9,914     $   2,695      $    445     $       10
Cost of revenue (1).............................     6,847         1,410           323            84             --
                                                ----------    ----------      --------       -------       --------
Gross profit....................................    13,147         8,504         2,372           361             10
Operating expenses (2)..........................    58,681        27,263        10,177         4,194          1,107
                                                ----------    ----------      --------       -------       --------
Loss from operations............................   (45,534)      (18,759)       (7,805)       (3,833)        (1,097)
                                                ----------    ----------      --------       -------       --------
Net loss .......................................   (43,115)      (18,865)       (7,671)       (3,711)        (1,174)
Beneficial conversion of Series F preferred stock    6,750            --            --            --             --
                                                 ---------    ----------      --------       -------       --------

Net loss attributable to common stockholders... $  (49,865)   $  (18,865)    $  (7,671)     $ (3,711)    $   (1,174)
                                                ==========    ==========     =========      ========     ==========

Net loss per share attributable to common
     stockholders (basic and diluted)..........$    (3.41)    $   (4.18)      $ (1.90)       $(1.20)       $ (0.55)
                                               ===========    ==========      ========       =======       ========
Weighted average shares used in computation
     of net loss per share attributable to common
     stockholders (basic and diluted)..........$    14,609    $    4,513      $  4,048       $ 3,083       $  2,136
                                               ===========    ==========      ========       =======       ========

Balance Sheet Data:
Cash, cash equivalents and investments......... $  109,034    $   11,999     $   4,322      $  2,343     $      122
Working capital (deficit).......................   102,749         7,674         4,153         1,777           (251)
Total assets....................................   121,943        18,386         7,652         3,088            337
Long term debt, net of current portion..........     2,889         3,346           521           235             35
Mandatorily redeemable convertible
     preferred stock............................        --        28,401        15,122         5,206            --
Total stockholders' equity (deficit)............   105,167       (21,757)      (10,006)       (3,130)           (90)
</TABLE>
------------------------
(1) Includes stock-based compensation of $1,610; $306; $4; $0 and $0,
    respectively
(2) Includes stock-based compensation of $12,927; $5,482; $874; $0
    and $0, respectively
----------



                                    Page 16
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

     The discussion in this Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The statements contained in
this report that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. These forward-looking statements are typically denoted in
this report by the phrases "anticipates," "believes," "expects," "plans," and
similar phrases. All forward-looking statements included in this report are
based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements for any reason, even if
new information becomes available or other events occur in the future. Our
actual results could differ materially from those described in our
forward-looking statements. Factors that could cause or contribute to such
differences are discussed in this item under the heading "Risk Factors" on page
23 of this report and the risks discussed in our other Securities and Exchange
Commission filings.

     The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Financial Data" and
our consolidated financial statements and related notes appearing elsewhere in
this Annual Report on Form 10-K.

OVERVIEW

     We develop and market a family of software products and services that
ensure high levels of availability and performance for Internet, intranet and
extranet applications. Our family of software products integrates network
traffic management and systems monitoring and management functions, which
together provide real-time monitoring, reporting and automated service level
control of eBusiness applications. We call the collection of capabilities that
our products provide active service level management.

     Resonate was founded in July 1995 and began substantive operations in April
1996. From April 1996 through the first quarter of 1997, we primarily engaged in
research activities, developing our products and building our business
infrastructure. We began shipping our first software product, Central Dispatch,
and first generated revenue from software license fees and implementation and
consulting fees, in the first quarter of 1997. We released our Global Dispatch
software product in the first quarter of 1998 and our Commander software product
in the third quarter of 1999. In the year ended December 31, 2000, we derived
approximately 75% of our product revenue from our Central Dispatch product.
Although our revenue increased in each quarter during 1999 and through the first
nine months of 2000, we incurred significant costs to develop our technology,
products and services, to continue the recruitment of research and development
personnel, to build a sales force and a professional services organization, and
to expand our general and administrative infrastructure. Our total headcount
increased from 42 at December 31, 1997 to 245 at December 31, 2000.

     We market and sell our software products through our direct sales force and
indirect channels. Our indirect channels consist of server systems vendors,
independent software vendors, value added resellers, web hosting services and
system integrators. Our current relationships with these system integrators
typically are structured as non-exclusive co-marketing and resale arrangements.
In addition, we have entered into a limited number of reseller arrangements in
which our products are embedded in the reseller's products, for which we receive
a royalty from the reseller. We derived revenue of $1.0 million from these
reseller arrangements in 2000.




                                    Page 17
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth financial data as a percentage of total
revenue.

                                            Years Ended December 31,
                                      -----------------------------------
                                       2000         1999           1998
                                      ---------    ---------    ---------
Revenue:
   Product                                74.4%         80.7%        88.1%
   Services                               25.6          19.3         11.9
                                      --------     ---------    ---------
       Total revenue                     100.0         100.0        100.0
                                      --------     ---------    ---------
Cost of revenue:
   Product                                 1.6           0.6          1.4
   Services                               32.6          13.6         10.6
                                      --------     ---------    ---------
       Total cost of revenue              34.2          14.2         12.0
                                      --------     ---------    ---------
Gross profit                              65.8          85.8         88.0
                                      --------     ---------    ---------
Operating expenses:
   Research and development               81.4          80.5        123.1
   Sales and marketing                   159.7         136.3        189.9
   General and administrative             52.4          58.2         64.6
                                      --------     ---------    ---------

       Total operating expenses          293.5         275.0        377.6
                                      --------     ---------    ---------
Loss from operations                    (227.7)       (189.2)      (289.6)
Interest and other income                 16.7           5.1          7.4
Interest and other expense                (4.6)         (6.2)         2.4
                                      ---------      --------   ---------
Net loss                                (215.6)%      (190.3)%     (284.6)%
                                      =========    ==========   ==========

REVENUE AND REVENUE RECOGNITION POLICY

     Our total revenue was $20.0 million in 2000, $9.9 million in 1999 and $2.7
million in 1998, and was comprised of sales of software products and related
services fees from implementation, consulting, training and support. Product
revenue was $14.9 million in 2000, $8.0 million in 1999 and $2.4 million in
1998. Services revenue was $5.1 million in 2000, $1.9 million in 1999 and
$322,000 in 1998. Product revenue accounted for 74.4% of revenue in 2000, 80.7%
of revenue in 1999 and 88.1% of revenue in 1998. Services revenue accounted for
25.6% of revenue in 2000, 19.3% of revenue in 1999 and 11.9% of revenue in 1998.
The increase in our service revenue as a percentage of revenue is primarily due
to service revenue having increased 371.3% from 1998 to 1999 and 384.1% from
1999 to 2000 as a result of new service offerings, as well as an increase in the
number of customers purchasing maintenance contracts. We currently expect
services revenue to be between 20% and 25% of our total revenue for future
periods.

     The increase in our revenue year-to-year is due to several factors
including:

 - The introduction of new products - Global Dispatch in the first quarter of
   1998 and Commander in the third quarter of 1999
 - Increased investment in our sales and marketing organizations, including
   the hiring of sales personnel and an increase in advertising and other
   marketing programs
 - Establishment of additional indirect sales partners, including server
   system vendors, value-added resellers/system integrators and
   independent software vendors from 1998 to 2000
 - Increases in sales to new and existing customers in 1999 and 2000
 - Increasing market acceptance of the need for service level management
   solutions

     Revenue is recognized when there is persuasive evidence of an arrangement
for a fixed and determinable fee that is probable of collection and when
delivery and installation has occurred. We generally recognize revenue under the
residual method as prescribed by Statement of Position No. 97-2 "Software
Revenue Recognition" and Statement of Position No. 98-9 "Modification of SOP No.


                                    Page 18
<PAGE>

97-2 with Respect for Certain Transactions" whereby revenue is allocated to each
undelivered element based upon the fair value of each element when sold
separately and the residual amount is then allocated to the delivered element.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or 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. We have
complied with the guidance in SAB 101.

     We have entered into a limited number of contracts that involve significant
implementation or customization essential to the functionality of our product.
Product and services revenue under such arrangements is recognized under the
percentage-of-completion method using labor hours incurred as the measure of
progress towards completion. We classify revenue from these arrangements as
product and services revenue, respectively, based upon the estimated fair value
of each element. Provisions for estimated contract losses are recognized in the
period in which the loss becomes probable and can be reasonably estimated.

     Product revenue from existing reseller arrangements is recognized when
reported by the reseller upon re-licensing of our software to end-users. Our
agreements with our customers and resellers do not contain product return
rights.

     For arrangements with extended payment terms, revenue is recognized at the
earlier of when the payment is due or when the cash is received.

     We also derive revenue from providing access to our products for a
specified period of time. Revenue is recognized on such arrangements as the
license fees become due and payable.

     Services revenue consists of professional services and maintenance fees.
Professional services primarily consist of software installation and
integration, consulting and training. Professional services revenue is
recognized as such services are performed. Services revenue from maintenance
agreements, which include services such as technical product support and
unspecified product upgrades, is recognized ratably over the term of the
agreement, generally one year.

     In 2000, one individual customer, Charles Schwab & Co., accounted for 15%
of our total revenue. In 1999 and 1998, no individual customer accounted for 10%
or more of our total revenue.

COST OF REVENUE

     Cost of revenue was $5.2 million in 2000, $1.1 million in 1999 and $319,000
in 1998, excluding stock- based compensation of $1.6 million in 2000, $306,000
in 1999 and $4,000 in 1998. The increases in our cost of revenue were primarily
due to an increase in our cost of services revenue, which was $6.5 million in
2000, $1.3 million in 1999 and $286,000 in 1998. Cost of services revenue as a
percentage of cost of revenue was 95.3% in 2000, 95.6% in 1999 and 88.5% in
1998. Cost of product revenue as a percentage of cost of revenue was 4.7% in
2000, and 4.4% in 1999 and 11.5% in 1998. The increase in cost of services
revenue each year resulted primarily from the hiring of additional employees.
Our negative gross margin from services in 2000 is primarily attributed to
stock-based compensation which increased from $306,000 in 1999 to $1.6 million
in 2000.

     We expect our cost of services revenue to decline, primarily as a result of
the closing of our Remote Managed Services operations in January 2001. We expect
cost of services revenue as a percentage of services revenue to vary from period
to period depending on the mix of services we provide and the overall
utilization rates of professional services staff.




                                    Page 19
<PAGE>

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

     Research and development expenses were $12.8 million in 2000, $6.8 million
in 1999 and $3.2 million in 1998, excluding stock-based compensation charges of
$3.5 million in 2000, $1.2 million in 1999 and $101,000 in 1998. Substantially
all of the increases in research and development expenses from year-to-year were
related to an increase in the number of software engineers and other technical
staff supporting the quality assurance, development and testing of new products.
As a percentage of revenue, total research and development expenses were 81.4%
in 2000, 80.5% in 1999 and 123.1% in 1998. The decrease in total research and
development expenses as a percentage of revenue from 1998 to 1999 was primarily
due to revenue growing faster than our research and development expenses,
including increasing sales of our new and existing products. We believe that
continued investment in research and development is critical to our strategic
objectives, and we expect that the dollar amounts of research and development
expenses will increase in future periods, but may fluctuate as a percentage of
revenue from period to period.

 SALES AND MARKETING

     Sales and marketing expenses were $26.8 million in 2000, $11.3 million in
1999 and $4.7 million in 1998, excluding stock-based compensation charges of
$5.1 million in 2000, $2.2 million in 1999 and $379,000 in 1998. The increase in
sales and marketing expenses resulted primarily from building a direct sales
force and investing in sales and marketing infrastructure. Approximately 73% of
the increase was due to personnel-related expenses, recruiting expenses and
travel expenses. An additional 15% of the increase related to increased
marketing activities, including tradeshows and advertising. The remaining
increase was attributable to related facility costs and equipment. As a
percentage of revenue, total sales and marketing expenses were 159.7% in 2000,
136.3% in 1999 and 189.9% in 1998. The decrease in total sales and marketing
expenses as a percentage of total revenue from 1998 to 1999 was primarily due to
revenue growing faster than our sales and marketing expenses. The increase in
total sales and marketing expenses as a percentage of total revenue from 1999 to
2000 was primarily due to our revenue growing more slowly than our sales and
marketing expenses. We believe our revenue grew more slowly than our sales and
marketing expenses because of the general economic slowdown in our industry,
beginning in the second half of 2000, while our expenses from building a direct
sales force continued to grow. We anticipate that these sales and marketing
expenses will continue to increase in absolute dollar amounts in future periods
as we continue to expand our sales and marketing efforts, but may fluctuate as a
percentage of total revenue from period to period.

 GENERAL AND ADMINISTRATIVE

     General and administrative expenses were $6.2 million in 2000, $3.6 million
in 1999 and $1.3 million in 1998, excluding stock-based compensation $4.3
million in 2000, $2.1 million in 1999 and $394,000 in 1998. Substantially all of
the increases in general and administrative expenses resulted from the addition
of executive, finance and administrative personnel to support the growth of our
business. As a percentage of revenue, total general and administrative expenses
were 52.4% in 2000, 58.2% in 1999 and 64.6% in 1998 primarily due to revenue
growing faster than our total general and administrative expenses. We expect
general and administrative expenses to continue to increase as we add personnel
to support expanding operations, incur additional costs related to the growth of
our business, and continue the reporting requirements of a public company. These
expenses, however, may fluctuate as a percentage of revenue from period to
period.

 STOCK-BASED COMPENSATION

     Stock-based compensation consisted of amortization of unearned stock-based
compensation in connection with certain stock option grants to employees at
exercise prices below the deemed fair market value of our common stock. We
recorded aggregate deferred compensation of $9.8 million in 2000, $21.6 million
in 1999 and $4.1 million in 1998, related to stock transactions with employees.
Of the deferred compensation, $14.5 million was amortized in 2000, $5.8 million
was amortized in 1999 and $878,000 was amortized in 1998. See Note 9 of Notes to


                                    Page 20
<PAGE>

Consolidated Financial Statements for further discussion regarding the
accounting treatment for stock-based compensation. The remaining deferred
compensation is expected to be amortized as follows: $8.4 million in 2001, $4.3
million in 2002, $1.6 million in 2003 and $55,000 in 2004.

INTEREST AND OTHER INCOME

     We had interest and other income of $3.3 million in 2000, $506,000 in 1999
and $200,000 in 1998. The increases in interest and other income resulted from
interest earned from higher cash balances on hand as a result of sales of our
preferred stock in 1999 and 2000 as well as proceeds from our initial public
offering in August 2000.

INTEREST AND OTHER EXPENSES

     We had interest and other expenses of $926,000 in 2000, $612,000 in 1999
and $66,000 in 1998. The increases in interest and other expenses resulted
primarily from the interest paid on higher debt and capital lease obligation
balances in 1999 and 2000, including working lines of credit.

PROVISION FOR INCOME TAXES

     As of December 31, 2000, we had approximately $51.6 million of federal and
$22.3 million of state net operating loss carryforwards available to reduce
future taxable income. As of December 31, 1999, we had approximately $23.5
million of federal and $11.6 million of state net operating loss carryforwards
available to reduce future taxable income. These net operating loss
carryforwards begin to expire in 2010 and 2003 for federal and state tax
purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited.
Events which cause limitation in the amount of net operating losses that we may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period. We have provided
a full valuation allowance on the deferred tax asset because of the uncertainty
regarding its realization. Our accounting for deferred taxes under Statement of
Financial Accounting Standards No. 109 involves the evaluation of a number of
factors concerning the realizability of our deferred tax assets. In concluding
that a full valuation allowance was required, management primarily considered
factors such as our history of operating losses and expected future losses and
the nature of our deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

     We funded our operations through December 31, 2000 primarily through our
private placements of equity securities and, to a lesser extent, revenue,
subordinated debt and lines of credit. As of December 31, 2000, our principal
sources of liquidity included $109.0 million of cash, cash-equivalents and
investments.

     Effective August 2, 2000, we issued 4,600,000 shares of our common stock at
an initial public offering price of $21.00 per share. The proceeds from the
offering, net of offering costs were approximately $88.0 million. Concurrent
with the closing of our initial public offering, each outstanding share of our
convertible preferred stock was automatically converted into common stock. In
connection with the issuance of the Series F Preferred Stock, we recorded a
charge to additional paid in capital of $6.8 million representing the fair value
of the beneficial conversion feature of the Series F Preferred Stock.

     Cash used in operating activities during 2000 was $24.7 million and was
attributable to a net loss of $27.8 million before stock based compensation
charges of $14.5 million and charges for stock issued for services of $746,000.
In 2000, we generated cash from an increase in accounts payable of $149,000 and
accrued liabilities of $2.2 million. We also generated cash from an increase of
$2.1 million in our deferred revenue balance resulting from increased sales of
maintenance which are generally recognized over a one year period, and other
products and services to be delivered in the future. These increases were
partially offset by increases in accounts receivable of $2.9 million and prepaid
expenses of $1.1 million as a result of an increased demand in our working
capital requirements. In 1999, cash used in operating activities was $9.4
million and was attributable to a net loss of $12.4 million before stock based


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<PAGE>

compensation charges of $5.8 million and charges for stock issued for services
of $646,000. In 1999, we generated cash from an increase in accounts payable of
$697,000 and accrued liabilities of $1.0 million. We also generated cash from an
increase of $2.6 million in our deferred revenue balance resulting from
increased sales of maintenance which are generally recognized over a one year
period, and other products and services to be delivered in future periods. These
increases in cash in 1999 were partially offset by an increase in accounts
receivable of $2.2 million as a result of an increased demand in our working
capital requirements. Net cash used in operating activities totaled $7.2 million
in 1998 and was attributable primarily to a net loss of $6.8 million before
stock based compensation charges of $878,000 and partially offset by an increase
in accounts receivable of $1.5 million.

     Net cash used in investing activities totaled $30.1 million in 2000, $7.0
million in 1999 and $819,000 in 1998. The increases from period-to-period
resulted primarily from the purchase of property and equipment to support our
growth, as well as the purchases of short-term investments of approximately
$41.0 million in 2000 and $7.0 million in 1999. In 2000, the purchases of
short-term investments were offset by maturities of short-term investments of
$15.0 million. Capital expenditures, including those under capital leases, were
$5.1 million in 2000, $1.7 million in 1999 and $1.1 million in 1998. Our capital
expenditures consist primarily of purchases of computer equipment and software,
furniture and fixtures and leasehold improvements.

     Net cash provided by financing activities totaled $125.8 million in 2000,
$17.1 million in 1999 and $10.0 million in 1998. The increases from
period-to-period resulted primarily from the net proceeds from sale of our
equity securities and borrowings.

     We have two subordinated debt facilities with a lending institution under
which we were originally entitled to borrow up to $3.5 million and $1.5 million.
At December 31, 2000, of our original borrowings of $3.5 million and $1.5
million, $1.6 million and $681,000 were outstanding under these facilities.
These facilities expire in March and June 2002. Interest on the subordinated
debt facilities is fixed between 12.0% and 12.5%. The subordinated debt
facilities are collateralized by our assets and are subject to certain financial
covenants. As of December 31, 2000, obligations under subordinated debt were
$1.7 million in 2001 and $585,000 in 2002

     We also maintain an equipment line of credit and a working capital line of
credit with a commercial bank. The equipment line of credit, expiring in June
2002, permits us to borrow up to $3 million at the bank's prime rate plus 0.5%,
resulting in a rate of 10.0% at December 31, 2000. At December 31, 2000, $3.0
million was outstanding under the equipment line of credit. As of December 31,
2000, our obligations under our equipment line of credit are $1.2 million in
2001, $1.0 million in 2002 and $833,000 in 2003. The working capital line of
credit, expiring in May 2001, permits us to borrow up to $5.0 million at the
bank's prime rate plus 0.25%, resulting in a rate of 10.0% at December 31, 2000.
At December 31, 2000, there were no borrowings outstanding under this line of
credit. Both credit lines are collateralized by our assets and are subject to
nonfinancial covenants.

     As of December 31, our additional commitments consisted of obligations
under our operating and capital leases. Future lease commitments for our office
facilities and equipment are $3.3 million in 2001, $2.4 million in 2002 and $1.8
million in 2003.

     We believe that our current cash balances and cash flow from operations, if
any, will be sufficient to meet our working capital and capital expenditure
requirements for at least the next twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. In July
1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB No. 133." SFAS 137 deferred the effective date of SFAS 133 until


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<PAGE>

the first quarter of the fiscal year beginning after June 15, 2000. We will
adopt SFAS 133 in the quarter ending March 31, 2001. We did not engage in
hedging activities or invested in derivative instruments and accordingly, SFAS
133 did not have a material impact on our financial statements.

     In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 was effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN 44 did not have a material impact on our financial position
or results of operations.


RISK FACTORS

     This report contains forward-looking statements within the meaning of the
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and other factors discussed elsewhere in
this report. These risk factors should be considered carefully in evaluating our
business and us.

WE ONLY BEGAN SUBSTANTIVE OPERATIONS IN APRIL 1996 AND, AS A RESULT, IT IS
DIFFICULT TO FORECAST OUR FUTURE OPERATING RESULTS.

     We were incorporated in July 1995 and had no substantive operations until
April 1996. As a result, we have a limited operating history that makes it
difficult to forecast our future operating results. In addition, the revenue and
income potential of our business and market are unproven. Risks and difficulties
typically encountered by companies in their early stages of development,
particularly those in new and rapidly evolving markets such as ours, include our
ability to:

 - Successfully develop, commercialize and achieve significant market
   acceptance of our current and next generation of products

 - Develop and maintain strong relationships with server system vendors,
   independent software vendors, application service providers, web
   hosting services, value-added resellers and systems integrators

 - Expand our domestic and international sales efforts

 - Continue to attract and retain qualified personnel, particularly in the
   areas of sales, marketing and engineering

 - Manage growing operations

WE HAVE A HISTORY OF LOSSES, EXPECT TO CONTINUE TO INCUR SIGNIFICANT OPERATING
EXPENSES AND LOSSES IN THE FUTURE, AND MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY.

     We have experienced operating losses in each quarterly and annual period
since our inception in 1995, and we expect to continue to incur significant
operating expenses and losses for the foreseeable future. We cannot predict when
we will be profitable, if at all. We may never achieve future revenue growth or
achieve or sustain profitability. If we do achieve profitability in any period,
we cannot be certain that we will sustain or increase such profitability on a
quarterly or annual basis. If we continue to incur net losses and never attain
profitability, our stock price will suffer.

                                    Page 23
<PAGE>

     We intend to increase our operating expenses, particularly expenses
relating to expanding our direct sales force, adding to the number of
relationships within our indirect distribution channels and increasing levels of
research and development. As a result, we will need to generate significant
additional revenue to achieve and maintain profitability in the future.
Moreover, failure to achieve and sustain significant increases in our quarterly
net sales could cause us to curtail planned increases in our operating expenses,
which would adversely impact our ability to grow our business.

THE PLANNED EXPANSION OF OUR DIRECT SALES FORCE WILL INVOLVE SIGNIFICANT EXPENSE
TO US, AND MAY NOT SUCCEED.

     During 2000, we increased and expect to continue to increase the number of
our direct sales personnel to both support and develop leads for our indirect
distribution channels and increase the direct sale of our products. This
expansion will significantly increase personnel costs and related expenditures.
We do not expect new sales personnel to be productive immediately, and we cannot
assure you that costs of this expansion will not exceed the revenue generated by
the new sales personnel. We also cannot assure you that we will be successful in
hiring our target number of sales personnel.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND MAY BE SUBJECT
TO SEASONALITY, WHICH MAY CAUSE OUR STOCK PRICE TO FALL.

     Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future, which makes it difficult for us
to predict our future operating results. Factors that could cause our operating
results to fluctuate include:

 - Changes in the mix of products and services we sell

 - The timing of the development and release of enhanced versions of
   Central Dispatch, Commander, Global Dispatch and Enterprise Service
   Console, as well as future product enhancements and new products

 - Deferrals of customer orders in anticipation of product enhancements or new
   products

 - Announcement or market acceptance of new products or product enhancements
   offered by our competitors

 - The mix of channels through which we sell our products

 - The timing and amount of orders from companies who sell our products
   through our indirect distribution channel

 - The size and timing of large transactions may yield revenue
   fluctuations that are inconsistent with prior or subsequent periods

 - General economic conditions specific to the active service level
   management industry or generally relating to information technology
   spending

     Because of these factors, we believe that period-to-period comparisons of
our results of operations are not meaningful and should not be relied upon as an
indicator of our future performance. Operating results were below expectation in
the fourth quarter of 2000. Our operating results will likely also be below the
expectations of public market analysts and investors in some future quarter or
quarters. If this occurs, the price of our common stock will probably decline.

     A delay in anticipated sales beyond the end of a particular quarter may
harm our results of operations for that quarter. We experienced this type of
delay in the fourth quarter of 2000. Furthermore, we base our decisions
regarding our operating expenses on anticipated revenue trends, and our expense


                                    Page 24
<PAGE>

levels are relatively fixed. Consequently, if revenue levels fall below our
expectations, we may suffer unexpected losses because only a small portion of
our expenses varies with our revenue.

     We expect to experience seasonality in the sales of our software products.
For example, we expect that sales may decline during summer months, particularly
in Europe, thereby adversely affecting sales during our third quarter. We also
anticipate that sales may be lower in our first fiscal quarter due to patterns
in the capital budgeting and purchasing cycles of our current and prospective
customers. These seasonal variations in our sales may lead to fluctuations in
our quarterly operating results. Furthermore, it is difficult for us to evaluate
the degree to which this seasonality may affect our business because our growth
may have largely overshadowed this seasonality in recent periods.

IF WE FAIL TO SUCCESSFULLY EDUCATE POTENTIAL CUSTOMERS REGARDING THE BENEFITS OF
OUR ACTIVE SERVICE LEVEL MANAGEMENT SOLUTIONS, OUR ABILITY TO SELL OUR PRODUCTS
AND GROW OUR BUSINESS WILL BE SEVERELY LIMITED.

     Our future success depends on widespread commercial acceptance of our
products. The market for active service level management solutions is relatively
new and rapidly evolving. If we are unable to educate our potential customers,
and the market in general, of the advantages of our software based active
service level management solutions over hardware based server load balancing
products and network system management products, our ability to sell our
products will be severely limited. Rather than utilizing comprehensive active
service level management solutions, most web data center administrators manage
their services by adding servers and interconnecting a variety of single
function systems and traffic management tools. In addition, our competitors
offer a wide variety of hardware or software products that purport to serve the
needs addressed by our products. Our ability to increase revenue in the future
depends on the extent to which our potential customers recognize the value of
our integrated active service level management solutions. The acceptance of our
products and services may also be hindered by:

 - The reluctance of our prospective customers to replace or supplement
   their current networking products, which may be supplied by more
   established vendors, with our products

 - The emergence of new technologies or industry standards, which could cause
   our products to be less competitive or become obsolete

     In addition, because the market for active service level management
solutions is in an early stage of development, we cannot accurately assess the
size of the market, and we have limited insight into trends that may emerge and
affect our business. For example, we may have difficulty in predicting customer
needs, developing products that could address those needs and establishing a
distribution strategy for these products.

IF OUR CENTRAL DISPATCH, COMMANDER, GLOBAL DISPATCH OR ENTERPRISE SERVICE
CONSOLE PRODUCTS OR OTHER NEW PRODUCTS, PRODUCT ENHANCEMENTS OR SERVICES FAIL TO
ACHIEVE CUSTOMER ACCEPTANCE, OUR GROWTH AND REVENUE WILL BE LIMITED.

     Rapid technological change, frequent new product introductions and
enhancements, changes in customer demands and evolving industry standards
characterize our industry. Our existing products will be rendered less
competitive or obsolete if we fail to introduce new products or product
enhancements that anticipate the features and functionality that customers
demand or ensure that they interoperate with current and emerging networking
technologies. The success of our products will depend on factors including:

 - Their ability to meet customer needs and expectations regarding features
   and performance

 - Our ability to accurately anticipate industry trends and changes in
   technology standards

 - Timely completion and introduction of new product designs and features

     Further, because the market is new for products that facilitate the
efficient processing of data and transactions across computer networks,
potential customers in this market may be confused or uncertain about the


                                    Page 25
<PAGE>

relative merits of these products or which product to adopt, if any. Confusion
and uncertainty in the marketplace may inhibit customers from purchasing our
products, which could limit our revenue growth.

OUR SALES OF CENTRAL DISPATCH GENERATED APPROXIMATELY 75% OF OUR PRODUCT REVENUE
IN 2000, AND A DECLINE IN OUR SALES, IN ABSOLUTE DOLLARS, OF CENTRAL DISPATCH
COULD MATERIALLY HARM OUR RESULTS OF OPERATIONS.

     In 2000, we derived approximately 75% of our product revenue from sales of
our Central Dispatch product, and we expect to derive a significant portion of
our revenue from sales of Central Dispatch for at least the next two years. Our
ability to sell Central Dispatch depends upon its ability to solve critical
network performance and availability problems of our customers. If Central
Dispatch is unable to solve these problems for our customers, our ability to
maintain our existing customer base and to obtain new customers for Central
Dispatch will be adversely impacted, which would result in a substantial loss of
revenue or an inability to grow our revenue.

OUR ABILITY TO GROW OUR BUSINESS DEPENDS UPON INCREASED DEMAND FOR OUR PRODUCTS
FROM CORPORATE ENTERPRISES AND THE EXTENT TO WHICH OUR PRODUCTS CAN ACCOMMODATE
THE NEEDS OF CORPORATE ENTERPRISES.

     We cannot assure you that corporate enterprises, who typically operate in
complicated information technology environments, will widely adopt active
service level management solutions to facilitate their data and transaction
processing needs. Our ability to grow our business will depend upon the extent
to which corporate enterprises adopt active service level management solutions.
Moreover, if corporate enterprises require significantly different product
features for our active service level management solutions, whether as a result
of choosing to outsource some or all of their applications to applications
service providers or otherwise, we will be required to enhance or modify our
products in this manner. As a result, we could incur delays in introducing
enhanced or modified versions of our products, delays in capturing enterprise
customers and significant expense. Any of these alternatives will limit our
ability to grow our business and could result in higher net losses.

OUR REVENUES MAY BE HARMED IF GENERAL ECONOMIC CONDITIONS CONTINUES TO WORSEN.

     Our revenues are dependent on the health of the economy and the growth of
our customers and potential future customers. If the growth of the economy
remains stagnant, our customers may reduce their spending on active service
level management solutions. If that happens, our revenues could suffer and our
stock price may decline. Further, if the economic conditions in the United
States worsen or if a wider or global economic slowdown occurs, we may
experience a material adverse impact on our business, operating results and
financial condition.

     Our software products and services are designed for customers that use the
Internet and Internet-based technologies to conduct business. While growth of
electronic business has been rapid, many companies within the Internet sector
have experienced a slowdown beginning in the second quarter of 2000 and
accelerating in 2001. Slowdowns in the Internet sector have adversely affected
the ability of some of our customers to timely fulfill their payment obligations
to us. During 2000, we wrote off accounts receivable of approximately $128,000
as a result of the insolvency of three of our customers. To the extent we are
required to write off more accounts receivable, our results of operations will
be harmed.

WE DERIVE SUBSTANTIALLY ALL OF OUR REVENUE THROUGH THE SALE OF UPFRONT LICENSES
OF OUR SOFTWARE PRODUCTS, AND ALTERNATIVE BUSINESS MODELS EMPLOYED BY
COMPETITION COULD ERODE OUR PRODUCT PRICING.

     If alternative business methods of delivering the capabilities of our
software products are developed by competition, they may substantially erode the
price which we can charge for our products. These alternative methods include
bundling these capabilities through a subscription model by application service
providers.

                                    Page 26
<PAGE>

OUR MARKETS ARE HIGHLY COMPETITIVE, OUR CUSTOMERS MAY CHOOSE TO PURCHASE OUR
COMPETITORS PRODUCTS, AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO COMPETE
EFFECTIVELY.

     Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Our principal competitors
for our Central Dispatch and Global Dispatch products include several companies
offering hardware-based server load balancing such as Alteon Web Systems (Nortel
Networks), Arrowpoint Communications (Cisco Systems), Cisco Systems, F5
Networks, Foundry Networks and Microsoft. These competitors have significantly
greater financial, technical, marketing, service and other resources than we do.

     In the future, increased competition for our Commander and Enterprise
Service Console products may come from providers of systems management products,
including Tivoli Systems, BMC Software and others, and from providers of network
management products, such as Micromuse and Visual Networks. As these providers
enhance their products to meet the needs and requirements of Internet deployed
applications and services, potential customers may choose their products over
our solutions.

     We expect to continue to face additional competition as new participants
enter the active service level management markets. In addition, other large
companies with significant resources, brand recognition and sales channels may
form alliances with or acquire competing traffic management solutions and emerge
as significant competitors. Potential competitors may bundle their products or
incorporate a load balancing or traffic management component into existing
products in a manner that discourages users from purchasing our products. In
addition, our competitors may choose to significantly reduce their prices and we
may be forced to match their price reductions in order to remain competitive.
Price reductions could significantly lower our revenue or increase our operating
losses.

     Our competitors may respond more quickly to emerging technologies than we
do. We may lose customers to competitors if we are not able to respond to
requests for additional features in a timely fashion. We may not be able to
maintain or improve our competitive position against current or potential
competitors, especially those with greater resources.

OUR SALES CYCLE IS LENGTHY AND UNPREDICTABLE, INVOLVING SIGNIFICANT EXPENSE AND
EFFORT BY US IN ADVANCE OF PRODUCT ORDERS, AND MAY CAUSE OUR OPERATING RESULTS
TO FLUCTUATE, WHICH COULD RESULT IN VOLATILITY IN OUR STOCK PRICE.

     The typical sales cycle of our active service level management products can
be lengthy and unpredictable and involves significant capital investment
decisions by prospective customers, as well as education of potential customers
regarding the benefits of our software-based solutions. The sales cycle for our
products has ranged from one to three months for sales to smaller customers to
up to one year or more for sales to large, established enterprises. As we
increasingly target enterprise customers, we expect our average sales cycle to
lengthen. If sales forecasted from specific customers for a particular quarter
are not realized in that quarter, we may be unable to compensate for the revenue
shortfall causing our operating results to vary significantly from quarter to
quarter. A significant variation in our quarterly results could result in
volatility in our stock price.

     Customers frequently begin by evaluating our products on a limited basis
before deciding to purchase them. Generally, customers consider a wide range of
issues before committing to purchase our products, including product benefits,
ability to interoperate with their networking equipment and product reliability.
While potential customers are evaluating a purchase of our products, we may
incur substantial sales and marketing expenses and expend significant management
effort. The result of making these expenditures with no corresponding revenue in
any given quarter could further exacerbate our quarterly fluctuations and our
stock price volatility.

WE RELY ON OUR RELATIONSHIPS WITH A LIMITED NUMBER OF THIRD PARTIES TO IMPLEMENT
AND PROMOTE OUR SOFTWARE PLATFORM, AND IF THESE RELATIONSHIPS FAIL, OUR REVENUE
OR OUR ABILITY TO GROW OUR REVENUE MAY DECREASE.

                                    Page 27
<PAGE>

     We depend upon our relationships with Hewlett-Packard, IBM and Sun
Microsystems to help distribute and market our products. Although we have
developed distribution and marketing relations with these three companies and a
limited number of other server system vendors, independent software vendors,
application service providers, value-added resellers, systems integrators and
web hosting services, we cannot control the amount or timing of resources that
these third parties devote to our business. We cannot assure you that the third
parties who currently market our products will do so effectively, and we may not
be able to maintain our existing relationships with these third parties. In
addition, our arrangements with third parties typically do not restrict them
from working with our competitors. In the event one or more of these third
parties were to acquire or significantly increase their relationships with one
or more of our competitors, their incentive to continue to devote their
resources to selling our products could decline and our revenue could suffer
accordingly. If any of these relationships is terminated, we may not be able to
develop or maintain substitute marketing and distribution relationships.

IF WE DO NOT EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO
SUSTAIN OR INCREASE OUR SALES WILL BE HARMED.

     In order to increase the sales of our products and services, we need to
increase both our direct and indirect sales channels. If we are unable to
increase both our direct and indirect sales channels, our ability to increase
revenue could be seriously harmed. In North America, we currently sell our
products directly and through companies with whom we have established indirect
sales channel relationships. Our sales and distribution strategy depends
principally on:

 - Developing and expanding our indirect sales and distribution channels
   by establishing relationships with leading server system vendors,
   independent software vendors, application service providers, web
   hosting services, value-added resellers and systems integrators

 - Developing and expanding our direct sales organization by hiring additional
   personnel

     Outside North America, we derive a significant portion of our revenue
through our indirect sales channels. To achieve broader distribution of our
products, we expect to continue to invest in the development of indirect sales
channels. If we fail to develop and maintain relationships with significant
server system vendors, independent software vendors, application service
providers, web hosting services, value-added resellers and systems integrators,
or if these third parties are not successful in their sales efforts or if we
fail to expand our direct sales organization, sales of our products and services
may decrease or fail to increase.

OUR EXPANSION INTO INTERNATIONAL MARKETS MAY NOT SUCCEED AND WILL EXPOSE US TO
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND RESULT IN HIGHER PERSONNEL
COSTS.

     We intend to continue to expand our sales efforts in international markets.
We have only limited experience in marketing, selling and supporting our
products internationally. Prior to 1998, we had no revenue from sales to
customers located outside North America. Sales to customers located outside
North America represented 5% of our revenue for the year ended December 31,
2000.

     In order to increase our international sales, we intend to expand the
number of relationships with third parties who sell our products internationally
and develop a direct international sales presence. We may incur higher personnel
costs establishing international offices and hiring international sales staff,
which may not result in an increase in our revenue. We may not be able to
maintain our operating margins for international sales due to the higher costs
of these sales.

     Our continued growth will require us to develop our international
operations in European and Asian countries. If we are unable to expand our
international operations successfully, and in a timely manner, our business and
results of operations may be seriously harmed. Such expansion may be more
difficult or take longer than we anticipate, and we may not be able to
successfully market, sell, deliver and support our products internationally. Our
international operations could also be affected by a number of risks and
uncertainties, including:

                                    Page 28
<PAGE>

 - The difficulties and significant costs of staffing and managing foreign
   operations

 - Unexpected changes in regulatory requirements

 - Legal uncertainties regarding liability, export and import restrictions,
   tariffs and other trade barriers

 - Reduced protection of intellectual property in other countries

 - Longer collection cycles and increased difficulty in collecting delinquent
   or unpaid accounts

 - Fluctuations in the value of the U.S. dollar relative to other currencies

 - Potentially adverse tax consequences

 - Political and economic instability

 - Costs relating to the granting of equity to international employees

     Any of these factors could impair our ability to expand our international
operations into these markets or to generate significant revenue from those
markets in which we operate.

WE MAY NOT BE ABLE TO ATTRACT, TRAIN OR RETAIN QUALIFIED ENGINEERING, SALES,
MARKETING, PROFESSIONAL SERVICES AND CUSTOMER SUPPORT PERSONNEL BECAUSE THESE
PERSONNEL ARE LIMITED IN NUMBER AND IN HIGH DEMAND.

     Our future success will depend in large part on our ability to hire and
retain a significant number of qualified personnel, particularly in engineering,
sales, marketing, professional services and customer support. Competition for
qualified personnel is intense, especially in Northern California where we are
headquartered, and we may not be able to hire the quality and number of
personnel we are targeting. Our inability to hire and retain qualified personnel
may harm our results of operations and our ability to maintain or increase
market share.

     We currently have a small professional services and customer support
organization and will need to increase our staff to support new customers and
the expanding needs of existing customers. The installation of active service
level management solutions, the integration of these solutions into existing
networks and the ongoing support can be complex. Accordingly, we need highly
trained professional services and customer support personnel. Hiring
professional services and customer support personnel is very difficult in our
industry due to the limited number of qualified candidates available.

     Our ability to attract and retain qualified personnel may be even more
difficult because potential employees may perceive the value of our future stock
option grants offered to them to be less valuable than stock option grants
offered by other companies that are not yet public. Our inability to attract,
train or retain the number of highly qualified engineering, sales, marketing,
professional services and customer support personnel that our business needs may
seriously harm our business and results of operations.

OUR INTELLECTUAL PROPERTY COULD BE USED BY OTHERS WITHOUT OUR CONSENT BECAUSE
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED.

     We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology. In addition, other


                                    Page 29
<PAGE>

parties may breach confidentiality agreements or other protective contracts we
have entered into, and we may not be able to enforce our rights in the event of
these breaches. Any actions taken by us to enforce our intellectual property
rights could result in significant expense to us and the diversion of management
time and other resources.

     In September 2000, we filed a lawsuit for patent infringement against
Alteon Websystems, which has since been acquired by Nortel Networks. This action
could require us to expend significant financial resources to protect our
intellectual property, and may consume valuable management time. The litigation
is currently in the discovery phase and a trial date has been set for the summer
of 2002.

     Monitoring use of our products is difficult and we cannot be certain that
the steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.

OUR RECENT GROWTH HAS PLACED A SIGNIFICANT STRAIN ON OUR MANAGEMENT, SYSTEMS AND
RESOURCES, AND WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR EXPECTED GROWTH.

     Since the introduction of our product line, we have experienced a period of
rapid growth and expansion that has placed, and continues to place, a
significant strain on all of our management, systems and resources. We have
increased the number of our employees from 42 at December 31, 1997 to 245 at
December 31, 2000. We expect our growth to continue to strain our management,
operational and financial resources. For example, we may not be able to install
adequate financial control systems in an efficient and timely manner, and our
current or planned information systems, procedures and controls may be
inadequate to support our future operations. The difficulties associated with
installing and implementing new systems, procedures and controls may place a
significant burden on our management and our internal resources. If we are
unable to manage our growth effectively, our business and results of operations
may be seriously harmed.

WE DEPEND ON OUR KEY PERSONNEL AND LOSS OF ANY KEY PERSONNEL MAY HARM OUR
BUSINESS AND RESULTS OF OPERATIONS.

     Our success depends to a significant degree upon the continued
contributions of our key management, product development, sales and marketing
and finance personnel, many of whom would be difficult to replace. Competition
for qualified key personnel is intense, especially in Northern California where
we are headquartered, and we may not be able to hire the quality of key
personnel we are targeting. If we were to lose the services of key personnel, we
may not be able to successfully execute our new product strategies, sales and
marketing initiatives and financial business models. In particular, we rely on
our President and Chief Executive Officer, Peter Watkins. If we were to lose the
services of Mr. Watkins, our business and results of operations could be harmed.
Other than Mr. Watkins, we do not maintain employment agreements for any of our
key personnel. We do not maintain key person life insurance for any of our
personnel.

THE DEVELOPMENT OF NEW OPERATING SYSTEMS, THE EMERGENCE OF NEW NETWORK STANDARDS
OR THE DISCONTINUATION OF SUPPORT FOR A GIVEN STANDARD COULD CAUSE OUR PRODUCTS
TO BECOME OBSOLETE, LESS COMPETITIVE OR REQUIRE US TO REDESIGN OUR PRODUCTS.

     Our products operate on Solaris, Windows NT, AIX, Linux and HP/UX operating
systems, and features of our products are dependent upon the network standards
used by a customer. If new operating systems are developed or new network
standards emerge, our failure to modify our products in a timely or cost
effective manner could limit our potential customer base, which would adversely
affect our ability to increase our revenue. Furthermore, we will need to modify
our products or develop new versions of our products as new versions of
operating systems are developed. Similarly, if we decide to discontinue support
of a given standard, those customers or potential customers who utilize that
standard may be unable or unwilling to buy our solutions. If we fail to continue
to develop new products to respond to changes in computer networks and operating
systems, or if we determine not to continue to support an operating system, our
ability to grow our business will suffer.

                                    Page 30
<PAGE>

UNDETECTED SOFTWARE ERRORS IN OUR PRODUCTS COULD HARM OUR REPUTATION AND CAUSE
US TO INCUR SIGNIFICANT WARRANTY AND REPAIR COSTS.

     Software products frequently contain undetected errors when first
introduced or as new versions are released. We have experienced these errors in
the past in connection with new products and product upgrades. We expect that
these errors will be found from time to time in new or enhanced products after
commencement of commercial shipments. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.

BECAUSE OUR PRODUCTS COULD INTERFERE WITH THE OPERATIONS OF OUR CUSTOMERS' OTHER
SOFTWARE APPLICATIONS, WE MAY BE SUBJECT TO POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS BY THESE CUSTOMERS, WHICH MAY BE COSTLY AND MAY NOT BE
ADEQUATELY COVERED BY INSURANCE.

     Our products are integrated with our customers' networks and software
applications. The sale and support of our products may entail the risk of
product liability or warranty claims. Any of these claims, even if not
meritorious, could result in costly litigation or divert management's attention
and resources. Although we carry general liability insurance, our current
insurance coverage would likely be insufficient to protect us from all liability
that may be imposed under these types of claims. A material product liability
claim may seriously harm our results of operations.

OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE AND ROYALTY ARRANGEMENTS.

     Our industry is characterized by the existence of a large number of patents
and frequent litigation based on allegations of patent infringement and the
violation of other intellectual property rights. We may be subject to legal
proceedings and claims for alleged infringement by us or our licensees of third
party proprietary rights, such as patents, trademarks or copyrights, from time
to time in the ordinary course of business. Any claims relating to the
infringement of third party proprietary rights, even if not meritorious, could
result in costly litigation, divert management's attention and resources, or
require us to enter into royalty or license agreements that are not advantageous
to us. In addition, parties making these claims may be able to obtain an
injunction, which could prevent us from selling our products in the United
States or abroad. Any of these results could harm our business. We may
increasingly be subject to infringement claims as the number of products and
competitors in our industry grows and functionalities of products overlap.
Former employers of our current and future employees may assert that our
employees have improperly disclosed confidential or proprietary information to
us.

OUR PRODUCTS INCORPORATE THE JAVA RUN TIME ENVIRONMENT, WHICH WE LICENSE FROM
SUN MICROSYSTEMS, AND OUR PRODUCT SHIPMENTS COULD BE DELAYED IF THAT SOFTWARE IS
NO LONGER AVAILABLE TO US.

     Our products incorporate the Java run time environment, which we license
from Sun Microsystems. This third party software may not continue to be
available to us on commercially reasonable terms. If we cannot maintain our
license to Sun's Java run time environment, shipments of our products could be
delayed until we could develop or license software to replace the functionality
provided by this license and integrate that software into our products. Delays
in product shipments could harm our revenue.

A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS BECAUSE WE DO NOT HAVE A
SEPARATE GEOGRAPHICALLY LOCATED BACKUP SYSTEM.

     We currently do not have fully redundant systems for our service at an
alternate site. All of our primary computer systems are located in our principal
headquarters in Sunnyvale, California. Sunnyvale exists on or near a known
earthquake fault zone. Although our facility which hosts our computer systems,
is designed to be fault tolerant, the system is vulnerable to damage from fire,
floods, earthquakes, power loss, telecommunications failures, and similar
events. Although we maintain general business insurance against fires, floods


                                    Page 31
<PAGE>

and some general business interruptions, there can be no assurance that the
amount of coverage will be adequate in any particular case.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

     California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. We currently do not have
backup generators or alternate sources of power in the event of a blackout, and
our current insurance does not provide coverage for any damages we or our
customers may suffer as a result of any interruption in our power supply. If
blackouts interrupt our power supply, we would be temporarily unable to continue
operations at our facilities. Any such interruption in our ability to continue
operations at our facilities could damage our reputation, harm our ability to
retain existing customers and to obtain new customers, and could result in lost
revenue, any of which could substantially harm our business and results of
operations.

     Furthermore, the deregulation of the energy industry instituted in 1996 by
the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. If wholesale prices continue to increase, our operating expenses will
likely increase, as all of our facilities are located in California.

WE MAY NEED TO RAISE ADDITIONAL FUNDS, WHICH MAY NOT BE AVAILABLE ON TERMS
FAVORABLE TO US, IF AT ALL.

     We believe that our cash from operations and our initial public offering
will be sufficient to meet our working capital and capital expenditure needs for
at least the next twelve months. The estimate of the time period in which our
cash resources will be sufficient to meet our working capital and capital
expenditure needs is a forward looking statement that involves risks and
uncertainties. Our actual funding requirements may differ materially from this
as a result of a number of factors, including our development and introductions
of new products and expansion in the number of our personnel. We may need to
raise additional funds prior to the end of the next twelve months or at a later
date. We cannot assure you that any additional financing we may need will be
available on terms favorable to us, if at all.

     Further, if we issue additional equity securities, stockholders may
experience dilution, and the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our common stock. If we
cannot raise funds on acceptable terms, we may not be able to develop new
products or enhance our existing products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.

OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS AND THEIR AFFILIATES ARE
ABLE TO EXERCISE SIGNIFICANT CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER
APPROVAL.

     As of March 2, 2001, our executive officers, directors and 5% stockholders
and their affiliates beneficially own, in the aggregate, approximately 62.4% of
our outstanding common stock. As a result, these stockholders are able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which may have the effect of delaying or preventing a third party
from acquiring control over us even if our other stockholders believe that it is
desirable.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR STOCK PRICE
VOLATILITY.

     The market price of our common stock has fluctuated and may continue to
fluctuate significantly in response to a number of factors such as changes in
accounting rules and regulations, market trends and company performance, some of
which are beyond our control. In the past, securities class action litigation


                                    Page 32
<PAGE>

has often been brought against a company following periods of volatility in the
market price of its securities. We may in the future be the target of similar
litigation. Regardless of its outcome, securities litigation may result in
substantial costs and divert management's attention and resources, which could
harm our business and results of operations.

     If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. In addition, such sales could create the
perception to the public of difficulties or problems with our products. As a
result, these sales might also make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.

WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS, CAUSE US TO
INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.

     We may acquire businesses, products or technologies that we believe may
complement our current product offerings, augment our market coverage or enhance
our technical capabilities, or that may otherwise offer growth opportunities.
While we have no current agreements with respect to any acquisitions, we may
acquire businesses, products or technologies in the future. We may not be able
to successfully integrate any businesses, products, technologies, or personnel
that we might acquire in the future, and our failure to do so could harm our
business. Furthermore, we may issue equity securities to pay for any future
acquisitions which could be dilutive to our existing stockholders.

WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM OUR INITIAL PUBLIC OFFERING
AND MAY NOT USE THE PROCEEDS EFFECTIVELY.

     The net proceeds from our initial public offering, which closed in August
2000, are not allocated for specific uses other than working capital and general
corporate purposes. Thus, our management has broad discretion over how these
proceeds are used and could spend most of these proceeds in ways with which our
stockholders may not agree.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN
ACQUISITION OF OUR COMPANY.

     Our certificate of incorporation and bylaws contain provisions which could
make it harder for a third party to acquire us without the consent of our board
of directors. For example, if a potential acquiror were to make a hostile bid
for us, the acquiror would not be able to call a special meeting of stockholders
to remove members of our board of directors or act by written consent without a
meeting. In addition, our board of directors have staggered terms which makes it
difficult to remove them all at once. The acquiror would also be required to
provide advance notice of its proposal to remove directors at an annual meeting.
The acquiror also will not be able to cumulate votes at a meeting, which will
require the acquiror to hold more shares to gain representation on the board of
directors than if cumulative voting were permitted.

     Our board of directors also has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporations Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial to some stockholders.

     Our board of directors could choose not to negotiate with an acquiror that
it does not feel is in the strategic interests of Resonate. If the acquiror was
discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition by the anti-takeover measures, our stockholders
could lose the opportunity to sell their shares at a favorable price.


                                    Page 33
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     To date, all of our recognized revenue has been denominated in U.S. dollars
and primarily from customers in the United States, and our exposure to foreign
currency exchange rate changes has been immaterial. We expect, however, that an
increasing percentage of our future product and services revenue may come from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to significant
fluctuations based upon changes in the exchange rates of some currencies in
relation to the U.S. dollar. Although we will continue to monitor our exposure
to currency fluctuations, and, when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, we cannot
assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.

     We maintain an investment portfolio of various issuers, types and
maturities. Our investment portfolio consists of both fixed and variable rate
financial instruments. These securities are classified as available-for-sale,
and consequently, are recorded on the balance sheet at fair value. At any time,
a sharp rise in interest rates could seriously harm the fair value of our
investment portfolio. Conversely, declines in interest rates could seriously
harm interest earnings of our investment portfolio. Currently, we do not hedge
these interest rate exposures.

     As of December 31, 2000, we had total short-term debt outstanding of $2.8
million and long-term debt outstanding of $2.4 million, which bear interest
rates that are tied to the prime rate. Therefore, we are subject to exposure to
interest rate risk for these borrowings based on fluctuations in the prime rate.
Based upon the outstanding indebtedness under these arrangements, an increase in
the prime rate of 0.5% would cause a corresponding increase in our annual
interest expense of approximately $26,000.



                                    Page 34
<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<S>                                                                                                           <C>
Report of Independent Accountants ........................................................................    36

Consolidated Balance Sheets at December 31, 2000 and 1999 ................................................    37

Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000 ..    38

Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended
     December 31, 2000....................................................................................    39

Consolidated Statements of Cash Flows for each of the three years in the period ended
     December 31, 2000 ...................................................................................    40

Notes to the Consolidated Financial Statements ...........................................................    41
</TABLE>







                                    Page 35
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Stockholders of Resonate Inc.


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Resonate Inc. at December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 69 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.




/s/PricewaterhouseCoopers LLP
San Jose, California
January 16, 2001






                                    Page 36
<PAGE>

                                  RESONATE INC.
                           CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                         December 31,      December 31,
                                                             2000              1999
                                                          -----------      -----------
<S>                                                       <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                              $    76,053      $     5,011
   Short-term investments                                      32,981            6,988
   Accounts receivable, net                                     6,189            3,751
   Prepaid expenses and other current assets                    1,413              320
                                                          -----------      -----------
     Total current assets                                     116,636           16,070

Property and equipment, net                                     5,089            2,160
Other assets                                                      218              156
                                                          -----------      -----------

       Total assets                                       $   121,943      $    18,386
                                                          ===========      ===========

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Debt, current                                          $     2,793      $     1,725
   Accounts payable                                             1,132              983
   Accrued liabilities                                          3,875            1,635
   Deferred revenue                                             4,996            3,399
   Capital lease obligation, current                            1,091              654
                                                          -----------      -----------
     Total current liabilities                                 13,887            8,396

Debt, long-term                                                 2,418            2,422
Capital lease obligation, long-term                               471              924
                                                          -----------      -----------
       Total liabilities                                       16,776           11,742
                                                          -----------      -----------

Mandatorily redeemable convertible preferred stock;
   no par value; No shares authorized, issued and
   outstanding at December 31, 2000; 10,035,328 shares
   authorized at December 31, 1999; 9,793,440 shares
   issued and outstanding at December 31, 1999                     --           28,027
Mandatorily redeemable convertible preferred stock warrants        --              374
                                                          -----------      -----------
                                                                   --           28,401
                                                          -----------      -----------
Commitments & Contingencies (Note 10)
Stockholders' equity (deficit):
     Series A convertible preferred stock; $0.0001 par
       value; No shares authorized, issued and
       outstanding at December 31, 2000; 1,891,227 shares
       authorized at December 31, 1999; 1,827,472
       shares issued and outstanding at December 31, 1999          --               --
     Preferred stock; $0.0001 par value, 10,000,000 shares
       authorized at December 31, 2000; no shares
       issued and outstanding at December 31, 2000                 --               --
     Common stock; $0.0001 par value; 200,000,000 and
       50,000,000 shares authorized at December 31, 2000
       and 1999, respectively; 27,402,104 and 7,847,454
       shares issued and outstanding at December 31, 2000
       and 1999, respectively                                       3                1
     Additional paid-in capital                               195,120           29,371
     Notes receivable from stockholders                        (1,055)            (755)
     Unearned stock-based compensation                        (14,360)         (18,948)
     Accumulated deficit                                      (74,541)         (31,426)
                                                          -----------      -----------
       Total stockholders' equity (deficit)                   105,167          (21,757)
                                                          -----------      -----------

       Total liabilities, mandatorily redeemable
         convertible preferred stock and stockholders'
         equity (deficit)                                 $   121,943      $    18,386
                                                          ===========      ===========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                    Page 37
<PAGE>



                                  RESONATE INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                     <C>             <C>             <C>
Revenue:
    Product   .......................................................   $   14,867      $   8,004       $  2,373
    Services  .......................................................        5,127          1,910            322
                                                                         ---------      ---------       --------
       Total revenue.................................................       19,994          9,914          2,695
                                                                         ---------      ---------       --------
Cost of revenue:
    Product   .......................................................          321             62             37
    Services  (including stock-based compensation of $1,610; $306
          and $4, respectively)......................................        6,526          1,348            286
                                                                         ---------      ---------       --------
       Total cost of revenue.........................................        6,847          1,410            323
                                                                         ---------      ---------       --------
Gross profit.........................................................       13,147          8,504          2,372
Operating expenses:
    Research and development (including stock-based compensation
          of $3,509; $1,169 and $101, respectively)..................       16,273          7,976          3,319
    Sales and marketing (including stock-based compensation of
          $5,145; $2,177 and $379, respectively).....................       31,939         13,517          5,118
    General and administrative (including stock-based compensation
          of $4,273; $2,136 and $394, respectively)..................       10,469          5,770          1,740
                                                                         ---------      ---------       --------
       Total operating expenses......................................       58,681         27,263         10,177
                                                                         ---------      ---------       --------
Loss from operations.................................................      (45,534)       (18,759)        (7,805)
Interest and other income............................................        3,345            506            200
Interest and other expenses..........................................         (926)          (612)           (66)
                                                                         ---------      ---------       --------
Net loss  ...........................................................      (43,115)       (18,865)        (7,671)
Beneficial conversion of Series F preferred stock....................        6,750             --             --
                                                                         ---------      ---------       --------
Net loss attributable to common stockholders.........................    $ (49,865)     $ (18,865)      $ (7,671)
                                                                         ==========     ==========      =========

Net loss per share attributable to common stockholders:
    Basic and diluted................................................    $  (3.41)      $  (4.18)       $ (1.90)
                                                                         =========      =========       ========
    Weighted average shares..........................................       14,609          4,513          4,048
                                                                         =========      =========       ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements




                                    Page 38
<PAGE>

                                  RESONATE INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (in thousands)

<TABLE>
<CAPTION>

                              Convertible                                      Notes       Unearned
                               Preferred      Common Stock    Additional   Receivable        Stock
                            ---------------  ---------------  Paid-infrom     from           Based       Accumulated
                            Shares   Amount  Shares   Amount    Capital    Stockholders   Compensation     Deficit       Total
                            ------   ------  ------   ------  -----------  -------------  -------------  ------------  ---------
<S>                         <C>      <C>      <C>     <C>     <C>          <C>            <C>            <C>           <C>
Balances,
     December 31, 1997...    1,814   $   --   4,571   $   --  $     1,760  $          --  $          --  $     (4,890) $  (3,130)

Accretion of mandatorily
     redeemable convertible
     preferred stock.....       --       --      --       --         (100)            --             --           --        (100)

Issuance of common stock
     upon exercise of stock
     options.............       --       --     293       --           16             --             --           --          16

Repurchase of common
     stock...............       --       --    (141)      --           --             --             --           --          --

Issuance of Series A
     convertible preferred
     upon exercise of
     warrant.............        1       --      --       --            1             --             --           --           1

Unearned stock-based
     compensation........       --       --      --       --        4,064             --         (4,064)          --          --

Stock-based
     compensation........       --       --      --       --           --             --            878           --         878

Net loss.................       --       --      --       --           --             --             --       (7,671)     (7,671)
                             -----    -----   -----    -----     --------       --------       --------    ---------    --------

Balances,
     December 31, 1998...    1,815       --   4,723       --        5,741             --         (3,186)     (12,561)    (10,006)

Accretion of mandatorily
     redeemable convertible
     preferred stock.....       --       --      --       --          (38)            --             --           --         (38)

Issuance of common
     stock upon
     exercise of
     stock options.......       --       --   3,124        1        1,460           (755)            --           --         706

Issuance of Series A
     convertible preferred
     upon exercise
     of warrant..........       12       --      --       --           12             --             --           --          12

Issuance of stock
     options for services
     to non-employees....       --       --      --       --          646             --             --           --         646

Unearned stock-based
     compensation........       --       --      --       --       21,550             --        (21,550)          --          --

Stock-based
     compensation........       --       --      --       --           --             --          5,788           --       5,788

Net loss.................       --       --      --       --           --             --             --      (18,865)    (18,865)
                             -----    -----   -----    -----     --------       --------       --------    ---------    --------

Balances,
     December 31, 1999...    1,827       --   7,847        1       29,371           (755)       (18,948)     (31,426)    (21,757)

Issuance of common
     stock upon exercise
     of stock options....       --       --     836       --        1,167           (300)            --           --         867

Issuance of stock
     options for services
     to non-employees....       --       --      --       --          760             --           (142)          --         618

Issuance of common
     stock for services
     to non-employees....       --       --       7       --          128             --             --           --         128

Issuance of Series A
     convertible preferred
     upon exercise of
     warrant.............        7       --      --       --            6             --             --           --           6

Issuance of common
     stock warrants......       --       --      --       --          464             --             --           --         464

Issuance of common
     stock upon exercise
     of warrants.........       --       --     363       --           30             --             --           --          30

Issuance of common
     stock upon initial
     public offering, net
     of issuance costs
     of $8,572...........       --       --   4,600        1       88,028             --             --           --      88,029

Conversion of Series A
     convertible preferred
     stock upon initial
     public offering.....   (1,834)      --   1,834       --           --             --             --           --          --

Conversion of mandatorily
     redeemable preferred
     stock upon initial
     public offering.....       --       --  11,915        1       65,359             --             --           --      65,360

Unearned stock-based
     compensation........       --       --      --       --        9,807             --         (9,807)          --          --

Stock-based
     compensation........       --       --      --       --           --             --         14,537           --      14,537

Beneficial conversion
     feature of Series F
     preferred stock.....       --       --      --       --       (6,750)            --             --           --      (6,750)

Allocation of discount
     on Series F
     preferred stock.....       --       --      --       --        6,750             --             --           --       6,750

Net loss.................       --       --      --       --           --             --             --      (43,115)    (49,865)
                             -----    -----   -----    -----     --------       --------       --------    ---------    --------
Balances,
     December 31, 2000...       --       --  27,402   $    3    $ 195,120      $  (1,055)     $ (14,360)  $  (74,541)  $ 105,167
                             =====    =====   =====    =====     ========       ========       ========    =========    ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                    Page 39
<PAGE>


                                  RESONATE INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss .......................................................    $ (43,115)     $ (18,865)     $  (7,671)
     Adjustments to reconcile net loss to net cash used in
           operating activities:
         Depreciation and amortization...............................        2,165            801            359
         Loss on disposal of property and equipment..................           --             --            (33)
         Provision for doubtful accounts.............................          456             79             21
         Stock-based compensation....................................       14,537          5,788            878
         Issuance of stock and stock options for services............          746            646             --
         Warrant related non-cash interest expense...................          125            125             --
         Changes in operating assets and liabilities:
              Accounts receivable....................................       (2,894)        (2,225)        (1,513)
              Prepaid expenses and other current assets..............       (1,093)          (117)          (105)
              Other assets...........................................          (62)            --           (156)
              Accounts payable.......................................          149            697             32
              Accrued liabilities....................................        2,240          1,039            282
              Deferred revenue.......................................        2,061          2,614            702
                                                                         ---------      ---------       --------
     Net cash used in operating activities...........................      (24,685)        (9,418)        (7,204)
                                                                         ---------      ---------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment..............................       (4,046)           (46)          (905)
     Proceeds from disposal of property and equipment................           --             --             86
     Purchase of short-term investments..............................      (41,034)        (6,988)           --
     Proceeds from maturities or sales of short-term investments.....       15,000             --            --
                                                                         ---------      ---------       --------
     Net cash used in investing activities...........................      (30,080)        (7,034)          (819)
                                                                         ---------      ---------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock in initial public
         offering, net of issuance costs.............................       88,029             --             --
     Proceeds from issuance of mandatorily redeemable convertible
         preferred stock, net of issuance costs......................       37,000         12,982          9,701
     Proceeds from issuance of long-term debt........................        3,001          4,910            453
     Repayments of long-term debt....................................       (2,048)        (1,205)          (153)
     Borrowings under working capital line of credit.................           --             --          1,000
     Repayments of borrowings under working capital line of credit...           --             --         (1,000)
     Principal payments under capital lease obligations..............       (1,078)          (264)           (16)
     Proceeds from the exercise of stock warrants....................           36             12              1
     Proceeds from the issuance of common stock upon exercise
         of stock options............................................          867            706             16
                                                                         ---------      ---------       --------
     Net cash provided by financing activities.......................      125,807         17,141         10,002

Net increase in cash and cash equivalents............................       71,042            689          1,979
Cash and cash equivalents at beginning of year.......................        5,011          4,322          2,343
                                                                         ---------      ---------       --------
Cash and cash equivalents at end of year.............................   $   76,053      $   5,011       $  4,322
                                                                        ==========      =========       ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.




                                    Page 40
<PAGE>


                                  RESONATE INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      THE COMPANY

     Resonate Inc. (the "Company") was incorporated in July 1995 under the laws
of the State of California. The Company develops and markets a family of
software products and services that ensure high levels of availability and
performance for Internet, intranet and extranet applications. The Company's
family of software products integrates network traffic management and systems
monitoring and management functions, which together provide real time
monitoring, reporting and automated service level control of eBusiness
applications.

     REINCORPORATION

       In March 2000, the Company's Board of Directors authorized and in July
2000, the stockholders approved the reincorporation of the Company in the State
of Delaware. As a result of the reincorporation, the Company is authorized to
issue 200,000,000 shares of $0.0001 par value Common Stock and 10,000,000 shares
of $0.0001 par value Preferred Stock. The Board of Directors has the authority
to issue undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof. Share and per share
information for each of the periods presented has been retroactively adjusted to
reflect the reincorporation.

     BASIS OF PRESENTATION

     The consolidated financial statements include our accounts and the accounts
of our wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. The functional currency of the Company's
foreign subsidiaries is the local currency. Accordingly, the Company applies the
current exchange rate to translate foreign subsidiaries' assets and liabilities
and weighted average exchanges rate to translate the subsidiaries' revenues,
expenses, gains and losses into United States dollars. Translation adjustments
are immaterial and are included in the consolidated statements of operations.

     USE OF ESTIMATES

       The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

     REVENUE RECOGNITION

     The Company derives revenue from licenses of its software and related
services, which include implementation and integration services, technical
services, training and consulting. Revenue is recognized when there is
persuasive evidence of an arrangement for a fixed and determinable fee that is
probable of collection and when delivery and installation has occurred. We
generally recognize revenue under the residual method as prescribed by Statement
of Position No. 97-2 " Software Revenue Recognition" and Statement of Position
No. 98-9 "Modification of SOP No. 97-2 with Respect for Certain Transactions"
whereby revenue is allocated to each undelivered element based upon the fair
value of each element when sold separately and the residual amount is then
allocated to the delivered element.

     The Company has also entered into a limited number of contracts which
involve significant implementation or customization essential to the
functionality of our product. Product and services revenue under such
arrangements is recognized under the percentage-of-completion method using labor


                                    Page 41
<PAGE>

hours incurred as the measure of progress towards completion. The Company
classifies revenue from these arrangements as product and services revenue,
respectively, based upon the estimated fair value of each element. Provisions
for estimated contract losses are recognized in the period in which the loss
becomes probable and can be reasonably estimated.

     Product revenue from existing reseller arrangements is recognized when
reported by the reseller upon re-licensing of the Company's software to
end-users. The Company's agreements with its customers and resellers do not
contain product return rights.

     For arrangements with extended payment terms, revenue is recognized at the
earlier of when the payment is due or when the cash is received.

     The Company also derives revenue from providing access to our products for
a specified period of time. Revenue is recognized on such arrangements as the
license fees become due and payable. No revenue was recognized under such
arrangements during 1999. For the year ended December 31, 2000, revenue
recognized under such arrangements was not significant.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or 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. We have
complied with the guidance in SAB 101.

     Services revenue consists of professional services and maintenance fees.
Professional services primarily consist of software installation and
integration, consulting and training. Professional services revenue is
recognized as such services are performed. Services revenue from maintenance
agreements, which include services such as technical product support and
unspecified product upgrades, are recognized ratably over the term of the
agreement, generally one year.

     CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of acquisition to be cash
equivalents; those with original maturities greater than three months and
current maturities less than twelve months from the balance sheet date are
considered short-term investments. Cash equivalents and short-term investments
are considered available-for-sale securities and are carried at cost, which
approximates fair value. The Company's investment portfolio consists of both
fixed and variable rate financial instruments, including commercial paper, money
market funds, government agency securities and highly rated corporate bonds and
notes.

     The following schedule summarizes the estimated fair value of the Company's
cash, cash equivalents and short-term investments (in thousands):

                                                          DECEMBER 31,
                                                 ---------------------------
                                                    2000              1999
                                                 ----------        ---------
CASH AND CASH EQUIVALENTS:
     Cash.....................................   $      (74)       $     430
     Commercial paper.........................       54,686               --
     Money market funds.......................        1,251            2,564
     Auction rate preferred stock.............           --            1,996
     Certificates of deposit..................       20,190               21
                                                 ----------        ---------
                                                 $   76,053        $   5,011
                                                 ==========        =========




                                    Page 42
<PAGE>

SHORT-TERM INVESTMENTS
     Commercial paper.........................   $   22,967        $   2,000
     Corporate notes..........................        5,000            1,000
     Corporate bonds..........................        1,014              997
     U.S. government debt securities..........        4,000            1,992
     Medium term notes........................           --              999
                                                 ----------        ---------
                                                 $   32,981        $   6,988
                                                 ==========        =========

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. The Company limits its exposure to credit loss by placing
its cash, cash equivalents and short-term investments with major financial
institutions. The Company's accounts receivable are derived from revenue earned
from customers located primarily in the U.S., and to a lesser extent, in Brazil,
Canada, Europe and Asia. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.

     During the year ended December 31, 2000, one individual customer accounted
for 15% of the Company's total revenue. During the years ended December 31, 1999
and 1998, respectively, no individual customer accounted for more than 10% of
the Company's total revenue.

     At December 31, 2000, no individual customers accounted for more than 10%
of total accounts receivable. At December 31, 1999, one individual customer
accounted for 16% of total accounts receivable.

     FAIR VALUE OF INSTRUMENTS

     The Company's financial instruments including cash equivalents, short-term
investments, accounts receivable and accounts payable, are carried at cost,
which approximates fair value due to the short-term maturity of these
instruments. Debt and capital lease obligations are carried at cost, which
approximates fair value due to the proximity of the implicit rates of these
financial instruments and the prevailing market rates for similar instruments.

     PROPERTY AND EQUIPMENT

     Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the useful lives of the assets, generally three to
five years, or the lease term of the respective assets, whichever is shorter.

     SOFTWARE DEVELOPMENT COSTS

     Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility which the Company defines as the establishment of a
working model, until the general availability of such software to customers, has
been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs since its inception.

     STOCK-BASED COMPENSATION

     The Company accounts for stock-based awards to employees in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and complies with the disclosure


                                    Page 43
<PAGE>

provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under APB 25, unearned stock-
based compensation is based on the difference, if any, on the date of the grant,
between the fair value of the Company's stock and the exercise price. Unearned
stock-based compensation is amortized and expensed in accordance with Financial
Accounting Standards Board Interpretation No. 28 using the multiple-option
approach. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus
on Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling Goods or Services."
The Company uses the Black-Scholes option pricing model to value options granted
to consultants.

     NET LOSS PER SHARE

     Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
common stock outstanding during the period excluding shares of common stock
subject to repurchase. Diluted net loss per share is the same as basic net loss
per share because the calculation of diluted net loss per share excludes
potential shares of common stock since their effect is antidilutive.

     The following table sets forth the computation of basic and diluted net
loss per share available to common stockholders for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                              -----------------------------------
                                                                2000          1999         1998
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Net loss                                                      $ (43,115)   $ (18,865)   $ (7,671)
Beneficial conversion of Series F preferred stock                 6,750           --           --
                                                              ---------    ---------    ---------
Net loss attributable to common stockholders                  $ (49,865)   $ (18,865)   $ (7,671)
                                                              ==========   =========    ========

Basic and diluted:
     Weighted average shares                                     16,029        6,514        4,615
       Weighted average common stock subject to repurchase       (1,420)      (2,001)        (567)
                                                              ----------   ---------    ---------
     Shares used in computing basic and diluted net
         loss per share attributable to common stockholders      14,609        4,513        4,048
                                                              =========    =========    =========

     Basic and diluted net loss per share attributable to
            common stockholders                               $  (3.41)    $  (4.18)    $    (1.90)
                                                              =========    =========    ==========
</TABLE>

     The following table sets forth the weighted average potential shares of
common stock that are not included in the basic and diluted net loss per share
available to common stockholders calculation above because to do so would be
antidilutive (in thousands):
<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                              -----------------------------------
                                                                2000          1999         1998
                                                              ---------    ---------    ---------
<S>                                                               <C>         <C>           <C>
Weighted average effect of common stock equivalents:
     Preferred stock                                              7,152       10,328        7,347
     Warrants                                                       279          342          147
     Employee stock options                                       2,420        1,764        1,260
     Common Stock subject to repurchase agreements                1,420        2,001          567
                                                              ---------    ---------    ---------
                                                                 11,271       14,435        9,321
                                                              =========    =========    =========
</TABLE>

     COMPREHENSIVE INCOME

     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires the
disclosure of comprehensive income and its components in a full set of


                                    Page 44
<PAGE>

general-purpose financial statements. Comprehensive income, as defined, includes
all changes in equity (net assets) during the period from non-owner sources. To
date, the Company has not had any material transactions that are required to be
reported in comprehensive income.

     SEGMENT INFORMATION

     During the period presented, the Company operated in a single business
segment primarily in the United States. Through December 31, 2000, foreign
operations were not significant in either revenue or investment in long-lived
assets.

     RECLASSIFICATION

Certain reclassifications have been made to the prior year financial statements
to conform to the current period presentation.

     RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. In July
1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB No. 133." SFAS 137 deferred the effective date of SFAS 133 until
the first quarter of the fiscal year beginning after June 15, 2000. We will
adopt SFAS 133 in the quarter ending March 31, 2001. We did not engage in
hedging activities or invested in derivative instruments and accordingly, SFAS
133 did not have a material impact on our financial statements.

     In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25." ("FIN 44) FIN 44
clarifies the definition of employee for purposes of applying APB Opinion No.
25, "Accounting for Stock Issued to Employees," the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January 12,
2000. The adoption of FIN 44 did not have a material impact on our financial
position or results of operations.


2. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>             <C>
Supplemental cash flow information:
     Cash paid for interest..........................................    $     664      $     488       $     67
                                                                         =========      =========       ========

Supplemental non-cash investing and financing activity:
     Issuance of warrants to purchase Series C mandatorily
         redeemable convertible preferred stock in connection with
         subordinated debt...........................................    $      --      $     259       $    115
                                                                         =========      =========       ========
     Issuance of warrants to purchase common stock in connection with
         strategic partnership.......................................    $     464      $      --       $     --
                                                                         =========      =========       ========
     Capital lease obligations.......................................    $   1,048      $   1,664       $    225
                                                                         =========      =========       ========
     Common stock issued in exchange for notes receivable............    $     300      $     755       $     --
                                                                         =========      =========       ========
</TABLE>




                                    Page 45
<PAGE>

3. BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2000              1999
                                                                                     ----------        ---------
<S>                                                                                  <C>               <C>
Accounts receivable, net
     Accounts receivable..........................................................   $    6,589        $   3,851
     Less: Allowance for doubtful accounts........................................         (400)            (100)
                                                                                     ----------        ---------
                                                                                     $    6,189        $   3,751
                                                                                     ==========        =========
Property and equipment, net
     Computer equipment and software..............................................   $    7,669        $   2,708
     Furniture and fixtures.......................................................          302              577
     Leasehold improvements.......................................................          588              180
                                                                                     ----------        ---------
                                                                                          8,559            3,465
     Less: Accumulated depreciation and amortization                                     (3,470)          (1,305)
                                                                                     ----------        ---------
                                                                                     $    5,089        $   2,160
                                                                                     ==========        =========

     Property and equipment includes $2,210,000 and $1,888,000 of fixed assets
under capital lease at December 31, 2000 and 1999, respectively. Accumulated
depreciation of assets under capital lease totaled $1,117,000 and $354,000 at
December 31, 2000 and 1999, respectively.

Accrued liabilities
     Accrued compensation and related benefits....................................   $    3,217        $   1,263
     Accrued professional services................................................          170              106
     Other........................................................................          488              266
                                                                                     ----------        ---------
                                                                                     $    3,875        $   1,635
                                                                                     ==========        =========


4. FINANCING ARRANGEMENTS (IN THOUSANDS):

                                                                                             DECEMBER 31,
                                                                                        2000              1999
                                                                                     ----------        ---------

Equipment line of credit #1, due in equal monthly installments of $4,167
     comprising Principal, through June 2000 bearing interest at the bank's
     prime rate plus 2%
     (totaling 10.5% at 1999).....................................................   $       --        $      25
Equipment line of credit #2, due in equal monthly installments of $9,722 comprising
     Principal, through March 2001 bearing interest at the bank's prime rate plus 1.5%
     (totaling 10% at 1999).......................................................           --              130
Equipment line of credit #3, due in equal monthly installments of $14,706 comprising
     Principal, through March 2002 bearing interest at the bank's prime rate plus 0.5%
     (totaling 9% at 1999)........................................................           --              397
Equipment line of credit #4, expiring June 2002 bearing interest at the bank's prime
     rate plus 0.5% (totaling 10% at 2000)........................................        3,024               --
Subordinated debt in equal monthly installments of $83,173 and $33,511, comprising
     Principal and interest, through March 2002, bearing interest at 12% and 12.5%
     per annum, respectively......................................................        1,616            2,745
Subordinated debt in equal monthly installments of $41,716, comprising principal and
     interest, through June 2002, bearing interest at 12.5% per annum.............          681            1,070
                                                                                     ----------        ---------
                                                                                          5,321            4,367
Deferred debt issuance costs                                                               (110)            (220)
                                                                                     ----------        ---------
                                                                                          5,211            4,147
Less: current portion                                                                     2,793            1,725
                                                                                     ----------        ---------
                                                                                     $    2,418        $   2,422
                                                                                     ==========        =========
</TABLE>

In June 2000, the Company combined equipment lines of credit #1, #2 and #3 into
a single equipment line, equipment line of credit #4, which permits borrowings
of up to $3 million. The balances of lines of credit #1, #2 and #3 totaling


                                    Page 46
<PAGE>

$190,000 at December 31, 2000 are now due under equipment line of credit #4 in
equal monthly installments of $31,743 comprising principal, through May 2001
bearing interest at the bank's prime rate plus 0.5% (totaling 10% at December
31, 2000). Additionally, new borrowings under equipment line of credit #4 are
subject to interest only at the bank's prime rate plus 0.5% until May 2001 at
which time the principal balance will be due in 36 equal monthly installments
plus interest.

     The equipment lines of credit are collateralized by the Company's assets
and are subject to certain financial covenants. As at December 31, 2000 and
1999, the Company was in compliance with all covenants. The Company issued 3,333
warrants to purchase Series B Preferred Stock and 9,888 warrants to purchase
Series C Preferred Stock in connection with equipment lines of credit (see Note
7).

     The subordinated debt is collateralized by the Company's assets and is
subject to certain nonfinancial covenants. As at December 31, 2000 and 1999, the
Company was in compliance with all covenants. The Company issued 177,181
warrants to purchase Series C Preferred Stock in connection with the
subordinated debt (see Note 7).

     The Company's remaining principal payments under long-term debt as of
December 31, 2000 are as follows (in thousands):

     YEARS ENDING DECEMBER 31,
     -------------------------
         2001 ...............................................$   2,793
         2002 ...............................................    1,585
         2003 ...............................................      833
                                                             ---------
                                                             $   5,211
                                                             =========

     ACCOUNTS RECEIVABLE LINE OF CREDIT

     The Company has a $5,000,000 accounts receivable line of credit that bears
interest at the bank's prime rate plus 0.25% (totaling 9.75% at December 31,
2000). The accounts receivable line of credit expires in May 2001. Borrowings
under the accounts receivable line of credit are limited to 80% of eligible
accounts receivable. The line of credit is secured by the Company's assets.
There were no amounts outstanding under the line of credit at December 31, 2000.


5. INITIAL PUBLIC OFFERING

     Effective August 2, 2000, the Company issued 4,000,000 shares of its common
stock at an initial public offering price of $21.00 per share. Also sold in this
offering were 600,000 shares upon the exercise of the underwriters'
overallotment option. The proceeds from the offering, net of offering costs were
approximately $88.0 million. Concurrent with the closing of our initial public
offering, each outstanding share of our convertible preferred stock was
automatically converted into common stock.





                                    Page 47
<PAGE>

6. PREFERRED STOCK:

     The preferred stock may be issued from time to time in one or more series.
The board of directors is authorized to determine the rights, preferences,
privileges and restrictions on these shares. As of December 31, 2000, no shares
of preferred stock have been issued.

     Convertible preferred stock prior to the initial public offering in August
2000 consisted of the following (in thousands, except per share amounts):

                                                                      PROCEEDS
                                                                       NET OF
            SHARES                       PER SHARE   LIQUIDATION      ISSUANCE
SERIES    AUTHORIZED     OUTSTANDING      AMOUNT       AMOUNT          COSTS
------  -------------   -------------   ---------     ---------      ---------
  A         1,891          1,834            $1.00        $1,834         $1,809
  B         3,859          3,856             1.35         6,594          5,133
  C         3,458          3,230             3.03        11,269          9,701
  D         2,755          2,707             4.81        13,669         12,982
  E           515            515            19.43        10,250         10,000
  F         1,544          1,390            19.43        27,000         27,000
          -------        -------                      ---------      ---------
           14,022         13,532                      $  70,616      $  66,625
          =======       ========                      =========      =========

In connection with the issuance of the Series F Preferred Stock, the Company
recorded a charge to additional paid in capital of $6.8 million representing the
fair value of the beneficial conversion feature of the Series F Preferred Stock.
Upon completion of the Company's initial public offering in August 2000, all of
the then outstanding shares of preferred stock, totaling 13,531,563 shares,
automatically converted into 13,749,102 shares of common stock.


7. WARRANTS

     During 1996, the Company issued 77,505 warrants to purchase Series A
Preferred Stock at an exercise price of $1.00 per share. During 2000, 1999 and
1998, 63,755, 12,500 and 1,250 warrants to purchase Series A Convertible
Preferred Stock were exercised, respectively.

     During 1997, the Company issued 3,333 warrants to purchase Series B
Preferred Stock in connection with the equipment line of credit #2 discussed in
Note 4. The warrants had an exercise price of $1.35 per share. The Company
determined the value of the warrants was nominal based on the Black-Scholes
option pricing model. The warrants were fully exercised in September 2000.

     In March 1998, the Company issued 9,888 warrants to purchase Series C
Preferred Stock in connection with the equipment line of credit #3 discussed in
Note 4. The warrants had an exercise price of $3.034 per share. The Company
determined the value of the warrants was nominal based on the Black-Scholes
option pricing model. The warrants were fully exercised in September 2000.

     In June 1998, the Company issued 65,920 warrants to purchase Common Stock
to a strategic investor. The Company determined the value of the warrants at the
date of grant based on the term using the Black Scholes option pricing model to
be approximately $17,000 using the following assumptions: 60% volatility, no
dividends and 5.15% risk free interest rate. The Company has not recorded any
expense for the estimated fair value of the warrants because such amounts were
insignificant. The warrants were fully exercised in connection with the
Company's initial public offering.

     In November 1998, the Company issued 102,999 and 26,367 warrants to
purchase Series C Preferred Stock in connection with the subordinated debt
discussed in Note 4 and capital lease obligations, respectively. The warrants
had an exercise price of $3.034 per share. The estimated fair value of warrants
using the Black-Scholes option pricing model was $115,000. In 1998, the value of
warrants was recorded as deferred debt issuance costs and included in other
assets as the borrowings had yet to be drawn upon at December 31, 1998.
Beginning in 1999, amortization of the discount was recognized as interest


                                    Page 48
<PAGE>

expense over the respective terms of the financing arrangements. The Company
recognized $38,333 as interest expense associated with these warrants for the
year ended December 31, 2000 and 1999. The warrants were fully exercised in
October 2000.

     In February 1999, the Company issued 41,199 warrants to purchase Series C
Preferred Stock in connection with the subordinated debt discussed in Note 4.
The warrants had an exercise price of $3.034 per share. In May 1999, the Company
issued an additional 32,983 warrants to purchase Series C Preferred Stock in
connection with the subordinated debt. These warrants had an exercise price of
$4.74 per share. The estimated fair value of warrants using the Black-Scholes
option pricing model was $259,071. The fair value of the warrants will be
amortized to interest expense over the term of the subordinated debt. The
Company recognized $86,691 as interest expense associated with these warrants
for the year ended December 31, 2000 and 1999. The warrants were fully exercised
in October 2000.

     In April 2000, the Company issued 77,200 warrants to purchase Common Stock
to a strategic partner. The warrants had an exercise price of $19.43. The
Company determined the value of the warrants at the date of grant based on the
term using the Black-Scholes option pricing model to be approximately $464,000
using the following assumptions: 60% volatility, no dividends and a 6.22% risk
free interest rate. The value of the warrants will be recorded as a cost of
revenues over the term of the agreement. The warrants were fully exercised in
November 2000.

     In June 2000, in connection with the bank line of credit, the Company
issued 2,774 warrants to purchase Common Stock. The warrants had an exercise
price of $19.43. The Company determined the value of the warrants at the date of
grant based on the term using the Black-Scholes option pricing model to be
approximately $31,000 using the following assumptions: 60% volatility, no
dividends and a 6.69% risk free interest rate. The Company has not recorded any
expense for the estimated fair value of the warrants because such amounts were
insignificant. The warrants were fully exercised in September 2000.


8. COMMON STOCK:

     A portion of the shares issued to employees are subject to repurchase
rights by the Company over a four year period from the earlier of grant date or
employee hire date, as applicable. At December 31, 2000 and 1999, there were
1,420,000 and 2,001,000 shares subject to repurchase, at an average price of
$0.98 and $0.58 per share, respectively.

     In February and September 1999, certain executives of the Company exercised
their stock options prior to vesting by issuance of full recourse promissory
notes to the Company. The notes totaling $755,000 bear interest at rates between
5.00% and 6.25% per annum and are due five years from the date of the note or
one year after the holder ceases holding a position with the Company. The notes
are collateralized by the related 1,734,244 shares of Common Stock issued, which
are subject to the Company's right of repurchase. The net amount outstanding
under these notes has been reflected as a separate component of stockholders'
equity.

     In February 2000, an executive of the Company exercised his stock options
in part by issuing a full recourse promissory note to the Company in the
principal amount of $300,000. The note bears interest at 6.6% per annum and is
due five years from the date of the note. The note is collateralized by the
related 100,000 shares of Common Stock issued, which are subject to the
Company's right of repurchase. The net amount outstanding under this note has
been reflected as a separate component of stockholders' equity.





                                    Page 49
<PAGE>

9. EMPLOYEE BENEFIT PLANS:

     401(K) SAVINGS PLAN

     The Company has a 401(k) Savings Plan (the "401K Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the 401K Plan, participating employees may elect to contribute up to 20%
of their eligible compensation, subject to certain limitations. All employees on
the United States payroll of the Company are eligible to participate in the
Plan. The Company is not required to contribute to the 401K Plan and has made no
contributions since its inception.

      STOCK OPTION PLANS

     The Company maintains the 1996 Stock Option Plan (the "1996 Stock Plan").
The 1996 Stock Plan provides for the granting of incentive and non-qualified
stock options to employees, consultants and directors of the Company. The total
number of shares of common stock that may be issued pursuant to the exercise of
options granted under the 1996 Stock Plan is 6,940,250 as of December 31, 2000.
Since its initial public offering in August 2000, the Company ceased granting
options under the 1996 Stock Plan.

     Options under the 1996 Stock Plan may be granted at an exercise price not
less than 100% of the fair market value of the Company's common stock on the
date of grant, as determined by the Board of Directors, for incentive stock
options and 85% of such fair market value for non-qualified stock options. All
options are granted at the discretion of the Company's Board of Directors and
have a term not greater than ten years. For holders of more than 10% of the
Company's total combined voting power of all classes of stock, incentive stock
options may not be granted at less than 110% of the fair market value of the
Company's common stock at the date of grant or for a term greater than five
years. The fair market value of the Company's Common Stock is determined by the
Board of Directors. Options granted under the 1996 Stock Plan typically become
exercisable at a rate of 25% after the first year and ratably over the next
three years or ratably over four years on a quarterly basis. Certain employee's
options are immediately exercisable but unvested shares are subject to
repurchase by the Company at the original exercise price.

     In March 2000, the Company's Board of Directors adopted and in July 2000,
the Company's stockholders approved the 2000 Stock Plan (the "2000 Stock Plan"),
which became effective upon our initial public offering in August 2000. Each
plan is administered by the Board or by a committee of the Board.

     A total of 3,200,000 shares of common stock were authorized and reserved
for issuance under the 2000 Stock Plan as of December 31, 2000, plus annual
increases equal to the lesser of:

 - 1,500,000 shares;
 - 5% of the outstanding shares on such date; or
 - a lesser amount to be determined by the Board.

The 2000 Stock Plan allows awards to be granted in the form of incentive stock
options, nonstatutory stock options and stock purchase rights. Unless terminated
sooner by the Board, the 2000 Stock Plan will terminate automatically in 2010.




                                    Page 50
<PAGE>

     The following table summarizes the activity under the 1996 Stock Plan and
the 2000 Stock Plan (the "Plans" (shares in thousands):
<TABLE>
<CAPTION>

                                                                                  OPTIONS OUTSTANDING
                                                                             -------------------------------
                                                                                                 WEIGHTED
                                                               OPTIONS                            AVERAGE
                                                              AVAILABLE         OPTIONS          EXERCISE
                                                              FOR GRANT        OUTSTANDING          PRICE
                                                           --------------    --------------     ------------
<S>                                                               <C>            <C>               <C>
Balance at December 31, 1997                                      237            1,190             $0.08
     Additional authorized                                        700               --                --
     Granted                                                     (967)             967              0.22
     Exercised                                                     --             (292)             0.05
     Canceled                                                     308             (308)             0.14
                                                            ---------        ---------
Balance at December 31, 1998                                      278            1,557              0.16
     Additional authorized                                      2,800               --                --
     Granted                                                   (2,935)           2,935              1.11
     Exercised                                                     --           (1,716)             0.54
     Canceled                                                     372             (372)             0.34
                                                            ---------        ---------
Balance at December 31, 1999                                      515            2,404              1.01
     Additional authorized                                      5,000               --                --
     Granted                                                   (2,243)           2,243             13.59
     Exercised                                                     --             (836)             1.40
     Canceled                                                     540             (540)             7.02
                                                            ---------        ---------
Balance at December 31, 2000                                    3,812            3,271             $8.54
                                                            =========        =========             =====
</TABLE>

     The following table summarizes information about stock options outstanding
and exercisable under the Plans at December 31, 2000 (shares in thousands):
<TABLE>
<CAPTION>

                                 OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                      --------------------------------------------         ----------------------------------
                                       WEIGHTED
                                        AVERAGE           WEIGHTED                                 WEIGHTED
                                      REMAINING           AVERAGE                                   AVERAGE
         EXERCISE         NUMBER      CONTRACTUAL         EXERCISE            NUMBER               EXERCISE
          PRICES        OUTSTANDING       LIFE             PRICE             EXERCISABLE               PRICE
    ----------------  -------------   ------------        --------         -------------         ------------
<S>                    <C>              <C>             <C>                  <C>                <C>
    $  0.03  - 0.38              382          7.65        $   0.30                   89          $     0.22
               0.65               76          8.34            0.65                    9                0.65
               1.25              849          8.81            1.25                  175                1.25
               2.50               82          8.92            2.50                   19                2.50
               3.75              353          9.00            3.75                   63                3.75
               5.00              401          8.55            5.00                   28                5.00
      11.31 -  15.38             192          9.55           12.97                   12               13.83
               17.00              500          9.39           17.00                  14               17.00
      20.00 -  31.13             336          9.67           23.50                    9               24.42
      39.63 -  44.75             100          9.82           42.84                    1               42.65
                      --------------                                         ----------
    $ 0.03  -  44.75           3,271          8.91        $   8.54                  419           $    3.12
                      ==============                                         ==========           =========
</TABLE>


     At December 31, 2000, 1999 and 1998, approximately 419,000, 303,000 and
263,000 options were exercisable at a weighted average exercise price per share
of $3.12, $0.49 and $0.10, respectively.

     In connection with a 1998 employment agreement with an executive (the
"Executive Agreement"), the Company issued options to purchase 1,408,500 shares
of Common Stock outside of the Company's stock option plan. The options have an
exercise price of $ 0.38, vest over a forty-eight month period and expire in


                                    Page 51
<PAGE>

2008. During 1999, the options were exercised and 587,000 outstanding shares of
Common Stock purchased upon exercise of the option are subject to repurchase at
December 31, 2000. Upon termination of employment, unvested shares are subject
to repurchase by the Company at the original exercise price.

     FAIR VALUE DISCLOSURES

     The Company calculated the minimum fair value of each option grant under
the Plans on the date of grant using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 with the following assumptions:
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                      <C>           <C>             <C>
     Dividend yield..................................................          --             --             --
     Average risk-free interest rate.................................        5.80%          5.64%          5.25%
     Expected life (in years)........................................           4              4              4
     Weighted  average fair value of options granted (per share).....    $   9.97      $    7.84       $   1.93
     Volatility......................................................          80%            --             --
</TABLE>

     Had compensation cost for options granted under the Plans and the Executive
Agreement been determined based on the fair value at the grant dates for the
awards under a method prescribed by SFAS No. 123, the Company's net loss would
have been increased to the pro forma amounts below for the years ended December
31, 2000, 1999 and 1998, respectively (in thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>             <C>
Net loss available to common stockholders
     As reported.....................................................    $ (49,865)     $ (18,865)      $ (7,671)
                                                                         =========      =========       ========
     Pro forma.......................................................    $ (56,116)     $ (19,177)      $ (7,827)
                                                                         =========      =========       ========

Net loss per share
     As reported.....................................................    $  (3.41)      $  (4.18)       $ (1.90)
                                                                         ========       ========        =======
     Pro forma.......................................................    $  (3.84)      $  (4.25)       $ (1.93)
                                                                         ========       ========        =======
</TABLE>


     Because the determination of the fair value of all options granted after
the Company became a public entity included an expected volatility factor in
addition to the factors described above and because additional option grants
were made subsequent to the Company's initial public offering, the compensation
expense for options granted during 2000, 1999 and 1998 are not representative of
the pro forma effects of options grants on reported net income (loss) for future
years.

     OPTIONS ISSUED TO SERVICE PROVIDERS

     Fully vested options granted include options to acquire 62,449 and 131,758
shares of common stock issued to consultants and other service providers of the
Company during the years ended December 31, 2000 and 1999, respectively. The
fair value of the common stock options was estimated to be $709,000 and $646,000
for the years ended December 31, 2000 and 1999, respectively, using the
Black-Scholes pricing model at the date of grant, the term of the option and the
following assumptions: Risk free rate of 6.1%-6.2 and 4.5%-5.6%, no expected
dividends and volatility of 60%.

     Stock options have been granted to consultants that provide marketing,
recruiting and business advisory services to the Company. Stock-based
compensation related to stock options granted to consultants is recognized over
the term of the service agreement, which generally covers a period from three
months to two years. In connection with the grant of stock options to


                                    Page 52
<PAGE>

consultants and other service providers, the Company recorded stock-based
compensation expenses of $746,000 and $646,000 for the year ended December 31,
2000 and 1999, respectively.

     UNEARNED STOCK-BASED COMPENSATION

     In connection with certain stock option grants during the years ended
December 31, 2000, 1999 and 1998, the Company recorded unearned stock-based
compensation cost totaling $9.8 million, $21.6 million and $4.1 million,
respectively, which is being recognized over the vesting period of the related
options of four years. Amortization of unearned stock-based compensation totaled
$14.5 million, $5.8 million and $878,000 for the years ended December 31, 2000,
1999 and 1998, respectively.

     The remaining unamortized, unearned stock-based compensation for all option
grants through December 31, 2000 is expected to be amortized as follows: $8.4
million in 2001, $4.3 million in 2002, $1.6 million in 2003 and $55,000 in 2004.

     EMPLOYEE STOCK PURCHASE PLAN

     In March 2000, the Company's Board of Directors adopted and in July 2000,
the Company's stockholders approved the 2000 Employee Stock Purchase Plan (the
"ESPP"), which became effective upon our initial public offering in August 2000.
The plan is administered by the Board or by a committee of the Board.

     A total of 1,000,000 shares of common stock were reserved for issuance
under the Employee Stock Purchase Plan ("ESPP") as of December 31, 2000, plus
annual increases equal to the lesser of:

 - 750,000 shares;
 - 2.5% of the outstanding shares on such date; or
 - a lesser amount to be determined by the Board.

The ESPP permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's gross earnings and commissions, but
not to exceed the established maximum. Such amounts are applied to the purchase
from the Company of shares of common stock at the end of each offering period at
a price that is generally 85% of the lower of the fair market value of the
common stock at the beginning and at the end of the offering period. The plan
contains consecutive, overlapping 24 month offering periods. Each offering
period includes four six-month purchase periods. The plan will terminate in
2010. At December 31, 2000, no shares had been issued under the ESPP.


10. COMMITMENTS AND CONTINGENCIES:

     CAPITAL LEASES

     The Company has entered into capital lease agreements for their office
equipment. The Company issued 26,367 warrants to purchase Series C Preferred
Stock in connection with the agreement. These warrants were fully exercised in
October 2000 (see Note 7).

     OPERATING LEASES

     The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through 2003. Rent expense under
these leases totaled approximately $1,894,000, $915,000 and $463,000 for 2000,
1999 and 1998, respectively.




                                    Page 53
<PAGE>

     Future minimum lease payments due under capital leases and operating leases
at December 31, 2000, are as follows (in thousands):
<TABLE>
<CAPTION>

     YEARS ENDING                                                         CAPITAL        OPERATING
     DECEMBER 31,                                                          LEASES          LEASES
     ------------                                                         --------        --------
<S>                                                                      <C>            <C>
         2001 .......................................................    $   1,182      $    2,134
         2002 .......................................................          483           1,963
         2003 .......................................................            2           1,842
         2004 .......................................................           --              --
                                                                          --------        --------
         Total minimum lease payments and sublease income............    $   1,667      $    5,939
                                                                                        ==========
         Less: Amount representing finance costs.....................          105
                                                                         ---------
         Present value of capital lease obligations..................        1,562
         Less: Current portion.......................................        1,091
                                                                         ---------
         Long-term portion of capital lease obligations..............    $     471
                                                                         =========
</TABLE>

     LITIGATION

     On September 12, 2000, the Company filed a complaint for patent
infringement against Alteon Web Systems, Inc. in the United States District
Court, Northern District of California. The Company believes Alteon infringes
United States Letters Patent No. 5,774,660, entitled "World-Wide Web Server With
Delayed Resource-Binding For Resource-Based Load Balancing On A Distributed
Resource Multi-Node Network," which was issued to the Company on June 30, 1998.
Alteon served its answer to the Company's complaint in October 2000, in which
Alteon denied the Company's allegations and counterclaimed that the Company's
patent is invalid. In October 2000, Alteon was acquired by Nortel Networks
Corporation. The litigation is currently in the discovery phase and a trial date
has been set for the summer of 2002.

     From time to time the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. In the opinion of
management, there are no pending claims for which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.


11. INCOME TAXES:

     The Company's effective tax rate varies from the statutory rate as follows:
<TABLE>
<CAPTION>

                                                                           2000            1999           1998
                                                                         ---------      ---------       --------
<S>                                                                        <C>             <C>            <C>
     U.S. Federal income tax rate....................................      (34.00)%        (34.00)%       (34.00)%
     State income taxes, net of federal benefit......................       (5.84)          (5.84)         (5.84)
     Amounts not deductible for tax purposes.........................       11.46           12.61          11.81
     Operating losses not benefited..................................       28.38           27.23          28.03
                                                                         --------       ---------       --------
                                                                                --             --             --
                                                                         =========      =========       ========
</TABLE>

Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2000              1999
                                                                                     ----------        ---------
<S>                                                                                  <C>               <C>
     Net operating loss carryforwards.............................................   $   18,853        $   8,684
     Research and development credit carryforwards................................        1,972              947
     Capitalized research and development costs...................................          595              346
     Fixed assets.................................................................          289              (35)
     Accrued vacation.............................................................          288              133
     Other........................................................................          254              100
                                                                                     ----------        ---------
     Deferred tax assets..........................................................       22,251           10,175
     Deferred tax asset valuation allowance.......................................      (22,251)         (10,175)
                                                                                     ----------        ---------
                                                                                     $       --        $      --
                                                                                     ==========        =========
</TABLE>

                                    Page 54
<PAGE>

     The Company has provided a full valuation allowance for its deferred tax
assets since the realization of these future benefits cannot be sufficiently
assured.

     As of December 31, 2000, the Company has available net operating loss
carryforwards for federal and state income tax purposes of approximately
$51,631,000 and $22,251,000, respectively. These net operating loss
carryforwards begin to expire in 2010 and 2003 for federal and state tax
purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Events which cause limitations in the amounts of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50% as defined, over
a three year period.


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

    None.





                                    Page 55
<PAGE>

                                    PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information with respect to Resonate's
current directors. For biographical summaries of Chris C. Marino and Peter R.
Watkins, see the information appearing under the caption "Executive Officers of
the Registrant" in Part I, Item 4a of this Annual Report on Form 10K.
<TABLE>
<CAPTION>

NAME                                        AGE      POSITION
----                                        ---      --------
<S>                                          <C>     <C>
Christopher C. Marino................        40      Founder, Corporate Vice President and Director
I. Robert Greene.....................        40      Director
Gordon Campbell......................        56      Director
Russell Siegelman....................        38      Director
Peter R. Watkins.....................        45      Director
John S. McFarlane....................        52      Director
Robert J. Finocchio, Jr..............        49      Director
</TABLE>

     I. Robert Greene has served as a member of our board of directors since
April 1997. Mr. Greene has served as the Managing Partner of Flatiron Partners,
a venture capital firm, since June 1999. From 1994 to 1999, Mr. Greene was with
Chase Capital Partners, a venture capital firm, serving as a Principal from 1994
to 1999, and a General Partner thereof in 1999. Mr. Greene also serves as a
director of Multex.com Inc. Mr. Greene holds a B.S. from the Wharton School and
an M.B.A. from the Massachusetts Institute of Technology Sloan School of
Management.

     Gordon A. Campbell has served as Chairman of the Board since January 1996
and a director since December 1995. Mr. Campbell has been a managing member of
TechFund Capital, a venture capital fund, since August 1997. In 1993, Mr.
Campbell created TechFarm Management, Inc., an incubation company for new
technology companies, including Resonate. Mr. Campbell has founded and has been
involved in the start-up of numerous Silicon Valley companies, including CHIPS
and Technologies, Inc., a semiconductor and related device company, 3dfx
Interactive and Cobalt Networks. In addition to his role at Resonate, Mr.
Campbell serves as Chairman of the Board of 3dfx Interactive and Cobalt Networks
and is a member of the boards of directors of Palm Computing, a portable
computing platform and device company, and Bell Microproducts, a computer
components company.

     Russell L. Siegelman has served as a member of our board of directors since
April 1997. Since 1996, Mr. Siegelman has been a partner of Kleiner Perkins
Caufield & Byers, a venture capital firm. Prior to joining Kleiner Perkins, Mr.
Siegelman served in a variety of positions at Microsoft from 1989 to July 1996,
including most recently as Vice President of the Microsoft Network, Microsoft's
online service. Mr. Siegelman holds a B.S. in Physics from the Massachusetts
Institute of Technology and an M.B.A. from Harvard Business School.

     John S. McFarlane has served as a member of our board of directors since
July 1999. Since March 2001, Mr. McFarlane has been the President and Chief
Executive Officer of Nexsi Systems, a provider of high-performance network
infrastructure solutions. Mr. McFarlane served as President, Network Service
Provider at Sun Microsystems from July 1999 to March 2001 and served as
President, Solaris Software at Sun Microsystems from April 1998 to July 1999.
Mr. McFarlane served as Vice President, Solaris and Network Software at Sun
Microsystems from December 1997 to April 1998 and as Vice President, Network
Software Group at Sun Microsystems from May 1997 to December 1997. Mr. McFarlane
served as Vice President, Technology at Northern Telecom from 1993 to 1997. Mr.
McFarlane holds a B.S. and an M.B.A. from the University of Toronto.

     Robert J. Finocchio, Jr. has served as a member of our board of directors
since October 1999. Mr. Finocchio served as the President and Chief Executive
Officer of Informix Corporation from July 1997 to July 1999 and has served as
its Chairman of the Board since July 1997. From December 1988 until April 1997,


                                    Page 56
<PAGE>

Mr. Finocchio was employed with 3Com Corporation, where he held various
positions, most recently serving as President, 3Com Systems. Prior to his
employment with 3Com Corporation, Mr. Finocchio held various executive positions
in sales and service with Rolm Communications, a telecommunications and
networking company, most recently as Vice President of Rolm Systems Marketing.
Mr. Finocchio also serves as a director of Latitute Communications, Echelon
Corporation and Turnstone Systems. Mr. Finocchio is also a Regent of Santa Clara
University. Mr. Finocchio holds a B.S. in economics from Santa Clara University
and an M.B.A. from Harvard Business School.

     There are no family relationships among any of the directors, officers or
key employees of Resonate.

     EXECUTIVE OFFICERS

     For information regarding executive officers of the Company, see the
information appearing under the caption "Executive Officers of the Registrant"
in Part I, Item 4a of this Annual Report on Form 10K.

     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities and Exchange Act of 1934 requires
Resonate's officers and directors, and persons who own more than ten percent
(10%) of a registered class of Resonate's equity securities, to file certain
reports regarding ownership of, and transactions in, Resonate's securities with
the Securities and Exchange Commission. Such officers, directors, and 10%
stockholders are also required to furnish Resonate with copies of all Section
16(a) forms that they file.

     Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to Resonate pursuant to Rule 16a-3(e) of Regulation S-K,
Resonate believes that during fiscal year 2000, all filings with the Securities
and Exchange Commission of its officers, directors and 10% stockholders complied
with requirements for reporting ownership and changes in ownership of Resonate's
Common Stock pursuant to Section 16(a) of the Securities Exchange Act of 1934.


ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

     Directors do not currently receive any cash compensation from Resonate for
their service as members of the Board of Directors. Under Resonate's 2000 Stock
Plan, directors are eligible to receive stock option grants at the discretion of
the Board of Directors or other administrator or the plan. During 2000, the
board granted no options to purchase shares of common stock to any members of
the Board of Directors.

EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

     The table below summarizes the compensation earned for services rendered to
Resonate in all capacities for the fiscal years ended December 31, 1999 and 2000
by (i) Resonate's Chief Executive Officer during fiscal 2000 and (ii) Resonate's
next four most highly compensated executive officers who earned more than
$100,000 during fiscal 2000.



                                    Page 57
<PAGE>
<TABLE>
<CAPTION>



                                                                                                  LONG-TERM
                                                                                                 COMPENSATION
                                                                                                  NUMBER OF
                                                                    ANNUAL COMPENSATION           SECURITIES
                                                             ----------------------------------   UNDERLYING       ALL OTHER
           NAME AND PRINCIPAL POSITION              YEAR          SALARY           BONUS           OPTIONS        COMPENSATION
           ---------------------------              ----          ------           -----           -------        ------------
<S>                                                 <C>           <C>             <C>                               <C>
           Kenneth Schroeder, Former President      2000          $220,000        $220,000               --         $     --
             and Chief Executive Officer(1)         1999          $220,000        $160,000          200,000         $     --

           Cameron Lorentz, Former Vice             2000          $157,500        $ 96,757           10,000         $  5,400
             President, North American Sales(2)     1999          $157,443        $151,000               --         $  5,400

           Stanley L. Chin, Former Vice             2000          $166,402        $ 69,525           13,560         $
             President, Business Development(3)     1999          $103,333        $  4,419          206,440         $

           David R. Guercio, Vice President,        2000          $160,000        $ 64,413           11,400         $
             Professional Services(4)               1999           $40,606        $     --          180,468         $

           Robert C. Hausmann, Vice President,      2000          $180,000        $ 35,804                          $
             Chief Financial Officer(5)             1999           $57,273        $     --          325,744         $     --
</TABLE>

(1) Mr. Schroeder resigned as President and Chief Executive Officer of
    Resonate in February 2001.
(2) Mr. Lorentz resigned as Vice President, North America Sales, in
    January 2001.
(3) Mr. Chin resigned as Vice President, Business Development, in February 2001.
(4) Mr. Guercio commenced employment with Resonate in September 1999.
(5) Mr. Hausmann commenced employment with Resonate in September 1999.

OPTION GRANTS IN LAST FISCAL YEAR

     In the fiscal year ended December 31, 2000, we granted options to purchase
up to an aggregate of 2,238,215 shares to employees, directors and consultants.
These options were granted under our 1996 Stock Option Plan and our 2000 Stock
Plan at exercise prices at the fair market value of our common stock on the date
of grant, as determined in good faith by our board of directors. Options to
employees and directors have a term of ten years. Options to consultants have a
one-year term. Optionees may pay the exercise price by cash, certified check or
delivery of already-owned shares of our common stock. Options to the Named
Executive Officers are immediately exercisable upon grant; however, we may
repurchase any unvested shares at their cost if the optionee's service
terminates. Options to employees and directors vest over four years. Options to
consultants vest immediately upon grant.

     The following table sets forth information with respect to stock options
granted to each of the Named Executive Officers in the fiscal year ended
December 31, 2000, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 0%, 5% and
10%, compounded annually. There is no assurance provided to any Named Executive
Officer or any other holder of our securities that the actual stock price
application over the 10-year option term will be at the assumed levels or at any
other defined level. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.



                                    Page 58
<PAGE>

<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS
                        -------------------------------------------------------------
                                     % OF TOTAL
                                      OPTIONS
                         NUMBER OF   GRANTED TO                 DEEMED                 POTENTIAL REALIZABLE VALUE AT ASSUMED
                         SECURITIES  EMPLOYEES                 VALUE PER                   ANNUAL RATES OF STOCK PRICE
                         UNDERLYING   IN LAST     EXERCISE     SHARE ON                     APPRECIATION FOR OPTION TERM
                         OPTIONS      FISCAL      PRICE PER     DATE OF     EXPIRATION   -----------------------------------
NAME                      GRANTED      YEAR       SHARE         GRANT         DATE              0%           5%          10%
-------                 -----------  ---------   ----------    ---------    ----------   ---------    ---------    ---------
<S>                       <C>          <C>         <C>          <C>          <C>          <C>          <C>         <C>
Kenneth Schroeder                --         --           --          --           --          --            --          --
Cameron Lorentz              10,000      0.04%       $17.00      $17.00      3/13/10          --      $106,912    $270,936
Stanley L. Chin              13,560      0.06%        $3.75       $3.75       1/3/10          --      $ 31,979     $81,042
David R. Guercio             11,400      0.05%        $3.75       $3.75       1/3/10          --      $ 26,885     $68,132
Robert C. Hausmann               --         --           --          --           --          --            --          --
</TABLE>

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

     The following table describes for the Named Executive Officers their option
exercises for the fiscal year ended December 31, 2000, and exercisable and
unexercisable options held by them as of December 31, 2000.

     The "Value of Unexercised In-the-Money Options at December 31, 2000" is
based on a value of $9.50 per share, the closing price of our common stock on
the Nasdaq Stock Market's National Market as of December 29, 2000, less the per
share exercise price, multiplied by the number of shares issued upon exercise of
the option. Options were granted under our 1996 Stock Option Plan or 2000 Stock
Plan. All options listed below are immediately exercisable; however, as a
condition of exercise, the optionee must enter into a restricted stock purchase
agreement granting us the right to repurchase any unvested portion of the shares
issuable by such exercise at their cost in the event of the optionee's
termination of his relationship with us. The shares vest over four years, with
25% of the shares vesting one year after the grant date and the remaining shares
vesting ratably each month thereafter.

<TABLE>
<CAPTION>

                                                                NUMBER OF SECURITIES
                                                               UNDERLYING UNEXERCISED            VALUE OF UNEXERCISED
                              NUMBER OF                              OPTIONS AT                 IN-THE-MONEY OPTIONS AT
                               SHARES                             DECEMBER 31, 2000                DECEMBER 31, 2000
                             ACQUIRED ON                     ----------------------------    ----------------------------
     NAME                     EXERCISE    VALUE REALIZED     EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
--------------------------   -----------  --------------     -----------    -------------    -----------    -------------
<S>                                                            <C>                             <C>
Kenneth Schroeder                    --        --              200,000               --        $1,650,000           --
Cameron Lorentz                      --        --               10,000               --         ($75,000)           --
Stanley L. Chin                  13,560        $50,850              --               --             --              --
David R. Guercio                 91,400        $342,750             --               --             --              --
Robert C. Hausmann                   --        --                   --               --             --              --
</TABLE>

TERMINATION OF KEN SCHROEDER AS CHIEF EXECUTIVE OFFICER

     On January 16, 2001, Resonate and Ken Schroeder signed an Amendment to Mr.
Schroeder's Employment Agreement with Resonate, which Amendment was amended as
of February 21, 2001. The original Employment Agreement was dated October 1,
1998. Pursuant to the Amendment, Resonate agreed to file a registration
statement on Form S-8 to register 1,408,500 shares of Resonate common stock held
by Mr. Schroeder for resale to the public. The registration statement was filed
with the Securities and Exchange Commission on January 30, 2001. Pursuant to the
Amendment, Resonate also granted Mr. Schroeder eleven (11) months additional


                                    Page 59
<PAGE>

vesting on the shares that he held if Mr. Schroeder's status as President or
Chief Executive Officer of Resonate was terminated and Resonate hired a new
President or Chief Executive Officer. Mr. Schroeder resigned as President and
Chief Executive Officer of Resonate on February 5, 2001 and Resonate hired Peter
R. Watkins as President and Chief Executive Officer on February 5, 2001.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

     In 2000, the compensation committee consisted of John S. McFarlane, I.
Robert Greene and Russell L. Siegelman, none of whom was an employee or former
employee of Resonate or any of its subsidiaries during the year. The
compensation committee has overall responsibility for Resonate's executive
compensation policies and practices. The role of the Compensation Committee is
to establish and recommend compensation paid to executive officers of Resonate
and to administer Resonate's stock plans. The compensation committee's functions
include:

 - evaluating the performance of Resonate's Chief Executive Officer,
 - determining the compensation of Resonate's Chief Executive Officer,
 - setting guidelines for all executive officers' compensation, and
 - establishing and administering compensation plans including granting
   awards under Resonate's stock option plans to its employees.

     The compensation committee has provided the following report on the
compensation policies as they apply to Resonate's executive officers and the
relationship of Resonate's performance to executive compensation.

OVERVIEW OF COMPENSATION POLICIES

     Resonate's compensation policies are designed to address a number of
objectives, including attracting and retaining superior staff, rewarding
performance and motivating executive officers to achieve significant returns for
stockholders. To promote these policies, the committee implemented a
compensation program that is comprised of the following principal elements:

 - basic salary,
 - cash incentives (bonuses),
 - equity incentives (stock awards), and
 - benefits.

     When establishing guidelines for salaries, bonus levels and stock-based
awards for the executive officers, the compensation committee considers the
recommendations of the Chief Executive Officer, the officer's role,
responsibilities and performance during the past year, and the amount of
compensation paid to executive officers in similar positions of comparable
companies. The compensation committee generally sets the guidelines for the
officers at levels that are competitive with Resonate's competitors. When
setting the guidelines for the executive officers, the compensation committee
considers all of the factors set forth above, but does not assign any specific
weighting or apply any formula to these factors. The compensation committee
does, however, give significant consideration to the recommendation of the Chief
Executive Officer.

     THE IMPORTANCE OF OWNERSHIP--A fundamental tenet of Resonate's compensation
policy is that significant equity participation creates a vital long-term
partnership between management and other stockholders. Through its employee
stock plans and agreements the benefits of equity ownership are extended to
Resonate's executive officers and employees. As of March 2, 2001, Resonate's
directors and executives owned an aggregate of 11,529,639 shares and had the
right to acquire an aggregate of 639,839 additional shares upon the exercise of
employee stock options, exercisable on or before May 1, 2001. Of the options


                                    Page 60
<PAGE>

exercisable, approximately 94.6% of the shares are unvested shares and therefore
repurchasable by Resonate in the event of a termination.

FISCAL 2000 EXECUTIVE OFFICER COMPENSATION PROGRAM

     The components of the executive compensation program are described below:

     BASE SALARY--Resonate believes that base salary is frequently a significant
factor in attracting, motivating and retaining skilled executive officers.
Accordingly, the compensation committee reviews the base salary of Resonate's
chief executive officer annually and generally sets the base salary at or near
the average of the levels paid by companies with comparable revenues either
engaged in the software industry or located in the San Francisco Bay Area. The
compensation committee also sets guidelines in the same manner for other
executive officers.

     BONUS PROGRAM--Resonate maintains a cash incentive bonus program to reward
executive officers for attaining defined performance goals. Although bonuses are
based in part on company-wide performance targets and in part on individual
performance. In 2000, the compensation committee set target bonuses in the first
half of each year based upon the recommendation of the Chief Executive Officer
and bonuses were paid semi-annually.

     STOCK OPTION GRANTS--In 2000, the compensation committee granted options to
purchase common stock which in the aggregate represented rights to purchase
[360,960] shares under Resonate's stock option plans to executive officers. The
compensation committee determined the number of options granted to executive
officers primarily by evaluating each officer's (1) respective job
responsibilities, (2) past performance, (3) expected future contributions, (4)
existing stock and unvested option holdings, (5) potential reward to the
executive officer if the stock price appreciates in the public market and (6)
management tier classification. Option grants may also be made to new executive
officers upon commencement of employment and, on occasion, to executive officers
in connection with a significant change in job responsibility. The compensation
committee believes that these stock option grants will more closely align the
long-term interests of senior management with those of stockholders and assist
in the retention of key executives.

     BENEFITS--In 2000, Resonate offered benefits to its executive officers that
were substantially the same as those offered to all of the Resonate employees.
These benefits included:

 - 401(k) plan,
 - Medical and Dental Insurance,
 - Employee Stock Purchase Plan,
 - Life and Disability Insurance, and
 - Vision Service Plan.

     CHIEF EXECUTIVE OFFICER'S COMPENSATION--In 2000, Kenneth Schroeder served
as Resonate's Chief Executive Officer. In 2000, the compensation committee did
not increase Mr. Schroeder's salary which remained at $220,000 per year. Mr.
Schroeder received a bonus of $220,000 in 2000. In determining Mr. Schroeder's
salary, the compensation committee considered the criteria listed above. The
compensation committee noted that in 2000, under Mr. Schroeder's leadership,
Resonate:

 - successfully completed the initial public offering of its common stock,
 - significantly increased the number of Fortune 500 and leading emerging
   internet customers,
 - released significant new versions of Resonate's products, and
 - increased revenues from $9.91 million in 1999 to 19.99 million in 2000.

     Because of Mr. Schroeder's significant holdings of Resonate stock, the
compensation committee felt that Mr. Schroeder was appropriately compensated in
2000 and, despite recognizing the above accomplishments, chose not to increase
the salary portion of Mr. Schroeder's compensation in 2000.

                                    Page 61
<PAGE>

     TAX LAW LIMITS ON EXECUTIVE COMPENSATION AND POLICY ON DEDUCTIBILITY OF
COMPENSATION--Section 162(m) of the Internal Revenue Code provides that a
company may not take a tax deduction for that portion of the annual compensation
paid to an executive officer in excess of $1 million, unless certain exemption
requirements are met. Resonate's stock option plans are designed to meet the
exemption requirements of Section 162(m). The compensation committee has
determined at this time not to seek to qualify Resonate's remaining executive
officer compensation programs under Section 162(m). None of the compensation
paid to the Company's executive officers in 2000 was subject to Section 162(m).

     CONCLUSION--All aspects of Resonate's executive compensation are subject to
change at the discretion of the compensation committee. The compensation
committee will monitor Resonate's executive compensation on an ongoing basis to
ensure that it continues to support a performance-oriented environment and
remains properly integrated with Resonate's annual and long-term strategic
objectives.

                                               RESPECTFULLY SUBMITTED BY THE
                                               COMPENSATION COMMITTEE

                                               Gordon A. Campbell
                                               I. Robert Greene
                                               Russell L. Siegelman



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

   Prior to establishing the compensation committee, the board of directors as a
whole performed the functions delegated to the compensation committee. No member
of the board of directors or the compensation committee serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following tables set forth certain information regarding beneficial
ownership of Resonate's common stock as of March 2, 2001 by (i) each director of
Resonate, (ii) Resonate's Chief Executive Officer and each of the four other
most highly compensated executive officers of Resonate's during fiscal 2000,
(iii) all directors and executive officers of Resonate as a group, and (iv) all
those known by Resonate to be beneficial owners of more than five percent of
outstanding shares of Resonate's common stock. This table is based on
information provided to Resonate or filed with the Securities and Exchange
Commission by Resonate's directors, executive officers and principal
stockholders. Unless otherwise indicated in the footnotes below, and subject to
community property laws where applicable, each of the named persons has sole
voting and investment power with respect to the shares shown as beneficially
owned. Unless otherwise indicated, the address of each stockholder listed in the
following table is c/o Resonate Inc., 385 Moffett Park Drive, Sunnyvale,
California 94089. Applicable percentage ownership in the following table is
based on 27,555,113 shares of common stock outstanding as of March 2, 2001.




                                    Page 62
<PAGE>
<TABLE>
<CAPTION>

                                                                                 NUMBER OF
                                                                            SHARES BENEFICIALLY     PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER                                                         OWNED (1)           BENEFICIALLY OWNED
------------------------                                                         ---------           ------------------
<S>                                                                                 <C>                     <C>
5% STOCKHOLDERS:
Entities affiliated with Kleiner Perkins Caufield & Byers (2)                       3,136,345               11.4%
Chase Venture Capital Associates, LLC (3)                                           2,695,517                9.8
Sun Microsystems, Inc.                                                              1,705,144                6.2
Entities affiliated with Lehman Brothers (4)                                        1,588,662                5.8

DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Peter R. Watkins (5)                                                                1,000,000                3.6
Kenneth Schroeder (6)                                                               1,608,500                5.8
Christopher C. Marino (7)                                                           2,599,253                9.4
Robert C. Hausmann (8)                                                                408,494                1.5
Karen S. Barnes (9)                                                                   275,000                1.0
Karen L. Styres (10)                                                                  276,250                1.0
Cameron L Lorentz (11)                                                                220,000                *
Gordon A. Campbell (12)                                                               795,554                2.9
Robert J. Finocchio, Jr. (13)                                                          52,000                *
I. Robert Greene (14)                                                                 313,067                1.1
John S. McFarlane (15)                                                                 52,000                *
Russell Siegelman (16)                                                              3,136,345               11.4
Stanley L. Chin                                                                        94,958                *
David R. Guercio (17)                                                                 263,118                1.0
A. Alan Button (18)                                                                   283,850                1.0
Marcia Bartelmie (19)                                                                 151,250                0.5
All directors and officers as a group (16 persons) (20)                            11,529,639               41.8
</TABLE>
------------------------
*less than 1%.

     (1) In computing the number of shares beneficially owned by a person and
         the percentage ownership of that person, shares of Common Stock subject
         to options or warrants held by that person that are currently
         exercisable or will become exercisable within 60 days after March 2,
         2001 are deemed outstanding, while such shares are not deemed
         outstanding for purposes of computing percentage ownership of any other
         person.

     (2) The aggregated shares listed for entities affiliated with Kleiner
         Perkins Caufield & Byers are owned as follows: KPCB Java Fund, LP owns
         1,923,729 shares; Kleiner Perkins Caufield & Byers VIII, L.P. owns
         1,072,141 shares; KPCB VIII Founder's Fund, L.P. owns 62,067 shares;
         and KPCB Information Sciences Zaibatsu Fund II, L.P. owns 78,408
         shares. The address for Kleiner Perkins Caufield & Byers is 2750 Sand
         Hill Road, Menlo Park, California 94025.

     (3) We have been informed by Chase Venture Capital Associates, LLC that it
         is managed by Chase Capital Partners, the current partners of which
         consist of Ana Carolina Aidar, John R. Baron, Mitchell J. Blutt,
         Christopher C. Behrens, David S. Britts, Arnold L. Chavkin, David J.
         Gilbert, Eric A. Green, Michael R. Hannon, Donald J. Hoffman, Jonathan
         Meggs, Stephen P. Murray, John M.B. O'Connor, Robert Ruggiero, Susan L.
         Segal, Shahan D. Soghikian, Lindsay Stuart, Patrick Sullivan, Jeffrey
         C. Walker, Timothy J. Walsh, Richard D. Waters, and Damion E. Wicker.
         Each of the general partners of Chase Capital Partners disclaims
         beneficial ownership of the securities owned by Chase Venture Capital
         Associates, LLC to the extent it exceeds such partner's pecuniary
         interest therein. Affiliates of Chase Venture Capital Associates, LLC
         (the "Chase Entities") are parties to certain co-invest arrangements
         with Flatiron Associates LLC (f/k/a Friends of Flatiron, LLC), Flatiron


                                    Page 63
<PAGE>

         Fund 1998/99, LLC and Flatiron Partners LLC (collectively, the
         "Flatiron Investors") and/or affiliates of the Flatiron Investors
         (collectively, the "Flatiron Group"). The parties to such arrangements
         have agreed to a venture capital investment program for the purpose of
         making private investments primarily in the equity and 72
         equity-related securities of early stage Internet companies (the
         "Program"). In substance, the Program is similar to a typical venture
         capital investment firm, with certain Flatiron Investors receiving the
         equivalent of a standard carried interest from the Chase Entities. Upon
         the occurrence of certain contingencies that are outside the control of
         the Chase Entities, certain Chase Entities may acquire a pecuniary
         interest in the investments made by the Flatiron Investors. None of the
         Chase Entities presently has any beneficial or pecuniary interest in
         the shares of the Issuer held by the Flatiron Investors. Each of the
         Chase Entities and Chase Venture Capital Associates, LLC disclaims
         beneficial ownership of the Issuer's securities held by the Flatiron
         Group.
     (4) The aggregated shares listed for entities affiliated with Lehman
         Brothers are owned as follows: LB I Group Inc. owns 1,251,850 shares;
         Lehman Brothers MBG Venture Capital Partners 1998 (A) L.P. owns 58,767
         shares; Lehman Brothers MBG Venture Capital Partners 1998 (B) L.P. owns
         1,085 shares; Lehman Brothers MBG Venture Capital Partners 1998 (C)
         L.P. owns 6,690 shares; and Lehman Brothers VC Partners L.P. owns
         270,270 shares. The address for Lehman Brothers is 3 World Financial
         Center, 18th Floor, New York, New York. We have been informed by Lehman
         Brothers that there is no natural person or persons who exercise sole
         or shared dispositive powers over the shares of record held by Lehman
         Brothers. The entities invested in Resonate are under control by
         subsidiaries of Lehman Brothers Holdings, Inc., a publicly held
         corporation. The executive officers of Lehman Brothers Holdings, Inc.,
         as reported in that entity's public filings, may exercise voting powers
         over the shares.

     (5) At March 2, 2001, all shares held by Mr. Watkins were unvested.
         Includes 41,666 shares issuable upon exercise within 60 days of
         March 2, 2001.

     (6) At March 2, 2001, 498,844 shares held by Mr. Schroeder were unvested
         and subject to a right of repurchase in our favor, which right lapses
         over time. Includes 200,000 shares issuable upon exercise of options
         held by Mr. Schroeder within 60 days of March 2, 2001, 75,000 of which
         would be subject to a right of repurchase in our favor, which right
         lapses over time.

     (7) Includes 100,000 shares held by the Marino Children's Trust dated
         December 9, 1999. At March 2, 2001, all shares held by Mr. Marino
         were fully vested.

     (8) Includes 326,994 shares held by the Robert C. Hausmann and Lori Anne
         Hausmann Living Trust dated November 21, 1991. At March 2, 2001,
         223,949 shares held by Mr. Hausmann and the trust were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 81,500 shares issuable upon exercise of options held by
         Mr. Hausmann within 60 days of March 2, 2001, of which 76,406 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (9) At March 2, 2001, 116,118 shares held by Ms. Barnes were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 68,568 shares issuable upon exercise of options held by
         Ms. Barnes within 60 days of March 2, 2001, of which 60,890 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (10)At March 2, 2001, 38,706 shares held by Ms. Styres were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 145,980 shares issuable upon exercise of options held by
         Ms. Styres within 60 days of March 2, 2001, of which 138,302 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (11)At March 2, 2001, 52,500 shares held by Mr. Lorentz were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 10,000 shares issuable upon exercise of options held by
         Mr. Lorentz within 60 days of March 2, 2001, of which 7,500 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (12)Includes 60,932 shares held by entities associated with TechFarm.
         Mr. Campbell disclaims beneficial ownership of these shares except
         to the extent of his pecuniary interest therein.

                                    Page 64
<PAGE>

     (13)At March 2, 2001, 35,750 shares held by Mr. Finocchio were unvested
         and subject to a right of repurchase in our favor, which right lapses
         over time.

     (14)Includes 119,969 shares held by the Flatiron Fund LLC, 175,218 shares
         held by the Flatiron Fund 1998/99 LLC and 17,880 shares held by
         Flatiron Associates, LLC. Mr. Greene disclaims beneficial ownership of
         these shares except to the extent of his pecuniary interest therein.

     (15)Excludes 1,705,144 shares of common stock held by Sun Microsystems,
         Inc. which converts into 1,705,144 shares of common stock. Mr.
         McFarlane disclaims beneficial ownership of these shares except to the
         extent of his pecuniary interest therein. Includes 52,000 shares held
         by John S. McFarlane and Janet E. McFarlane, Trustees, or their
         successors, under the McFarlane Revocable Family Trust, Dated November
         22, 1999. At March 2, 2001, 32,500 shares held by the trust were
         unvested and subject to a right of repurchase in our favor, which right
         lapses over time.

     (16)Includes 3,136,345 shares held by entities associated with Kleiner
         Perkins Caufield & Byers. Mr. Siegelman disclaims beneficial
         ownership of these shares except to the extent of his pecuniary
         interest therein.

     (17)At March 2, 2001, 32,154 shares held by Mr. Guercio were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 170,468 shares issuable upon exercise of options held by
         Mr. Guercio within 60 days of March 2, 2001, 162,530 of which would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (18)At March 2, 2001, 43,500 shares held by Mr. Button were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 182,600 shares issuable upon exercise of options held by
         Mr. Button within 60 days of March 2, 2001, 179,062 of which would be
         subject to a right of repurchase in our favor, which right lapses over
         time.

     (19)At March 2, 2001, 1,177 shares held by Ms. Bartelmie were unvested and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 148,823 shares issuable upon exercise within 60 days of
         March 2, 2001, 145,698 of which would be subject to a right of
         repurchase, which right lapses over time.

     (20)Includes 1,722,594 shares which were unvested at March 2, 2001 and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 639,839 shares issuable upon exercise of options within
         60 days of March 2, 2001, of which 604,185 would be subject to a right
         of repurchase in our favor, which right lapses over time.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During the last two years, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our capital stock had
or will have a direct or indirect material interest other than compensation
arrangements that are otherwise required to be described and the transactions
described below.

EQUITY INVESTMENT TRANSACTIONS FOR CASH

     In March 2000 we sold 514,668 shares of Series E preferred stock for $19.43
per share. In July 2000, we sold 1,389,603 shares of Series F preferred stock
for $19.43 per share. Sun Microsystems Inc., a stockholder holding more than 5%
of our capital stock purchased all 514,668 shares of Series E preferred stock,
and 1,029,336 shares of Series F preferred stock, for an aggregate cash purchase
price of $29,999,998. Upon our initial public offering, these shares were
converted to 1,705,144 shares of common stock.




                                    Page 65
<PAGE>

EMPLOYEE LOANS

     On February 16, 1999, Mr. Schroeder purchased 1,408,500 shares of our
common stock at a price of $0.38 per share. Mr. Schroeder paid for such shares
with a full recourse five-year $535,230 promissory note, secured by the
purchased shares. The note bears interest at a rate of 5% per annum.

     On September 28, 1999, Mr. Hausmann purchased 315,744 shares of our common
stock at a price of $1.25 per share. Mr. Hausmann paid for such shares in part
with a full recourse five-year $194,680 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6.25% per annum. On
December 1, 1999, Mr. Hausmann purchased 10,000 shares of our common stock at an
exercise price of $2.50 per share. Mr. Hausmann paid for such shares with a full
recourse five-year $25,000 promissory note, secured by the purchased shares. The
note bears interest at a rate of 6.25% per annum.

     On February 7, 2000, Mr. Button purchased 100,000 shares of our common
stock at a price of $5.00 per share. Mr. Button paid for such shares in part
with a full recourse five-year $300,000 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6.6% per annum.

     We have the right to repurchase unvested shares from these executive
officers if their service with us terminates, which right lapses over four years
after the date of grant, absent any accelerating event.





                                    Page 66
<PAGE>

                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(A) (1)  FINANCIAL STATEMENTS

     The consolidated financial statements of the registrant as set forth under
Item 8 are filed as part of this Annual Report on Form 10-K.

(A) (2)  FINANCIAL STATEMENT SCHEDULE

     Schedule II - Valuation and Qualifying Accounts is filed on page 69 of this
Annual Report on Form 10-K.

     All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because they are not required under the related instructions or are
inapplicable.

     The independent accountant's report with respect to the above listed
financial statements and financial statement schedule listed in Items 14 (a) (1)
and 14 (a) (2), are filed on page 36 of this Annual Report on Form 10-K.

 (A) (3) EXHIBITS

3.1*   Restated Certificate of Incorporation of the Registrant.

3.2*   Bylaws of the Registrant.

4.1*   Form of Specimen Certificate for Registrant's common stock.

10.1*  Form of Indemnification Agreement between the Registrant and each of
       its directors and officers.

10.2*  1996 Stock Plan and form of agreement thereunder.

10.3*  2000 Stock Plan and form of agreement thereunder.

10.4*  2000 Employee Stock Purchase Plan and form of agreement thereunder.

10.5*  Fifth Amended and Restated Investor Rights Agreement dated July 6, 2000.

10.6*  Lease in Sunnyvale, California.

10.7*  Java License from Sun Microsystems, Inc.

21.1   Subsidiaries of the Registrant.

23.1   Consent of Independent Accountants.

25.1   Power of Attorney (See Page 70)

99.1   Employment Agreement between Mr. Peter R. Watkins and Resonate Inc.

-------------------
*    Incorporated by reference to the registrant's Registration Statement on
     Form S-1 (File No. 333-31730), declared effective August 2, 2000.





                                    Page 67
<PAGE>

(B)      REPORTS ON FORM 8-K

     No reports on Form 8-K were filed by the Registrant during the three months
ended December 31, 2000.

(C)      EXHIBITS

See (a) (3) above.

(D)      FINANCIAL STATEMENT SCHEDULE

See (a) (2) above.





                                    Page 68
<PAGE>

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)

<TABLE>
<CAPTION>
                                              BALANCE AT    CHARGED TO                   BALANCE AT
                                             BEGINNING OF    COSTS AND                     END OF
DESCRIPTION                                     PERIOD       EXPENSES     DEDUCTIONS       PERIOD
-----------                                     ------       --------     ----------       ------
<S>                                         <C>              <C>            <C>          <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Year ended December 31, 1998                $     --         $  (21)        $    --      $   (21)

Year ended December 31, 1999                     (21)           (79)             --         (100)

Year ended December 31, 2000                    (100)          (456)            156         (400)


SALES RETURNS RESERVE:

Year ended December 31, 1998                $     --         $   --         $    --      $    --

Year ended December 31, 1999                      --             --              --           --

Year ended December 31, 2000                      --           (103)             53          (50)
</TABLE>



                                    Page 69
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Sunnyvale, State of California on the 23rd day of March 2001.

                                      RESONATE  INC.

                                      By:  /s/ PETER R. WATKINS
                                           --------------------
                                      Peter R. Watkins
                                      President and Chief Executive Officer

     KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Peter R. Watkins and Robert C. Hausmann, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this Annual Report on Form 10-K, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
conforming all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.


SIGNATURE                        TITLE                          DATE
---------                        -----                          ----

/s/ PETER R. WATKINS             President and                 March 23, 2001
--------------------              Chief Executive Officer
Peter R. Watkins                  and Director (Principal
                                  Executive Officer)

/s/ ROBERT C. HAUSMANN           Chief Financial Officer       March 23, 2001
----------------------            (Principal Financial and
Robert C. Hausmann                Accounting Officer)


/s/ GORDON A. CAMPBELL           Chairman of the Board         March 23, 2001
----------------------
Gordon A. Campbell


/s/ CHRISTOPHER C. MARINO        Founder,                      March 23, 2001
-------------------------        Corporate Vice President
Christopher C. Marino            and Director


/s/ I. ROBERT GREENE             Director                      March 23, 2001
--------------------
I. Robert Greene


/s/ ROBERT J. FINOCCHIO, JR.     Director                      March 23, 2001
----------------------------
Robert J. Finocchio, Jr.


/s/ RUSSELL SIEGELMAN            Director                      March 23, 2001
---------------------
Russell Siegelman


/s/ JOHN S. MCFARLANE            Director                      March 23, 2001
---------------------
John S. McFarlane


                                    Page 70

<PAGE>

                                 EXHIBIT INDEX


Exhibit    Description
-------    -----------------
3.1*       Restated Certificate of Incorporation of the Registrant.

3.2*       Bylaws of the Registrant.

4.1*       Form of Specimen Certificate for Registrant's common stock.

10.1*      Form of Indemnification Agreement between the Registrant and each of
           its directors and officers.

10.2*      1996 Stock Plan and form of agreement thereunder.

10.3*      2000 Stock Plan and form of agreement thereunder.

10.4*      2000 Employee Stock Purchase Plan and form of agreement thereunder.

10.5*      Fifth Amended and Restated Investor Rights Agreement dated
           July 6, 2000.

10.6*      Lease in Sunnyvale, California.

10.7*      Java License from Sun Microsystems, Inc.

21.1       Subsidiaries of the Registrant.

23.1       Consent of Independent Accountants.

25.1       Power of Attorney (See Page 70)

99.1       Employment Agreement between Mr. Peter R. Watkins and Resonate Inc.

-------------------
*    Incorporated by reference to the registrant's Registration Statement on
     Form S-1 (File No. 333-31730), declared effective August 2, 2000.



                                    Page 71