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, 2001
[ ]  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 February 28, 2002 was approximately $34,863,331, 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
February 28, 2002 was 27,088,657.


<PAGE>

                                  RESONATE INC.
                           ANNUAL REPORT ON FORM 10-K

                               FOR THE YEAR ENDED
                                DECEMBER 31, 2001

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

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

Item 2.    Properties.....................................................................................  10

Item 3.    Legal Proceedings..............................................................................  10

Item 4.    Submission of Matters to a Vote of Security Holders............................................  10


PART II

Item 5.    Market for  Registrant's Common Stock and Related Stockholder Matters..........................  11

Item 6.    Selected Consolidated Financial Data...........................................................  12

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..........  13

Item 7a.   Quantitative and Qualitative Disclosures About Market Risks....................................  30

Item 8.    Consolidated Financial Statements and Supplementary Data.......................................  31

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........  51


PART III

Item 10.   Directors and Executive Officers of the Registrant.............................................  52

Item 11.   Executive Compensation.........................................................................  54

Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................  60

Item 13.   Certain Relationships and Related Transactions.................................................  63


PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K.................................  64

SIGNATURES ...............................................................................................  67
</TABLE>



                                       2
<PAGE>

                                     PART I


ITEM 1.  BUSINESS

OVERVIEW

     We develop and market software solutions for enterprises that wish to
guarantee the end-user response time and service levels of business-critical
applications while cutting operating costs. Resonate Commander Solutions
significantly reduces problem resolution time while it simultaneously ensures
transaction completion by routing end-users around problems.

     Resonate Commander Solutions collects information on the health of a
company's infrastructure, end-user response time and service levels and
correlates such information with the performance of individual application
components. This technique can leverage existing enterprise monitoring and
testing investments to access information and use it to assure service levels.
Our approach allows for quick problem identification, diagnosis and resolution,
resulting in peak end-user service levels and operating efficiency. In addition,
Resonate Commander Solutions maximizes a company's infrastructure utilization by
enabling resource consolidation with no impact on the end-user service levels.


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 Resonate Commander
Solutions, Resonate Central Dispatch and Resonate Global Dispatch. The products
currently offered are open, software solutions that support industry standard
computing platforms and operating systems including Solaris, Windows NT, AIX and
Linux.

     RESONATE COMMANDER SOLUTIONS

     Resonate Commander Solutions provides an end-to-end method for maintaining
the end-user experience while resolving critical service issues.

     Resonate Commander Solutions provides a unified, Web-based interface for
real-time monitoring, trouble-shooting, and control of an application
infrastructure. Systems administrators can easily drill-down from high-level
views indicating the degree of compliance with service level objectives to
detailed availability and performance statistics for individual applications,
systems and network devices. A visual dashboard is also provided for IT
organizations that require "at-a-glance" availability and performance
indicators.

     Resonate Commander Solutions integrates with traditional management and
performance monitoring products. It can receive critical information such as
infrastructure alerts from other vendor's products and then leverage this
information to effectively resolve problems that impact application performance.

     Resonate Commander Solutions provides the following capabilities for
managing the end-user experience while reducing operating costs:

 - Map physical infrastructure to logical model based on end-user or business
   requirements
 - Correlate application, system, and network health with the end-user
   experience
 - Provide and leverage deep knowledge of critical components (such as
   application servers)
 - Rapidly identify and diagnose service problems critical to end-users
 - Prevent problems from affecting end-users and ensure transaction completion
 - Enable advanced manual or automated problem resolution



                                       3
<PAGE>

     Map physical infrastructure to a logical model based on end-user or
business requirements: "Service Model"

     Resonate Commander Solutions uses the "service model" to actively manage
the end-user experience. The service model captures, displays and acts on all of
the infrastructure components' roles and interdependencies in delivering a
service. This enables the management of infrastructure that reflects what
end-users experience.

     Correlate application, system, and network health with the end-user
experience

     Resonate Commander Solutions enables the definition of application or
service availability and performance objectives (service level objectives -
SLOs) for each service based on business requirements. Unlike limited monitoring
products, Resonate Commander Solutions provides both end-user experience
(outside-in) and inside system health (inside-out) perspectives of the
infrastructure. Key statistics and events are monitored from individual
components in the infrastructure. These statistics are correlated with end-user
service level objectives. Objectives that have been violated can be quickly
addressed before the quality of the end-user experience is affected.

     Obtain and leverage deep knowledge of critical components such as
application servers

     It is estimated that 40% of application performance issues are related to
application servers. Resonate Commander Solutions Command Modules have been
designed specifically to manage the leading J2EE application servers and the
applications built on them, down to the individual EJB and servlet. Unlike
agent-less monitoring solutions, Resonate Application Server Command Modules are
local, collecting rich data and are able to take corrective actions directly.

     Rapidly diagnose service problems critical to end-users

     Resonate Commander Solutions correlates and filters data locally so that
only important data relating to the end-user experience is displayed, analyzed
and acted on. This enables administrators to manage the data that matters most
and to work far more efficiently and effectively. When a service violates its
SLO, Resonate Commander Solutions immediately isolates the problem to a
particular component such as application servers. Resonate Commander Solutions
eliminates unnecessary "finger pointing" and enables an IT department to
immediately assign responsibility for the problem to the right expert or group.
Resonate Commander Solutions will tell the administrator what services are
impacted and to what degree they are affected.

     Resonate Commander Solutions provides relevant data (statistics and events)
about the condition of each technology component so that the specialist can
quickly assess the root-cause of failure and determine the appropriate response.
Resonate Commander Solutions can pre-qualify events at the source so that
administrators stay focused on the issues that impact the end-user experience.

     Prevent problems from affecting end-users and ensure transaction completion

     Resonate Commander Solutions goes beyond diagnostic products to not only
detect problems, identify their root cause, and take steps to resolve those
problems, but also maintain end-users' experience even when problems occur.
Resonate Commander Solutions routes transactions around problems so that the
end-user's experience is not degraded and administrators don't have to be
interrupted to fix the problem immediately. Transactions can be rerouted
automatically in response to specific events or presented as a pre-configured
option to the administrator.




                                       4
<PAGE>

     Enable advanced operator-controlled or automatic actions to correct
problems

     Resonate Commander Solutions is unique in that it not only finds problems
and helps identify their root cause, but also takes steps to resolve those
problems. Resonate Commander Solutions takes problems much further down the
resolution path resulting in much faster resolution time. Resonate Commander
Solutions can:

 - Run additional tests to confirm or further diagnose the problem, to
   determine the impact of the problem on end-user experience and the
   impact of the problem on other parts of the infrastructure
 - Take direct corrective action such as restarting a process or servlet,
   or taking down or bringing up additional resources for customers
 - Administrators can choose when to run these actions. If the operator
   wishes, actions can also be set to run automatically

     Our Resonate Commander Solutions is comprised of distributed software
components that collectively monitor, diagnose and respond to critical service
problems, within an organization's application infrastructure. Our unique
architecture distributes intelligent management capabilities across all levels
of a complex environment so that monitoring, diagnostic, and response
capabilities move closer to the problem.

     The key components of the Resonate Commander Solutions include:

 - CONTROLLER. The Controller provides centralized monitoring and control
   of IP-based applications and services. The Controller allows system
   administrators to define service level objectives, logical
   relationships between underlying components (the service model), and
   policies that map events with appropriate responses. The Controller
   also includes other critical management capabilities such as historical
   and real-time reporting, tailored application tests, calendar-based
   scheduling, self-monitoring features, license management and access
   privileges.

 - RESONATE COMMAND MODULES. These software modules monitor and control
   specific applications, systems, databases, and network devices critical
   to the delivery of application or services. For example, Resonate
   Command Modules collect critical availability and performance
   information such as user connection times, server loads, queue lengths
   and memory usage. Command Modules also take local corrective actions
   for specific applications such as starting or stopping processes.
   Command Modules may be deployed either locally or remotely, depending
   on the customers' requirements and preferences.

 - REMOTE TEST ENGINE. This software module provides tailored tests that
   can simulate end-user interaction - such as URL synthetic transactions
   and TCP availability checks that mimic end-user activity. Test results
   are forwarded to the Controller, Resonate's centralized management
   component, and provide targeted information enabling administrators to
   quickly and accurately identify the source of the problems in a complex
   environment.

 - ACTIVE AGENTS. These software modules provide filtering and correlation
   features for availability and performance information across disparate
   applications and systems. These modules may be deployed either locally or
   remotely, depending on the customer requirements and preferences. The benefit
   of deploying them locally is that they can gather a richer set of data and
   statistics than if they were deployed remotely. Resonate Commander Solutions'
   agents gather data from critical applications, even custom-built
   applications, for deeper insight and true management and control. Local
   agents also have the ability to correlate data and filter it locally,
   reducing the amount of random events that propagate to the central management
   console.





                                       5
<PAGE>

     RESONATE CENTRAL DISPATCH

     Resonate Central Dispatch is a software traffic management product for high
traffic web-based applications where high levels of availability and predictable
performance are critical. Resonate Central Dispatch's distributed software
architecture enables multiple server systems to act as a single, scalable,
reliable and easily managed server system. Resonate 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. Resonate 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 e-business applications.

     Resonate 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 Resonate 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 Resonate Central Dispatch configuration can perform
the request distribution function, Resonate Central Dispatch avoids introducing
new potential failure points and provides high availability to e-business
applications.

     Resonate 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 Resonate Central Dispatch to allocate or
reserve server system capacity so that targeted service levels are more likely
to be maintained.

     At the heart of our Resonate 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."

     Resonate 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
   Resonate 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, Resonate Central Dispatch has computing resources to
   implement a rich traffic management feature set without degrading the
   throughput or overall performance of the platform.



                                       6
<PAGE>

 - NETWORK DESIGN FLEXIBILITY. A connection can be hopped to any server
   system independent of its location. This means that Resonate 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.


     RESONATE GLOBAL DISPATCH

     Resonate Global Dispatch is a software product that provides traffic
management functions across geographically distributed e-business applications
to consolidate multiple points of presence, or POPs, into a single,
enterprise-wide resource. Resonate 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.

     Resonate Global Dispatch provides features that can simplify administrative
tasks such as database and content replication. Resonate 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. Resonate Global Dispatch automatically monitors POPs for
failures and only routes requests to available, healthy resources.

     Resonate 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, Resonate Global
Dispatch and Resonate Central Dispatch can exchange information about server
performance and availability at each location which can improve end-to-end
traffic flow and response time.


CUSTOMERS

     We have over 550 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 for active service level management.

     Our customers include large financial institutions, pharmaceutical
companies, transportation and logistics organizations and universities with
application infrastructures 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 2001 and 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. As of December 31, 2001, we
had 70 people in our sales and marketing organization. We plan to maintain the
number of our direct sales personnel at or near our current levels.

     When an enterprise 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.



                                       7
<PAGE>

     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 sales 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 our indirect sales
relationships to include third party consulting firms and software companies.
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.


RESEARCH AND DEVELOPMENT

     We have made substantial investments to design and develop our active
service level management platform over the past several years. We have assembled
a team of highly experienced engineers, software developers, system architects
and test engineers to design, implement and test our platform. As part of this
development we have 4 patents pending and 2 patents issued.

     The majority of our research and development activity has been directed
towards feature enhancement and the development of new functionality to our
products and solutions. Our research and development expenditures, excluding
stock-based compensation of $549,000 in 2001, $3.5 million in 2000 and $1.2
million in 1999, were approximately $13.9 million in 2001, $12.8 million in 2000
and $6.8 million in 1999. Although we intend to continue to leverage the
research and development investments we have made to date, we also plan to
evaluate third party suppliers for complementary technologies that might be
integrated into our product offerings. We expect to continue to develop new
products and product enhancements with the investments we have made to date in
the research and development infrastructure while monitoring our spending
closely.

     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.


INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

     Our future success depends in part on legal protection of our technology.
To protect our technology, among others, we rely on a combination of the
following:

 - patent laws
 - copyright laws
 - trademark laws
 - trade secret laws
 - employee and third-party nondisclosure agreements
 - confidentiality procedures



                                       8
<PAGE>

     We currently have 4 patents pending and 2 patents issued on our technology
in the United States and internationally. We also have applied for trademarks in
the United States and internationally. Our end-user licenses are designed to
prohibit unauthorized use, copying and disclosure of our software and
technology.


COMPETITION

     Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Although our Resonate
Commander Solutions has features and capabilities that no individual competitor
offers, principal competitors are the systems and network management product
providers including Tivoli Systems, BMC Software, Mercury Interactive,
Micromuse, Precise Software, and others. As these providers enhance their
products and solutions to target the needs and requirements of Internet deployed
applications, potential customers may choose their products over ours. Principal
competitors for our Resonate Central Dispatch and Resonate Global Dispatch
products include Cisco Systems, F5 Networks, Foundry Networks, Nortel 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 have bundled their products or incorporated a
load balancing or traffic management capability into their existing products in
a manner that discourages users from purchasing our products.

EMPLOYEES

     As of December 31, 2001, we had a total of 188 employees. Of those
employees, 75 were in engineering, 70 were in sales and marketing, 14 were in
service and support and 29 were in operations and administration. None of our
employees is subject to a collective bargaining agreement. We believe our
employee relations are in good standing.





                                       9
<PAGE>

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 Woodland Hills, California; Englewood,
Colorado; Schaumburg, Illinois; White Plains, New York; McLean, Virginia;
London, England; Paris, France; and Uppsala, Sweden for our sales and related
personnel. We believe that our existing facilities are adequate for our
requirements through at least 2002 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 for permanent injunctive relief and damages. 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. In November 2001, the
Court issued a claim construction ruling that we believe prevents us from
prevailing in the case. In December 2001, we entered into a stipulated judgment
of non-infringement and, in January 2002, filed a notice of appeal. The appeal
is currently pending.

     In December 2001, one of our stockholders filed an action against us and
the investment bankers who took part in our initial public offering. This
lawsuit is one of hundreds filed in 2001 alleging that investment bankers
entered into "tie-in" arrangements or required excessive commissions in
connection with initial public offerings of stock whose stock prices increased
dramatically above the offering price in the first few days after the offering
and later dropped below the offering price. This lawsuit alleges that these
activities were not disclosed in a prospectus, and therefore constitute material
omissions in violation of the federal securities laws.

     We are also involved in disputes in the ordinary 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, 2001.



                                       10
<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 since our
initial public offering.

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

       Fiscal 2001                            High                Low
       ---------------                      ---------          --------
       First Quarter                         $11.25               $2.53
       Second Quarter                          4.15                2.19
       Third Quarter                           4.99                3.05
       Fourth Quarter                          3.25                2.03

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

     The closing price of our common stock as reported on the Nasdaq National
Market on March 20, 2002 was $2.80. As of February 28, 2002, 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.

     In November 2001, our Board of Directors authorized a stock repurchase
program. The program allows the Company to purchase up to $4 million of its
common stock in the open market from time to time. As of December 31, 2001, we
purchased 700,000 shares at a weighted average purchase price of $2.25 per
share.

     Of the proceeds from our initial public offering in August 2000, we used
$1.6 million for repurchase of our common stock and $4.1 million for working
capital purposes. We expect to use the remaining proceeds to develop products
and support activities, continue to develop our selling and marketing
infrastructure and for working capital purposes. We may also use a portion of
the remaining proceeds from the offering to acquire or invest in businesses,
technologies or products that are complementary to our business. We intend to
continue to invest proceeds from the initial public offering in short-term,
interest-bearing, investment-grade securities.




                                       11
<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, 2001 and the balance sheet data as of
December 31, 2001 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>

                                                                      Year Ended December 31,
                                                 ------------------------------------------------------------------
                                                   2001          2000           1999          1998             1997
                                                 ---------    ----------    ---------        -------       --------
                                                                (in thousands, except per share amounts)
<S>                                             <C>           <C>            <C>            <C>           <C>
Statement of Operations Data:
Total revenue.................................. $   14,196    $   19,994     $   9,914      $  2,695      $     445
Cost of revenue (1).............................     4,051         6,453         1,410           323             84
                                                ----------    ----------      --------       -------       --------
Gross profit....................................    10,145        13,541         8,504         2,372            361
Operating expenses (2)..........................    42,667        59,075        27,263        10,177          4,194
                                                ----------    ----------      --------       -------       --------
Loss from operations............................   (32,522)      (45,534)      (18,759)       (7,805)        (3,833)
                                                ----------    ----------      --------       -------       --------
Net loss .......................................   (28,928)      (43,115)      (18,865)       (7,671)        (3,711)
Beneficial conversion of Series F preferred stock       --         6,750            --            --             --
                                                 ---------    ----------      --------       -------       --------

Net loss attributable to common stockholders... $  (28,928)   $  (49,865)    $ (18,865)     $ (7,671)     $  (3,711)
                                                ==========    ==========     =========      ========      =========

Net loss per share attributable to common
     stockholders (basic and diluted)..........$    (1.07)    $   (3.41)      $ (4.18)       $(1.90)      $   (1.20)
                                               ===========    ==========      ========       =======      =========
Weighted average shares used in computation
     of net loss per share attributable to common
     stockholders (basic and diluted)...........    27,131        14,609         4,513         4,048          3,083
                                                ==========    ==========      ========       =======       ========

Balance Sheet Data:
Cash, cash equivalents and investments......... $   82,347    $  109,034     $  11,999      $  4,322      $   2,343
Working capital (3).............................    74,868       102,749         7,674         4,153          1,777
Total assets....................................    89,835       121,943        18,386         7,652          3,088
Long term debt, net of current portion..........       833         2,889         3,346           521            235
Mandatorily redeemable convertible
     preferred stock............................        --            --        28,401        15,122          5,206
Total stockholders' equity (deficit)............    77,827       105,167       (21,757)      (10,006)        (3,130)
</TABLE>

------------------------
(1) Includes stock-based compensation of $534; $1,610; $306; $4 and $0,
    respectively
(2) Includes stock-based compensation of $284; $12,927; $5,482;
    $874 and $0, respectively
(3) Working capital is defined as current assets less
    current liabilities

----------



                                       12
<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
20 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 software solutions for enterprises that wish to
guarantee the end-user response time and service levels of business-critical
applications while cutting operating costs. Resonate Commander Solutions
significantly reduces problem resolution time while simultaneously ensures
transaction completion by routing end-users around problems.

     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, Resonate Central
Dispatch, and first generated revenue from software license fees and
implementation and consulting fees, in the first quarter of 1997. We released
our Resonate Global Dispatch software product in the first quarter of 1998 and
our Commander software product in the third quarter of 1999. In the fourth
quarter of 2001, we released our Resonate Commander Solutions. Our total
headcount increased from 42 at December 31, 1997 to 188 at December 31, 2001.

     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, 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 $1.1 million from these reseller arrangements in
2001.

CRITICAL ACCOUNTING POLICIES

     REVENUE RECOGNITION. We derive revenue from licenses of our software and
delivery of related services, which include maintenance fees and professional
services. 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 has occurred. We generally recognize revenue under the residual
method as prescribed by AICPA's Statement of Position No. 97-2 "Software Revenue
Recognition" and Statement of Position No. 98-9 "Modification of SOP No. 97-2
with Respect to 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 fair value of maintenance service is determined by the renewal rate stated
in the license agreement or, if not stated, the renewal rates generally charged
to customers on similar transactions.



                                       13
<PAGE>

     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 (i.e., greater than 60 days),
revenue is recognized at the earlier of when the payment becomes due and payable
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. Prepaid amounts are recorded as deferred
revenue and are recognized as revenue over the term of the arrangement. Revenue
recognized under such arrangements for the years ended December 31, 2001, 2000
and 1999 was not significant.

     Fees 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. Professional services primarily
consist of software installation and integration, consulting and training.
Professional services revenue is recognized as such services are performed.

     ESTIMATING VALUATION ALLOWANCES. The preparation of financial statements
requires our management to make estimates and assumptions that affect the
reported amount of assets and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reported period.

     Our management must make estimates of the uncollectibility of our accounts
receivables. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer credit-worthiness, current economic trends and
changes in customer payment terms, if any, when evaluating the adequacy of the
allowance for doubtful accounts. Our accounts receivable balance at December 31,
2001 was $2.7 million, net of allowance for doubtful accounts of $400,000.

     Similarly, our management must assess the likelihood that our deferred tax
assets will be recovered from future taxable income; and to the extent we
believe that recovery is not likely, we have established valuation allowances
against the deferred taxes. We have provided a full valuation allowance of $33.2
million as of December 31, 2001, for our deferred tax assets since the
realization of these future benefits cannot be sufficiently assured.





                                       14
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth financial data as a percentage of total
revenue.
<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                               -------------------------------------
                                                  2001         2000           1999
                                                 ---------    ---------    ---------
<S>                                                  <C>           <C>          <C>
Revenue:
   Product                                           53.4%         74.4%        80.7%
   Services                                          46.6          25.6         19.3
                                                 --------     ---------    ---------
       Total revenue                                100.0         100.0        100.0
                                                 --------     ---------    ---------
Cost of revenue:
   Product                                            1.6           1.6          0.6
   Services                                          26.9          30.7         13.6
                                                 --------     ---------    ---------
       Total cost of revenue                         28.5          32.3         14.2
                                                 --------     ---------    ---------
Gross profit                                         71.5          67.7         85.8
                                                 --------     ---------    ---------
Operating expenses:
   Research and development                         102.1          81.3         80.5
   Sales and marketing                              139.6         161.7        136.3
   General and administrative                        58.8          52.4         58.2
                                                 --------     ---------    ---------

       Total operating expenses                     300.5         295.4        275.0
                                                 --------     ---------    ---------
Loss from operations                               (229.0)       (227.7)      (189.2)
Interest and other income                            30.5          16.7          5.1
Interest and other expense                           (5.2)         (4.6)        (6.2)
                                                 ---------      --------   ----------
Net loss                                           (203.7)%      (215.6)%     (190.3)%
                                                 =========    ==========   ==========
</TABLE>


REVENUE

     Our total revenue was $14.2 million in 2001, $20.0 million in 2000 and $9.9
million in 1999, and was comprised of sales of software products and related
services fees from implementation, consulting, training and support.

     The decrease in our revenue from 2000 to 2001was primarily due to a general
slowdown in the domestic economy beginning in the second half of 2000 and
continuing into the full year 2001, resulting in delays or cancellations in
anticipated sales to new and existing customers. The decrease in our revenue
from 2000 to 2001 was also attributed in part to our transition from selling
primarily traffic management products to selling solutions more focused on
active service level management. The increase in our revenue from 1999 to 2000
was primarily due to increasing market acceptance of the need for service level
management solutions, establishment of additional indirect sales partners,
including server system vendors, value-added resellers/system integrators and
independent software vendors from 1998 to 2000, increased investment in our
sales and marketing organizations and the introduction of our Resonate Global
Dispatch product in 1998 and Commander in 1999.

     Product revenue was $7.6 million in 2001, $14.9 million in 2000 and $8.0
million in 1999. Services revenue was $6.6 million in 2001, $5.1 million in 2000
and $1.9 million in 1999. During 2001, our revenue mix changed from prior
periods as a result of generating higher revenues from renewals of our
maintenance contracts compared to sales of our products to new and existing
customers. We believe our revenue mix will consists of approximately 55-60%
product revenue and 40-45% service revenue for the first quarter ended March 31,
2002.

     In 2000, one individual customer, Charles Schwab & Co., accounted for 15%
of our total revenue. In 2001 and 1999, no individual customer accounted for 10%
or more of our total revenue.



                                       15
<PAGE>

COST OF REVENUE

     Cost of revenue was $3.5 million in 2001, $4.8 million in 2000 and $1.1
million in 1999, excluding stock-based compensation of $534,000 in 2001, $1.6
million in 2000 and $306,000 in 1999. The decrease in our cost of revenue from
2000 to 2001 was primarily due to our cost of services revenue which decreased
from $4.5 million in 2000 to $3.3 million in 2001, excluding stock-based
compensation. The decrease in our cost of services revenue was attributable to
the headcount reduction in our professional services organization from 26
employees at December 31, 2000 to 14 employees at December 31, 2001. The
increase in our cost of revenue from 1999 to 2000 was also primarily due to our
cost of services revenue which increased from $1.0 million in 1999 to $4.5
million in 2000, excluding stock-based compensation. The increase in our cost of
services revenue was attributable to an increase in professional services
headcount from 14 employees at December 31, 1999 to 26 employees at December 31,
2000. We believe that our cost of revenue, excluding stock-based compensation
charges, will be 25-30% of total revenue for the quarter ended March 31, 2002,
as we expect our existing professional services organization to continue to
support new and existing customers. 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.

     Our gross profit was $10.1 million in 2001, $13.5 million in 2000 and $8.5
million in 1999. Our gross profit from product was $7.4 million in 2001, $14.5
million in 2000 and $7.9 million in 1999. Our gross profit (loss) from services
was $2.8 million in 2001, $(1.0) million in 2000 and $562,000 in 1999. Our
negative gross margin from services in 2000 was primarily attributed to
stock-based compensation which increased from $306,000 in 1999 to $1.6 million
in 2000.


OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

     Research and development expenses were $13.9 million in 2001, $12.8 million
in 2000 and $6.8 million in 1999, excluding stock-based compensation charges of
$549,000 in 2001, $3.5 million in 2000 and $1.2 million in 1999. The increase in
research and development expenses from 2000 to 2001 relates primarily to
increases in salaries and related benefits for our engineers and technical
support staff. Substantially all of the increases in research and development
expenses from 1999 to 2000 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. Headcount for research and development
increased from 56 employees at December 31, 1999 to 76 employees at December 31,
2000. We believe that research and development expenses, in absolute dollars,
excluding stock-based compensation charges, will remain consistent in the
quarter ended March 31, 2002 to the levels of the fourth quarter of 2001 of $3.5
million. We expect to continue to develop new products and product enhancements
with the investments we have made to date in the research and development
infrastructure while monitoring our spending closely. Research and development
expenses as a percentage of total revenue may fluctuate from period-to-period.

SALES AND MARKETING

     Sales and marketing expenses were $20.2 million in 2001, $27.2 million in
2000 and $11.3 million in 1999, excluding stock-based compensation charges of
($396,000) in 2001, $5.1 million in 2000 and $2.2 million in 1999. The decrease
in sales and marketing expenses from 2000 to 2001 resulted primarily from a
reduction in sales and marketing headcount from 107 employees at December 31,
2000 to 70 at December 31, 2001. The decrease in sales and marketing expenses
from 2000 to 2001 is also attributable to more targeted marketing activities
than in prior periods which are less expensive, a decrease in third-party
recruitment fees and a decrease in sales commissions as our total revenue
declined in 2001 compared to 2000. The increase in sales and marketing expenses
from 1999 to 2000 resulted primarily from building a direct sales force and
investing in sales and marketing infrastructure. From 1999 to 2000, our sales
and marketing headcount increased from 67 employees at December 31, 1999 to 107
at December 31, 2000. We believe that sales and marketing expenses, in absolute
dollars, excluding stock-based compensation charges, will increase in the



                                       16
<PAGE>

quarter ended March 31, 2002 from the levels of the fourth quarter of 2001 of
$4.1 million. We expect to continue to focus our sales and marketing efforts on
increasing market penetration while monitoring our sales and marketing expenses
closely. Sales and marketing expenses may fluctuate as a percentage of total
revenue from period-to-period.

 GENERAL AND ADMINISTRATIVE

     General and administrative expenses were $8.2 million in 2001, $6.2 million
in 2000 and $3.6 million in 1999, excluding stock-based compensation of $131,000
in 2001, $4.3 million in 2000 and $2.1 million in 1999. The increase in general
and administrative expenses from 2000 to 2001 is primarily attributable to costs
relating to legal expenses in connection with our patent infringement action
against Alteon Web Systems, Inc., executive transition costs during the first
six months of 2001 and additional public company administrative expenses such as
increased directors' and officers' insurance costs and filing fees.
Substantially all of the increases in general and administrative expenses from
1999 to 2000 resulted from the addition of executive, finance and administrative
personnel to support the growth of our business. Our general and administrative
headcount increased from 24 employees at December 31, 1999, to 36 employees at
December 31, 2000. We believe that general and administrative expenses, in
absolute dollars, excluding stock-based compensation charges, will decrease in
the quarter ended March 31, 2002 from the levels of the fourth quarter of 2001
of $1.9 million. General and administrative expenses may fluctuate as a
percentage of total revenue from period-to-period.

 STOCK-BASED COMPENSATION

     Stock-based compensation consists 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 and $21.6
million in 1999, related to stock transactions with employees. In 2001, we did
not record additional deferred compensation as all stock options were granted to
employees at fair market value. Of the deferred compensation, $818,000 was
amortized in 2001, $14.5 million was amortized in 2000 and $5.8 million was
amortized in 1999, net of cancellations for terminated employees. The remaining
deferred compensation of $2.9 million is expected to be amortized as follows:
$2.1 million in 2002, $754,000 in 2003 and $11,000 in 2004. See Note 6 of Notes
to Consolidated Financial Statements for further discussion regarding the
accounting treatment for stock-based compensation.

     In June 2001, Resonate's Board of Directors approved a stock option
exchange program. Under the program, all eligible employees based in the United
States, excluding executive officers and outside directors, were given the
opportunity to return one or more stock options previously granted to them in
exchange for a promise to receive one or more new stock options to be granted at
least six months and one day from the date the old options were cancelled,
provided the individual is still employed or providing service on such date. The
participation deadline for this program was July 27, 2001. The number of shares
subject to the new options were equal to the number of shares subject to the old
options adjusted for terminations, and the exercise price of the new options was
$3.20 per share which represented the fair market value of our common stock on
January 31, 2002, the date the new options were granted. The new options have
the same vesting start date as the old options and were immediately exercisable
as to vested shares when granted. In total, 611,548 stock options were returned
to us and cancelled as a result of this program. On January 31, 2002, 516,548
stock options were issued under the stock option exchange program. We did not
incur any non-cash compensation costs relating to the stock option exchange
program.

INTEREST AND OTHER INCOME

     We had interest and other income of $4.3 million in 2001, $3.3 million in
2000 and $506,000 in 1999. The increase in interest and other income from 2000
to 2001 resulted from interest earned from higher average cash and investments
balances as a result of our initial public offering in August 2000. The increase
in interest and other income from 1999 to 2000 resulted from interest earned
from higher average cash and investments balances 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.



                                       17
<PAGE>

INTEREST AND OTHER EXPENSES

     We had interest and other expenses of $733,000 in 2001, $926,000 in 2000
and $612,000 in 1999. The decrease in interest and other expenses from 2000 to
2001 resulted primarily from the decline in the interest rates on our
outstanding debt and capital lease obligations tied to the prime rate. The prime
rate declined from 8.5% at December 31, 2000, to 4.75% at December 31, 2001. The
increase in interest and other expenses from 1999 to 2000 resulted primarily
from the interest paid on higher debt and capital lease obligation balances in
2000, including working lines of credit.

PROVISION FOR INCOME TAXES

     As of December 31, 2001, we had approximately $72.1 million of federal and
$19.8 million of state net operating loss carryforwards available to reduce
future taxable income. 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. These net operating loss
carryforwards begin to expire in 2010 and 2003 for federal and state tax
purposes, respectively.

     We also have research and development tax credit carryforwards of
approximately $1.5 million and $1.6 million for federal and state purposes,
respectively. If not utilized, the federal carryforward will expire in various
amounts beginning in 2010. The California state credit can be carried forward
indefinitely.

     The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event we have a change in ownership, utilization
of the carryforwards could be restricted.

     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, 2001 primarily through our
private placements and public offering of equity securities and, to a lesser
extent through revenue generated from the licensing of our products and
services, issuance of subordinated debt and lines of credit. As of December 31,
2001, our principal sources of liquidity included $82.3 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 2001 was $22.0 million and was
attributable to a net loss of $28.0 million before stock-based compensation
charges of $818,000 and charges for stock issued for services of $107,000. Cash
provided by operating activities resulted from decreases in accounts receivable
of $3.1 million, decreases in prepaid expenses and other current assets of
$431,000, increases in accounts payable of $539,000, depreciation and
amortization of $2.6 million and provision for doubtful accounts of $396,000.
Cash provided by operating activities was partially offset by decreases in
deferred revenue of $1.1 million and accrued liabilities of $293,000. The
decrease in accounts receivable primarily resulted from delays in anticipated
sales to new and existing customers during 2001 and increased collection efforts
on outstanding receivables.



                                       18
<PAGE>

     Net 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 increase in accounts receivable of $2.9 million as a result
of an increased demand for our products and services and an increase in prepaid
expenses and other assets of $1.1 million as a result of increased deposit
payments for facilities and prepayments for insurance and maintenance.

     In 1999, net cash used in operating activities was $9.4 million and was
attributable to a net loss of $12.4 million before stock-based 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 for our products and services.

     Net cash used in investing activities totaled $19.7 million in 2001, $30.1
million in 2000 and $7.0 million in 1999. Purchases of short-term investments of
approximately $99.0 million in 2001, $41.0 million in 2000 and $7.0 million in
1999 were offset by maturities of short-term investments of $80.2 million in
2001 and $15.0 million in 2000. Capital expenditures, including those under
capital leases, were $843,000 in 2001, $5.1 million in 2000 and $1.7 million in
1999. Our capital expenditures consist primarily of purchases of computer
equipment and software, furniture and fixtures and leasehold improvements.

     Net cash used in financing activities totaled $4.0 million in 2001. Net
cash provided by financing activities was $125.8 million in 2000 and $17.1
million in 1999. Net cash used in financing activities in 2001 resulted
primarily from payments for debt and lease obligations of $4.0 million,
repurchases of our common stock of $1.7 million, offset by proceeds from the
exercise of stock options and stock issued under the employee stock purchase
plan of $1.7 million. The increase in net cash provided by financing activities
from 1999 to 2000 resulted primarily from the net proceeds from the 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, 2001, $343,000 was outstanding under the $3.5 million facility,
expiring in March 2002, and $242,000 was outstanding under the $1.5 million
facility, expiring in 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.

     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 5.25% at December 31, 2001. At December 31, 2001, $1.8
million was outstanding under the equipment line of credit. As of December 31,
2001, our obligations under our equipment line of credit are $1.0 million in
2002 and $833,000 in 2003. The equipment line of credit is collateralized by our
assets and is subject to nonfinancial covenants. As of December 31, 2001, we did
not have any outstanding obligations under the working capital line of credit.

     As of December 31, 2001, our additional commitments consisted of
obligations under our operating and capital leases. Future lease commitments for
our office facilities and equipment are $2.5 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.



                                       19
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard No. 141, or SFAS No. 141, Business
Combinations. SFAS No. 141 addresses financial accounting and reporting for
business combinations and supersedes Accounting Principles Board Opinion No. 16,
Business Combinations, and SFAS No. 28, Accounting for Preacquisition
Contingencies of Purchased Enterprises. All business combinations in the scope
of SFAS No. 141 are to be accounted for as purchase business combinations
initiated after June 30, 2001. To date, we have not entered into any business
combinations, and as such, SFAS No. 141 does not have an impact on our financial
statements.

     In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. The provisions of SFAS No. 142 are required to be applied
starting with fiscal years beginning after December 15, 2001. We do not carry
any goodwill and other intangible assets; accordingly, SFAS No. 142 does not
currently have an impact on our financial statements.


     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, and also amends ARB No. 51,
Consolidated Financial Statements. The provisions of SFAS No. 144 are effective
for financial statements issued for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years. We do not expect the
adoption of SFAS No. 144 to have a material effect on our results of operations
or financial position.



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 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.

     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 reduce our
operating expenses, which would adversely impact our ability to operate and grow
our business.




                                       20
<PAGE>

OUR REVENUES MAY BE HARMED IF GENERAL ECONOMIC CONDITIONS CONTINUE 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 or declines, our customers may continue to reduce their
spending on the active service level management solutions we offer or defer
purchases of our products and solutions until general economic conditions
improve. If that happens, our revenues could suffer and our stock price may
decline. Further, if global economic conditions worsen, we may experience a
material adverse impact on our business, operating results and financial
condition.

     Our software products, solutions and services are designed for customers
that use the Internet and Internet-based technologies to conduct business. Many
companies that may require our solution have experienced a slowdown that began
in the second quarter of 2000 and continued through 2001 and are re-evaluating
the cost of using the Internet and Internet-based technologies to conduct
business. Economic slowdowns may also adversely affect the ability of some of
our customers to timely fulfill their payment obligations to us. To the extent
we are required to write off more accounts receivable, sales cycles lengthen or
customers cancel orders, our results of operations will be harmed.

IF THE MARKET FOR ACTIVE SERVICE LEVEL MANAGEMENT DOES NOT GROW, OUR ABILITY TO
SELL OUR PRODUCTS AND SOLUTIONS AND GROW OUR BUSINESS WILL BE HARMED.

     Our future success depends on widespread commercial acceptance of our
products and solutions. 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, about the advantages of our
software-based active service level management solutions over their existing
system and network management products, our ability to sell our products and
solutions will be severely limited. Rather than utilizing comprehensive active
service level management solutions, most corporations manage their applications
and services by adding servers and interconnecting a variety of single function
management tools. In addition, our competitors offer a wide variety of products
that purport to serve the needs addressed by our products and solutions. 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 management products, which may be supplied by more
   established vendors, with our products and solutions

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

     In addition, because the market for active service level management
solutions is still 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 and solutions that could address those needs
and establishing a distribution strategy for these products and solutions.

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

     Our industry is characterized by rapid technological change, frequent new
product and solution introductions and enhancements, changes in customer demands
and evolving industry standards. Our existing products and solutions will be
rendered less competitive or obsolete if we fail to introduce new products,
solutions 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 and solutions will depend
on factors including:

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



                                       21
<PAGE>

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

 - Timely completion and introduction of new product designs and features

 - Our ability to provide timely and responsive maintenance and support to our
   customers who purchase products and services

     Further, because the market is new for products and solutions that
facilitate the efficient processing of data and transactions across computer
networks, potential customers in this market may be confused or uncertain about
the relative merits of these products and solutions or which products and
solutions to adopt, if any. Confusion and uncertainty in the marketplace may
inhibit customers from purchasing our products and solutions, which could limit
our revenue growth.

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:

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

 - Changes in the mix of products, solutions and services we sell

 - The timing of the development and release of enhanced versions of
   Resonate Commander Solutions, Command Modules, Resonate Central
   Dispatch and Resonate Global Dispatch, as well as future product
   enhancements and new products

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

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

 - Acceptance of our Resonate Commander Solutions

 - The mix of channels through which we sell our products and solutions

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

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

 - Deferrals or cancellations of orders resulting from uncertain domestic and
   international political, economic and social environments

     Because of these and possibly other 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. Our
operating results were below analysts' expectations in the fourth quarter of
2000 and the first quarter of 2001. 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.



                                       22
<PAGE>

     A delay in anticipated sales beyond the end of a particular quarter may
harm our results of operations for that quarter. We have experienced this type
of delay in the past. Furthermore, we base our decisions regarding our operating
expenses on anticipated revenue trends. Consequently, if revenue levels fall
below our expectations and the expectations of public market analysts and
investors, 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
and solutions. 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 calendar
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 the recent general economic slowdown may have largely
overshadowed the seasonality impact experienced in prior periods.

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

     We cannot assure you that corporate enterprises, which typically operate in
complicated information technology environments, will widely adopt active
service level management solutions to facilitate their system management 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 from
active service level management solutions, whether as a result of choosing to
outsource some or all of their applications to application service providers or
otherwise, we will be required to enhance or modify our products and solutions
in this manner. As a result, we could incur delays in introducing enhanced or
modified versions of our products and solutions, delays in capturing enterprise
customers and significant expenses. Any of these alternatives will limit our
ability to grow our business and could result in higher net losses.

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 and
solutions 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 and solutions 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 and solutions on a
limited basis before deciding to purchase them. Generally, customers consider a
wide range of issues before committing to purchase our products and solutions,
including benefits, ability to interoperate with their networking equipment and
product reliability. While potential customers are evaluating a purchase of our
products and solutions, 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 quarterly fluctuations in our financial performance and our stock
price volatility.




                                       23
<PAGE>

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

     If alternative methods of delivering the capabilities of our software
products and solutions are developed by our competitors, they may substantially
erode the price which we can charge for our products and solutions. These
alternative methods may include bundling these capabilities through a
subscription model, among other possible methods.

     Similarly, we frequently compete in the traffic management market against
vendors of hardware products. As the prices of the hardware products are reduced
over time, the prices for our software products and solutions could become less
competitive, and the ensuing competition could also erode the price we can
charge for our products and solutions.

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. Although our Resonate
Commander Solutions has features and capabilities that no individual competitor
offers, principal competitors are the systems and network management product
providers including Tivoli Systems, BMC Software, Mercury Interactive,
Micromuse, Precise Software and others. As these providers enhance their
products and solutions to target the needs and requirements of Internet deployed
applications, potential customers may choose their products over ours. In
addition, many of our competitors in the systems and network management market
are larger companies with greater financial and technical resources and more
established brand recognition. We may lose potential customers to our
competitors if customers prefer to make significant infrastructure purchases
with larger vendors rather than a smaller company like ours.

     Our principal competitors for our Resonate Central Dispatch and Resonate
Global Dispatch products include Cisco Systems, F5 Networks, Foundry Networks,
Nortel 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 have bundled their products and incorporated a load
balancing or traffic management capability into their existing products in a
manner that discourages users from purchasing our products. Our competitors have
also significantly reduced their prices and have forced us to match their price
reductions in order to remain competitive in some cases. Further price
reductions could significantly lower our revenue and 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.

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

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



                                       24
<PAGE>

 - Developing 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 our direct sales organization by providing adequate training and
   technical marketing materials

     Outside North America, we derive a significant portion of our revenue
through our 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 develop
our direct sales organization effectively, sales of our products, solutions and
services may decrease or fail to increase.

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

     Outside of North America, we have only limited experience in marketing,
selling and supporting our products and solutions internationally. Prior to
1998, we had no revenue from sales to customers located outside North America.
Sales to customers located outside North America represented 9% of our revenue
for the year ended December 31, 2001.

     In order to increase our international sales, we intend to expand the
number of relationships with third parties who sell our products and solutions
internationally and have our international sales force target customers directly
as well. We have incurred higher personnel costs establishing international
offices and hiring international sales staff. Our investment in expanding our
international sales efforts may not result in an increase in our revenue. We may
not be able to achieve positive operating margins for international sales in the
near future due to the higher costs of these sales.

     In order to increase our revenue outside of North America, our
international operations in European countries need to operate effectively. If
our international operations are unable to operate effectively, our business and
results of operations may be seriously harmed. Such efforts 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 and solutions
internationally. Our international operations could also be affected by a number
of risks and uncertainties, including:

 - 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



                                       25
<PAGE>

Any of these factors could impair our ability to operate effectively in these
international markets and generate significant revenue.

OUR SALES OF RESONATE CENTRAL DISPATCH GENERATED APPROXIMATELY 54% OF OUR
PRODUCT REVENUE IN 2001, AND A DECLINE IN OUR SALES, IN ABSOLUTE DOLLARS, OF
RESONATE CENTRAL DISPATCH COULD MATERIALLY HARM OUR RESULTS OF OPERATIONS.

     During 2001, we derived approximately 54% of our product revenue from sales
of our Resonate Central Dispatch product, and we expect to derive a significant
portion of our revenue from sales of Resonate Central Dispatch for at least the
next twelve months. Our ability to sell Resonate Central Dispatch depends upon
its ability to solve critical network performance and availability problems of
our customers. If Resonate 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 Resonate Central Dispatch will be adversely impacted,
which would result in a substantial loss of revenue or an inability to grow our
revenue.

     In addition, traffic management products like our Resonate Central Dispatch
are becoming commoditized. Prices have declined and potential competitors have
bundled their products and incorporated a load balancing or traffic management
capability into their existing products in a manner that discourages users from
purchasing traffic management products separately. Further price reductions
could significantly lower our revenue from Resonate Central Dispatch.

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
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
has required us to expend significant financial resources to protect our
intellectual property, and has consumed valuable management time. We will
continue to expend financial resources as the case proceeds. The case is
currently on appeal.

     Monitoring use of our products and solutions 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.

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 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.



                                       26
<PAGE>

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.

     The products we currently offer operate on Solaris, Windows NT, Windows
2000, AIX and Linux 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 discontinue support of an
operating system, our ability to grow our business will suffer.

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 the
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 and solutions 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.




                                       27
<PAGE>

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.

     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, acts of terrorism
and similar events. Although we maintain general business insurance against
fires, floods and some general business interruptions, there can be no assurance
that the amount of coverage will be adequate in any particular case.

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

     As of February 28, 2002, our executive officers, directors and 5%
stockholders and their affiliates beneficially own, in the aggregate,
approximately 39.6% 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, recommendations from analysts
and company performance, some of which are beyond our control. In the past,
securities class action litigation 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, 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 and solutions. 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.

     In December 2001, one of our stockholders filed an action against us and
the investment bankers who took part in our initial public offering. This
lawsuit is one of hundreds filed in 2001 alleging that investment bankers
entered into "tie-in" arrangements or required excessive commissions in
connection with initial public offerings of stock whose stock prices increased
dramatically above the offering price in the first few days after the offering
and later dropped below the offering price. This lawsuit alleges that these
activities were not disclosed in a prospectus, and therefore constitute material
omissions in violation of the federal securities laws.




                                       28
<PAGE>

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, were 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. Of the proceeds from our initial public
offering in August 2000, we used $1.6 million for the repurchase of 700,000
shares of our common stock and $4.1 million for working capital purposes.

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 directors have staggered terms, which makes it
difficult to remove all of our directors 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 Corporation 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.





                                       29
<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. We purchase only high-grade investments rated A or above
with original maturities of no more than thirteen months. These securities are
classified as available-for-sale, and consequently, are recorded on the balance
sheet at fair value. The average original maturity of investments in our
portfolio was approximately 256 days and the average remaining maturity of
investments in our portfolio was approximately 98 days as of December 31, 2001.
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, 2001, we had total short-term debt outstanding of $1.0
million, which bears 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 $5,000.



                                       30
<PAGE>

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

    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<S>                                                                                                           <C>
Report of Independent Accountants ........................................................................    32

Consolidated Balance Sheets at December 31, 2001 and 2000 ................................................    33

Consolidated Statements of Operations for each of the three years in the period ended December 31,
2001 .....................................................................................................    34

Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period
ended
     December 31, 2001....................................................................................    35

Consolidated Statements of Cash Flows for each of the three years in the period ended
     December 31, 2001 ...................................................................................    36

Notes to the Consolidated Financial Statements ...........................................................    37
</TABLE>







                                       31
<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. and its subsidiaries (the "Company") at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 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 64 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 18, 2002






                                       32
<PAGE>

                                  RESONATE INC.
                           CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                         December 31,      December 31,
                                                             2001              2000
                                                          -----------      -----------
<S>                                                     <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents                             $     30,349     $     76,053
   Short-term investments                                      51,998           32,981
   Accounts receivable, net                                     2,714            6,189
   Prepaid expenses and other current assets                      982            1,413
                                                          -----------      -----------
     Total current assets                                      86,043          116,636

Property and equipment, net                                     3,287            5,089
Other assets                                                      505              218
                                                          -----------      -----------

       Total assets                                      $     89,835     $    121,943

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Debt, current                                         $      1,585     $      2,793
   Accounts payable                                             1,671            1,132
   Accrued liabilities                                          3,582            3,875
   Deferred revenue                                             3,866            4,996
   Capital lease obligation, current                              471            1,091
                                                          -----------      -----------
     Total current liabilities                                 11,175           13,887

Debt, long-term                                                   833            2,418
Capital lease obligation, long-term                                --              471
                                                          -----------      -----------
       Total liabilities                                       12,008           16,776
                                                          -----------      -----------

Commitments and contingencies (Note 7)

Stockholders' equity:
     Preferred stock; $0.0001 par value; 10,000 shares
       authorized at December 31, 2001 and 2000; no
       shares issued and outstanding at
       December 31, 2001 and 2000                                  --               --
     Common stock; $0.0001 par value; 200,000
       shares authorized at December 31, 2001 and 2000;
       26,963 and 27,402 shares issued and outstanding
       at December 31, 2001 and 2000, respectively                  3                3
     Additional paid-in capital                               184,942          195,120
     Notes receivable from stockholders                          (759)          (1,055)
     Unearned stock-based compensation                         (2,890)         (14,360)
     Accumulated deficit                                     (103,469)         (74,541)
                                                          -----------      -----------
       Total stockholders' equity                              77,827          105,167
                                                          -----------      -----------

       Total liabilities and stockholders' equity        $     89,835     $    121,943
                                                          ===========      ===========
</TABLE>

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



                                       33
<PAGE>

                                  RESONATE INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
<S>                                                                     <C>             <C>            <C>
Revenue:
    Product   .......................................................   $    7,581      $  14,867      $   8,004
    Services  .......................................................        6,615          5,127          1,910
                                                                         ---------      ---------       --------
       Total revenue.................................................       14,196         19,994          9,914
                                                                         ---------      ---------       --------
Cost of revenue:
    Product   .......................................................          231            321             62
    Services  (including stock-based compensation of $534; $1,610
          and $306, respectively)....................................        3,820          6,132          1,348
                                                                         ---------      ---------       --------
       Total cost of revenue.........................................        4,051          6,453          1,410
                                                                         ---------      ---------       --------
Gross profit.........................................................       10,145         13,541          8,504
                                                                         ---------      ---------       --------
Operating expenses:
    Research and development (including stock-based compensation
          of $549; $3,509 and $1,169, respectively)..................       14,496         16,273          7,976
    Sales and marketing (including stock-based compensation of
          $(396); $5,145 and $2,177, respectively)...................       19,819         32,333         13,517
    General and administrative (including stock-based compensation
          of $131; $4,273 and $2,136, respectively)..................        8,352         10,469          5,770
                                                                         ---------      ---------       --------
       Total operating expenses......................................       42,667         59,075         27,263
                                                                         ---------      ---------       --------
Loss from operations.................................................      (32,522)       (45,534)       (18,759)
Interest and other income............................................        4,327          3,345            506
Interest and other expenses..........................................         (733)          (926)          (612)
                                                                         ---------      ---------       --------
Net loss  ...........................................................      (28,928)       (43,115)       (18,865)
Beneficial conversion of Series F preferred stock....................           --          6,750             --
                                                                         ---------      ---------       --------
Net loss attributable to common stockholders.........................    $ (28,928)     $ (49,865)     $ (18,865)
                                                                         ==========     ==========      ========

Net loss per share attributable to common stockholders:
    Basic and diluted................................................    $  (1.07)      $  (3.41)      $   (4.18)
                                                                         =========      =========       ========
    Weighted average shares..........................................       27,131         14,609          4,513
                                                                         =========      =========       ========
</TABLE>

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




                                       34
<PAGE>

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

<TABLE>
<CAPTION>
                               Convertible                                          Notes        Unearned
                                Preferred         Common Stock     Additional    Receivable       Stock
                             ---------------     ---------------     Paid-in        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, 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)    (43,115)
                             ------   ------     ------   ------    ---------   ------------   ------------     -------       -----
Balances, December 31, 2000...   --       --     27,402        3      195,120         (1,055)       (14,360)    (74,541)    105,167
Issuance of common stock
     upon exercise of stock
     options and employee
     stock purchase plan......   --       --        662       --        1,674             --             --          --       1,674
Repurchase of common stock....   --       --     (1,101)      --       (1,829)           296             --          --      (1,533)
Issuance of stock options
     for services to
     non-employees............   --       --         --       --           --             --            107          --         107
Acceleration of stock
     options..................   --       --         --       --          522             --             --          --         522
Unearned stock-based
     compensation.............   --       --         --       --      (10,545)            --         10,545          --          --
Stock-based compensation......   --       --         --       --           --             --            818          --         818
Net loss......................   --       --         --       --           --             --             --     (28,928)    (28,928)
                             ------   ------     ------   ------    ---------   ------------   ------------     -------       -----
Balances, December 31, 2001...   --   $   --     26,963   $    3    $ 184,942   $       (759)  $     (2,890)  $(103,469)    $77,827
                             ======   ======     ======   ======    =========   ============   ============   =========     =======
</TABLE>



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



                                       35
<PAGE>

                                  RESONATE INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss .......................................................    $ (28,928)     $(43,115)       $(18,865)
     Adjustments to reconcile net loss to net cash used in
           operating activities:
         Depreciation and amortization...............................        2,645          2,165            801
         Provision for doubtful accounts.............................          396            456             79
         Amortization of stock-based compensation....................          818         14,537          5,788
         Issuance of stock and stock options for services............          107            746            646
         Warrant related non-cash interest expense...................          124            125            125
         Compensation expense relating to acceleration of options....          522             --             --
         Changes in operating assets and liabilities:
              Accounts receivable....................................        3,079         (2,894)        (2,225)
              Prepaid expenses and other current assets..............          431         (1,093)          (117)
              Other assets...........................................         (287)           (62)            --
              Accounts payable.......................................          539            149            697
              Accrued liabilities....................................         (293)         2,240          1,039
              Deferred revenue.......................................       (1,130)         2,061          2,614
                                                                         ----------     ---------       --------
     Net cash used in operating activities...........................      (21,977)       (24,685)        (9,418)
                                                                         ----------     ---------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment..............................         (843)        (4,046)           (46)
     Purchase of short-term investments..............................      (99,025)       (41,034)        (6,988)
     Proceeds from maturities or sales of short-term investments.....       80,167         15,000             --
                                                                         ---------      ---------       --------
     Net cash used in investing activities...........................      (19,701)       (30,080)        (7,034)
                                                                         ----------     ---------       --------

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
     Proceeds from issuance of long-term debt........................           --          3,001          4,910
     Repayments of long-term debt....................................       (2,903)        (2,048)        (1,205)
     Principal payments under capital lease obligations..............       (1,105)        (1,078)          (264)
     Payments for stock repurchases..................................       (1,692)            --             --
     Proceeds from the exercise of stock warrants....................           --             36             12
     Proceeds from the issuance of common stock from employee stock
         purchase plan and upon exercise of stock options............        1,674            867            706
                                                                         ---------      ---------       --------
     Net cash provided by (used in) financing activities.............       (4,026)       125,807         17,141
                                                                         ----------     ---------       --------

Net increase (decrease) in cash and cash equivalents.................      (45,704)        71,042            689
Cash and cash equivalents at beginning of year.......................       76,053          5,011          4,322
                                                                         ---------      ---------       --------
Cash and cash equivalents at end of year.............................   $   30,349      $  76,053       $  5,011
                                                                        ==========      =========       ========
</TABLE>

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




                                       36
<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 and reincorporated in the state of Delaware in March
2000. The Company develops and markets software solutions for enterprises that
wish to guarantee the end-user response time and service levels of
business-critical applications while cutting operating costs. The Company's
Resonate Commander Solutions significantly reduces problem resolution time while
it simultaneously ensures transaction completion by routing end-users around
problems.

     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 our software and related
services, which include maintenance fees and professional services. 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 has occurred.
The Company generally recognizes 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 to 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 fair value of maintenance
service is determined by the renewal rate stated in the license agreement or, if
not stated, the renewal rates generally charged to customers on similar
transactions.

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

     For arrangements with extended payment terms (i.e., greater than 60 days),
revenue is recognized at the earlier of when the payment becomes due and payable
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. Prepaid amounts are recorded as deferred
revenue and are recognized as revenue over the term of the arrangement. Revenue
recognized under such arrangements for the periods presented was not
significant.



                                       37
<PAGE>

     Fees 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. Professional services primarily
consist of software installation and integration, consulting and training.
Professional services revenue is recognized as such services are performed.

     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; and those with maturities greater than twelve
months from the balance sheet date are considered long-term investments.
Short-term investments are classified as available-for-sale securities and are
carried at cost which approximates fair value. Our 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,
                                                 ---------------------------
                                                    2001              2000
                                                 ----------        ---------
CASH AND CASH EQUIVALENTS:
     Cash.....................................   $    1,278        $     (74)
     Commercial paper.........................        1,998           54,686
     Money market funds.......................       17,299            1,251
     Certificates of deposit..................           --           20,190
     Market auction preferred.................        2,975               --
     Government securities....................        6,799               --
                                                 ----------        ---------
                                                 $   30,349        $  76,053
                                                 ==========        =========

                                                         DECEMBER 31,
                                                 ---------------------------
                                                    2001              2000
                                                 ----------        ---------
SHORT-TERM INVESTMENTS
     Commercial paper.........................   $    1,988        $  22,967
     Certificates of deposit..................       20,441               --
     Corporate notes..........................        1,504            5,000
     Corporate bonds..........................       16,514            1,014
     Government securities....................       11,551            4,000
                                                 ----------        ---------
                                                 $   51,998        $  32,981
                                                 ==========        =========

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, 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, 2001
and 1999 no individual customer accounted for more than 10% of the Company's
total revenue.



                                       38
<PAGE>

     At December 31, 2001, two customers accounted for 17% and 11% of total
accounts receivable. No individual customer accounted for more than 10% of total
accounts receivable at December 31, 2000.

     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.

     ADVERTISING COSTS

     Advertising costs are expensed as incurred.

     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
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.



                                       39
<PAGE>

     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>

                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                              -----------------------------------
                                                                2001          2000         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Net loss                                                      $ (28,928)   $ (43,115)   $(18,865)
Beneficial conversion of Series F preferred stock                    --        6,750          --
                                                              ---------    ---------    --------
Net loss attributable to common stockholders                  $ (28,928)   $ (49,865)   $(18,865)
                                                              ==========   =========    ========

Basic and diluted:
     Weighted average shares                                     27,438       16,029       6,514
       Weighted average common stock subject to repurchase         (307)      (1,420)     (2,001)
                                                              ----------   ---------    --------
     Shares used in computing basic and diluted net
         loss per share attributable to common stockholders      27,131       14,609       4,513
                                                              =========    =========    ========

     Basic and diluted net loss per share attributable to
            common stockholders                               $   (1.07)   $   (3.41)   $  (4.18)
                                                              =========    =========    ========
</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>

                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                              -----------------------------------
                                                                2001          2000         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Weighted average effect of common stock equivalents:
     Preferred stock                                                 --        7,152       10,328
     Warrants                                                        --          279          342
     Employee stock options                                       2,610        2,420        1,764
     Common stock subject to repurchase agreements                  307        1,420        2,001
                                                              ---------    ---------    ---------
                                                                  2,917       11,271       14,435
                                                              =========    =========    =========
</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
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

     For the years ended December 31, 2001, 2000 and 1999 we operated in a
single business segment. We sell our products, solutions and services through
direct and indirect channels primarily in North America, Europe and Asia
Pacific. For geographical reporting, revenues are attributed to the geographic
location in which the customer is located. Identifiable long-lived assets for
all foreign locations were insignificant for all periods presented.




                                       40
<PAGE>

     The following table sets forth our revenue by geographic area for the
periods indicated (in thousands):
<TABLE>
<CAPTION>

                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                              -----------------------------------
                                                                2001          2000         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
     North America (primarily in the U.S.)                    $  12,879    $  18,868    $   9,407
     Europe and Asia Pacific                                      1,317        1,126          507
                                                              ---------    ---------    ---------
                                                              $  14,196    $  19,994    $   9,914
                                                              =========    =========    =========
</TABLE>

     RECLASSIFICATION

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

     RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard No. 141, or SFAS No. 141, Business
Combinations. SFAS No. 141 addresses financial accounting and reporting for
business combinations and supersedes Accounting Principles Board Opinion No. 16,
Business Combinations, and SFAS No. 28, Accounting for Preacquisition
Contingencies of Purchased Enterprises. All business combinations in the scope
of SFAS No. 141 are to be accounted for as purchase business combinations
initiated after June 30, 2001. To date, we have not entered into any business
combinations, and as such, SFAS No. 141 does not have an impact on our financial
statements.

     In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. The provisions of SFAS No. 142 are required to be applied
starting with fiscal years beginning after December 15, 2001. We do not carry
any goodwill and other intangible assets; accordingly, SFAS No. 142 does not
currently have an impact on our financial statements.


     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, and also amends FASB Accounting
Research Bulletin No. 51, Consolidated Financial Statements. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. We do not expect the adoption of SFAS No. 144 to have a material effect
on our results of operations or financial position.






                                       41
<PAGE>

2. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>             <C>
Supplemental cash flow information:
     Cash paid for interest..........................................    $     461      $     664       $    488
                                                                         =========      =========       ========

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
                                                                         =========      =========       ========
     Issuance of warrants to purchase common stock in connection with
         strategic partnership.......................................    $      --      $     464       $     --
                                                                         =========      =========       ========
     Capital lease obligations.......................................    $      --      $   1,048       $  1,664
                                                                         =========      =========
     Reduction of note receivable in connection with repurchased shares  $     296      $      --       $     --
                                                                         =========      =========       ========
     Common stock issued in exchange for notes receivable............    $      --      $     300       $    755
                                                                         =========      =========       ========
</TABLE>


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

                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2001              2000
                                                                                     ----------        ---------
<S>                                                                                  <C>               <C>
Accounts receivable, net
     Accounts receivable..........................................................   $    3,114        $   6,589
     Less: Allowance for doubtful accounts........................................         (400)            (400)
                                                                                     ----------        ---------
                                                                                     $    2,714        $   6,189
                                                                                     ==========        =========
Property and equipment, net
     Computer equipment and software..............................................   $    8,209        $   7,669
     Furniture and fixtures.......................................................          526              302
     Leasehold improvements.......................................................          667              588
                                                                                     ----------        ---------
                                                                                          9,402            8,559
     Less: Accumulated depreciation and amortization                                     (6,115)          (3,470)
                                                                                     ----------        ---------
                                                                                     $    3,287        $   5,089
                                                                                     ==========        =========
</TABLE>

     Property and equipment includes $2,210,000 of fixed assets under capital
lease at December 31, 2001 and 2000. Accumulated depreciation of assets under
capital lease totaled $1,778,000 and $1,117,000 at December 31, 2001 and 2000,
respectively.

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2001              2000
                                                                                     ----------        ---------
<S>                                                                                  <C>               <C>
Accrued liabilities
     Accrued compensation and related benefits....................................   $    2,208        $   3,217
     Accrued professional services................................................          250              170
     Other........................................................................        1,124              488
                                                                                     ----------        ---------
                                                                                     $    3,582        $   3,875
                                                                                     ==========        =========
</TABLE>




                                       42
<PAGE>

4. FINANCING ARRANGEMENTS:
<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2001              2000
                                                                                     ----------        ---------
                                                                                          (IN THOUSANDS)
<S>                                                                                  <C>               <C>
Equipment line of credit in equal principal payments of $83,333, expiring June 2002
     bearing interest at the bank's prime rate plus 0.5% (5.25% at 2001)..........   $    1,833        $   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......................................................          343            1,616
Subordinated debt in equal monthly installments of $41,716, comprising principal and
     interest, through June 2002, bearing interest at 12.5% per annum.............          242              681
                                                                                     ----------        ---------
                                                                                                           5,321
Deferred debt issuance costs                                                                 --             (110)
                                                                                     ----------        ---------
                                                                                          2,418            5,211
Less: current portion                                                                     1,585            2,793
                                                                                     ----------        ---------
                                                                                     $      833        $   2,418
                                                                                     ==========        =========
</TABLE>

     The equipment line of credit and subordinated debt are collateralized by
the Company's assets and are subject to certain financial covenants. At December
31, 2001, the Company was in compliance with all covenants.


5. STOCKHOLDERS' EQUITY

Authorization

     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 Company's
reincorporation into Delaware.

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.

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, 2001 and 2000, there were
307,000 and 1,420,000 shares subject to repurchase, at an average price of $1.15
and $0.98 per share, respectively.

     In February and September 1999, a current executive and a former executive
of the Company exercised their stock options prior to vesting by issuance of
full recourse promissory notes to the Company. The notes totaling $459,000 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 1,529,297 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. The reduction in the outstanding loan balance
and collateralized shares from December 31, 2000, reflects the termination of
the executive in 2001.



                                       43
<PAGE>

     In February 2000, a former 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 60,000 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 January, 2001, Mr. Guercio borrowed $150,000 from the Company by signing
a full recourse five-year promissory note secured by 91,400 shares of our common
stock owned by Mr. Guercio. The note bears interest at a rate of 6.25% per
annum. The net amount outstanding under the note has been included in other
assets.

     In November 2001, our Board of Directors authorized a stock repurchase
program. The program allows the Company to purchase up to $4.0 million of its
common stock in the open market from time to time. As of December 31, 2001, the
Company had purchased 700,000 shares at a weighted average price of $2.25 per
share. The Company cancelled these repurchased shares as of December 31, 2001.

Preferred Stock

     Prior to the initial public offering, the Company issued Series A-F
Preferred Stock. 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 Series A-F
Preferred Stock, totaling 13,531,563 shares, automatically converted into
13,749,102 shares of common stock.

Warrants

     From 1996 to 1999, the Company issued 294,274 warrants to purchase Series
A, B & C Preferred Stock and 145,894 warrants to purchase common stock at
exercise prices ranging from $1.00-$19.43. The Company determined the value of
all warrants based on the Black-Scholes option pricing model at the time of
issuance using the following assumptions: 60% volatility, no dividends and
5.15%-6.69% risk free interest rate. All warrants were fully exercised in 1999
and 2000.


6. 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.

     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.




                                       44
<PAGE>

     A total of 1,685,052 shares of common stock were authorized for issuance
under the ESPP as of December 31, 2001, 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. In 2001, the Company issued 297,353 shares under the ESPP. No shares were
issued under the ESPP in 2000 and 1999. At December 31, 2001, 1,387,706 shares
were reserved for future issuance under the ESPP.

     STOCK OPTION PLANS

     Prior to the Company's initial public offering in August 2000, the Company
granted incentive and non-qualified stock options to employees, consultants and
directors of the Company from the 1996 Stock Option Plan ("1996 Stock Plan").
Since its initial public offering in August 2000, the Company ceased granting
options under the 1996 Stock Plan. A total of 699,000 shares available for grant
under the 1996 Plan at the time of the Company's initial public offering became
available under the 2000 Stock Option Plan (the "2000 Stock Plan"). Shares
cancelled or repurchased under the 1996 Stock Plan are no longer issuable under
the terms of the 2000 Stock Plan.

     Options under the 1996 Stock Plan were 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 were granted at the discretion of the Company's Board of Directors and
had 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 were not 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. Options granted under the 1996 Stock Plan typically are 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 employees' options were
immediately exercisable but unvested shares were subject to repurchase by the
Company at the original exercise price. The Company repurchased 401,000 shares
of exercised but unvested shares during the year ended December 31, 2001.

     In March 2000, the Company's Board of Directors adopted and in July 2000,
the Company's stockholders approved 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 5,268,741 shares of common stock were authorized for issuance
under the 2000 Stock Plan as of December 31, 2001, 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. Options under the 2000 Stock Plan are 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. Options granted under the 2000 Stock Plan typically are




                                       45
<PAGE>

exercisable at a rate of 25% after the first year and ratably over the next
three years on a monthly basis.

     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, 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                                                   (2,240)           2,240             13.59
     Exercised                                                     --             (836)             1.40
     Canceled                                                     301             (571)             7.02
                                                            ---------        ---------          --------
Balance at December 31, 2000                                    3,576            3,237              8.54
     Additional authorized                                      1,370               --                --
     Granted                                                   (1,760)           1,760              4.23
     Exercised                                                     --             (365)             1.06
     Canceled                                                     562           (2,148)            11.94
     Repurchased                                                 (196)              --              1.71
                                                            ----------       ---------
Balance at December 31, 2001                                    3,552            2,484             $3.75
                                                            =========        =========          ========
</TABLE>

     The following table summarizes information about stock options outstanding
and exercisable under the Plans at December 31, 2001 (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>
    $ 0.10  -  1.25             527       7.37            $   0.94                  193            $   0.91
      2.2   -  3.30             506       9.59                2.98                   40                3.06
      3.32  -  3.94             498       8.67                3.72                  121                3.74
      3.96  -  4.73              84       9.43                4.54                    5                4.57
      4.94  - 11.75             864       8.88                5.76                  229                5.62
     14.00  - 21.00               5       8.55                0.36                    2                0.32
                      -------------                                        ------------
                              2,484       8.68            $   3.75                  590            $   3.84
                      =============                                        ============
</TABLE>


     At December 31, 2001, 2000 and 1999, approximately 590,000, 419,000 and
303,000 options were exercisable at a weighted average exercise price per share
of $3.84, $3.12 and $0.49, respectively.

     In connection with a 2001 employment agreement with an executive (the
"Executive Agreement"), the Company issued options to purchase 1,000,000 shares
of common stock outside of the Company's stock option plans as authorized by the
Board of Directors. The options have an exercise price of $5.38 per share, vest




                                       46
<PAGE>

over a forty-eight month period and expire in 2011. No options have been
exercised under this grant as of December 31, 2001.


     STOCK OPTION EXCHANGE PROGRAM

     In June 2001, Resonate's Board of Directors approved a stock option
exchange program. Under the program, all eligible employees based in the United
States, excluding executive officers and outside directors, were given the
opportunity to return one or more stock options previously granted to them in
exchange for a promise to receive one or more new stock options to be granted at
least six months and one day from the date the old options were cancelled,
provided the individual is still employed or providing service on such date. The
participation deadline for this program was July 27, 2001. The number of shares
subject to the new options were equal to the number of shares subject to the old
options adjusted for terminations, and the exercise price of the new options was
$3.20 per share which represented the fair market value of our common stock on
January 31, 2002, the date the new options were granted. The new options have
the same vesting start date as the old options and will be immediately
exercisable as to vested shares when granted. In total, 611,548 stock options
were returned to us and cancelled as a result of this program. On January 31,
2002, 516,548 stock options were issued under the stock option exchange program.
We did not incur any non-cash compensation costs relating to the stock option
exchange program.

     FAIR VALUE DISCLOSURES

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

                                                                                           EMPLOYEE
                                                   STOCK OPTION PLANS                 STOCK PURCHASE PLAN
                                          --------------------------------------    ----------------------
                                             2001           2000         1999         2001         2000
                                          ---------       --------     ---------    ---------    ---------
<S>                                       <C>             <C>          <C>          <C>          <C>
     Dividend yield...................           --           --           --              --           --
     Average risk-free
       interest rate..................        4.52%        5.80%        5.64%           3.80%           --
     Expected life (in years).........            4            4            4               2           --
     Weighted average fair value
       of options granted (per share).      $  3.39       $ 9.97       $ 7.84         $  2.49      $    --
     Volatility.......................          90%          80%           --             90%           --
</TABLE>




                                       47
<PAGE>

     Had compensation cost for options granted under the Plans, the Executive
Agreement and the ESPP 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, 2001, 2000 and 1999, respectively (in thousands, except per
share amounts):
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
<S>                                                                      <C>            <C>             <C>
Net loss attributable to common stockholders
     As reported.....................................................    $ (28,928)     $ (49,865)      $(18,865)
                                                                         =========      =========       ========
     Pro forma.......................................................    $ (32,289)     $ (56,116)      $(19,177)
                                                                         =========      =========       ========

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
Net loss per share attributable to common stockholders
     As reported.....................................................    $  (1.07)      $  (3.41)       $  (4.18)
                                                                         ========       ========        ========
     Pro forma.......................................................    $  (1.19)      $  (3.84)       $  (4.25)
                                                                         ========       ========        ========
</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 2001, 2000 and 1999 are not representative of
the pro forma effects 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 option 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-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 consultants and other service providers, the Company recorded
stock-based compensation expenses of $107,000, $746,000 and $646,000 for the
years ended December 31, 2001, 2000 and 1999, respectively. The Company did not
grant options to consultants in 2001.

     UNEARNED STOCK-BASED COMPENSATION

     In connection with certain stock option grants during the years ended
December 31, 2000 and 1999, the Company recorded unearned stock-based
compensation cost totaling $9.8 million and $21.6 million, respectively, which
is being recognized over the vesting period of the related options of four
years. Amortization of unearned stock-based compensation totaled $818,000, $14.5
million and $5.8 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

     The remaining unamortized, unearned stock-based compensation is expected to
be amortized as follows: $2.1 million in 2002, $754,000 in 2003 and $11,000 in
2004.





                                       48
<PAGE>

7. COMMITMENTS AND CONTINGENCIES:

     CAPITAL LEASES

     The Company entered into capital lease agreements for its office equipment.
In 1998, 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.

     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 $2.3 million, $1.9 million and $915,000 for
2001, 2000 and 1999, respectively.

     Future minimum lease payments due under capital leases and operating leases
at December 31, 2001, are as follows (in thousands):
<TABLE>
<CAPTION>

     YEARS ENDING                                                         CAPITAL        OPERATING
     DECEMBER 31,                                                          LEASES          LEASES
     ------------                                                          ------          ------
     <S>                                                                 <C>            <C>
         2002 .......................................................    $    485       $   2,013
         2003 .......................................................          --           1,842
                                                                         --------       ---------
         Total minimum lease payments................................         485       $   3,855
                                                                                        =========
         Less: Amount representing finance costs.....................          14
                                                                         --------
         Present value of capital lease obligations..................         471
         Less: Current portion.......................................         471
                                                                         --------
         Long-term portion of capital lease obligations..............    $     --
                                                                         ========
</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 for permanent injunctive relief and
damages. 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
Resonate's complaint in October 2000, in which Alteon denied the Company's
allegations and counterclaimed that Resonate's patent is invalid. In October
2000, Alteon was acquired by Nortel Networks Corporation. In November 2001, the
Court issued a claim construction ruling that we believe prevents us from
prevailing in the case. In December 2001, we entered into a stipulated judgment
of non-infringement and, in January 2002, filed a notice of appeal. The appeal
is currently pending.

     The Company is also involved in disputes in the normal course of business.
The Company does not believe that the outcome of any of these disputes will have
a material effect on the Company's business, financial condition or results of
operations.





                                       49
<PAGE>

8. INCOME TAXES:

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

                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001            2000           1999
                                                                         ---------      ---------       --------
     <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.........................        1.09           11.46          12.61
     Operating losses not benefited..................................       38.75           28.38          27.23
                                                                         --------       ---------       --------
                                                                               --              --             --
                                                                         ========       =========       ========
</TABLE>

     Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     ---------------------------
                                                                                        2001              2000
                                                                                     ----------        ---------
     <S>                                                                            <C>               <C>

     Net operating loss carryforwards.............................................   $   25,670        $  18,853
     Research and development credit carryforwards................................        2,572            1,972
     Deferred revenue.............................................................        1,315               --
     Capitalized research and development costs...................................        1,412              595
     Fixed assets.................................................................          936              289
     Accrued vacation.............................................................          219              288
     Other........................................................................        1,063              254
                                                                                     ----------        ---------
     Deferred tax assets..........................................................       33,187           22,251
     Deferred tax asset valuation allowance.......................................      (33,187)         (22,251)
                                                                                     ----------        ---------
                                                                                     $       --        $      --
                                                                                     ==========        =========
</TABLE>

     The Company has provided a full valuation allowance for its deferred tax
assets since the realization of these future benefits cannot be sufficiently
assured. No provision (benefit) for income taxes has been recorded in the
Company's financial statements.

     As of December 31, 2001, the Company has available net operating loss
carryforwards for federal and state income tax purposes of approximately $72.1
million and $19.8 million, respectively. These net operating loss carryforwards
begin to expire in 2010 and 2003 for federal and state tax purposes,
respectively.

     The Company has research and development tax credit carryforwards of
approximately $1.5 million and $1.6 million for federal and state purposes,
respectively. If not utilized, the federal carryforward will expire in various
amounts beginning in 2010. The California credit can be carried forward
indefinitely.

     The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event the Company has had a change in ownership,
utilization of the carryforwards could be restricted.





                                       50
<PAGE>

9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
                                                             First       Second           Third        Fourth
                                                           Quarter      Quarter        Quarter         Quarter
                                                           --------     ---------      ---------       -------
                                                                     (in thousands, except per share data)
<S>                                                        <C>          <C>            <C>           <C>
2001:
Total revenue.........................................     $  3,122     $    3,615     $    3,727    $    3,732
Gross profit..........................................        1,924          2,514          2,900         2,806
Net loss..............................................       (9,309)        (6,570)        (6,336)       (6,713)
Basic and diluted net loss per share..................     $  (0.35)    $    (0.24)    $    (0.23)   $    (0.25)

                                                             First       Second           Third        Fourth
                                                           Quarter      Quarter         Quarter        Quarter
                                                           --------     ---------      ---------       -------
                                                                     (in thousands, except per share data)
2000:
Total revenue.........................................     $  3,669     $    4,679     $    6,125    $    5,521
Gross profit..........................................        2,490          2,861          4,387         3,804
Net loss attributable to common stockholders..........      (12,434)       (11,728)       (16,737)       (8,965)
Basic and diluted net loss per share..................     $  (2.04)    $    (1.77)    $    (0.90)   $    (0.35)
</TABLE>



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

    None.



                                       51
<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 and executive officers.

NAME                                 AGE    POSITION
----                                 ---    --------
Peter R. Watkins................     46     Chairman, President and
                                              Chief Executive Officer
Christopher C. Marino...........     41     Founder, Corporate Vice President
                                              and Director
Robert C. Hausmann..............     38     Vice President and Chief Financial
                                              Officer
Karen L. Styres.................     44     Vice President, Marketing
Karen S. Barnes.................     51     Vice President, Engineering
David R. Guercio................     48     Vice President, Professional
                                              Services
I. Robert Greene................     41     Director
Russell Siegelman...............     39     Director
John S. McFarlane...............     52     Director
Robert J. Finocchio, Jr.........     49     Director

     Peter R. Watkins joined Resonate as President and Chief Executive Officer
and was appointed to our board of directors in February 2001 and became the
Chairman of the Board in January 2002. 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 and Business
Development 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.



                                       52
<PAGE>

     David R. Guercio has been our Vice President of Americas Sales and 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.

     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 private equity firm, serving as a Principal from 1994
to 1998, and a General Partner thereof in 1999. Mr. Greene also serves as a
director of Multex.com Inc., a publicly held provider of investment information
and technology solutions for the financial services industry. 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.

     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. 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 also serves as a director of Pitney Bowes, a publicly held provider of
business support services for financial institutions, professional firms and
corporate headquarters. 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 served as its
Chairman of the Board from July 1997 to September 2000. From December 1988 until
April 1997, Mr. Finocchio was employed with 3Com Corporation, where he held
various positions, most recently serving as President, 3Com Systems. Mr.
Finocchio also serves as a director of Echelon Corporation and Turnstone
Systems, both publicly held companies. Mr. Finocchio is also a Trustee and
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 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.

     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 2001, 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.




                                       53
<PAGE>

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 of the plan. During 2001, the
board granted 16,500 options each to purchase shares of common stock to Mr.
Finocchio, Mr. McFarlane and Mr. Siegelman and 20,500 shares to Mr. Greene at an
exercise price of $3.25 per share.

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, 2001 and 2000
by (i) Resonate's Chief Executive Officer during fiscal 2001 and (ii) Resonate's
next four most highly compensated executive officers who earned more than
$100,000 during fiscal 2001.

<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>               <C>
 Peter R. Watkins, President               2001         $271,590         $    --         1,000,000         $  --
   and Chief Executive Officer(1)          2000         $     --         $    --                --         $  --

 Robert C. Hausmann, Vice                  2001         $206,364         $35,000            81,500         $
   President and Chief Financial Officer   2000         $180,000         $35,804                --         $


 David R. Guercio, Vice President,         2001         $207,500         $43,881           100,000         $9,662
   Americas Sales and Services             2000         $160,000         $64,413            11,400         $  --

 Karen Barnes, Vice President,             2001         $191,427         $40,220            55,000         $  --
   Research and Development                2000         $168,333         $29,525            13,568         $  --

 Karen Styres, Vice President,             2001         $189,413         $35,188            55,000         $  --
   Marketing and Business Development      2000         $163,687         $29,375            13,568         $  --
</TABLE>

(1) Mr. Watkins joined as President and Chief Executive Officer of Resonate
    in February 2001.


OPTION GRANTS IN LAST FISCAL YEAR

     In the fiscal year ended December 31, 2001, we granted options to purchase
up to an aggregate of 2,756,350 shares to employees and directors. We granted
1,756,350 shares under our 2000 Stock Plan and 1,000,000 shares outside our
stock option plans 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. Under the 2000 Stock Plan, 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




                                       54
<PAGE>

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 1,000,000 shares granted outside our stock option plans were in
connection with the employment agreement with Mr. Peter R. Watkins, who joined
our company as President and Chief Executive Officer in February 2001. These
shares vest over a forty-eight month period and expire in 2011.

     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, 2001, 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.



<TABLE>
<CAPTION>

                                              INDIVIDUAL GRANTS
                         -----------------------------------------------------------
                                       % OF
                                       TOTAL
                                      OPTIONS
                                      GRANTED
                         NUMBER OF      TO                     DEEMED                       POTENTIAL REALIZABLE VALUE AT
                         SECURITIES  EMPLOYEES                VALUE PER                   ASSUMED 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>
Peter R. Watkins          1,000,000    36.3        $5.38        $5.38        2/5/11        --        $3,380,309    $8,566,366
Robert C. Hausmann           81,500     3.0         4.94         4.94       1/25/11        --            253,071      641,332
David R. Guercio            100,000     3.6         4.88         4.88       1/25/11        --            306,602      776,989
Karen Barnes                 55,000     2.0         4.94         4.94       1/25/11        --            170,784      432,801
Karen L. Styres              55,000     2.0         4.94         4.94       1/25/11        --            170,784      432,801
</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, 2001, and exercisable and
unexercisable options held by them as of December 31, 2001.



     The "Value of Unexercised In-the-Money Options at December 31, 2001" is
based on a value of $2.80 per share, the closing price of our common stock on
the Nasdaq Stock Market's National Market as of December 31, 2001, 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, 2000 Stock
Plan and as authorized by our Board of Directors. 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 or her 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.



                                       55
<PAGE>
<TABLE>
<CAPTION>

                                                    NUMBER OF SECURITIES
                                                   UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                       NUMBER OF                         OPTIONS AT             IN-THE-MONEY OPTIONS AT
                         SHARES                       DECEMBER 31, 2001            DECEMBER 31, 2001
                      ACQUIRED ON      VALUE      --------------------------   ----------------------------
        NAME            EXERCISE     REALIZED     EXERCISABLE  UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
------------------      --------     --------     -----------  -------------   -----------    -------------
<S>                     <C>          <C>           <C>          <C>             <C>             <C>
Peter R. Watkins           --          --             208,333       791,667            --            --
Robert C. Hausmann         --          --              18,677        62,823            --            --
David R. Guercio           --          --              29,401       171,067       $15,863      $139,863
Karen Barnes               --          --              18,540        50,028            --            --
Karen L. Styres            --          --              31,442       114,538       $31,223      $154,114
</TABLE>





                                       56
<PAGE>

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

     The compensation committee consisted of John S. McFarlane and I. Robert
Greene, neither 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
 - 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:

 - base salary
 - cash incentives (bonuses)
 - equity incentives (stock awards)
 - 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 February 28, 2002, Resonate's
directors and executives owned an aggregate of 6,828,011 shares and had the
right to acquire an aggregate of 2,366,516 additional shares upon the exercise
of employee stock options, exercisable on or before April 29, 2002. Of the
options exercisable, approximately 77% of the shares are unvested shares and
therefore repurchasable by Resonate in the event of a termination.




                                       57
<PAGE>

FISCAL 2001 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
executive officers 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 including
Micromuse, Mercury Interactive and Precise Software. 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. These bonuses are
based in part on company-wide performance targets and in part on individual
performance. In 2001, the compensation committee set target bonuses based upon
the recommendation of the Chief Executive Officer and bonuses were paid
quarterly. Company-wide performance targets included meeting external revenue,
expense and loss per share targets on a quarterly basis.

     STOCK OPTION GRANTS--In 2001, the compensation committee granted options to
purchase common stock which in the aggregate represented rights to purchase
1,291,500 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 2001, 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
 - Vision Service Plan
 - Section 125 Savings Plans for Medical and Dependent Care

     CHIEF EXECUTIVE OFFICER'S COMPENSATION - Peter R. Watkins joined Resonate
as President and Chief Executive Officer in February 2001. Mr. Watkins' salary
was $271,590 in 2001. Mr. Watkins earned a bonus of $200,000 in 2001 which was
paid in February 2002 based on the terms of his employment agreement from
February 2001. In determining Mr. Watkins' salary, the compensation committee
considered the criteria listed above as well as benchmarks from the networking
software industry and Mr. Watkins' level of experience in an executive role.
These benchmarks included information from executive salary surveys, regional
pay practices and competitive practices within the Compensation Committee's
scope of understanding.

     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




                                       58
<PAGE>

officer compensation programs under Section 162(m). None of the compensation
paid to the Company's executive officers in 2001 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

                                                I. Robert Greene
                                                John S. McFarlane




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.


                             STOCK PRICE PERFORMANCE

The following graph shows a comparison of cumulative total stockholder returns
for Resonate's Common Stock, the Nasdaq Stock Market Index for U.S. Companies,
and the JP Morgan H&Q Computer Software Index. The graph assumes the investment
of $100 on August 2, 2000, the date of Resonate's initial public offering. The
data regarding Resonate assumes an investment at the initial public offering
price of $21.00 per share of Resonate's Common Stock. The performance shown is
not necessarily indicative of future performance.




                                       59
<PAGE>


           COMPARISON OF CUMULATIVE TOTAL RETURN AMONG RESONATE INC.,
                   NASDAQ STOCK MARKET (U.S.), AND JP MORGAN
                           H&Q COMPUTER SOFTWARE INDEX

<TABLE>
<CAPTION>

                               8/2/00 9/30/00 12/31/00 3/31/01 6/30/01 9/30/01 12/31/01
                               ------ ------- -------- ------- ------- ------- --------
<S>                            <C>    <C>     <C>      <C>     <C>     <C>     <C>
Resonate Inc. (RSNT)           100.00 188.10    45.20   14.90   19.76   17.62    13.33
------------------------------ ------ ------- -------- ------- ------- ------- --------
Nasdaq Stock Market (U.S.)     100.00 100.39    67.53   50.30   59.06   40.97    53.31
------------------------------ ------ ------- -------- ------- ------- ------- --------
JP Morgan H&Q Computer
Software Index                 100.00 132.24    95.23   51.67   69.11   37.52    58.48
------------------------------ ------ ------- -------- ------- ------- ------- --------
</TABLE>


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 February 28, 2002 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 2001, (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 27,088,657 shares of common stock outstanding as of February 28, 2002.




                                       60
<PAGE>

<TABLE>
<CAPTION>


                                                                                 NUMBER OF
                                                                            SHARES BENEFICIALLY     PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWN                                                            OWNED (1)          BENEFICIALLY OWNED
----------------------------------------                                    -------------------     --------------------
<S>                                                                               <C>                     <C>
5% STOCKHOLDERS:
Entities affiliated with Kleiner Perkins Caufield & Byers (2)                       3,136,345               11.6%
J.P. Morgan Partners (SBIC), LLC (formerly known as Chase Venture                   2,335,965                8.6
     Capital Associates, LLC) (3)
Dimension Fund Advisors                                                             1,953,300                7.2
Sun Microsystems, Inc.                                                              1,705,144                6.3
Entities affiliated with Lehman Brothers (4)                                        1,588,662                5.9

DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Peter R. Watkins (5)                                                                1,000,000                --
Christopher C. Marino (6)                                                           2,542,253                9.4
Robert C. Hausmann (7)                                                                610,994                1.2
David R. Guercio (8)                                                                  475,618                *
Karen S. Barnes (9)                                                                   466,000                *
Karen L. Styres (10)                                                                  476,250                *
Robert J. Finocchio, Jr. (11)                                                          68,500                *
I. Robert Greene (12)                                                                 333,567                1.2
John S. McFarlane (13)                                                                 68,500                *
Russell Siegelman (14)                                                              3,152,845               11.6
All directors and officers as a group (10 persons) (15)                             9,194,527               25.2
</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 February
         28, 2002 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. Includes 16,500 shares
         issuable upon exercise of options held by Mr. Greene within 60 days of
         February 28, 2002, of which 6,875 would be subject to a right of
         repurchase in our favor, which right lapses over time.
     (3) We have been informed by J.P. Morgan Partners (SBIC), LLC (formerly
         known as Chase Venture Capital Associates, LLC) that it is managed by
         J.P. Morgan Partners Capital Corp. (formerly known as Chase Capital
         Partners). Each of the general partners of J.P. Morgan Partners Capital
         Corp. disclaims beneficial ownership of the securities owned by J.P.
         Morgan Partners (SBIC), LLC to the extent it exceeds such partner's
         pecuniary interest therein. Affiliates of J.P. Morgan Partners (SBIC),
         LLC (the "JPMP Entities") are parties to certain co-invest arrangements
         with Flatiron Associates LLC (f/k/a Friends of Flatiron, LLC), Flatiron
         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




                                       61
<PAGE>

         capital investment firm, with certain Flatiron Investors receiving the
         equivalent of a standard carried interest from the JPMP Entities. Upon
         the occurrence of certain contingencies that are outside the control of
         the JPMP Entities, certain JPMP Entities may acquire a pecuniary
         interest in the investments made by the Flatiron Investors. None of the
         JPMP Entities presently has any beneficial or pecuniary interest in the
         shares of the Issuer held by the Flatiron Investors. Each of the JPMP
         Entities and J.P. Morgan Partners (SBIC), LLC disclaims beneficial
         ownership of the Issuer's securities held by the Flatiron Group. The
         address of J.P. Morgan Partners (SBIC), LLC is 1221 Avenue of the
         Americas, New York, New York, 10020.
     (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) Includes 1,000,000 shares issuable upon exercise of options held by Mr.
         Watkins within 60 days of February 28, 2002, of which 687,505 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.
     (6) Includes 107,000 shares held by the Marino Children's Trust dated
         December 9, 1999. At February 28, 2002, all shares held by Mr. Marino
         were fully vested.
     (7) Includes 329,494 shares held by the Robert C. Hausmann and Lori Anne
         Hausmann Living Trust dated November 21, 1991. At February 28, 2002,
         142,513 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 281,500 shares issuable upon exercise of options held by
         Mr. Hausmann within 60 days of February 28, 2002, of which 247,698
         would be subject to a right of repurchase in our favor, which right
         lapses over time.
     (8) At February 28, 2002, 5,700 shares held by Mr. Guercio were unvested
         and subject to a right of repurchase in our favor, which right lapses
         over time. Includes 400,468 shares issuable upon exercise of options
         held by Mr. Guercio within 60 days of February 28, 2002, 332,467 of
         which would be subject to a right of repurchase in our favor, which
         right lapses over time.
     (9) At February 28, 2002, 64,510 shares held by Ms. Barnes were unvested
         and subject to a right of repurchase in our favor, which right lapses
         over time. Includes 268,568 shares issuable upon exercise of options
         held by Ms. Barnes within 60 days of February 28, 2002, of which
         235,415 would be subject to a right of repurchase in our favor, which
         right lapses over time.
    (10) Includes 345,980 shares issuable upon exercise of options held by Ms.
         Styres within 60 days of February 28, 2002, of which 287,023 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.
    (11) At February 28, 2002, 22,750 shares held by Mr. Finocchio were unvested
         and subject to a right of repurchase in our favor, which right lapses
         over time. Includes 16,500 shares issuable upon exercise of options
         held by Mr. Finocchio within 60 days of February 28, 2002, of which
         6,875 would be subject to a right of repurchase in our favor, which
         right lapses over time.
    (12) 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.
         Includes 20,500 shares issuable upon exercise of options held by Mr.
         Greene within 60 days of February 28, 2002, of which 8,542 would be




                                       62
<PAGE>

         subject to a right of repurchase in our favor, which right lapses over
         time.
    (13) 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 February 28, 2002, 22,750
         shares held by the trust were unvested and subject to a right of
         repurchase in our favor, which right lapses over time. Includes 16,500
         shares issuable upon exercise of options held by Mr. McFarlane within
         60 days of February 28, 2002, of which 6,875 would be subject to a
         right of repurchase in our favor, which right lapses over time.
    (14) 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.
         Includes 16,500 shares issuable upon exercise of options held by Mr.
         Siegelman within 60 days of February 28, 2002, of which 6,875 would be
         subject to a right of repurchase in our favor, which right lapses over
         time.
    (15) Includes 258,223 shares which were unvested at February 28, 2002 and
         subject to a right of repurchase in our favor, which right lapses over
         time. Includes 2,366,516 shares issuable upon exercise of options
         within 60 days of February 28, 2002, of which 1,819,275 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.

EMPLOYEE LOANS

     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.

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

     On January 25, 2001, Mr. Guercio borrowed $150,000 from Resonate by signing
a full recourse five-year promissory note secured by 91,400 shares of our common
stock owned by Mr. Guercio. The note bears interest at a rate of 6.25% per
annum.


STOCK REPURCHASES

     In November 2001, our Board of Directors authorized a stock repurchase
program. The program allows us to purchase up to $4 million of our common stock
in the open market from time to time. As of December 31, 2001, we purchased
700,000 shares at a weighted average purchase price of $2.25 per share.




                                       63
<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 66 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), is filed on page 32 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, as amended on January 24, 2002.

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, as
       amended on January 24, 2002.

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.

10.8   Channel License Agreement with BEA Systems.

21.1** Subsidiaries of the Registrant.

23.1   Consent of Independent Accountants.

24.1   Power of Attorney (See Page 67)

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.
**   Incorporated by reference to the registrant's annual report on Form 10-K
     filed with the Securities and Exchange Commission on March 27, 2001.



                                       64
<PAGE>

 (b)     REPORTS ON FORM 8-K

     None.

 (c)     EXHIBITS

See (a)(3) above.

 (d)     FINANCIAL STATEMENT SCHEDULE

See (a)(2) above.





                                       65
<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, 1999                $    (21)        $  (79)        $    --      $  (100)

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

Year ended December 31, 2001                    (400)          (396)            396         (400)


SALES RETURNS RESERVE:

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

Year ended December 31, 2000                      --           (103)             53          (50)

Year ended December 31, 2001                     (50)            --              --          (50)

</TABLE>



                                       66
<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 27th day of March 2002.

                                    RESONATE  INC.

                                    By:  /s/ PETER R. WATKINS
                                         -------------------------
                                         Peter R. Watkins
                                         Chairman of the Board, 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            Chairman of the Board,
--------------------            President and Chief
Peter R. Watkins                Executive Officer and
                                 (Principal Executive Officer)   March 27, 2002


/s/ ROBERT C. HAUSMANN          Chief Financial Officer
----------------------          (Principal Financial and
Robert C. Hausmann               Accounting Officer)             March 27, 2002


/s/ CHRISTOPHER C. MARINO       Founder, Corporate
-------------------------       Vice President and Director      March 27, 2002
Christopher C. Marino


/s/ I. ROBERT GREENE            Director                         March 27, 2002
--------------------
I. Robert Greene


/s/ ROBERT J. FINOCCHIO, JR.    Director                         March 27, 2002
----------------------------
Robert J. Finocchio, Jr.


/s/ RUSSELL SIEGELMAN           Director                         March 27, 2002
---------------------
Russell Siegelman


/s/ JOHN S. MCFARLANE           Director                         March 27, 2002
---------------------
John S. McFarlane




                                       67

<PAGE>

                                 EXHIBIT INDEX


EXHIBIT         DESCRIPTION
-------         -----------

3.1*   Restated Certificate of Incorporation of the Registrant.

3.2    Bylaws of the Registrant, as amended on January 24, 2002.

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, as
       amended on January 24, 2002.

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.

10.8   Channel License Agreement with BEA Systems.

21.1** Subsidiaries of the Registrant.

23.1   Consent of Independent Accountants.

24.1   Power of Attorney (See Page 67)

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.
**   Incorporated by reference to the registrant's annual report on Form 10-K
     filed with the Securities and Exchange Commission on March 27, 2001.